The Concept of Strategy

Session 1

What is ‘Strategy’? Consists of 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 oforganizational performance

2

What is ‘Strategy’? … Contd.

A firm’s strategy is found in its investments in resources and capabilities that 1) determine its market position and 2) defend this position from competitors

Benefits of an effective strategy Relates the firm’s resources and capabilities to its markets Provides a framework for integrating activities within the firm Acts as a guide for decisions regarding management and

organization Businesses achieve competitive advantage by emphasizing

cost, value to the customer, or both.

3

The Three Strategic Questions What’s the company’s present situation?

Where does the company need to go from here?

Businesses to be in and market positions to stake out

Buyer needs and groups to serve

Direction to head

How should it get there?

A company’s answer to “how will we get there?” is its strategy

4

Origins of Strategy Basic origins of strategy include:

Industrial and evolutionary economics Case studies of exemplary companies Business and industry history Economic and organizational sociology Strategic planning tools Institutional economics

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6

10 Schools of Strategy

Strategy Safari (Mintzberg, Ahlstrand, Lampel)

7

5 Ps of Strategy

Plan. A direction, guide, course of action.

Pattern. Consistency in behavior over time.

Position. Locating specific products in specific

markets.

Perspective. Way of doing things.

Ploy. Specific maneuver to outwit.

Strategy Safari (Mintzberg, Ahlstrand, Lampel)

Strategy Formulation and Implementation Strategy formulation

Information gathering and identification of resources and capabilities

Deciding which strategy the firm should follow Strategy implementation

Taking action necessary for the strategy to be successful

8

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 Competing with a competitive disadvantage nearly

always results in below-average profitability

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A Powerful Strategy Leads to Sustainable Competitive Advantage A company achieves sustainable competitive

advantage when an attractive number or buyers prefer its products/services over those of rivals and when the basis for this preference can be maintained over time

Its nice when a strategy produces a temporary competitive edge but a durable edge over rivals greatly enhances a company’s prospects for winning in the marketplace and realizing above-average profits

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!

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Four “Best” Strategic Approaches toBuilding Sustainable Competitive Advantage Being the industry’s low-cost provider (a cost-based

competitive advantage) 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)

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)

Developing expertise and resource strengths not easily imitated or matched by rivals (a capabilities-based competitive advantage)

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Strategy Execution Entails continuous development, maintenance and

improvement of resources and capabilities Elements of execution:

Incentives and compensation Control and coordination systems Degree of consistency among a firm’s activities Firm’s culture and human resource systems

Effective execution requires each element to reinforce the others

Not the same as strategic planning

12

Strategic Planning Details the process for developing business

strategies and links them to operational programs and investments

Details the logic behind cash flow forecasts Provides process for:

Development of the firm’s mission Goal setting Identification of strategic initiatives Program development, scheduling and accountability Problem solving and innovation

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Tests of a Winning Strategy

Goodness of fit test

How well does strategy fitthe firm’s situation?

Competitive advantage test

Does strategy lead to sustainablecompetitive advantage?

Performance test

Does strategy boost firm performance?

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Thank You