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Management 455 Competitive Strategy

Management 455 Competitive Strategy. Summer II , 2010. Chapter 1: What is Strategy and Why is it Important?. “Strategy means making clear-cut choices about how to compete.”. Jack Welch Former CEO, General Electric.

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Management 455 Competitive Strategy

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  1. Management 455Competitive Strategy Summer II, 2010

  2. Chapter 1: What is Strategy and Why is it Important?

  3. “Strategy means makingclear-cut choices abouthow to compete.” Jack Welch Former CEO, General Electric

  4. “Without a strategy the organization is like a ship without a rudder.” Joel Ross and Michael Kami

  5. Thinking Strategically:The Three Big Strategic Questions 1. What’s the company’s 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 company’s answer to “how will we get there?” is its strategy

  6. What Do We Mean By “Strategy?” • Consists ofcompetitive movesandbusiness approachesused by managers to run the company • Management’s“action plan”to • Grow the business • Attract and please customers • Compete successfully • Conduct operations • Achieve the targeted levels of organizational performance

  7. Strategy is HOWto . . . The Hows That Define a Firm's Strategy • Howto grow the business • Howto please customers • Howto outcompete rivals • Howto manage each functionalpiece of the business (R&D, production, marketing, HR, finance, and so on) • Howto respond to changing market conditions • Howto achieve targeted levels of performance

  8. Choosing the “Hows” of Strategy • Strategic choices about “how” are based on • Trial-and-error organizational learning about what has worked andwhat has not worked • Management’s appetite for taking risks • Managerial analysis and strategic thinking about how best to proceed, given market conditions and a company’s circumstances • In choosing a strategy, management is in effect saying, “Among all the many different ways of competing we could have chosen, we have decided to employ this combination of competitive and operating approaches to move the company in the intended direction, strengthen its market position and competitiveness, and boost performance.”

  9. Key Elements of a Successful Strategy • Developing a successful strategyhingeson makingcompetitive movesaimed at • Appealing to buyers in ways to set the company apart from rivals and • Carving out its own market position • Involvesdevelopingadistinctive “aha”elementto • Attract customers and • Produce a competitive edge Copying competitive moves of other successful companies rarely works!

  10. Starbucks’ Strategy: The Key Elements • Expand number of Starbucks stores domestically by blanketing metropolitan areas, then adding stores on the city’s perimeter • Make Starbucks a global brand by opening stores in an increasing number of foreign locations • View each store as a billboard for the company and as a contributor to building the company’s brand and image • Broaden in-store products to include coffee-flavored ice cream, teas, fresh pastries, music CDs, and coffee accessories • Fully exploit the growing power of the Starbucks’ name and brand image with out-of-store sales • Display corporate responsibility andenvironmental sustainability • Control costs of opening new stores • Promote customer-friendly service and enhance storeambience by making Starbucks a great place to work

  11. For Discussion: Your Opinion From your perspective as a consumer, does Starbucks’ strategy (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 can’t imitate or trump (or a mixture of these)? • What is there about Starbucks’ strategythat can lead to sustainable competitive advantage?

  12. A Powerful Strategy Leads to Sustainable Competitive Advantage • A company achieves sustainable competitive advantage when • An attractive number of buyers prefer its products/services over those of rivals and • The basis for this preference is durable • Its nice when a strategy produces • A temporary competitive edge but • A sustainable edge over rivals greatly enhances a company’s prospects for above-average profitability What separates a powerful strategy from an ordinarystrategy is management’s ability to forge a series ofmoves, both in the marketplace and internally, that produces sustainable competitive advantage!

  13. Figure 1.1: Identifying a Company’s Strategy 1-13

  14. Why Do Strategies Evolve? • A company’s strategy is a work in progress • Changesmay be necessaryto react to • Financial crisis • Fresh moves of competitors • Evolving customer preferences • Technological breakthroughs • Emerging market opportunities • Changing political or economic climate • New ideas to improve strategy

  15. Figure 1.2: A Company’s Strategy Is a Blend ofProactive Initiatives and Reactive Adjustments 1-15

  16. Strategy . . . Deals with a company’s competitive initiatives and business approaches Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a business can be profitable and viable Strategy Business Model Relationship Between Strategy and Business Model 1-16

  17. Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users Sell resulting OS and software packages to PC makers and users at relatively 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 sales are almost pure profit Provide modest level of technical support to users at no cost Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems Microsoft’s Business Model 1-17

  18. Rely on collaborative efforts of volunteer programmers to create the software Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages Make source code open and available to all users Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linux users Red Hat’s Business Model 1-18

  19. Test Your Knowledge The nitty-gritty issue surrounding a company’s business model is whether A. the strategy is capable of producing sustainable competitive advantage. B. it matches the company’s external and internal situation. C. the chosen strategy makes good business sense from a money-making perspective. D. the company’s strategy and strategic moves are mostly proactive. E. the company’s strategy stands a really good chance of hitting a home-run in the marketplace.

  20. For Discussion: Your Opinion Who has the best business model –Microsoft or Red Hat?

  21. Tests of a Winning Strategy GOODNESS OF FIT TEST How well does the strategy fitthe company’s external and internal situation? COMPETITIVE ADVANTAGE TEST Is the strategy helping the company achieve a sustainable competitive advantage? PERFORMANCE TEST Is the strategy resulting in better company performance?

  22. Other Criteria for JudgingMerits of a 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, theyseldom override the importance of thethree tests of a winning strategy!

  23. Why Should Crafting and Executing Strategy Be Top-Priority Management Tasks? • A compelling need exists for managers to proactively shape how a firm’s businesswill be conducted • A strategy-focused firm is more likelyto be a strong bottom-line performerthan one that views strategy as secondary

  24. 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 a 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 thebest test of managerial excellence – and themost reliable recipe for winning in the marketplace!

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