statigiec manegement

7/27/2019 statigiec manegement

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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter Title

16/e PPT

What Is Strategyand Why Is

It Important?

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region


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Without a strategy theorganization is like a

ship without a rudder.

Joel Ross and Michael Kami


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Chapter Roadmap

What Do We Mean By Strategy?

Strategy and the Quest for Competitive Advantage

Identifying a Companys Strategy

Why a Companys Strategy Evolves Over Time A Companys Strategy Is Partly Proactive and Partly Reactive

Strategy and Ethics: Passing the Test of Moral Scrutiny

The Relationship Between a Companys Strategy and Its

Business Model

What Makes a Strategy a Winner?

Why Are Crafting and Executing Strategy Important?


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Thinking Strategically:The Three Big Strategic Questions

1.Whats the companys present situation?

2. Where does the company need to go from here?

Business(es) to be in and market positions to stake out

Buyer needs and groups to serve

Direction to head

3. How should it get there?

A companys answer to how

will we get there? is its strategy


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What Do We Mean By Strategy?

Consists ofcompeti t ive movesand businessapproachesused by managers to run the

company

Managements action planto Grow the business

Attract and please customers

Compete successfully

Conduct operations

Achieve target levels of

organizational performance


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The Hows ThatDefine a Firm's Strategy

Howto grow the business

Howto please customers

Howto outcompete rivals

Howto manage each functional

piece of the business (R&D, production, marketing,

HR, finance, and so on)

Howto respond to changing market conditions

Howto achieve targeted levels of performance

Strategyis HOWto . . .


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Choosing the Hows of Strategy

Strategic choices about how are based on Trial-and-error organizational learning about what has worked and

what has not worked

Managements appetite for taking risks

Managerial analysis and strategic thinking about how best to

proceed, given market conditions and the companys circumstances

In choosing a strategy, management is in effect saying,

Among all the many different business approaches and

ways of competing we could have chosen, we have

decided to employ this particular combination ofcompetitive and operating approaches in moving the

company in the intended direction, strengthening its

market position, and competitiveness, and boosting

performance.


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Key Elements of a Successful Strategy

Developing a successful strategy hingeson makingcom peti t ive movesaimed at

Appealing to buyers in ways to set the enterprise apart from

rivals and

Carving out its own market position

Involves developinga distinctive aha

elementto

Attract customers and

Produce a competitive edge

Copying competi tive moves of other

suc cessfu l companies rarely wo rks!


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Key Elements:Comcasts Strategy

Roll out high-speed Internet or broadband service to customers viacable modems

Promote a new video-on-demand service to allow digital

subscribers to watch TV programs whenever they want

Promote a video-on-demand service so digital customers can order

and watch pay-per-view movies Partner with Sony, MGM, and others to expand movie offerings

Use VoIP technology to offer subscribers Internet-based phone

service at a fraction of the cost charged by others

Use video-on-demand and CDV offerings to combat mounting

competition from satellite TV providers

Employ a sales force to sell advertising to businesses that were

shifting advertising dollars from sponsoring network programs to

sponsoring cable programs

Significantly improve customer service


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For Discussion: Your Opinion

From your perspective as a cable or satellite serviceconsumer, does Comcasts strategy (as described in

Illustration Capsule 1.1) seem to be well-matched to

industry and competitive conditions?

Does the strategy seem to be keyed to a cost

advantage, differentiating features, serving the unique

needs of a niche, or developing resource strengths and

competitive capabilities rivals cant imitate or trump (or a

mixture of these)?

What is there about Comcasts strategy that can lead to

sustainable competitive advantage?


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Strategy and the Quest forCompetitive Advantage

The heart and soul of any strategy are the actionsand moves in the marketplace that a company

makes to strengthen its competitive position and

gain a competitive advantage over rivals

A creative distinctive strategy that sets a company

apart from rivals and yields a competitive

advantage is a companys most reliable ticket to

above average profitability Compet ing with a compet it ive advantage is more

pro f i table than com pet ing w ith no advantage

Compet ing w ith a compet it ive disadvantage nearly

always resu lts in below -average pro f i tabi l i ty


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A Powerful Strategy Leads toSustainableCompetitive Advantage

A company achieves susta inable com pet i tive advantagewhen an attractive number or buyers prefer its

products/services over those of rivals and when the basis

for this preference can be maintained over time

Its nice when a strategy produces a temporarycompetitive edge but a durable edge over rivals greatly

enhances a companys prospects for winning in the

marketplace and realizing above-average profits

What separates a pow erfu l s trategyfrom an ordinary

strategy is managements ability to forge a series of

moves, both in the marketplace and internally, that

prod uces susta inable com pet it ive advantage!


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Four Best Strategic Approaches toBuilding Sustainable Competitive Advantage

Being the industrys low-cost provider (a cost-basedcompetitive advantage)

Incorporate differentiating features (a superior producttype of competitive advantage keyed to higher quality,

better performance, wider selection, value-addedservices, or some other attribute)

Focusing on a narrow market niche (winning acompetitive edge by doing a better job than rivals

of serving the needs and preferences ofbuyers comprising the niche)

Developing expertise and resourcestrengths not easily imitated or matched by rivals(a capabilities-based competitive advantage)


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Competitive Advantage Examples

Strive to be the industrys low-cost provider Wal-Mart

Southw est Air lines

Outcompete rivals on a key differentiating feature Johnson & Johnson Reliability in baby products

Harley-Davidson King-of-the-road styling

Rolex Top-of-the-line prestige Mercedes-Benz Engineering design and performance

L .L . Bean Good value

Amazon.com Wide selection and convenience


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Competitive Advantage Examples (cont)

Focus on a narrow market niche eBay Online auctions

Ji f fy L ube Internat ional Quick oil changes

McAfee Virus protection auctions

Starbucks Premium coffees and coffee drinks

The Weather Channel Cable TV

Develop expertise, resource strengths, and

capabilities not easily imitated by rivals

FedEx Next-day delivery of small packages

Walt Disney Theme park management and family entertainment

Toyota Sophisticated production system

Ritz-Carlton Personalized customer service


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Fig. 1.1: Identifying a Companys Strategy


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Test Your Knowledge

A companys strategy and its quest for competitive advantageare tightly related because

A. a companys strategy determines whether it will have lower or

higher costs than rivals and thus be at a competitive advantage

or disadvantage.

B. competitive advantage is essential to having a profitable

business model.

C. choosing a competitive advantage to pursue also helps a

company choose which business model is most appropriate.

D. competitive advantage enables a company to achieve itsstrategic objectives.

E. a strategy that leads to sustainable competitive advantage is a

companys most reliable means of achieving above-average

profitability and financial performance.


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Why Do Strategies Evolve?

A companys strategyis a work in progress

Changes may be necessary to react to

Shifting market conditions

Technological breakthroughs

Fresh moves of competitors

Evolving customer preferences

Emerging market opportunities

New ideas to improve strategy

Crisis situations


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Fig. 1.2: A Companys Strategy IsPartly Proactive and Partly Reactive


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Crafting Strategy Is anExercise in Entrepreneurship

Strategy-making is a market-driven activity involving Studying market trends and competitors actions

Keen observation of customer needs

Scrutinizing business possibilities based on new

technologies

Building firms market position via acquisitions or new

product introductions

Pursuing ways to strengthen firms competitive

capabilities

Proactively searching out opportunities to

Do new things or

Do existing things in new or better ways


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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 linefrom should do to should not do and unsavory or

shady and

Allows management to fulfill its ethical duties to all

stakeholders


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A Firms EthicalResponsibilities to Its Stakeholders

Owners/shareholdersRightfully expect some form ofreturn on their investment

Employees- Rightfully expect to be treated with dignity

and respect for devoting their energies to the enterprise

Customers- Rightfully expect a seller to provide themwith a reliable, safe product or service

Suppl iers- Rightfully expect to have an equitablerelationship with firms they supply and be treated fairly

Communi ty- Rightfully expect businesses to be goodcitizens in their community


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Role of Senior Executives:Linking Strategy with Ethics

Forbid pursuit of ethically questionable businessopportunities

Insist all aspects of company strategyreflect high ethical standards

Make it clear all employees areexpected to act with integrity

Install organizational checks and balances to Monitor behavior

Enforce ethical codes of conduct

Provide guidance to employees in gray areas

Display genuine commitment to conduct businessactivities ethically


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Test Your Knowledge

A company's strategy can be considered ethicalA. if all of its different actions and elements are legal and in

compliance with governmental rules and regulations.

B. so long as its actions and behaviors can pass the test of moral

scrutiny and are aboveboard in the sense of not being shadyor unconscionable, injurious to others, or unnecessarily

harmful to the environment.

C. only if all elements of the strategy are in accord with what is

generally considered as being in the overall best interests of

society at large.

D. so long as religious authorities and noted ethics experts find

nothing wrong in the companys actions.

E. if it is in compliance with the companys code of ethics and has

been approved by the companys chief ethics officer.


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What Is a Business Model?

A business model addresses How do we makemoney in this business? Is the strategy capable of delivering

good bottom-line results?

Do the revenue-cost-pro f i t econom icsof the strategy make good business sense? Look at revenue streamsthe strategy is expected to

produce

Look at associated cost st ructureand potential prof i tmargins

Do resulting earnings streams and ROI indicate the

strategy makes sense and the company has a viable

business model for making money?


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Relationship BetweenStrategy and Business Model

Strategy . . .Deals with a companys

competitive initiatives and

business approaches

Bus iness Model . . .Concerns whether revenues

and costs flowing from the

strategydemonstrate a

business can be amplyprofitable and viable


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Microsofts Business Model

Employ a cadre of highly skilled programmers to develop proprietarycode; keep source code hidden from users

Sell resulting OS and software packages to PC makers and users atrelatively attractive prices to achieve a 90% or more market share

Most costs in developing software are fixed; variable costs are small;once break-even volume is reached, revenues from additional salesare almost pure profit

Provide modest level of technical support to users at no cost

Rejuvenate revenues by periodically introducing next-generationsoftware with features inducing PC users to upgrade their operating

systems


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Red Hats Business Model

Rely on collaborative efforts of volunteer programmers to create thesoftware

Collect and test enhancements and new applications submitted byvolunteer programmers for evaluation and inclusion in new releases

of Linux

Market upgraded and tested family of Red Hat products to largecompanies, charging a subscription fee that includes 24/7 supportwithin 1 hour in 7 languages

Make source code open and available to all users

Capitalize on specialized expertise required to use Linux byproviding fee-based training, consulting, software customization, and

client-directed engineering to Linus users


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Test Your Knowledge

The nitty-gritty issue surrounding a companys businessmodel is whether

A. the strategy is capable of producing sustainable

competitive advantage.

B. it matches the companys external and internal situation.

C. the chosen strategy makes good business sense from a

money-making perspective.

D. the companys strategy and strategic moves are mostlyproactive.

E. the companys strategy stands a really good chance of

hitting a home-run in the marketplace.


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For Discussion: Your Opinion

Who has the best business model

Microsoft or Red Hat?


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Tests of a Winning Strategy

GOODNESS OF FIT TEST

How well does strategy fit

the firms situation?

COMPETITIVE ADVANTAGE TEST

Does strategy lead to sustainable

competitive advantage?

PERFORMANCE TEST

Does strategy boost firm performance?


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Other Criteria for Judgingthe Merits of a Strategy

Internal consistency and unity among all pieces ofthe 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 th ree testsof a winn ing st rategy!


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Why Is Strategy Important?

A compelling need exists formanagers

to proact ively shape howa firms

businesswill be conducted

A strategy -focused f i rmis more l ikelyto be a strong bot tom -l ine performer

than one that views strategy as secondary


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Good Strategy + Good Strategy Execution= Good Management

Crafting and executing strategy are core managementfunctions

Among all things managers do, nothing affects a

companys ultimate success or failure more

fundamentally than how well its management teamCharts a companys direction,

Develops competitively effective strategic moves and business

approaches, and

Pursues what needs to be done internally to produce goodday-in/day-out strategy execution

Excel lent execut io nof an excellent strategy is thebest test o f managerial excellence and the

most reliable recipe for winning in the marketplace!

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