1
What Is Strategy and
Why Is It Important?
1-1
Chapter Roadmap
What Is Strategy?
Identifying a Company’s Strategy
Strategy and the Quest for Competitive Advantage
Strategy Is Partly Proactive and Partly Reactive
Strategy and Ethics: Passing the Test of Moral Scrutiny
The Relationship Between a Company’s Strategy and Its
Business Model
What Makes a Strategy a Winner?
Why Are Crafting and Executing Strategy Important?
1-2
Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
Business(es) to be in and market positions to stake out
Buyer needs and groups to serve
Outcomes to achieve
3. How will we get there?
A company’s answer to “how
will we get there?” is its strategy
1-3
What Is Strategy?
Consists of the combination of competitive moves and
business approaches used by managers to run the company
Commitment to pursue a particular set of actions
Management’s “game plan” to
Attract and please customers
Stake out a market position
Compete successfully
Grow the business
Achieve targeted objectives
1-4
The Hows That
Define a Firm's Strategy
How to please customers
How to respond to changing
market conditions Strategy
is HOW
How to outcompete rivals to . . .
How to grow the business
How to manage each functional piece of the business and
develop needed organizational capabilities
How to achieve strategic and financial objectives
1-5
Fig. 1.1: Identifying a Company’s Strategy
1-6
Striving for
Competitive Advantage
To achieve sustainable competitive advantage, a
company’s strategy usually must be aimed at either
Providinga distinctive product or service or
Developing competitive capabilities rivals can not match
Achieving a sustainable competitive advantage greatly
enhances a company’s prospects for
Winning in the marketplace and
Realizing above-average profits
What separates a powerful strategy from an ordinary strategy
is management’s ability to forge a series of moves,
both in the marketplace and internally, that
produces sustainable competitive advantage!
1-7
Strategic Approaches to Building
Competitive Advantage
Strive (sangharsh, prayash)to be the industry’s low-
cost provider
Outcompete rivals on a key differentiating feature
Focus on a narrow market niche, doing a better job
than rivals of serving the unique needs of niche buyers
Develop expertise, resource strengths, and capabilities
not easily imitated by rivals
1-8
Fig. 1.2: A Company’s Strategy Is Partly
Proactive and Partly Reactive
1-9
Why Do Strategies Evolve?
A company’s strategy is a work in progress
Changes may be necessary to react to
Fresh moves of competitors
Evolving customer preferences
Technological breakthroughs
Shifting market conditions
Crisis situations
1-10
Linking Strategy With Ethics
Ethical and moral standards go beyond
Prohibitions of law and the language of “thou shalt not”
to issues of
Duty and “right” vs. “wrong”
Ethical and moral standards address
“What is the right thing to do?”
Two criteria of an ethical strategy:
Does not entail actions and behaviors that cross the line from
“can do” to “should not do’ and “unsavory” or “shady” and
Allows management to fulfill its ethical duties to all stakeholders
1-11
A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders
Owners/shareholders––Rightfully
Rightfullyexpect
expectsome
someform
formof
of
return
returnon
ontheir
theirinvestment
investment
Employees
Employees--Rightfully
Rightfullyexpect
expectto
tobe
betreated
treatedwith
withdignity
dignity
and
andrespect
respectfor
fordevoting
devotingtheir
theirenergies
energiesto
tothe
theenterprise
enterprise
Customers
Customers--Rightfully
Rightfullyexpect
expectaaseller
sellerto
toprovide
providethem
them
with
withaareliable,
reliable,safe
safeproduct
productor
orservice
service
Suppliers
Suppliers--Rightfully
Rightfullyexpect
expectto
tohave
havean
anequitable
equitable
relationship
relationshipwith
withfirms
firmsthey
theysupply
supplyand
andbe
betreated
treatedfairly
fairly
Community
Community--Rightfully
Rightfullyexpect
expectbusinesses
businessesto
tobe
begood
good
citizens
citizensin
intheir
theircommunity
community
1-12
What Is a Business Model?
A business model addresses “How do we make money in
this business?”
Isthe strategy capable of delivering
good bottom-line results?
Do the revenue-cost-profit economics
of the strategy make good business sense?
Look at revenue streams the strategy is expected to produce
Look at associated cost structure and potential profit margins
Doresulting earnings streams and ROI indicate the strategy
makes sense and the company has a viable business model for
making money?
1-13
Relationship Between
Strategy and Business Model
Strategy - Deals with a Business Model
company’s competitive -Concerns whether
initiatives and business revenues and costs flowing
approaches from the strategy
demonstrate the business
can be amply profitable
teg
y and viable
S tra ss
ne l
i
s e
Bu od
M
1-14
Tests of a Winning Strategy
GOODNESS OF FIT TEST
How well does strategy fit
the firm’s situation?
COMPETITIVE ADVANTAGE TEST
Doesstrategy lead to sustainable
competitive advantage?
PERFORMANCE TEST
Does strategy boost firm performance?
1-15
Other Criteria for Judging the
Merits of a Strategy
Internal consistency and unity among all pieces of the
strategy
Degree of risk the strategy poses as compared to
alternative strategies
Degree to which the strategy is flexible and adaptable to
changing circumstances
While these criteria are relevant, they seldom override
the importance of the three tests of a winning strategy!
1-16
Good Strategy + Good Strategy
Execution = Good Management
Crafting and executing strategy are core management functions
Among all things managers do, nothing affects a company’s
ultimate success or failure more fundamentally than how well
its management team
Charts the company’s direction,
Develops competitively effective strategic moves and business
approaches, and
Pursues what needs to be done internally to produce good day-
in/day-out strategy execution
Excellent execution of an excellent strategy is the best
test of managerial excellence -- and the most reliable
recipe for winning in the marketplace!
1-17
Fig. 2.2: A Company’s Strategy-Making Hierarchy
1-18
Levels of Strategy-Making
in a Diversified Company
Corporate-Level Corporate
Managers Strategy
Two-Way Influence
Business-Level
Business Strategies
Managers
Two-Way Influence
Functional
Functional Strategies
Managers
Two-Way Influence
Operating
Managers Operating Strategies
1-19
Levels of Strategy-Making in
a Single-Business Company
Business-Level
Business
Managers Strategy
Two-Way Influence
Functional
Functional Strategies
Managers
Two-Way Influence
Operating
Managers Operating Strategies
1-20
Tasks of Corporate Strategy
Moves to achieve diversification
Actions to boost performance of individual businesses
Capturing valuable cross-business synergies to provide
1 + 1 = 3 effects!
Establishing investment
priorities and steering
corporate resources into the
most attractive businesses
1-21
Tasks of Business Strategy
Initiating approaches to produce successful performance
in a specific business
Crafting competitive moves to build
sustainable competitive advantage
Developing competitively valuable
competencies and capabilities
Uniting strategic activities of functional areas
Gaining approval of business strategies by corporate-
level officers and directors
1-22
Tasks of Functional Strategies
Game plan for a strategically-relevant
function, activity, or business process
Detail how key activities
will be managed
Provide support for
business strategy
Specify how functional objectives
are to be achieved
1-23
Tasks of Operating Strategies
Concern narrower strategies for
managing grassroots activities and
strategically-relevant operating units
Add detail to business
and functional strategies
Delegation of responsibility
to frontline managers
1-24
