7/28/2019 MGT790_1

1/15

CHAPTER 1

WHAT IS STRATEGY ANDWHY IS IT IMPORTANT?

Student Version

7/28/2019 MGT790_1

2/15

12Copyright 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 planthat will get us there

7/28/2019 MGT790_1

3/15

13Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

Howto improve the firms financial andmarket performance.

7/28/2019 MGT790_1

4/15

14Copyright 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.

7/28/2019 MGT790_1

5/15

15Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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 orshould not do to

produce a competitive edge.

7/28/2019 MGT790_1

6/15

16Copyright 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, ormore efficiently, atlower cost.

Sustainable Competitive Advantage

Giving buyers lasting reasons to prefer afirms products or services over those of its

competitors.

7/28/2019 MGT790_1

7/1517Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGIC APPROACH CHOICES

Low-costprovider

Differentiationon features

Focus onmarket niche

Best-costprovider

Building Competitive Advantage

7/28/2019 MGT790_1

8/1518Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

7/28/2019 MGT790_1

9/1519Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7/28/2019 MGT790_1

10/15110Copyright 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.

7/28/2019 MGT790_1

11/15111Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

THE RELATIONSHIP BETWEEN AFIRMS STRATEGY AND ITS

BUSINESS MODEL

Realized

Strategy

CompetitiveInitiatives

BusinessApproaches

Business

Model

ValueProposition

Profit Formula

$$$?

7/28/2019 MGT790_1

12/15112Copyright 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.

7/28/2019 MGT790_1

13/15113Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

IS OUR STRATEGY A WINNER?

WinningStrategy

The StrategicFit Test

The CompetitiveAdvantage Test

The PerformanceTest

7/28/2019 MGT790_1

14/15114Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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

7/28/2019 MGT790_1

15/15115Copyright 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!