TOPIC 1
INTRODUCTION TO STRATEGY
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CORE CONCEPT
A company’s strategy is its action
plan for outperforming its competitors
and achieving superior profitability
“In business, strategy is king. Leadership and hard work are all
very well and luck is mighty useful, but it is strategy that makes or
breaks a firm.” (the Economist, 2012)
ExxonMobil, IBM, Southwest Airlines, FedEx, Google, Apple, Coca-Cola,
Procter & Gamble, McDonald’s, and Berkshire Hathaway; Russia’s
Gazprom (in energy), Korea’s Samsung (in electronics), Singapore
Airlines, Sweden’s IKEA (in home furnishings), Mexico’s America Movil (in
telecommunications), and Japan’s Toyota Motor.
VIETNAM CORPs? 1-3
WHAT DO WE MEAN BY STRATEGY?
u What is our present situation?
● Business environment and industry conditions
● Firm’s financial and competitive capabilities
u Where do we want to go from here?
● Creating a vision for the firm’s future direction
u How are we going to get there?
● Crafting an action plan for heading the firm in the
intended direction, staking out a market position,
attracting customers, achieving the targeted financial
and market performance, and getting the firm
where it wants to go is its strategy.
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WHAT IS STRATEGY ABOUT?
u Strategy is all about How:
● How to attract and please customers.
● How to compete against rivals.
● How to position the firm in the marketplace.
● How best to respond to changing economic
and market conditions.
● How to capitalize on attractive opportunities
to grow the business.
● How to achieve the firm’s performance targets.
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STRATEGIC MANAGEMENT PRINCIPLE
♦ Strategy is about competing differently from
rivals—doing what competitors don’t do or,
even better, doing what they can’t do!
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WHY BOTHER WITH STRATEGY?
uA firm needs a strategy to specify what
actions are going to be taken:
● To improve its financial performance.
● To strengthen its competitive position.
● To gain a sustainable competitive advantage
over its market rivals.
u A creative, distinctive strategy:
● Helps produce above-average profits.
● Increases competitive pressures on rivals.
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STRATEGY AND COMPETITORS
u Strategy is about competing differently
from rivals—
● Doing what they don’t do or doing it better!
● Doing what they can’t do!
●Doing things in ways that attract customers
and set a firm apart from its rivals.
● Doing things in a manner calculated to
produce a competitive edge over rivals.
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FIGURE 1.1 Identifying a Company’s Strategy-What to Look For
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ILLUSTRATION CAPSULE 1.1
McDonald’s Strategy in
the Quick-Service Restaurant Industry
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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ILLUSTRATION CAPSULE 1.1
McDonald’s Strategy in
the Quick-Service Restaurant Industry
• Which of McDonald’s 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
sustainable competitive advantage?
• Which of the initiatives will competitors likely
attempt to overcome first?
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STRATEGY AND THE QUEST FOR
COMPETITIVE ADVANTAGE
u Competitive Advantage
● Require meeting customer needs either more
effectively (with products or services that customers
value more highly) or more efficiently (by providing
products or services at lower cost).
u Sustainable Competitive Advantage
● Requires giving buyers lasting reasons to prefer a
firm’s products or services over those of its competitors.
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STRATEGIC APPROACH CHOICES
Building Competitive Advantage
Low-cost Differentiation Focus on Best-cost
provider on features market niche provider
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STRATEGIC APPROACHES
u Building a competitive advantage by:
● Striving to become the industry’s low-cost provider
(efficiency).
● Outcompeting rivals on differentiating features
(effectiveness).
●Offering the lowest (best) prices for differentiated
goods (best-cost provider).
● Focusing on better serving a niche market’s needs
(efficiency and\or effectiveness).
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CORE CONCEPT
♦ A firm achieves a competitive advantage
when it provides buyers with superior value
compared to rival sellers or offers the same
value at a lower cost to the firm.
♦ The firm achieves a sustainable competitive
advantage if its advantage persists despite the
best efforts of competitors to match or surpass
its advantage.
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GAINING SUSTAINABLE
COMPETITIVE ADVANTAGE
uHow 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.
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WHY A COMPANY’S STRATEGY
EVOLVES OVER TIME
u 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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STRATEGIC MANAGEMENT PRINCIPLE
♦ Changing circumstances and ongoing
management efforts to improve the strategy
cause a company’s strategy to evolve over
time—a condition that makes the task of
crafting strategy a work in progress, not a
one-time event.
♦ A company’s strategy is shaped partly by
management analysis and choice and partly
by the necessity of adapting and learning by
doing.
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THE EVOLVING NATURE
OF A FIRM’S STRATEGY
u 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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CORE CONCEPT
♦ A company’s deliberate strategy consists of
proactive strategy elements that are both
planned and realized as planned; its emergent
strategy consists of reactive strategy elements
that emerge as changing conditions warrant.
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FIGURE 1.2 A Company’s Strategy Is a Blend of Proactive Initiatives
and Reactive Adjustments
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THE RELATIONSHIP BETWEEN
A FIRM’S STRATEGY AND
ITS BUSINESS MODEL
Realized Business
Strategy $$$? Model
Competitive Value
Initiatives Proposition
Business
Profit Formula
Approaches
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A COMPANY’S STRATEGY
AND ITS BUSINESS MODEL
u How the business will make money :
● By providing customers with value.
The firm’s customer value proposition
v
● By generating revenues sufficient to cover
costs and produce attractive profits.
v The firm’s profit formula
It takes a proven business model—one that
yields appealing profitability—to demonstrate
viability of a firm’s strategy.
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CORE CONCEPT
♦ A company’s business model sets forth the
logic for how its strategy will create value for
customers, while at the same time generate
revenues sufficient to cover costs and realize
a profit.
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BUSINESS MODEL ELEMENTS
u The Customer Value Proposition
●Satisfying buyer wants and needs at a price
customers will consider a good value.
v 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 (CONT’D)
u The Profit Formula
● Creating a cost structure that allows for
acceptable profits, given that pricing is tied
to the customer value proposition.
v V—the value provided to customers
v P—the price charged to customers
v C—the firm’s costs
●The lower the costs (C) for a given customer
value proposition (V-P), the greater the ability
of the business model to be a moneymaker.
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IS OUR STRATEGY A WINNER?
The Strategic
Fit Test
The Competitive Winning The Performance
Advantage Test Strategy Test
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WHAT MAKES A STRATEGY A WINNER?
u A winning strategy must pass three tests:
● The Fit Test
v Does it exhibit dynamic fit with the external and
internal aspects of the firm’s overall situation?
● The Competitive Advantage Test
v Can it help the firm achieve a significant and
sustainable competitive advantage?
● The Performance Test
v Can it produce good performance as measured by
the firm’s profitability, financial and competitive
strengths, and market standing?
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WHY CRAFTING AND EXECUTING
STRATEGY ARE IMPORTANT TASKS
u 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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STRATEGIC MANAGEMENT PRINCIPLE
♦ How well a company performs is directly
attributable to the caliber of its strategy and the
proficiency with which the strategy is executed.
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THE ROAD AHEAD
u Strategy is about asking the right questions:
● What must managers do, and do well, to make
a firm a winner in the marketplace?
u 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.
u Welcome and best wishes for your success!
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KEY POINTS
1. A company’s strategy is its game plan to attract and please customers,
outperform
its competitors, and achieve superior profitability.
2. The central thrust of a company’s strategy is undertaking moves to build and
strengthen the company’s long-term competitive position and financial performance
by competing differently from rivals and gaining a sustainable competitive
advantage over them.
3. A company achieves a competitive advantage when it provides buyers with
superior value compared to rival sellers or offers the same value at a lower cost to
the firm. The advantage is sustainable if it persists despite the best efforts of
competitors to match or surpass this advantage.
4. A company’s strategy typically evolves over time, emerging from a blend of (1)
proactive deliberate actions on the part of company managers to improve the
strategy and (2) reactive emergent responses to unanticipated developments and
fresh market conditions.
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KEY POINTS
5. A company’s business model sets forth the logic for how its strategy will create
value for customers and at the same time generate revenues sufficient to cover
costs and realize a profit. Thus, it contains two crucial elements: (1) thecustomer
value proposition —a plan for satisfying customer wants and needs at a price
customers will consider good value, and (2) theprofit formula —a plan for a cost
structure that will enable the company to deliver the customer value proposition
profitably. These elements are illustrated by the Value-Price-Cost Framework.
6. A winning strategy will pass three tests: (1)Fit (external, internal, and dynamic
consistency), (2)Competitive Advantage (durable competitive advantage), and (3)
Performance (outstanding financial and market performance).
7. Crafting and executing strategy are core management functions. How well a
company performs and the degree of market success it enjoys are directly
attributable to the caliber of its strategy and the proficiency with which the strategy is
executed.
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REVIEWS
1. What is our company’s current situation?
A substantive answer to this question should cover the following issues:
• Is your company in a good, average, or weak competitive position vis-à-vis
rival companies?
• Does your company appear to be in a sound financial condition?
• Does it appear to have a competitive advantage, and is it likely to be
sustainable?
• What problems does your company have that need to be addressed?
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REVIEWS
2. Where do we want to take the company during the time we
are in charge? should say something about each of the following:
• What goals or aspirations do you have for your company?
• What do you want the company to be known for?
• What market share would you like your company to have after the
first five decision rounds?
• By what amount or percentage would you like to increase total
profits of the company by the end of the final decision round?
• What kinds of performance outcomes will signal that you and your
co-managers are managing the company in a successful manner?
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REVIEWS
3 . How are we going to get there?
• Which of the basic strategic and competitive approaches discussed
in this chapter do you think makes the most sense to pursue?
• What kind of competitive advantage over rivals will you try to
achieve?
• How would you describe the company’s business model?
• What kind of actions will support these objectives?
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