Strategicmgmt1_what is Strategy

8/13/2019 Strategicmgmt1_what is 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 actionsthat will get us there


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WHAT IS STRATEGYABOUT?

Strategy is all about How:

Howto outcompete rivals.

Howto respond to economic and marketconditions and growth opportunities.

Howto manage functional pieces of the

business.

Howto improve the firms financial andmarket 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 shouldor should notdo to

produce a competitive edge.


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1.1 Identifying a Companys StrategyWhat to Look For


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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 reasonsto 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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Example: 3M

Elements of Buckleys turnaround

Set clear business goals for the company

Wanted 3M to develop lower-costproducts to compete in emerging markets

Became an outspoken champion for 3M

labs

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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

Howthe 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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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

Strategicmgmt1_what is Strategy

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