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Chapter 1WHAT IS STRATEGY AND WHY IS IT IMPORTANT?
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1. Understand why every company needs a sound strategy tocompete successfully, manage the conduct of its business, andstrengthen its prospects for long-term success.
2. Develop an awareness of the four most dependable strategicapproaches for setting a company apart from rivals and
winning a sustainable competitive advantage.
3. Understand that a companys strategy tends to evolve overtime because of changing circumstances and ongoingmanagement efforts to improve the companys strategy.
4. Learn why it is important for a company to have a viablebusiness model that outlines the companys customer valueproposition and its profit formula.
5. Learn the three tests of a winning strategy.
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WHAT DO WE MEAN BY STRATEGY?
What is our present situation?
Business environment and industry conditions
Firms financial and competitive capabilities
Where do we want to go from here?
Creating a vision for the firms future direction
How are we going to get there?
Crafting an action plan that will get us there
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WHAT IS STRATEGYABOUT?
Strategy is all about How:
How to outcompete rivals.
How to respond to economic and marketconditions and growth opportunities.
How to manage functional pieces of the
business.
How to improve the firms financial and
market performance.
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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.
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STRATEGYAND COMPETITORS
Strategy is about competing differently
from rivals
Doing what they dont do or doing it better!
Doing what they cant do!
Doing that which sets the firm apart and
attracts customers.
Doing what we should or should not do to
produce a competitive edge.
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1.1 Identifying a Companys StrategyWhat to Look For
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Which of McDonalds Plan-to-Win strategy
initiatives are associated with meeting
customer needs more effectively?
Which initiatives are focused on moreefficientlydelivering products and services?
Which initiatives will likely result in the most
enduring competitive advantage?
Which of the initiatives will competitors likelyattempt to overcome first?
Fol low-up
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The Quest for Competitive Advantage
Competitive Advantage
Meeting customer needs more effectively,
with products or services that customers
value more highly, or more efficiently, atlower cost.
Sustainable Competitive Advantage
Giving buyers lasting reasons to prefer afirms products or services over those of its
competitors.
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STRATEGIC APPROACH CHOICES
Low-costprovider
Differentiationon features
Focus onmarket niche
Best-costprovider
Building Competitive Advantage
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STRATEGIC APPROACHES
Building a competitive advantage by:
1. Striving to become the industrys low-cost
provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche markets
needs (efficiency and\or effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).
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GAINING SUSTAINABLE COMPETITIVEADVANTAGE
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 incrafting your strategy.
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Why a Firms 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
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The Evolving Nature of a Firms 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.
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1.2 A Companys Strategy Is a Blend of Proactive Initiativesand Reactive Adjustments
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THE RELATIONSHIP BETWEEN AFIRMS STRATEGY AND ITS
BUSINESS MODEL
Realized
StrategyCompetitiveInitiatives
BusinessApproaches
Business
ModelValue
Proposition
Profit Formula
$$$?
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A Companys Business Model
How the business will make money :
By providing customers with value.
The firms customer value proposition
By generating revenues sufficient to cover
costs and produce attractive profits.
The firms profit formula
It takes a proven business modelone thatyields appealing profitabilityto demonstrate
viability of a firms strategy.
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Business Model Elements
The Customer Value Proposition
Satisfying buyer wants and needs at a price
customers will consider a good value.
The greater the value provided (V) and
the lower the price (P), the more
attractive the value proposition is to
customers.
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Business Model Elements (contd)
The Profit Formula
Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition. Vthe value provided to customers
Pthe price charged to customers
Cthe firms costs
The lower the costs (C) for a given customer
value proposition (VP), the greater the ability
of the business model to be a moneymaker.
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IS OUR STRATEGY A WINNER?
WinningStrategy
The StrategicFit Test
The CompetitiveAdvantage Test
The PerformanceTest
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WHAT MAKES A STRATEGYA WINNER?
A winning strategy must pass three tests:
The Fit Test
Does it exhibit dynamic fit with the external and
internal aspects of the firms 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 firms profitability, financial and
competitive strengths, and market standing?
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Who listens to the radio anymore?
Given the shifts in how people listen to music, are
the business models of Sirius XM and over-the-air
broadcasters viable over the long term?
Does Sirus XMs strategy pass the three tests of a
winning strategy? Does the strategy of over-the-air
broadcasters pass the same tests?
What internal and external factors will create
difficulties for either competitor in changing its
strategy or business model?
Fol low-up
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WHY CRAFTING AND EXECUTINGSTRATEGY ARE IMPORTANT TASKS
Strategy provides:
A prescription for doing business.
A road map to competitive advantage.A game plan for pleasing customers.
A formula for attaining long-term standout
marketplace performance.
Good Strategy + Good Strategy Execution =
Good Management
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THINKING STRATEGICALLY
Googles web browser-based Chrome operating
system and its online applications suite are now
challenging Microsofts long-term dominance of
those marketplace sectors. What should be Microsofts first response to this
competitive challenge?
How will Microsofts response to this competitors
actions affect its business model?
Which competitors strategy will likely be the eventual
winner in the marketplace?
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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!