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 companys strategic choices and its long-term performance Reflects a companys 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
Companys 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)

Try to protect the advantage your company has over another company Invest in new areas that can create the companys next competitive advantage

2)

Trade-Offs

Unique competitive positioning forces tradeoffs in terms of what and what not to do, and creates barriers to imitation

Dells 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)

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 companys next competitive advantage

2)

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 Talebs 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

Statement of the long-term goals that senior level management has set up.
Includes the :

Vision Statement

competitive strategy that the company has designed

core competencies needed to reach the companys 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 companys 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 companys key competitive targets

A set of goals about which competencies need to be developed (From Good to Great: just
because its 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.

Measure success at mobilizing resources (not necessarily value-added)

2.

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?)

3.

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

Review competitive environment, and corporate guidelines, SWOT analysis

Business Unit Review

Corporate asks BUs to update long-term goals and discuss how strategies fit with companys major priorities and goals

Adjustment

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 its 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.

Apples Strategy

Apples 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

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