CHAPTER 1 What Is Strategy and Why Is It Important? Instructor: Dr.Gehan Shanmuganathan McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Part 1 Strategy Analysis 1-2 LO 1-1 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity. LO 1-2 Define strategy and explain its role in a firm’s quest for competitive advantage. LO 1-3 Explain the role of firm effects and industry effects in determining firm performance. LO 1-4 Describe the role of corporate, business, and functional managers in strategy formulation and implementation. LO 1-5 Outline how business models put strategy into action. LO 1-6 Describe and assess the opportunities and challenges managers face in the 21st century. LO 1-7 Critically evaluate the role that different stakeholders play in the firm’s quest for competitive advantage. 1-3 ChapterCase 1 The Premature Death of a Google Forerunner at Microsoft • Google founded in 1998 Two graduate students at Stanford PageRank algorithm a clear improvement Today, it is world’s leading online search/advertising firm • Microsoft bought LinkExchange in 1998 Keywords product for search engines was shut down • Microsoft considered buying Overture Services in 2003 Gates and Ballmer passed on the deal Yahoo buys Overture for its own search product • Microsoft launches its own search in 2009 Bing now partnered with Yahoo 1-4 WHAT STRATEGY IS: GAINING AND SUSTAINING COMPETITIVE ADVANTAGE • What Is Competitive Advantage? Superior performance relative to competitors Examples: Google, Duke Basketball, Pfizer’s Lipitor • What Is Strategy? Goal-directed actions to gain and sustain competitive advantage NOT a zero-sum game Win – win scenarios – co-opetition Requires trade-offs for strategic positioning JCPenney vs. Neiman Marcus Southwest Airlines vs. Delta Song 1-5 What Strategy Is NOT…. • Raking in every penny the firm can get Profit is a consequence of good strategy, it is NOT the main goal! • Operational effectiveness Enterprise Resource Planning (ERP) Benchmarking Six Sigma “Necessary but not sufficient” such as Lean Manufacture 1-6 Strategy Across the Levels • Where to Compete? Should GE move more • CORPORATE STRATEGY aggressively into the health care industry? • How to Compete? Should GE jet engines have better fuel efficiency than Rolls Royce? • How to Implement? Should GE human • BUSINESS STRATEGY • FUNCTIONAL STRATEGY resources recruit more science graduates? 1-7 BUSINESS MODELS: • PUTTING STRATEGY INTO ACTION Razor-blade model Subscription model • How is the firm going to make money to continue operations? • What’s happening now between Microsoft & Google? Business models in opposite directions 1-8 STRATEGY IN THE 21ST CENTURY • Accelerating Technological Change 84 years for half of U.S. families to own a car 28 years for half to own a TV 6 years for an MP3 player 1-9 EXHIBIT 1.5 Accelerating Speed of Technological Change 1-10 STRATEGY IN THE 21ST CENTURY • Future Industries HEALTH CARE In the U.S., over 16% of GDP and still growing GREEN ECONOMY Potentially large growth in energy efficiency and technologies WEB 2.0 Interactivity and using collective intelligence on the Internet 1-11 STRATEGY HIGHLIGHT 1.1 Threadless: Leveraging Crowdsourcing to Design Cool T-Shirts • Online apparel company Started in 2000 by 2 students with $1,000 “Prosumers” – a hybrid supplier/customer Shirt designs are submitted by the community Designs are voted on by the online community – Only winning designs are produced & sold Threadless Interview 1–12 1-12 STAKEHOLDERS • Successful business generates societal value • Stakeholders – are affected by firm’s actions Internal External • Vary by industry Autos Investment banking 1-13 THE AFI STRATEGY FRAMEWORK • Analyze (A) Getting Started; External & Internal Analysis Chapters 1 thru 5 • Formulate (F) Business and Corporate Strategy Chapters 6 thru 10 • Implement (I) Organizational Design & Corporate Governance Chapters 11 thru 12 1-14 CHAPTERCASE 1 Consider This… • Microsoft has a new partner in the competition for a search engine with Google… FACEBOOK • In fall 2010, Mark Zuckerberg announced their surprising decision to partner with the “really scrappy…underdog” …Bing !! • The partners are aiming to make “search more social” • “Our approach is about the speed of getting things done…not the speed of high volume of results” 1-15