CHAPTER 1
Strategy and the
Quest for
Competitive
Advantage
McGraw-Hill/Irwin
Copyright ©2010 The McGraw-Hill Companies, All Rights Reserved.
Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
 Current situational analysis
2. Where do we want to go?
 Business(es) to be in and
market positions to stake out
 Buyer needs and groups to serve
 Direction to head
3. How are we going to get there?
 A company’s answer to “how will
we get there?” is its strategy
1-2
What Do We Mean By “Strategy?”
 Consists of competitive moves and
business approaches used by
managers to run the company
 Management’s “action plan” to
 Attract and please customers
 Compete successfully
 Conduct operations
 Achieve target levels of
organizational performance
1-3
Answering the Question, “How Are
We Going to Get There?”
 How to please customers
 How to outcompete rivals
 How to manage each
functional piece of the
business (R&D, production,
marketing, HR, finance,
and so on)
 How to respond to changing market conditions
 How to achieve targeted levels of performance
1-4
Elements of a Company’s Business
Strategy
1-5
McDonald’s Strategy
 Key initiatives of McDonald’s
“Plan to Win” Strategy
 Improved restaurant operations
 Affordable pricing
 Wide menu variety and beverage choices
 Convenience and expansion of dining
opportunities
 Ongoing restaurant reinvestment
1-6
Strategy and Sustainable
Competitive Advantage
 A company achieves sustainable
competitive advantage when a
sufficiently large
number of buyers
develop a lasting
preference for its
products/services over
those offered by rivals
1-7
Four Proven Strategic Approaches to
Winning a Sustainable Competitive
Advantage
 Developing a cost-based advantage
 Creating a differentiation-based
advantage
 Focusing on a narrow market niche
 Developing competitively valuable
resources and capabilities rivals can’t
easily match, copy, or
trump with substitute
resources
1-8
Competitive Strategy Examples
 Strive to be the industry’s low-cost provider
 Wal-Mart - distribution capabilities
 Southwest Airlines – no frills service
 Outcompete with a key differentiating feature
 Harley-Davidson – Outlaw image and
distinctive engine sound
 Rolex – Top-of-the-line prestige
 Amazon.com – Wide selection and
convenience
1-9
Competitive Strategy Examples
 Focus on a narrow market niche
 Best Buy– Home electronics
 eBay – Online auctions
 The Weather Channel – Cable TV
 Develop competitively important resources or
capabilities not easily imitated by rivals
 Fed Ex– Superior distribution capabilities
 Ritz-Carlton – Personalized customer
service
1-10
Why Do Strategies Evolve?
 A company’s strategy is a work in progress
 Changes may be necessary to react to
 Shifting market conditions
 Changing competitor moves
 Evolving customer preferences
 Emerging market opportunities
 New ideas to improve strategy
 Crisis situations
1-11
A Company’s Strategy Is a Blend of
Planned Initiatives and Unplanned
Reactive Adjustments
1-12
The Importance of a Company’s
Business Model
A business model is management’s
blueprint for delivering value to
customers and earning an attractive
profit
Is the strategy capable of
delivering profits?
How will business provide
customers with value and generate
revenues sufficient to cover costs
and produce profits?
What resources are needed to
deliver value to customers?
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Elements of a Business Model
 Specifies a customer value proposition (its
approach to satisfying buyer wants and needs
at a price customers will consider a good value)
 Develops a profit formula (determining a cost
structure that will allow for acceptable profits
given the pricing tied to its customer value
proposition)
 Identifies key resources and processes
necessary to create value and deliver value to
customers
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Tests of a Winning Strategy
 GOODNESS OF FIT TEST
 How well does strategy fit
the firm’s situation?
 COMPETITIVE ADVANTAGE TEST
 Does strategy lead to
sustainable competitive
advantage?
 PERFORMANCE TEST
 Does strategy boost firm
performance?
1-15