What is strategy

WHAT IS STRATEGY

Manoj Patel Asst. Professor

JHUNJHUNWALA BUSINESS SCHOOL

What Is Strategy?

• Distinguishing strategy from tactics:

• Strategy is the overall plan for deploying resources

to establish a favorable position.

• Tactic is a scheme for a specific maneuver.

• Characteristics of strategic decisions:

• Important.

• Involve a significant commitment of resources.

• Not easily reversible.

Successful

Strategy

Long-term,

simple and

agreed

objectives

Profound

understanding of

the competitive

environment

Objective

appraisal of

resources

Common Elements in Successful Strategy

EFFECTIVE IMPLEMENTATION

Sources of Superior Profitability

RATE OF PROFIT

ABOVE THE

COMPETITIVE

LEVEL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Which industries

should we be in?

COMPETITIVE

ADVANTAGE

How should we

compete?

CORPORATE

STRATEGY

BUSINESS

STRATEGY

Resources As the Basis for Superior

Profitability

Rate of Profit

in Excess of the

Competitive Level

Industry

Attractiveness

Competitive

Advantage

Differentiation

Advantage

Cost

Advantage

Vertical Power

Monopoly

Barriers to Entry

Brands

Product technology

Marketing

capabilities

Process technology

Plant size

Low-cost inputs

Firm size

Financial resources

Market share

Patents

Brands

Retaliatory

capability

The Value Chain:

The Mckinsey Business System

TECHNOLOGY PRODUCT DESIGN MANUFACTURING MARKETING DISTRIBUTION SERVICE

The Porter Value Chain

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

PRIMARY ACTIVITIES

SUPPORT

ACTIVITIES

The Rent-earning Potential

of Resources and Capabilities

Scarcity

Relevance

Durability

Mobility

Replicability

Property rights

Relative bargaining

power

Embeddedness of

resources

THE EXTENT OF THE

COMPETITIVE ADVANTAGE

ESTABLISHED

SUSTAINABILITY OF THE

COMPETITIVE

ADVANTAGE

APPROPRIABILITY

THE PROFIT

EARNING POTENTIAL

OF A RESOURCE OR

CAPABILITY

The Framework for Analyzing

Resources and Capabilities

5. Identify resource gaps that need

to be filled.

4. Select a strategy

3. Appraise the rent-earning

potential of resources/

capabilities

2. Identify capabilities

1. Identify the firm’s resources.

Appraise strengths and

weaknesses

STRATEGY

CAPABILITIES

RESOURCES

POTENTIAL FOR

SUSTAINABLE

COMPETITIVE

ADVANTAGE

SWOT Analysis• Acronym derived from Strengths, Weaknesses,

Opportunities, and Threats.

– Used for analyzing industry environments and

firms’ internal strengths and weaknesses.

• Performed in a 2-step process:

– Managers thoroughly evaluate their firm’s internal

strengths and weaknesses and its environmental

(external) opportunities and threats.

– Managers use the evaluation developed in the first

step to place the firm in one of the quadrants of the

SWOT matrix shown in Exhibit 5.

Exhibit 5: SWOT Analysis

Overcome

Weakness Grow

Diversify Restructure

Numerous Environmental

Opportunities

Major Environmental

Threats

Substantial

Internal

Strengths

Critical

Internal

Weaknesses

SWOT Analysis (Cont.)

• Advantages of SWOT analysis

• Easy to use.

• Can be helpful framework for getting managers to think

constructively about their firms’ external environments and internal

strengths and weaknesses.

• Drawbacks of SWOT analysis

• Subjective.

• Biased by managers’ perceptions of their firms’ strengths and

weaknesses

SWOT Analysis (Cont.)

• For example, managers of strong firms will likely view environmental

phenomena as opportunities, while their counterparts in weak

companies will likely view them as threats.

• The use of SWOT analysis is likely to yield few clear-cut

recommendations.

The Emergence of Competitive

Advantage

How does competitive

advantage emerge?

External sources of

change e.g.:

•Changing customer demand

•Changing prices

•Technological change

Internal sources

of change

Resource heterogeneity

among firms means

differential impact

Some firms faster

and more effective

in exploiting change

Some firms

have greater creative

and innovative

capability

Sustaining Competitive Advantage Against

Imitation

REQUIREMENTS FOR IMITATION ISOLATING MECHANISMS

Identification - Obscure superior performance

- Deterrence--signal aggressive

Incentives for imitation intentions to imitators

- Pre-emption--exploit all available

investment opportunities

- Rely upon multiple sources of

Diagnosis competitive advantage to create

“causal ambiguity”

- Base competitive advantage upon

Resource acquisition resources and capabilities that are

immobile and difficult to replicate

Sources of Competitive Advantage

COST

ADVANTAGE

DIFFERENTIATION

ADVANTAGE

COMPETITIVE

ADVANTAGE