Lecture 1:

What is strategy and what role do

stakeholders play?
 What Strategy Is and is Not

We will increase production line efficiency by 50%.”

 Operational effectiveness, competitive benchmarking, or other tactical tools
 These are actions to describe how you achieve or support competitive
strategy. It is not an actual strategy.

“We will be the best in our industry.”

 Grandiose statements or Statements of desire

“We plan to pursue a low-cost strategy by implementing

various six-sigma procedures that will all ow us to sell our
product cheaper than our competitors”
 This is an actual strategy. It tells you what the strategy is (low-cost) and how
the company will achieve the strategy (six-sigma)
 Strategy Defined

Strategic Management: an integrative

management field that combines analysis,
formulation, and implementation in the pursuit
of a sustainable competitive advantage
**Purpose of Strategic Management is to get a
sustainable competitive advantage**
**The competitive advantage should also be sustainable**
Competitive Advantage Example

Example: Twitter
 Competitive challenge: grow its user base
• Become more valuable for online advertisers
• Facebook allows advertisers to target their online ads precisely based
on demographic data
 Competitive Advantage Example

Example: Twitter
 Rather than formulating a guiding policy to grow active core users, Twitter
defined its user base more broadly.
• Defined users into 3 types to compare with Facebook
+ Common users
+ Famous users
+ Users who don’t have a Twitter account can still look at the news that they are
looking for, on Facebook you have to log in to view everything
• User types were hard to track and less valuable to advertisers.
+ Users on Facebook express more about their demographic (Pages, posts they
like, etc.) and they also need to log in to view everything so Facebook can track
these information and target the ads, Twitter don’t make users log in (in many
cases) and keep track like FB so their ads are not as effective.
Competitive Advantage Example

Example: Twitter
 Different user definitions confused management and limited
guidance for employees.
 Consequences of the unclear mission:
• Frustration among managers and engineers
• Turnover of key personnel
 Internal turmoil resulted, including management demotions
and promotions of CEO friends.
 Competitive Advantage Example

In digital advertising: Google

 Google has a competitive advantage over Facebook, Twitter,
and Yahoo
• Why does Google have a CA in digital advertising over these
companies?

In smartphones: Apple
 Apple has achieved a competitive advantage over Samsung,
Microsoft, and BlackBerry
• Why does Apple have a CA in smartphones over these companies?
 Competitive Advantage Example

Stake out a unique position within an industry.

 Walmart vs. Target
 Apple vs. Microsoft
 Nintendo vs. Sony vs. Microsoft

Managers must make conscious trade-offs.

Competitive advantage comes from:
 performing different activities or
 performing the same activities differently than rivals
 Competitive Advantage Example

Threadless: an online design community and apparel store

Let consumers “work for them”
 Community members vote on which t-shirt designs they like best.
Leverages the wisdom of the crowdsHas a cult-like following
Has a cult-like following
At Threadless, the customers play a critical role across the entire
value chain.
 From idea generation to design, marketing, sales forecasting, and
distribution
All of this means that crowdsourcing led to their competitive
advantage.
 Environmental Effects (Lecture 3) Vs. Firm Effects (Lecture 4)
In Determining Firm Performance

Firm effects: firm performance is attributed to managerial

actions.
 Internal resources that make the firm unique – employees, culture,
reputation, finances, etc.
Environmental effects: describe the underlying economic
structure of the external elements that affect the firm.
 Includes everything external of the firm – industries or other macro-
environmental elements (e.g., politics, sociocultural, macroeconomics,
technology, natural environment, legal environment)
 Industries have a number of elements that can affect firm performance. For
example…
• Entry and exit barriers
• Number and size of companies
• Types of products and services offered
 Different elements of strategy

Corporate Strategy
 Industry, markets, and geography (Lecture 8)
 Where will we compete? Which industry will we compete?
Which market will we compete? Etc.
Business Strategy
 Cost leadership, differentiation, or integration (Lecture 6)
 How will we compete?

Functional Strategy
 how to implement a chosen corporate and business strategy
 Stakeholders and Competitive Advantage

Stakeholders:
• Organizations, groups, and individuals
• They can affect or are affected by a firm’s actions.
Have a vested claim or interest in the performance and continued
survival of the firm
 Internal stakeholders:
• Stockholders/Shareholders, employees (including executives, managers, and workers),
and board members
 External stakeholders: Any type of group or individual outside of the company that
has some sort of stake in the company or what the company does. So it could be a
vested interest or claim in how well the company does (its performance), and it can
also be a group that cares about what the company does but not how well it does.
• Customers, suppliers, alliance partners, creditors, unions, communities, media,
environmental organizations, governments at various levels, etc.
• Example: you are a tuna company, by catching tuna, you have to kill dolphins in the
procress. Then you will have environmental organizations or animal right organizations
look after you. These organizations don’t care how well your company perform, they only
care about what your company does is against any right or not.
Shareholders are always stakeholders in a
corporation, but stakeholders are not always
shareholders. A shareholder owns part of a
public company through shares of stock, while a
stakeholder has an interest in the performance of
a company for reasons other than stock
performance or appreciation.
Stakeholders and Competitive Advantage
 Stakeholders and Competitive Advantage

Managing stakeholders in order to gain and

sustain competitive advantage
 Who are your stakeholders?
 Who are your most important stakeholders?
 How do you please your most important stakeholders?
Who are your company’s stakeholders? Are they
managing them well?
 Stakeholders and Competitive Advantage

A decision tool to recognize, prioritize, and

address stakeholder needs.
Managers must note three stakeholder attributes:
 Power
 Legitimacy
 Urgency

Which stakeholders of your companies have

power legitimacy, urgency? How and why?
Stakeholder Impact Analysis

When answering these questions, keep in mind

stakeholder power, legitimacy, and urgency.
 Lecture 1 Study Guide

Name the competitive advantage Threadless had over other clothing stores? Explain why it was a competitive advantage.

Is performing different activities the only way for a company to be unique in its industry?
 
What is a good example of a business strategy? What is and isn’t a strategy?
 
Do different stakeholders have different objectives? How do companies manage such conflicts? Answer in terms of “trade-offs”.
 
Do firms have legal obligations to all stakeholders? Which stakeholders?
 
Two companies own and run movie theaters. One costs $2 per movie, only shows movies several weeks after release, screens and sound are low quality, and it’s dirty. The other is
costs $10, shows brand new movies, great quality screens and sound and is very clean. Think about their strategic positioning. Are they direct competitors? Remember – even if
companies are in the same general industry, it does not mean they’re direct competitors if they compete along different dimensions (e.g., different price, quality, etc.). For example,
McDonalds and Red Robin both serve hamburgers, but they’re not really direct competitors.
 
Coke was one of the first to sell soda. Other sodas entered the market with their own version of Cola. Coke responded by concentrating on the soda flavors that customers liked while
keeping their prices low. Did Coke maintain a sustainable competitive advantage?
 
My company’s strategy creates value that other competitors currently cannot copy, but they will be able to copy it in the near future. Is this a competitive advantage? Is it sustainable?
 
Give examples of external stakeholders.
 
Give examples of internal stakeholders.
 
What are the three stakeholder attributes and what do they mean?
 
Describe stakeholder impact analysis. What is its purpose?
 
Which of the following summarizes the difference between corporate strategy and business strategy?