CHAPTER 1
WHAT IS STRATEGY
AND WHY IS IT IMPORTANT?
1. Learn what we mean by a company’s strategy.
2. Grasp the concept of a sustainable competitive advantage.
3. Develop an awareness of the five most basic strategic
approaches for winning a sustainable competitive
advantage.
4. Understand that a company’s strategy tends to evolve over
time because of changing circumstances and ongoing
management efforts to improve the company’s strategy.
5. Learn why it is important for a company to have a viable
business model that outlines the company’s customer value
proposition and its profit formula.
6. Learn the three tests of a winning strategy.
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CORE CONCEPT
A company’s strategy is its action
plan for outperforming its competitors
and achieving superior profitability
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WHAT DO WE MEAN BY STRATEGY ?
♦ What is our present situation?
●
Business environment and industry conditions
●
Firm’s financial and competitive capabilities
♦ Where do we want to go from here?
●
Creating a vision for the firm’s future direction
♦ How are we going to get there?
●
Crafting an action plan that will get us there
Quiz – p. 4
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STRATEGOS – From Ancient Art of War
 The
art of the commander
 The art of the general
 Tactic – plan to win the battle
 Strategy – plan to win the war
Means – Ends
 Goals, Objectives, Targets are the Ends
 Strategies, Tactics, Plans are the Means
 CONSTRUCT:
Quiz – Not in Text
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WHAT IS STRATEGY ABOUT?
♦ Strategy is all about How:
●
How to outcompete rivals.
●
How to respond to economic and market
conditions and growth opportunities.
●
How to manage functional pieces of the
business.
●
How to improve the firm’s financial and
market performance.
Sample questions demonstrated in class - Quiz – p. 4
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WHY DO STRATEGY ?
♦ A firm does strategy:
●
To improve its financial performance.
●
To strengthen its competitive position.
●
To gain a sustainable competitive.
advantage over its market rivals.
♦ A creative, distinctive strategy:
●
Can yield above-average profits.
●
Makes competition difficult for rivals.
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Every company must be willing and ready
to modify its strategy in response to:
 changing
market conditions,
 advancing technology,
 competitive moves,
 shifting buyer needs and preferences,
 emerging market opportunities,
 new ideas for improving the strategy, and
 mounting evidence that the strategy is not
working well.
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STRATEGY AND COMPETITORS
♦ Strategy is about competing differently
from rivals—
●
Doing what they don’t do or doing it better!
●
Doing what they can’t do!
●
Doing that which sets the firm apart and
attracts customers.
●
Doing what we should or should not do to
produce a competitive edge.
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1–10
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1.1
Identifying a Company’s Strategy—What to Look For
Quiz – p. 6
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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
Quiz – p. 7
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The Quest for Competitive Advantage
♦ Competitive Advantage
●
Meeting customer needs more effectively,
with products or services that customers
value more highly, or more efficiently, at
lower cost.
♦ Sustainable Competitive Advantage
●
Giving buyers lasting reasons to prefer a
firm’s products or services over those of its
competitors.
Quiz – bottom p. 6
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STRATEGIC APPROACH CHOICES
Building Competitive Advantage
Low-cost
provider
Differentiation
on features
Focus on
market niche
Best-cost
provider
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STRATEGIC APPROACHES
♦ Building a competitive advantage by:
1. Striving to become the industry’s low-cost
provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche market’s
needs (efficiency and\or effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).
Quiz – p. 8 – 9
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Why a Firm’s Strategy Evolves over Time
♦ Managers modify strategy in response to DRIVERS:
●
●
●
●
●
●
Changing market conditions
Advancing technology
Fresh moves of competitors
Shifting buyer needs
Emerging market opportunities
New ideas for improving the strategy
Quiz – bottom p. 9
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The Evolving Nature of a Firm’s Strategy
♦ Realized (current) strategy is a blend of:
●
Proactive (deliberate) strategy elements that
include both continued and new initiatives.

●
Microsoft Surface tablet – Apple Watch
Reactive (emergent) strategy elements that
are required due to unanticipated competitive
developments and fresh market conditions.

Amazon – Fire phone
Quiz – p. 9 - 10
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1.2
A Company’s Strategy Is a Blend of Proactive Initiatives
and Reactive Adjustments
Quiz – p. 10
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THE RELATIONSHIP BETWEEN A
FIRM’S STRATEGY AND ITS
BUSINESS MODEL
Realized
Strategy
$$$?
Business
Model
Competitive
Initiatives
Value
Proposition
Business
Approaches
Profit Formula
p. 11
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A Company’s Business Model
♦ How the business will make money :
●
By providing customers with value.
 The firm’s customer value proposition
● By generating revenues sufficient to cover
costs and produce attractive profits.
Quiz – p. 11
 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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Business Model Elements
♦ The Customer Value Proposition
●
Satisfying buyer wants and needs at a price
customers will consider a good value.

The greater the value provided (V) and
the lower the price (P), the more
attractive the value proposition is to
customers.
Quiz – p. 11 – 12
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Business Model Elements (cont’d)
♦ The Profit Formula
●
Quiz – p. 11 – 12
Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition.
V—the value provided to customers
 P—the price charged to customers
 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
Advantage Test
Winning
Strategy
The Performance
Test
Quiz – p. 12 – 14
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Quiz – p. 12
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Follow-up
Who listens to the radio anymore?
• Given the shifts in how people listen to music, are
the business models of Sirius XM and over-the-air
broadcasters viable over the long term?
• Does Sirus XM’s strategy pass the three tests of a
winning strategy? Does the strategy of over-the-air
broadcasters pass the same tests?
• What internal and external factors will create
difficulties for either competitor in changing its
strategy or business model?
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WHY CRAFTING AND EXECUTING
STRATEGY ARE IMPORTANT TASKS
♦ Strategy provides:
Quiz – p. 14
●
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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