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What Is Strategy
Chapter Title
and Why Is
It Important?
Screen graphics created by:
16/e PPT Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
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
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What Do We Mean By “Strategy”?
Consistsof competitive moves and business
approaches used by managers to run the
company
Management’s “action plan” to
Grow the business
Attract and please customers
Compete successfully
Conduct operations
Achieve target levels of
organizational performance
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Strategy and the Quest for
Competitive Advantage
The heart and soul of any strategy are the actions and
moves in the marketplace that a company makes to
strengthen its competitive position and gain a competitive
advantage over rivals
A creative distinctive strategy that sets a company apart
from rivals and yields a competitive advantage is a
company’s most reliable ticket to above average profitability
Competing with a competitive advantage is more profitable
than competing with no advantage e.g. foodles, noodles, knorr
soupy noodles.
Competing with a competitive disadvantage nearly always
results in below-average profitability e.g. close down of retail
chains
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Four “Best” Strategic Approaches to
Building Sustainable Competitive Advantage
Being the industry’s low-cost provider (a cost-based competitive
advantage)
e.g. Wal-Mart : the success factors are operating practices, super
efficient distribution system, supply chain management.
Incorporate differentiating features (a “superior product” type of
competitive advantage keyed to higher quality, better performance,
wider selection, value-added services, or some other attribute)
Johnson & Johnson in baby products : product reliability
Mercedes Benz and BMW : Design, performance and prestige
Amazon. COM – wide selection and convenience
Focusing on a narrow market niche (winning a competitive edge by
doing a better job than rivals of serving the needs and preferences of
buyers comprising the niche)
E-Bay in online auctions
Organic food market
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Four “Best” Strategic Approaches to
Building Sustainable Competitive Advantage
Developing expertise and resource
strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)
FedEx- superior delivery of packets on time
Amul – Milk Resources
Walt Disney- theme park management and family
entertainment
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Fig. 1.1: Identifying a Company’s Strategy
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Why Do Strategies Evolve?
A company’s strategy is a work in progress
Changes may be necessary to react to
Shifting market conditions
Technological breakthroughs
Fresh moves of competitors
Evolving customer preferences
Emerging market opportunities
New ideas to improve strategy
Crisis situations
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Fig. 1.2: A Company’s Strategy Is
Partly Proactive and Partly Reactive
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Linking Strategy With Ethics
Ethical and moral standards go beyond
Prohibitions of law and the language of “thou shalt not”
to issues of
Duty and “right” vs. “wrong”
Ethicaland moral standards address
“What is the right thing to do?”
Two criteria of an ethical strategy:
Does not entail actions and behaviors that cross the line
from “should do” to “should not do” and “unsavory” or
“shady” and
Allows management to fulfill its ethical duties to all
stakeholders
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A Firm’s Ethical
Responsibilities to Its Stakeholders
Owners/shareholders – Rightfully expect some form of
return on their investment
Employees - Rightfully expect to be treated with dignity
and respect for devoting their energies to the enterprise
Customers - Rightfully expect a seller to provide them
with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitable
relationship with firms they supply and be treated fairly
Community - Rightfully expect businesses to be good
citizens in their community
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What Is a Business Model?
model addresses “How do we make
A business
money in this business?”
Is the strategy capable of delivering
good bottom-line results?
Do the revenue-cost-profit economics
of the strategy make good business sense?
Look at revenue streams the strategy is expected to
produce
Look at associated cost structure and potential profit
margins
Do resulting earnings streams and ROI indicate the
strategy makes sense and the company has a viable
business model for making money?
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Examples of Business Models
Cable TV, Cell Phone providers – Subscription based
business models.
Mc Donald’s: fast food model economical quick service meal
at convenient places.
Wal- Mart – discounted retailing
Gillette – business model for razor blades, low price and
making money on repeat purchase.
Dell- Direct sell business model without distributor and
retailers.
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Relationship Between
Strategy and Business Model
Strategy . . . Business Model . . .
Deals with a company’s Concerns whether revenues
competitive initiatives and and costs flowing from the
business approaches strategy demonstrate a
business can be amply
profitable and viable
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Tests of a Winning Strategy
GOODNESS OF FIT TEST
How well does strategy fit
the firm’s situation?
COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainable
competitive advantage?
PERFORMANCE TEST
Does strategy boost firm performance?
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Why Is Strategy Important?
A compellingneed exists for managers
to proactively shape how a firm’s
business will be conducted
A strategy-focused firm is more likely
to be a strong bottom-line performer
than one that views strategy as secondary
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