Chapter One

What is Strategy and Why is it Important?

Why do we need strategy?

The reasons why firms succeed and fail is perhaps the central question in strategy

Answers the fundamental question of the firmWhere we are now?Where we going?How are we going to get there?

Strategic Management Defined

• decisions and actions that determine long-term performance

• formulation and implementation of plans designed to achieve objectives

• an action managers take to achieve one or more of an organization’s goals

• unifying theme that gives coherence and direction to organizational/individual decisions

• game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance

• management’s action plan for running the business and conducting operations; commitment to pursue a particular set of actions in growing the business, attracting customers, competing successfully, conducting operations, and improving financial and market performance

What is Strategy?

Strategy is not doing similar activities better than your rivals – that’s operational effectiveness• continual improvement not a

sustainable advantage• industry-wide cost reductions do not

lead to increased profitability

What is Strategy?

1) Strategy is performing different activities or performing similar activities in a different way

As suggested by the book: 4 of the most dependable approaches are 1) low cost, 2) differentiating features, 3) fulfilling specialized needs, and 4) build unassailable set of capabilities.

What is Strategy?

1) Strategy is performing different activities or performing similar activities in a different way

Strategy is about positioninga) Variety-based positioning

• offering a unique choice of goods/services – b) Needs-based positioning

• serving most/all of a particular group of customers’ needs -

c) Access-based positioning• serving a set of customers that require unique

access –

What is Strategy?

2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do• without tradeoffs, all firms would imitate

Tradeoffs arise from• inconsistent image/reputation• different activities, products, equipment,

employees, skills, systems, machines• priorities, internal coordination, and

control

What is Strategy?

3) Strategy is about combining activities as advantages come from fit and reinforcing

What is Strategy?

3) Strategy is about combining activities as advantages come from fit and reinforcing

Operational effectiveness is about excellence in individual activities

Fit/integration increases sustainability by reducing imitability

What is Strategy?

4) The desire to grow is most threatening to an effective strategy • Blurs uniqueness• Creates compromises• Reduces fit• Erodes original advantages

Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive

Emergent strategy elements

What do Good Strategies Have in Common?

Chapter Two

Managerial Process of Crafting and Executing

Strategy

Fig. 2.1: The Strategy-Making, Strategy-Executing Process

Developing a Strategic Vision

A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic

course in preparing for the future.

A strategic vision exists only as words and has no organizational impact unless and until it wins the commitment of company personnel and energizes them to

act in ways that move the company along the intended strategic path!

Elements of a Strategic Vision

• Delineates management’s aspirations for the business

• Provides a panoramic view of “where we are going” by charting a strategic path

• Is distinctive and specific• Avoids use of generic, dull & boring language

that could apply to most any company

• Captures employees’ emotions steers them in a common direction

• Is challenging and a bit beyond a company’s immediate reach

Strategic Vision vs. Mission

• A strategic vision concerns “wherewe are going” • Markets to be

pursued• Future product/

market/customer/ technology focus

• Kind of company management is trying to create

• The mission statement focuses on its “who we are and what we do”• Current product and

service offerings• Customer needs

being served• Technological

and businesscapabilities

Mission Statements

• Boundaries of the current business• Fundamental purpose that sets it

apart from other firms of its type• Conveys

• Who we are,• What we do, and• Why we are here

A well-conceived mission statement distinguishes a company’s business makeup from that of other profit-seeking enterprises in language specific enough to give the company its own identify!

Objectives

• Turns mission into performance outcomes• Organizations produce what is measured• Long and Short term• Strategic Intents• All levels of the organization• Top-down, not Bottom-up

Types of Objectives Required

Outcomes focused

on improving

financial performance

Outcomes focused on improving

competitive vitality and future business

position

Financial Objectives Strategic Objectives

$

6 Characteristics of a Good Objective

• • • • • • •

Importance of Stretch Objectives

There’s no better way to avoid ho-hum results thanby setting stretch objectives and using compensation

incentives to motivate organization members toachieve the stretch performance targets!

BHAG = Big Hairy Audacious Goals!

• Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later

• However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead

• Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance

Unless a company sets and achieves stretch strategic objectives, it is not developing the

competitive muscle to deliver even better financial results in the years ahead!

Leading versus Lagging Indicators

• A balanced scorecard for measuringcompany performance is optimal; it entails• Setting financial and strategic objectives• Placing balanced emphasis on achieving

both types of objectives

Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market position.

The surest path to sustained future profitability year afteryear is to relentlessly pursue strategic outcomes

that strengthen a company’s business position andgive it a growing competitive advantage over rivals!

One Balanced Scorecard

A Second Balanced Scorecard

Comprehensive view of the firm from the customer, internal, financial and innovation/learning perspectives• 1) How do customers see us?

• Time, quality, service & performance, costs

• 2) What must we excel at?• 3) How do we look to shareholders?• 4) Can we continue to improve and

create value?

A Third Balanced Scorecard

• Triple Bottom-line• Economic, social and environmental

performance

Levels of Strategic Management

HP’s Business Strategy

Enterprise Storage & Servers

HP Services

Software Personal Systems

Imagining and Printing

Financial Services

So….how can firm’s be profitable?

1) Choose an attractive industry in which to compete -

2) Attain a competitive advantage within an industry -

Two Models of Profitability

I/O Model (Industrial/Organizational Economics Model)

Resource Based View of the Firm

I/O Model

General EnvironmentIndustry EnvironmentCompetitive Environment

Strategy&

Performance

3 Assumptions1) 2) 3)

General EnvironmentIndustry EnvironmentCompetitive Environment

Resource Based View

The Firm’s Resources &Capabilities

Strategy&

Performance

3 assumptions1) 2) 3)