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CHAPTER 1

WHAT IS STRATEGY AND WHY IS IT IMPORTANT?

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.

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

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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 Creating a vision for the firms future direction

Where do we want to go from here?

How are we going to get there?

Crafting an action plan that will get us there


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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.

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

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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. Can yield above-average profits.

A creative, distinctive strategy:

Makes competition difficult for rivals.


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

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.

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

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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

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Follow-up

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?

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

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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, at lower cost.

Sustainable Competitive Advantage

Giving buyers lasting reasons to prefer a firms products or services over those of its competitors.
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STRATEGIC APPROACH CHOICES

Building Competitive Advantage

Low-cost provider

Differentiation on features

Focus on market niche

Best-cost provider

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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).
Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 112

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.

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

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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.

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

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1.2

A Companys Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments

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THE RELATIONSHIP BETWEEN A FIRMS STRATEGY AND ITS BUSINESS MODEL

Realized Strategy
Competitive Initiatives

$$$?

Business Model
Value Proposition

Business Approaches

Profit Formula

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

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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.
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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.

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

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

IS OUR STRATEGY A WINNER?

The Strategic Fit Test

The Competitive Advantage Test

Winning Strategy

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?
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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


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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?
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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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