Strategic Management:

Concept & cases

Chapter 1:

What Is Strategy and

Why Is It Important?

11

Learning Objectives
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 companys strategy tends to evolve over
time because of changing circumstances and ongoing
management efforts to improve the companys strategy.

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

business model that outlines the companys customer value
proposition and its profit formula.
5. Learn the three tests of a winning strategy.

WHAT DO WE MEAN BY STRATEGY ?

What is our present situation?
Evaluate business environment and industry conditions

Current firms financial and competitive capabilities

(strength & weakness)

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

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 firms financial and market

performance.

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.
15

1-5

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 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.

Identifying a Companys StrategyWhat 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, Pfizers Lipitor

Sustainable Competitive Advantage (SCA)

Giving buyers lasting reasons to prefer a firms products

or services over those of its competitors.

STRATEGIC APPROACH CHOICES

Building Competitive Advantage

Low-cost
provider
A cost based competitive
Advantage over rivals
Eg. Walmart, Southwest
Airlines

Differentiation
on features
Higher quality
Wider product selection
Added performance
Value added services
More attractive styling
Technological superiority
Eg. Apple, Rolex,
Johnson & Johnson

Focus on
market niche

Better job than rivals of

serving special needs
and tastes of buyers in
the niche.
Eg. eBay (online auction)
McAfee (virus protection)

Best-cost
provider
Match features and
performance of higherpriced rival brands.
Eg. Target

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).

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 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

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.

1.2

A Companys Strategy Is a Blend of Proactive Initiatives

and Reactive Adjustments

THE RELATIONSHIP BETWEEN A FIRMS

STRATEGY AND ITS BUSINESS MODEL

Realized
Strategy

$$$?

Business
Model

Competitive
Initiatives

Value
Proposition

Business
Approaches

Profit Formula

BUSINESS MODELS:
PUTTING STRATEGY INTO ACTION
How is the firm going to make money to
continue operations?

Whats happening now between Microsoft &

Google?
Business models in opposite directions

1-17

Competing Business Models: Google vs. Microsoft

Microsoft

Operating
Systems

Software
Apps

Online
Search
Google

1-18

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 Googles revenues is from advertising. Is this

a problem? Should they change any strategies?
1-19

Strategy Across the Levels

Where to Compete?
Should GE move more

CORPORATE
STRATEGY

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

BUSINESS
STRATEGY

FUNCTIONAL
STRATEGY

resources recruit more

science graduates?
1-20

Strategy Formulation and Implementation Across Levels:

Corporate, Business, and Functional Strategy

1-21

IS OUR STRATEGY A WINNER?

The Strategic
Fit Test

The Competitive
Advantage Test

Winning
Strategy

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 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?

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

1-25

EXHIBIT 1.5

Accelerating Speed of Technological Change

1-26

STRATEGY IN THE 21ST CENTURY

Accelerating Technological Change
Why are we seeing this increased rate of change?

What are the strategic implications here?

Toko Bunga Surabaya

1-27

STRATEGY IN THE 21ST CENTURY

A Truly Global World
BRIC countries have 40% of earths population
IBM has less than 30% of employees in the U.S.
Bottom of the pyramid business opportunities

Jual Karangan Bunga

Thomas Friedman-Flat World

1-28

EXHIBIT 1.6 Geographic Sources of IBM Revenues, 2010

Jual Rangkaian Bunga Surabaya

Is IBM still a U.S. company ?

1-29

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

1-30