MGT Chapter 1 Summary - book "Crafting and
Executing Strategy"
Business Strategy (Clemson University)
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Chapter 1: What is Strategy and Why is it important?
➢ A company’s strategy is the set of actions that its managers take to outperform
the company’s competitors and achieve superior profitability
o Objective is lasting success that can support growth and secure
company’s future over the long term
o Its purpose is to achieve alignment of corporate actions, policies,
and strategic priorities
▪ How to attract and please customers
▪ How to compete against rivals
▪ How to position the firm in the marketplace to capitalize on
attractive opportunities for growth
▪ How to respond to changing economic and market conditions
▪ How to manage each functional piece of the business
▪ How to achieve the firm’s performance targets
o What is our present situation?
▪ Business environment and industry conditions
▪ Firm’s financial and competitive capabilities
o Where do we want to go from here?
▪ Creating a vision for the firm’s future direction
o How are we going to get there?
▪ Crafting an action plan for heading the firm in the intended
direction, staking out a market position, attracting customers,
achieving the targeted financial and market performance, and
getting the firm where it wants to go is its strategy
➢ Strategy Maangement Prinicple: strategy is aabout copeting idffernly from
rivals- doing what competitors don’t do or even better, doing what they cannot
do
o Strategy works when it is predicated on actions, business approaches and
competitive moves aimed at appealing to buyers in ways that set a
company apart from its rivals and staking out a market position that is not
croweded with strong competitors
➢ Strategy and the Quest for Competitve Advantage
o Achieves competitive advantage whenever it has some type fo edge
over rivals in attracting buyers and coping with competitive forces
o Superior value can mean a good product at a lower price, a suspeior
product that is wrkth paying more for or a best-value offereing
o Requires perfomring value chain more efficiently
o A firm needs a strategy to specify what actions are going to be taken:
▪ To improve its financial performance
▪ To strengthen its competitive position
▪ To gain a sustainable competitive advantage over its market rivals
o A creative, distinctive strategy:
▪ Helps produce above-average profits
▪ Increases competitive pressures on rivals
o Strategy is about competing differently from rivals:
▪ Doing what they do not do or doing it better!
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▪ Doing what they cannot do!
▪ Doing things in ways that attract customers and set a firm apart
from its rivals
▪ Doing things in a manner calculated to produce a competitive
edge over rivals
▪ Knowing what the firm must do and also what it must not do
o What makes a sustainable competitive advantate are the elemnts of the
strategy that give buyers lasting reaons to prefer a company’s prpduct
or services over those of competitors
▪ Reasons that competitors are unable to nullify or overcome
despite their best efforts
➢ Five Strategies for Building Competitive Advantage
o Low-cost: acheieving a cost-based advantage over rivals
▪ Walmart and southwest have earned strong market positions
because of the low-cost advantages they have ahceived over their
rivals
▪ Can produce a durable competitive edge when rivals find it hard
to match the low-cost leader’s
o Broad Differentiation: seeking to differentiate the copany’s prpduct or
service form that of rivals in ways that will appeal to a broad spectrum
▪ Apple, Johnson and Johsnon in baby products
▪ Sufficiently innovative to thwart the efforts of clever rivals to copy
or closely imitate the product offering
o Focused low-cost: concetraing on a narrow buyer segement and
outcpmpteing rivals by having lower costs thus being able to servie
niche members at a lower price
▪ Private labeled manaufactueres of food/beautiy use this
o Focused idfferenttiaton: concentrainig on a narrow buyer segment and
outcop,te rivals by offer buyers customizated attricuted to mee their
specific needs
▪ Ex: Lululemon
o Best-cost provider: giving customers more value for the money by
satisfying their expectations on key quality features, performance and/or
service attribures while beating their price expectations
▪ Bleds low cost and differentiation
▪ Ex: Target
➢ Why a Company’s strategy evolves over time
o Managers modify strategy in response to:
▪ Changing market conditions
▪ Advancing technology
▪ Fresh moves of competitors
▪ Shifting buyer needs
▪ Emerging market opportunities
▪ New ideas for improving the strategy
o Company’s strategy changes incrementally as management fine-tunes
various pieces of the strategy and adjusts in response to unfolding events
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➢ Proactive and Reactive Strategy
o The evoling nature of company’s strategy means that the typical
company strategy is a blend of
▪ Proactive (deliberate) strategy elements that include both
continued and new initiatives
▪ Reactive (emergent) strategy elements that are required due to
unanticipated competitive developments and fresh market conditions
o Deliberate Strategy: consisting of proactive strategy elements that are
both planned and realized as planned (Fig. 1.2)
o Portion is always developed on the fly
o A company’s deliberate strategy consist of proactive strategy elements that
are planned; its emergent strategy consist of reactive strategy elements
that emerge as changing conditions warrant
A Company’s Strategy and Business Model
➢ A company’s business model sets forth the logic for how its strategy will create
value for customers, while at the same time generate revenues sufficient to
cover costs and realize a profit
o It’s the blueprint for delivering a valuable product or service to customers i
➢ Two elements are of business model
o Its customer value proposition
▪ Lays out the company’s approach to satisfying the buyers needs
and wants at aprice customers will consider a good value
o Profit formula
▪ Creating a cost structure that allows for acceptable profits, given
that pricing is tied
to the customer value proposition:
• V—the value provided to customers
• P—the price charged to customers
• C—the firm’s costs
▪ The lower the costs (C) for a given customer value proposition (V–
P), the greater the ability of the business model to be a moneymaker
▪ V-P: customers perception of how much value they are getting
▪ P-C: profit per unit
o Ex: Gillette’s business model in razor blades involves selling a master
product at a low price and making money of repurchases
What makes a Strategy a winner?
➢ A winning strategy must pass three tests:
o The Fit Test
▪ Does it exhibit dynamic fit with the external and internal aspects of
the firm’s overall situation?
▪ Also dynamic fit in the sense that they evolve over time in a
manner that maintains close and effective alignment with the
company’s
situation
o The Competitive Advantage Test
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▪ Can it help the firm achieve a significant and sustainable
competitive advantage?
o The Performance Test
▪ Can it produce good performance as measured by the firm’s
profitability, financial and competitive strengths, and market
standing?
Why Crafting and Executing Strategy are Important Tasks
➢ Strategy provides:
o A prescription for doing business
o A road map to competitive advantage
o A game plan for pleasing customers
o A formula for attaining long-term standout marketplace performance
➢ Good Strategy + Good Strategy Execution = Good Management
➢ How well a company performs is directly attributable to the caliber of its
strategy and the proficiency with which the strategy is executed.
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