Ch 1 Strategic Management
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CHAPTER 1
WHAT IS STRATEGY AND
WHY IS IT IMPORTANT?
12 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
13 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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
14 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
WHAT IS STRATEGY ABOUT?
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.
15 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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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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.
17 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
1.1 Identifying a Companys StrategyWhat to Look For
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Key initiatives of the Plan-to-Win strategy:
Improved restaurant operations
Affordable pricing
Wide menu variety and beverage choices
Convenience and expansion of dining opportunities
Ongoing restaurant reinvestment and international expansion
19 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Which of McDonalds Plan-to-Win strategy initiatives are associated with meeting
customer needs more effectively?
Which initiatives are focused on more efficiently delivering products and services?
Which initiatives will likely result in the most enduring competitive advantage?
Which of the initiatives will competitors likely attempt to overcome first?
Follow-up
110 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
The Quest for Competitive Advantage
Competitive Advantage
Meeting customer needs more effectively,
with products or services that customers
value more highly, or more efficiently, at
lower cost.
Sustainable Competitive Advantage
Giving buyers lasting reasons to prefer a
firms products or services over those of its competitors.
111 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC APPROACH CHOICES
Low-cost
provider
Differentiation
on features
Focus on
market niche Best-cost
provider
Building Competitive Advantage
112 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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).
113 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Strategic Positioning
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Strategic Positioning
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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.
116 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Competitive Advantage
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Competitive Advantage
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The Value Chain as a Framework for Competitive Advantage
119 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Decomposed the value chain : Be better than competitor
120 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Value added revenue total cost = margin
Value added process add value through cooperation with supplier, customer, and distributor
Value chain system The relationship between the value chain activities of the organization and its suppliers, distributors and consumers
The value network
Value Chain Analysis
Organization Value Chain
Supplier
Value chain
Channel
Value chain
Customer
Value chain
Up
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eam
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Do
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COMPETITIVE ADVANTAGE
121 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Value Chain
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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
123 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
124 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
1.2 A Companys Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments
125 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
THE RELATIONSHIP BETWEEN A FIRMS STRATEGY AND ITS BUSINESS MODEL
Realized
Strategy
Competitive
Initiatives
Business
Approaches
Business
Model
Value
Proposition
Profit Formula
$$$?
126 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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 that yields appealing profitabilityto demonstrate
viability of a firms strategy.
127 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
128 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
129 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
IS OUR STRATEGY A WINNER?
Winning
Strategy
The Strategic
Fit Test
The Competitive
Advantage Test
The Performance
Test
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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?
131 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
WHY CRAFTING AND EXECUTING STRATEGY 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
132 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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?
133 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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!
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