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Chapter 1:

What Is Strategy and Why Is It Important?

Strategic Management: Concept & cases

1. Understand why every company needs a sound strategy to

compete successfully, manage the conduct of its business, and

strengthen its prospects for long-term success.

2. Develop an awareness of the four most dependable strategic

approaches for setting a company apart from rivals and

winning a sustainable competitive advantage.

3. Understand that a company’s strategy tends to evolve over

time because of changing circumstances and ongoing

management efforts to improve the company’s strategy.

4. Learn why it is important for a company to have a viable

business model that outlines the company’s customer value

proposition and its profit formula.

5. Learn the three tests of a winning strategy.

Learning Objectives

WHAT DO WE MEAN BY STRATEGY ?

• What is our present situation?

Evaluate business environment and industry conditions

Current firm‟s financial and competitive capabilities

(strength & weakness)

• Where do we want to go from here?

Creating a vision for the firm‟s future direction

• How are we going to get there?

Crafting an action plan that will get us there

WHAT IS STRATEGY ABOUT?

• Strategy is goal-directed actions to gain and

sustain competitive advantage

• Strategy is all about How:

How to outcompete rivals.

How to respond to economic and market

conditions and growth opportunities.

How to manage functional pieces of the business.

How to improve the firm‟s financial and market

performance.

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What Is Strategy?

Definition: Strategy is the quest to gain and sustain

competitive advantage.

• It is the managers‟ theories about how to gain and

sustain competitive advantage.

• It is about being different from your rivals.

• It is about creating value while containing cost.

• It is about deciding what to do, and what not to do.

• It combines a set of activities to stake out a unique

position.

• It requires long-term commitments that are often not

easily reversible.

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WHY DO STRATEGY ?

• A firm does strategy:

To improve its financial performance.

To strengthen its competitive position.

To gain a sustainable competitive. advantage over

its market rivals.

• A creative, distinctive strategy:

Can yield above-average profits.

Makes competition difficult for rivals.

STRATEGY AND COMPETITORS

♦Strategy is about competing differently from

rivals—

● Doing what they don‟t do or doing it better!

● Doing what they can‟t do!

● Doing that which sets the firm apart and attracts

customers.

● Doing what we should or should not do to produce a

competitive edge.

Identifying a Company’s Strategy—What to Look For

The Quest for Competitive Advantage

• Competitive Advantage

Superior performance relative to competitors

Meeting customer needs more effectively, with products

or services that customers value more highly, or more

efficiently, at lower cost.

Examples: Google, Duke Basketball, Pfizer‟s Lipitor

• Sustainable Competitive Advantage (SCA)

Giving buyers lasting reasons to prefer a firm‟s products

or services over those of its competitors.

STRATEGIC APPROACH CHOICES

Low-cost

provider

Differentiation

on features Focus on

market niche

Best-cost

provider

Building Competitive Advantage

• Higher quality

• Wider product selection

• Added performance

• Value added services

• More attractive styling

• Technological superiority

Eg. Apple, Rolex,

Johnson & Johnson

Better job than rivals of

serving special needs

and tastes of buyers in

the niche.

Eg. eBay (online auction)

McAfee (virus protection)

A cost based competitive

Advantage over rivals

Eg. Walmart, Southwest

Airlines

Match features and

performance of higher-

priced rival brands.

Eg. Target

STRATEGIC APPROACHES

• Building a competitive advantage by:

1. Striving to become the industry‟s low-cost provider

(efficiency).

2. Outcompeting rivals on differentiating features

(effectiveness).

3. Focusing on better serving a niche market‟s needs

(efficiency and\or effectiveness).

4. Offering the lowest (best) prices for differentiated

goods (best-cost provider).

GAINING SUSTAINABLE COMPETITIVE ADVANTAGE

• How to create a sustainable competitive

advantage:

Develop valuable expertise and competitive

capabilities over the long-term that rivals cannot

readily copy, match or best.

Put the constant quest for sustainable competitive

advantage at center stage in crafting your strategy.

Why a Firm’s Strategy Evolves over Time

♦Managers modify strategy

in response to:

● Changing market conditions

● Advancing technology

● Fresh moves of competitors

● Shifting buyer needs

● Emerging market opportunities

● New ideas for improving the strategy

The Evolving Nature of a Firm’s Strategy

• Realized (current) strategy is a blend of:

Proactive (deliberate) strategy elements that include

both continued and new initiatives.

Reactive (emergent) strategy elements that are

required due to unanticipated competitive

developments and fresh market conditions.

1.2 A Company’s Strategy Is a Blend of Proactive Initiatives

and Reactive Adjustments

THE RELATIONSHIP BETWEEN A FIRM’S STRATEGY AND ITS BUSINESS MODEL

Realized

Strategy

Competitive

Initiatives

Business

Approaches

Business

Model

Value

Proposition

Profit Formula

$$$?

BUSINESS MODELS:

• PUTTING STRATEGY INTO ACTION

• How is the firm going to make money to

continue operations?

• What‟s happening now between Microsoft &

Google?

Business models in opposite directions

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Competing Business Models: Google vs. Microsoft

Microsoft

Google

Software

Apps

Online

Search

Operating

Systems

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Small Group Exercise

Given the different business models of

Google & Microsoft

- Microsoft revenues in 2009 were $58.4 B

- (down 3% from „08)

- Google revenues in 2009 were $23.6 B

- (up 9% from „08)

• 1) Is Microsoft in trouble or is this sales downturn just a

result of the recession? Should they change any

strategies?

• 2) 97% of Google‟s revenues is from advertising. Is this

a problem? Should they change any strategies?

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Strategy Across the Levels

• Where to Compete?

Should GE move more

aggressively into the

health care industry?

• How to Compete?

Should GE jet engines

have better fuel efficiency

than Rolls Royce?

• How to Implement?

Should GE human

resources recruit more

science graduates?

• CORPORATE

STRATEGY

• BUSINESS

STRATEGY

• FUNCTIONAL

STRATEGY

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Strategy Formulation and Implementation Across Levels:

Corporate, Business, and Functional Strategy

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IS OUR STRATEGY A WINNER?

Winning

Strategy

The Strategic

Fit Test

The Competitive

Advantage Test

The Performance

Test

WHAT MAKES A STRATEGY A WINNER?

• A winning strategy must pass three tests:

The Fit Test

Does it exhibit dynamic fit with the external and

internal aspects of the firm‟s overall situation?

The Competitive Advantage Test

Can it help the firm achieve a significant and

sustainable competitive advantage?

The Performance Test

Can it produce good performance as measured by

the firm‟s profitability, financial and competitive

strengths, and market standing?

THE ROAD AHEAD

• Strategy is about asking the right questions:

What must managers do, and do well, to make a firm a

winner in the marketplace?

• Strategy requires getting the right answers:

Good strategic thinking and good management of the

strategy-making, strategy-executing process.

First-rate capabilities and skills in crafting and

executing strategy are essential to managing

successfully.

Welcome and best wishes for your success!

STRATEGY IN THE 21ST CENTURY

• Accelerating Technological Change

84 years for half of U.S. families to own a car

28 years for half to own a TV

6 years for an MP3 player

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EXHIBIT 1.5 Accelerating Speed of Technological Change

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STRATEGY IN THE 21ST CENTURY

• Accelerating Technological Change

Why are we seeing this increased rate of change?

What are the strategic implications here?

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Toko Bunga Surabaya

STRATEGY IN THE 21ST CENTURY

• A Truly Global World

BRIC countries have 40% of earth‟s population

IBM has less than 30% of employees in the U.S.

“Bottom of the pyramid” business opportunities

Thomas Friedman-Flat World

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Jual Karangan Bunga

EXHIBIT 1.6 Geographic Sources of IBM Revenues, 2010

Is IBM still a ―U.S. company‖ ?

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Jual Rangkaian Bunga Surabaya

STRATEGY IN THE 21ST CENTURY

• Future Industries

HEALTH CARE

In the U.S., over 16% of GDP and still growing

GREEN ECONOMY

Potentially large growth in energy efficiency and technologies

WEB 2.0

Interactivity and using collective intelligence on the Internet

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