What is STRATEGY

and Why is it importance?

“Strategy means making clear-cut
choices about how to compete.”

Jack Welch
Former CEO
General Electric
“Without a strategy the organization
is like a ship without a rudder.”

Joel Ross and

Michael Kami
“If your firm’s strategy can be
applied to any other firm, you
don’t have a very good one.”

David J. Collis and

Michael G. Rukstad
 Chapter 1 Roadmap
 What Do We Mean by “Strategy”?
 Strategy and the Quest for Competitive Advantage
 Identifying a Firm’s Strategy
 Why a Firm’s Strategy Evolves Over Time
 A Firm’s Strategy Is Partly Proactive and Partly Reactive
 Strategy and Ethics: Passing the Test of Moral Scrutiny
 The Relationship of a Firm’s Strategy to Its Business
Model
 What Makes a Strategy a Winner
 Why Crafting and Executing Strategy Are Important Tasks

Copyright © 2018 by Glo-Bus Software, Inc. 1–5

 What Do We Mean by “Strategy”

A company’s strategy is defined by the specific market

positioning, competitive moves, and business approaches
that form management’s answer to “What’s our plan for
running the company and producing good results?”

When company managers craft and embrace a strategy, they are

committing to undertake one set of actions rather than another in
endeavoring to make the company successful in the marketplace
and achieve good business performance.
 •
Core Concept
A firm’s strategy consists of the competitive moves
and business approaches that managers employ:-
• to attract and please customers,
• compete successfully,
• capitalize on opportunities to grow the business,
• respond to changing market conditions,
• conduct operations, and
• achieve the targeted financial and market
performance.
A strategy represents managerial commitment to undertake one
set of actions rather than another.
 Three Strategic Questions
All Firms Must Answer

What direction to How to run the firm

What is the firm’s head and what in ways that produce
present situation? performance targets good results?
to set?

• Industry conditions • New buyer needs to satisfy • Strategy for competing

• Competitive pressures
• Market standing
vis-à-vis rivals
• Competitive strengths and
weaknesses
• Growth opportunities to
pursue
• Markets to deemphasize or
abandon
• How to measure success
successfully
• How to attract customers
• Deciding what market
position to stake out
• Actions to achieve
performance targets
 The Hows That Define a Firm’s Strategy

How to respond to
How to attract, please,
changing economic
and retain customers
and market conditions
A coherent
combination
of actions and How to manage the
How to compete
against rivals
approaches functional pieces
about how to of the business
run the
company
How to capitalize on How to achieve the firm’s
growth opportunities performance targets
 Choosing the Strategy

• In arriving at choices among all the “hows” and combining

them into a coherent strategy for the company to pursue,
management is saying:,

► “Among all the many different ways of competing we could

have chosen, we have decided to employ this combination
of competitive and operating approaches to move the firm
in the intended direction, strengthen its market position and
competitiveness, and boost performance.”
 Thinking Strategically
• There is no one roadmap or prescription
for running a firm in a successful manner.
Many different avenues exist for
competing successfully, staking out a
market position, and operating the
different pieces of a business.
– A creative, distinctive strategy that sets a firm
apart from rivals and delivers superior value
to customers is its most reliable ticket for
winning a competitive advantage over rivals.
 The Key to Crafting a “Good” Strategy
• Crafting a good strategy entails deliberately
choosing to compete differently from rivals
by:
– Appealing to buyers in ways that set a firm
apart from rivals and that deliver superior value
to buyers which requires
• Doing what rivals don’t do or can’t do
• Staking out a market position that is not crowded
with other strong competitors
The Importance of Competing Differently

• Successful strategies contain distinctive

“aha” elements that
– Attract buyer attention with appealing product
attributes unlike those of rivals
– Deliver a perception of superior value that
converts buyers into loyal customers
– Gives the company added competitive power in
the marketplace
Copycat strategies rarely work!!!
 Why Bother with Crafting a Strategy?

• A clear, specific, and deliberate action plan:

– Avoids ineffective strategic actions and
decisions while strengthening the firm’s
competitive position
– Wins a competitive edge over rivals
– Improves the firm’s financial performance
• A creative, distinctive strategy:
– Helps a firm stand out from its rivals
– Attracts buyers despite competitors’ efforts
– Is a reliable pathway to above average
Why Competitive Advantage Matters

• A firm earns much higher profits with a competitive

advantage than without an advantage.

 A firm with no advantage risks being outcompeted by stronger

rivals and achieving only mediocre financial performance.

The quest for a competitive edge must rank

center stage in a crafting a strategy!
Strategy and the Quest for Sustainable
Competitive Advantage
• A strategy that produces a sustainable
long-term competitive advantage is most
desirable.
• A short-lived nondurable strategy is soon
offset or overcome by competitors.
• A strategy must include elements that
cannot quickly or inexpensively be copied
or overcome by rivals.
 Strategic Approaches to Building
Sustainable Competitive Advantage
• Become the low-cost provider by achieving
a cost-based competitive advantages over
rivals
• Offer differentiating features that set the
firm’s products apart from rivals
• Offer customers more value for the money
• Focus on better serving the unique needs
and tastes of buyers in a niche market
• Develop expertise, resources, and
capabilities that are competitively valuable
 Core Concepts
• A firm achieves competitive advantage
when an attractive number of buyers are
drawn to purchase its products or services
rather than those of competitors.
• It achieves sustainable competitive
advantage when the basis for buyer
preferences for its product offering relative
to the offerings of its rivals is durable,
despite competitors’ efforts to nullify or
overcome the appeal of its offerings.
Figure 1.1 Identifying a Company’s Strategy—What to Look For
 Why a Company’s Strategy
Evolves over Time
• It is advisable, if not necessary, for a firm to
modify its strategy in response to:
– Changing market conditions
– Advancing technology
– Fresh moves of competitors
– Shifting buyer needs and preferences
– Emerging market opportunities
– New ideas for improving the strategy
– Evidence that the current strategy is not
working well
 Core Concept
• Changing circumstances and ongoing
management efforts to improve the
strategy cause a company’s strategy to
evolve over time—a condition that makes
the task of crafting a strategy a work in
progress, not a one-time event.
 A Firm’s Strategy Is Partly Proactive
and Partly Reactive
• A firm’s current strategy is typically a blend of:
– Deliberate and proactive management actions
to secure a competitive edge and improve the
firm’s financial performance
• Many of the current proactive strategy elements have
usually been previously initiated and are working well
enough to be continued, with the remainder being
freshly crafted or entirely new
– Strategic reactions to unforeseen developments and
fresh market conditions—emerge on an as-needed
basis
The latest version of a firm’s strategy reflects the disappearance
of obsolete or ineffective strategy elements and the current
Figure 1.2 A Company’s Strategy Is a Blend of Proactive Initiatives
and Reactive Adjustments
 Strategy, Ethics, and Moral Scrutiny
• A strategy is ethical only if it can pass the test of
moral scrutiny.
• To pass the test of moral scrutiny and qualify
as ethical, a company’s actions and behaviors
cannot cross the line from “should do” to
“should not do”
– A company’s strategy definitely crosses into the
should not do zone and cannot pass moral
scrutiny if it entails actions and behaviors that are
deceitful, unfair or harmful to others, disreputable,
or unreasonably damaging to the environment.
 Core Concept
• A strategy cannot be considered ethical
just because it involves actions that are
legal. To meet the standard of being
ethical, a strategy must entail actions that
can pass moral scrutiny in the sense of not
being morally objectionable, deceitful,
unfair or harmful to others, disreputable, or
unreasonably damaging to the
environment.
Strategy—Distinguishing Between What Is
Legal and What Is Ethical
• A legal strategic action or business
approach does not mean it is ethical or
morally acceptable.
• Ethical standards are about
– “Right” versus “wrong”, “moral” versus”
immoral”
– Not crossing the line from “should do” to
“should not do”
– “Within the bounds of acceptability” versus
“outside the bounds
What business of acceptability”
behaviors can you identify that are
– Many strategic
legal but notactions
ethical orfall
morally
in aacceptable?
gray zone and
The Relationship Between a Firm’s
Strategy And Its Business Model

A Firm’s A Firm’s Business

Strategy Model

Concerns whether the

Deals with the
revenues and costs
firm’s competitive
flowing from the strategy
initiatives and business
demonstrate the firm can
approaches
be profitable and viable
 Core Concept
• A firm’s business model sets forth how its
strategy and operating approaches will
create value for customers while also
generating ample revenues to cover costs
and realize a profit.
• Absent the ability to earn good profits, a
firm’s strategy and operating blueprint are
flawed, its business model is not viable,
and its ability to survive is in jeopardy.
 The Two Crucial Elements of
a Firm’s Business Model
• Its Customer Value Proposition
– How the firm will satisfy customer needs and requirements at a price
customers will consider to be a good value.
– From a customer perspective, the greater the value delivered and the lower
the price, the more attractive the firm’s value proposition is to customers.
– From a company perspective, however, the greater the value delivered
and the higher the price that can be charged, the bigger the margin for
covering the costs associated with its business approach and realizing an
attractive profit and return on investment
• Its Profit Proposition (or “Profit Formula”)
– How the firm intends to generate a revenue stream that covers the costs of
delivering attractive value to customers.
– How it will control the costs of the value being delivered.
– How the proposition will yield attractive profits for shareholders.
– The lower a firm’s costs are in relation to revenues, the greater its profit
potential and the more attractive its profit proposition.
 Testing a Firm’s Profit Proposition

• Can the firm can create and deliver the

intended customer value in a cost-efficient
manner?
• Can a profitable price be charged for the
value it provides to customers?
– Revenues generated are a function of the
volume of customers attracted at the price
being charged
– The costs of the firm’s business model
approach depend on the resources and
business processes utilized and the cost
 Proven vs. Unproven Business
Models
• Companies that have been in business for a while and are making at
least reasonably attractive profits have a “proven” business model—
because there is hard revenue-cost evidence that their strategies
and approaches to operating can yield good profits.
• Start-up firms and unprofitable firms have “questionable” or
“unproven” business models because their strategies and operating
approaches have yet to produce good bottom-line results, thus
raising doubts about their blueprint for making money and their
viability as business enterprises
• Companies that operate in uncertain, volatile market environments
often have business models that quickly lose their effectiveness; for
such companies to survive, they have to be adept at spotting the
signs of impending crisis early and then swiftly reinvent their
business model and strategy
 The Business Model of Network TV
and Radio Broadcasters
• The Customer Value Proposition
– Provide audiences with free and appealing
programming content.
• The Profit Proposition
– Charge advertising fees to program sponsors
based on an audience size that exceed the full
costs of providing program content.
Gillette’s Business Model in Razor Blades
• The Customer Value Proposition
– To provide a close comfortable shave using a
razor (a one-time purchase) and razor blades
(repeat purchases).
• The Profit Proposition
– To sell a “master product”—the razor—at an
attractively low price and then make money on
repeat purchases of inexpensively-produced
razor blades priced to yield high profit margins.
– Printer manufacturers pursue much the same
business model—selling printers at low-to-
breakeven prices to capture large profit margins
 The Business Model of
Newspapers and Magazines
• The Customer Value Proposition
– Delivering valuable or interesting information
and entertainment to a diversity readers.
• The Profit Proposition
– Securing sufficient revenues from advertising
fees and reader subscriptions to more than
cover the costs of producing and delivering
their products to readers.
Is this business model in danger
of becoming obsolete and failing?
 What Makes a Strategy a Winner?

• Testing a strategy’s merits versus another

to distinguish a winning strategy from a
flawed or weak strategy requires asking:
1. How well does the strategy fit the company’s
situation?
2. Is the strategy helping the company achieve a
sustainable competitive advantage?
3. Is the strategy producing good company
performance?
The Three Tests of a Winning Strategy

The Goodness The Competitive The Performance

of Fit Test Advantage Test Test
Is the strategy Is the strategy Is the strategy
well-matched to helping the producing
the company’s company achieve a good company
internal and sustainable performance?
external situation? competitive
advantage?

To qualify as
a winning strategy,
a strategy must pass
all three tests
 Core Concept
• A winning strategy must be well-suited to
the firm’s external and internal situation,
help build a sustainable competitive
advantage, and improve company
performance.
 Why Crafting and Executing Strategy
Are Important Tasks
• There is a compelling need for managers to proactively shape how the
company’s business will be conducted.
– A clear and reasoned strategy is management’s prescription for doing
business, its road map to competitive advantage, and its game plan for
pleasing customers and improving financial performance.

– High-performing enterprises are nearly always the product of astute,

creative, and proactive strategy-making. Companies don’t get to the top of
the industry rankings or stay there with flawed strategies, copycat
strategies, or with strategies built around timid actions to try and do better
• Even the best-conceived strategies will result in performance shortfalls
if they are not executed proficiently. Good day-in/day-out strategy
execution and operating excellence are essential for a company to
perform close to its full potential.
– Flawed and/or inept implementation and execution of a company’s strategy
are a surefire recipe for underachievement, both financially and in
competing against rivals.
 Good Strategy + Good Strategy Execution =
Good Management
• The better conceived and more competently a firm’s
strategy is executed, the more likely that the firm will be a
standout performer financially in the marketplace.
• In contrast, a company that has a muddled or flawed
strategy and/or can’t seem to execute its strategy
competently is most likely an underperformer and in need
of better management.
– Weak implementation and execution undermine a strategy’s
potential and pave the way for shortfalls in customer satisfaction
and company performance.
 Core Concept

• How well a firm performs and the degree

of market success it achieves are directly
attributable to the caliber of its strategy
and the proficiency with which the strategy
is executed.

• Good strategy and good strategy

execution are the most telling and
trustworthy signs of good
 The Road Ahead
• Every business student and aspiring
manager needs to know the answer to the
following question:
– What must managers do, and do well, to give a
firm its best chance to be attractively profitable
and successful in the marketplace?
– The answer will become the biggest lesson of
this course—doing a good job of managing
requires good strategic thinking, good
strategy-making, and good strategy
execution.
Welcome and best wishes for your
 The Road Ahead (continued)
• The coming chapters explore strategic
thinking, core concepts and tools of
strategic analysis, and processes of crafting
and executing strategy.
• In the strategy simulation exercise you will
manage a firm in competition with firms
managed by classmates, and have an
excellent learn-by-doing opportunity to:
– Apply what you have read about in the
chapters.
– Gain experience in crafting and executing
 What You Can Expect to Learn
• Lesson 1:
– First-rate capabilities in successfully crafting
and executing strategy are basic skills every
manager must possess.
• Lesson 2:
– Managers don’t deserve applause for coming
up with a weak strategy that results in weak (or
worse) financial performance and a weak (or
worse) industry standing.
 “Commerce is a game of skill
which many people play, but
which few play well.”
Ralph Waldo Emerson,
poet and essayist

If the understanding you gain from the chapters, the

experience of running your simulation company, and other
course-related assignments help you to become a savvy
competitor and better equip you to succeed in business,
then your time and energy spent in this course will prove
worthwhile.
 Strategic Management Model
Environmental Evaluation &
Strategy Formulation Strategy Implementation
Scanning Control
Gathering Monitoring
Developing Long Range Plans Putting Strategy in Action
information Performance

External
Societal
Environment
General Forces

Task
Environment
Industry Analysis

Internal

Structure
Chain of command

Culture
Beliefs, Expectations,
Values

Resources
Assets, Skills,
Competences,
Knowledge
 Strategic Management Model
Environmental Evaluation &
Strategy Formulation Strategy Implementation
Scanning Control
Gathering Monitoring
Developing Long Range Plans Putting Strategy in Action
information Performance

External Mission
Societal Reason
for Objectives
Environment existence
General Forces What results
to accomplish Strategies
Task by when
Environment Plan to achieve
Industry Analysis the mission & Policies
objectives
Broad
Internal guidelines for Programs
decision making
Structure Activities
Chain of command needed to Budgets
accomplish a
Culture plan Cost of the
Beliefs, Expectations, programs Procedures
Values
Sequence of
Resources steps needed
Performance
Assets, Skills, to do the job
Competences, Process to monitor
Knowledge performance and take
corrective action
1-48