Chapter 1 (S)
What is Strategy?
Kelly Bredensteiner, Reid Christner, Christine Cox, Caitlin
Greenwood, and Michele Haynes
Strategy
Strategy is about positioning an organization
for competitive advantage.
Known link between a company’s strategic
choices and it’s long-term performance
Reflects a company’s clear strategic intent and
an understanding of its core competencies and
assets
The ultimate goal is long-term, sustainable
superior performance
Focus of Strategy
To satisfy customers’ needs and wants better
than any other company by creating value
“The value of a particular product or service
offering, unless constantly maintained,
nourished, and improved, erodes with time.”
Creating a Strategy
Forming a strategy is about creating a longterm vision for the company.
The vision must be flexible on how to achieve
the overall competitive strategy due to
constant change.
Once the company chooses a direction, they
must be willing to adapt to any changes.
Alan Wurtzel of Circuit City- “The number one
factor was luck.” From Good to Great
Strategic Evolution
Strategy in companies have evolved over time
Industrial
Economies
Prospective
Resourcebased
Prospective
Human and
Intellectual
Capital
Prospective
Strategy Then and Now
Strategic Evolution
Industrial Economies Prospective
Company’s success was based upon
environmental issues
Focus was on capturing economic value
through positioning
Reactive, not proactive
Prospective changed to resource-based due
to globalization and technology
Strategic Evolution
Resource-based Prospective
Main goal was to identify and expand on
core competencies within a business
Instead of capturing economic value,
businesses were creating it
Companies did this by developing and
nurturing key resources and capabilities
Strategic Evolution
Human and Intellectual Capital
Fits with the transition of global commerce to
a knowledge-based economy
Scarce knowledge and expertise drive
product development
Personal relationships with clients is critical
to market responsiveness
Strategy vs. Tactic
Both are necessary to compete with other
companies
Tactic:
Doing things better than other companies
Operational effectiveness
Strategic:
Doing things differently than other
companies
An example of this is Cirque De Soleil which is discussed
in the book Blue Ocean Strategy.
Competitive Strategy
Competitive strategy has two parts:
1)
2)
Try to protect the advantage your
company has over another company
Invest in new areas that can create the
company’s next competitive advantage
Trade-Offs
•
Unique competitive positioning forces tradeoffs in terms of what and what not to do, and
creates barriers to imitation
•
•
Dell’s direct sales: made-to order
Southwest Airlines’ different activities
deters imitators since they would have
to recreate the entire process to be
successful, not just one part.
Value Creation
Balance and
reinforcement
of activities
deters imitators
Value Creation
•
•
Advantages:
•
Create value for shareholders, partners,
suppliers, employees, and the community
•
Satisfy needs and wants of customers better
than the competition
Problems:
•
Customers wants change often
•
Value erodes with time unless it is constantly
maintained
Value Creation Examples
•
A decade ago Dell would offer promotional
machines as an effective strategy
•
Today customers value a more personalized
approach as well as immediate,
knowledgeable, local customer service
•
Apple has moved to this by offering the Genius
Bar in their stores
Competitive Advantage Cycle
Competitive strategy has two main parts:
1)
2)
Try to protect the advantage your by
slowing down erosion of resources
company has over another company
Invest in new areas that can create the
company’s next competitive advantage
Competitive Advantage Cycle
Strategy: An Ecosystem
Perspective
•
Increasinglynterdependent world
•
Companies succeed and fail as a collective
whole
•
Boundaries are fluid
•
Technology enables growth
Strategy as Alignment
•
Strategy aimed to align resources and capabilities with
goals
•
Strategic Capability Gap
•
•
Differences in competences, skills, and resources
between what customers demand and what the
organization can deliver
Maintaining Strategic Focus
•
Strategy formulation and implementation is subject to
human error, obstruction, and abuse
•
Must ensure what is said is done
Flexibility is Key
•
Not all strategy is planned
•
New technologies can emerge competitors
emerge
•
“Black Swan” effect: In Nassim Taleb’s book a
black swan is an outlier- outside the realm of
normal prediction. Ex: Who would have
predicted that Lehman Bros would fold?
Multiple Levels of Strategy
Strategic management consists of corporate,
business unit, and functional strategies used to
guide the long-term future of an organization
•Corporate Strategy
Concerned with the types of
businesses a firm should compete in
and how the overall portfolio should
be managed
•Business Unit Strategy
Focused on deciding what product
or service to offer, how to create it,
and how to get it to the
marketplace
•Functional Strategy
Often used in a narrow division
such as marketing, human
resources, or technology
Role of Stakeholders
•
A mistake with any stakeholder (partners,
suppliers, customers, competitors) can
negatively affect company for years
•
Stake holders have formal, economic, or
political power.
•
Influence determined by type of stake
•
Ownership stake- shareholders, directors
•
Economic Stake- creditors, employees, customers, suppliers
•
Social Stake– regulatory agencies, charities, community and activist groups
Vision Statement
Statement of the long-term goals that senior
level management has set up.
Includes the :
competitive strategy that the company has
designed
core competencies needed to reach the
company’s goals
Vision Statement cont.
What a vision statement should include:
Strategic guidance
Motivation
Must be clear but not constraining
Meets interests and values of stakeholders, and
Feasible
How to the achieve goals:
Focus on only a few aspects and do well on those, and
Set the company’s goals higher than the resource base and
competencies would allow
Vision and Mission
•
•
Vision Statement
•
Represents long-range goals for the
organization
•
Should provide strategic guidance and
motivational focus
Mission Statement
•
Documents the purpose for an organizations
existence
--Best companies focus on few activities and
do them well.
Strategic Intent
Statement that includes:
A focus on a company’s key competitive
targets
A set of goals about which competencies
need to be developed (From Good to Great: just
because it’s your core, does not necessarily mean you are the best
in the world at it- hedgehog concept)
What kind of resources to bring in, and
a description of what segment of the market to
enter and concentrate on
Stretch or Fit?
•
Stretching too far to reach goals or over too
long a period, and you may never reach your
goals
•
If you fit too readily, the bar was not set high
enough
Non Profit Sector Strategy
Three measures of Success:
1.
2.
3.
Measure success at mobilizing resources (not
necessarily value-added)
Evaluate effectiveness of employees/
volunteers
Assess progress toward fulfilling goals (Ex:
Red Cross and Katrina- 1) Are there enough shelters/
supplies? 2) Are volunteers trained, burnt out, etc? 3)
Has every one that needs it received basic living
essentials?)
Strategy Formulation Process
SWOT
Analysis
Steps to Creating a Strategy
Designed around three major questions:
Where are we now?
Evaluate current business, mission, vision, and stakeholders (From Good to
Great: Evaluating your people is also key, since the right people are your
most valuable asset)
Where do we go?
Designed for the company to explore other strategic alternative other than
previous strategies
This is the strategic intent
How do we get there?
What the company needs to do to achieve its strategic goals
Planning Cycle
•
Corporate Review
•
•
Business Unit Review
•
•
Corporate asks BUs to update long-term goals and discuss how
strategies fit with company’s major priorities and goals
Adjustment
•
•
Review competitive environment, and corporate guidelines, SWOT
analysis
BU suggestions are evaluated
Plan Development and Approval
Evaluating Strategic Options
•
Effective strategy produces competitive
advantage with above average returns.
•
Used to be based on return on investment
(ROI), but now it’s widely based on a
shareholder value approach (SVA)
•
SVA: value created when companies invest capital
at returns that exceed the cost of that capital
•
EVA: economic value-added measure, after-tax
operating profit minus cost of capital
•
Each approach has a different definition of value,
thus require different strategies
Different Definitions of Value
•
SVA: value created when companies invest capital
at returns that exceed the cost of that capital
•
EVA: economic value-added measure, after-tax
operating profit minus cost of capital
•
Strategists focus on value delivered to customers,
which should be correlated to SVA, but not
necessarily Ex: Subprime mortgage market
•
Each approach has a different definition of value,
thus require different strategies
Different Definitions of Value
•
Blue Oceans Strategy:
•
Value should not only be based on SVA and
CV, but value innovation, where low cost
and high value can be presented to the
customer, increasing both SVA and CV.
Apple’s Strategy
•
Apple’s “Purpose” Statement- flexible
“To make a contribution to the world by making
tools for the mind that advances humankind”
•
Steve Jobs- focus on core competencies
•
“We do no market research”
•
“We do not hire consultants”