Download ppt - What is Strategy? Why Does It Matter? 2-1 Chapter 1

What is What is Strategy?Strategy?

Why Does It Why Does It Matter?Matter?

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Chapter 1Chapter 1

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Strategy involves …

What Is Strategy?

Time - the present, the future, and the track between

Choices – products, markets, services, ….

Resources – money, people, tools, etc.

Competencies – what we are good at

Something that is VRI-O

Much more!

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Strategy is …

The combination of competitive moves and business approaches used by managers to run the company

Management’s theory about how to gain competitive advantage – BTW, what’s a theory?

A comprehensive plan stating how the firm will achieve its mission and objectives

What Is Strategy?

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Strategy is …

Management’s “game plan” or, its HOW TO

•Attract and please customers

•Stake out a market position

•Compete successfully

•Grow the business

•Achieve targeted objectives

What Is Strategy?

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Strategy is …

The General’s view (Strategos)

Integrated

Externally oriented

What Is Strategy?

Cyclical:

Conceptual … Planned … Executed … Reviewed

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1984 Profits: $242 Million

Theme Park Operations: 77 percent of profits

Consumer Products: 22 percent of profits

Filmed Entertainment: 1 percent of profits

Walt Disney Company

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Hired Michael Eisner - 1984

1. Increased admission prices at theme parks1984 - $186 m 1989 - $787 m

2. Focused on movie studios (character development)1984 - $2.42 m 1994 - $845 m

3. Diversified into television (ABC), hotels, retail stores,sport team, cruise line, publishing, consumerproducts, licensing, etc. (Huey & McGowan, 1995)

Walt Disney Company

Market Cap: 1984 = $2 billion 1994 = $28 billion

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Inferring Strategy

A company’s strategy is reflected in what it does and says (see p. 6 of your text)

What do you think Eisner’s strategy was?

Eisner’s basic theory (strategy) may have been:

People will pay a premium price for extraordinaryentertainment. We have the necessary resources tocreate extraordinary entertainment. Therefore, let’sredeploy our resources in a different way and offersomething extraordinary to people.

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So Why is Strategy Important?

Strategy + Execution = ?

Management !It is management’s job to get results

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Summary

Strategy is about creating a desirable future,

and it is important because that future is desired.

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But remember … The future is foggy!

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Recommended reading:

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Chapter 2

The Managerial Process The Managerial Process

of of

Crafting and Executing StrategyCrafting and Executing Strategy

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Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Strategic Management Process

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Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice



Mission

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Objectives:

• specific, measurable targets, etc. (SMART)

• the things a firm needs to ‘do’ to achieveits mission

• should influence other elements in the strategicmanagement process

See text p. 28 for examples

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External and Internal Analysis

External Analysis

Systematic Examinationof the Environment

Internal Analysis

• interest rates

• demographics

• social trends

• technology

• human resources(knowledge)

• manufacturingabilities

• technology

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Strategic Choice

ExternalAnalysis

InternalAnalysis

StrategicChoice

BusinessLevel

CorporateLevel

• positioninga business

• which businesses?

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Strategy Implementation

• how strategies are carried out

• who will do what

• organizational structure and control

• who reports to whom

• how does the firm hire, promote, pay, etc.

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A Strategy Is Only As Good As Its Implementation

Strategy Implementation


• every strategic choice has strategy implementationimplications

• strategy implementation is just as important asstrategy formulation (or maybe more so – my view)

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Competitive Advantage

Definition: the ability to create more economic valuethan competitors

• all other elements of the strategic managementprocess are aimed at achieving competitive advantage

Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice



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The Ability to Create More EconomicValue Than Competitors

• there must be something different about a firm’soffering vis-à-vis competitors’ offerings

• if all firms’ strategies were the same, no firmwould have a competitive advantage

• competitive advantage is the result of doingsomething different and/or better than competitors

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Two Types of Difference

1) Preference for the firm’s output

2) Cost advantage vis-à-vis competitors

• people choose the firm’s output over others’

• people are willing to pay a premium

• lower costs of production/distribution

Example: Nordstrom

Example: Wal-Mart

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ExternalAnalysis

InternalAnalysis

StrategicChoice



• identify and exploit differences that may leadto competitive advantage

Example: Apple’s iPod


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Temporary & Sustainable

• competition limits the duration of competitiveadvantage in most cases

• profits attract competition

• competitive advantage typically results in high profits

Therefore,

• most competitive advantage is temporary

• competitors imitate the advantage or offersomething better

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Measuring Competitive Advantage

Superior Economic Performance Is Viewed asEvidence of Competitive Advantage

• it is rather easy to see the evidence ofcompetitive advantage

• measuring the source of the advantage per seis typically impossible

• it’s difficult to ‘measure’ technology

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Competitive Advantage & The Strategic Management Process

Emergent vs. Intended Strategies

• the strategic management process leads managersto intended strategies

However,

• conditions often change or new informationbecomes available

• managers respond and adopt emergent strategies

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Summary

This course is not about mere survival, it is aboutthriving—achieving competitive advantage

• the strategic management process helps managersachieve competitive advantage

• competitive advantage depends on differences

• strategy is about discovering and exploiting these differences

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Applying Strategy to Your Career

• a solid understanding of strategy concepts willhelp set you apart from other job candidates

• you can use the process to identify andexploit difference between you and others

• you can use the process to determine if youwant to stay with a company

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The Strategic Management Process& Competitive Advantage

Strategy Matters!

• success and failure, between mediocrity and excellence

Strategy is often the difference between:

• a great manager and average managers

• stumbling through life and moving ahead with purpose