TOPIC 1
WHAT IS STRATEGY?
Dr. Bahl
Where is
Strategy?
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Operational Effectiveness (OE)
■ Performing similar activities better than rivals.
■ What does it entail?
– Efficiency, productivity, and process improvements.
■ Understanding productivity frontier
■ Benchmarks
■ Cost improvements
■ Expanding the frontier
■ Why is not sufficient?
■ Benchmarks that push productivity Frontiers
■ competitive convergence May lead to mutually destructive competition.
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Elements of a Robust Competitive Strategy
■ Unique Value Proposition: Offering something distinct that is valuable to
customers.
– Unique Activities
■ Strategic Positioning: Creating a niche or differentiating factor that competitors
cannot easily replicate.
– Variety (of products and services) based positioning.
– Need based positioning (successful only if accompanied by different activities.
– Access based positioning.
■ “Variety or access differences often accompany needs differences”
■ Consistency: Aligning company activities to reinforce the strategic position.
“Strategy Rests on Unique Activities”
From Strategy to Sustainable Advantage – Trade-offs
■ Trade-Offs
–
–
Making deliberate choices about which markets to serve and which to avoid.
“Occur when activities are incompatible” (more of one means less of the other)
■ Help protect market position from imitation:
– Competitors repositioning to mimic successful firms.
– Straddlers.
■ Why do trade-offs arise ?
–
–
–
How does a firm create value?
What activities does a firm perform?
How much are firms able to control and coordinate?
– "The essence of strategy is choosing what not to do”.
From Strategy to Sustainable Advantage – Strategic Fit
■
Strategic Fit: Ensure all activities and processes support the chosen strategy.
– strategy involves combining activities.
■ Firm is a “whole system of activities, not a collection of parts. Its competitive advantage comes
from the way its activities fit and reinforce one another”.
■ Competitive advantage is sustained by locking out imitators.
■ Types of Fit
■ First order fit is simple consistency between each activity (function) and the overall strategy.
■ Second-order fit is reinforcement amongst activities.
■ Third order fit is optimization of effort. E.g. product design, supplier involvement etc.
■ “Positions built on systems of activities are far more sustainable than those built on individual
activities.”
■ Focus on long term goals and maintaining a competitive edge rather than short term
operational improvements.
Rediscovering Strategy
■ Failure to Choose
■ Avoid Growth Traps
■ Profitable Growth
■ Role of Leadership
Managers need to be ambidextrous.
– Focus on long term effectiveness:
■ Expand product market scope by proactively exploring new opportunities.
– At the same time Focus on short- term efficiency.
■ Align resources to take advantage of existing product markets.
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Defining Strategic Management
Strategic management
An integrative management field.
Combines analysis, formulation, and
implementation in the quest for competitive
advantage.
Strategy
Goal-directed actions to gain and
sustain superior performance
relative to competitors.
Mastery of strategic management enables you
to:
• View a firm in its entirety.
• Think like a general manager.
• Position your organization for superior performance.
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Realized Strategy and Intended Strategy: Usually Not the Same
Intended Strategy
• Organizational decisions
are determined only by
analysis.
• Intended strategies rarely
survive in the original
form.
■
Source: Adapted from Mintzberg, H.,
and Waters, J. A. 1985. Of
strategies: Deliberate and emergent.
Strategic Management Journal, 6:
257–272.
Realized Strategy
Decisions are determined by
both analysis (deliberate) and
unforeseen environmental
developments, unanticipated
resource constraints, and/or
changes in managerial
preferences (emergent).
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Definitions
■ Competitive Advantage: Superior performance relative to other competitors
in the same industry or the industry average.
■ Sustainable Competitive Advantage: A firm that is able to outperform its
competitors or the industry average over a prolonged period.
■ Competitive Disadvantage: a firm that underperforms Its rivals (performance
below The industry average)
■ Competitive Parity: two or more firms that perform at the same level.
Stakeholders
Organizations, groups, and individuals:
• Can affect or can be affected by a firm’s actions.
• Have a vested claim or interest in the performance or survival of the
firm.
Internal stakeholders: Stockholders, employees (including
executives, managers, and workers), and board members.
External stakeholders: Customers suppliers, alliance partners,
creditors, unions, communities, media, and governments.
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Stakeholder Impact Analysis
Exhibit 1.2
■
Access the text alternative for slide
images.
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Summary
1. How should we compete in order to create a competitive advantage in the
marketplace?
2. How can we create sustainable competitive advantages in the marketplace that are
unique, valuable, and difficult for rivals to copy or substitute?
3. Operational effectiveness is not enough to sustain a competitive advantage.
4. Strategic positioning is at the heart of strategy.
5. Trade-offs and strategic fit essential for sustaining competitive advantage.
6. Continuous adaptation and rediscovering can potentially save firms.
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