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Chapter 1

Chapter 1. What Is Strategy?. Strategy involves …. 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!. What Is Strategy?.

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Chapter 1

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  1. Chapter 1

  2. What Is Strategy? Strategy involves … 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!

  3. What Is Strategy? 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

  4. What Is Strategy? 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

  5. Cyclical: Conceptual … Planned … Executed … Reviewed What Is Strategy? Strategy is … The General’s view (Strategos) Integrated Externally oriented

  6. Walt Disney Company 1984 Profits: $242 Million Theme Park Operations: 77 percent of profits Consumer Products: 22 percent of profits Filmed Entertainment: 1 percent of profits

  7. Walt Disney Company Hired Michael Eisner - 1984 1. Increased admission prices at theme parks 1984 - $186 m 1989 - $787 m 2. Focused on movie studios (character development) 1984 - $2.42 m 1994 - $845 m • Diversified into television (ABC), hotels, retail stores, • sport team, cruise line, publishing, consumer • products, licensing, etc. (Huey & McGowan, 1995) Market Cap: 1984 = $2 billion 1994 = $28 billion

  8. 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 extraordinary entertainment. We have the necessary resources to create extraordinary entertainment. Therefore, let’s redeploy our resources in a different way and offer something extraordinary to people.

  9. So Why is Strategy Important? Strategy + Execution = ? Management ! It is management’s job to get results

  10. Summary Strategy is about creating a desirable future, and it is important because that future is desired.

  11. But remember … The future is foggy!

  12. Recommended reading:

  13. Chapter 2 The Managerial Process of Crafting and Executing Strategy

  14. The Strategic Management Process External Analysis Strategic Choice Strategy Implementation Competitive Advantage Mission Objectives Internal Analysis

  15. The Strategic Management Process External Analysis Strategic Choice Strategy Implementation Competitive Advantage Objectives Internal Analysis Mission

  16. The Strategic Management Process Objectives: • specific, measurable targets, etc. (SMART) • the things a firm needs to ‘do’ to achieve its mission • should influence other elements in the strategic management process See text p. 28 for examples

  17. The Strategic Management Process External and Internal Analysis Systematic Examination of the Environment Internal Analysis External Analysis • human resources (knowledge) • interest rates • demographics • manufacturing abilities • social trends • technology • technology

  18. Internal Analysis External Analysis Strategic Choice Corporate Level Business Level The Strategic Management Process Strategic Choice • which businesses? • positioning a business

  19. The Strategic Management Process 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.

  20. The Strategic Management Process Strategy Implementation • every strategic choice has strategy implementation implications • strategy implementation is just as important as strategy formulation (or maybe more so – my view) A Strategy Is Only As Good As Its Implementation

  21. The Strategic Management Process Competitive Advantage Definition: the ability to create more economic value than competitors External Analysis Strategic Choice Strategy Implementation Competitive Advantage Mission Objectives Internal Analysis • all other elements of the strategic management process are aimed at achieving competitive advantage

  22. Competitive Advantage The Ability to Create More Economic Value Than Competitors • there must be something different about a firm’s offering vis-à-vis competitors’ offerings • if all firms’ strategies were the same, no firm would have a competitive advantage • competitive advantage is the result of doing something different and/or better than competitors

  23. Competitive Advantage Two Types of Difference 1) Preference for the firm’s output • people choose the firm’s output over others’ • people are willing to pay a premium Example: Nordstrom 2) Cost advantage vis-à-vis competitors • lower costs of production/distribution Example: Wal-Mart

  24. Competitive Advantage The Strategic Management Process External Analysis Strategic Choice Strategy Implementation Competitive Advantage Internal Analysis • identify and exploit differences that may lead to competitive advantage Example: Apple’s iPod

  25. Competitive Advantage Temporary & Sustainable • competitive advantage typically results in high profits • profits attract competition • competition limits the duration of competitive advantage in most cases Therefore, • most competitive advantage is temporary • competitors imitate the advantage or offer something better

  26. Competitive Advantage Measuring Competitive Advantage Superior Economic Performance Is Viewed as Evidence of Competitive Advantage • it is rather easy to see the evidence of competitive advantage • measuring the source of the advantage per se is typically impossible • it’s difficult to ‘measure’ technology

  27. Competitive Advantage & The Strategic Management Process Emergent vs. Intended Strategies • the strategic management process leads managers tointended strategies However, • conditions often change or new information becomes available • managers respond and adopt emergent strategies

  28. The Strategic Management Process Summary This course is not about mere survival, it is about thriving—achieving competitive advantage • the strategic management process helps managers achieve competitive advantage • competitive advantage depends on differences • strategy is about discovering and exploiting these differences

  29. The Strategic Management Process Applying Strategy to Your Career • a solid understanding of strategy concepts will help set you apart from other job candidates • you can use the process to identify and exploit difference between you and others • you can use the process to determine if you want to stay with a company

  30. The Strategic Management Process & Competitive Advantage Strategy Matters! Strategy is often the difference between: • success and failure, between mediocrity and excellence • a great manager and average managers • stumbling through life and moving ahead with purpose

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