CHAPTER 1

WHAT IS STRATEGY AND

WHY IS IT IMPORTANT?

12 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

1. Understand why every company needs a sound strategy to

compete successfully, manage the conduct of its business, and

strengthen its prospects for long-term success.

2. Develop an awareness of the four most dependable strategic

approaches for setting a company apart from rivals and

winning a sustainable competitive advantage.

3. Understand that a companys strategy tends to evolve over time because of changing circumstances and ongoing

management efforts to improve the companys strategy.

4. Learn why it is important for a company to have a viable

business model that outlines the companys customer value proposition and its profit formula.

5. Learn the three tests of a winning strategy.

13 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

WHAT DO WE MEAN BY STRATEGY ?

What is our present situation?

Business environment and industry conditions

Firms financial and competitive capabilities

Where do we want to go from here?

Creating a vision for the firms future direction

How are we going to get there?

Crafting an action plan that will get us there

14 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

WHAT IS STRATEGY ABOUT?

Strategy is all about How:

How to outcompete rivals.

How to respond to economic and market

conditions and growth opportunities.

How to manage functional pieces of the

business.

How to improve the firms financial and market performance.

15 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

WHY DO STRATEGY ?

A firm does strategy:

To improve its financial performance.

To strengthen its competitive position.

To gain a sustainable competitive.

advantage over its market rivals.

A creative, distinctive strategy:

Can yield above-average profits.

Makes competition difficult for rivals.

16 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGY AND COMPETITORS

Strategy is about competing differently from rivals

Doing what they dont do or doing it better!

Doing what they cant do!

Doing that which sets the firm apart and

attracts customers.

Doing what we should or should not do to

produce a competitive edge.

17 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

1.1 Identifying a Companys StrategyWhat to Look For

18 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Key initiatives of the Plan-to-Win strategy:

Improved restaurant operations

Affordable pricing

Wide menu variety and beverage choices

Convenience and expansion of dining opportunities

Ongoing restaurant reinvestment and international expansion

19 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Which of McDonalds Plan-to-Win strategy initiatives are associated with meeting

customer needs more effectively?

Which initiatives are focused on more efficiently delivering products and services?

Which initiatives will likely result in the most enduring competitive advantage?

Which of the initiatives will competitors likely attempt to overcome first?

Follow-up

110 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

The Quest for Competitive Advantage

Competitive Advantage

Meeting customer needs more effectively,

with products or services that customers

value more highly, or more efficiently, at

lower cost.

Sustainable Competitive Advantage

Giving buyers lasting reasons to prefer a

firms products or services over those of its competitors.

111 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGIC APPROACH CHOICES

Low-cost

provider

Differentiation

on features

Focus on

market niche Best-cost

provider

Building Competitive Advantage

112 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGIC APPROACHES

Building a competitive advantage by:

1. Striving to become the industrys low-cost provider (efficiency).

2. Outcompeting rivals on differentiating

features (effectiveness).

3. Focusing on better serving a niche markets needs (efficiency and\or effectiveness).

4. Offering the lowest (best) prices for

differentiated goods (best-cost provider).

113 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategic Positioning

114 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategic Positioning

115 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

GAINING SUSTAINABLE COMPETITIVE ADVANTAGE

How to create a sustainable competitive advantage:

Develop valuable expertise and competitive

capabilities over the long-term that rivals

cannot readily copy, match or best.

Put the constant quest for sustainable

competitive advantage at center stage in

crafting your strategy.

116 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitive Advantage

117 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitive Advantage

118 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

The Value Chain as a Framework for Competitive Advantage

119 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Decomposed the value chain : Be better than competitor

120 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Value added revenue total cost = margin

Value added process add value through cooperation with supplier, customer, and distributor

Value chain system The relationship between the value chain activities of the organization and its suppliers, distributors and consumers

The value network

Value Chain Analysis

Organization Value Chain

Supplier

Value chain

Channel

Value chain

Customer

Value chain

Up

str

eam

va

lue

Do

wn

str

eam

va

lue

COMPETITIVE ADVANTAGE

121 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Value Chain

122 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Why a Firms Strategy Evolves over Time

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

123 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

The Evolving Nature of a Firms Strategy

Realized (current) 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.

124 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

1.2 A Companys Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments

125 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

THE RELATIONSHIP BETWEEN A FIRMS STRATEGY AND ITS BUSINESS MODEL

Realized

Strategy

Competitive

Initiatives

Business

Approaches

Business

Model

Value

Proposition

Profit Formula

$$$?

126 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

A Companys Business Model

How the business will make money :

By providing customers with value.

The firms customer value proposition

By generating revenues sufficient to cover

costs and produce attractive profits.

The firms profit formula

It takes a proven business modelone that yields appealing profitabilityto demonstrate

viability of a firms strategy.

127 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Business Model Elements

The Customer Value Proposition

Satisfying buyer wants and needs at a price

customers will consider a good value.

The greater the value provided (V) and

the lower the price (P), the more

attractive the value proposition is to

customers.

128 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Business Model Elements (contd)

The Profit Formula

Creating a cost structure that allows for

acceptable profits, given that pricing is

tied to the customer value proposition.

Vthe value provided to customers

Pthe price charged to customers

Cthe firms costs

The lower the costs (C) for a given customer

value proposition (VP), the greater the ability of the business model to be a moneymaker.

129 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

IS OUR STRATEGY A WINNER?

Winning

Strategy

The Strategic

Fit Test

The Competitive

Advantage Test

The Performance

Test

130 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

WHAT MAKES A STRATEGY A WINNER?

A winning strategy must pass three tests:

The Fit Test

Does it exhibit dynamic fit with the external and

internal aspects of the firms overall situation?

The Competitive Advantage Test

Can it help the firm achieve a significant and

sustainable competitive advantage?

The Performance Test

Can it produce good performance as measured

by the firms profitability, financial and competitive strengths, and market standing?

131 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

WHY CRAFTING AND EXECUTING STRATEGY ARE IMPORTANT TASKS

Strategy provides:

A prescription for doing business.

A road map to competitive advantage.

A game plan for pleasing customers.

A formula for attaining long-term standout

marketplace performance.

Good Strategy + Good Strategy Execution =

Good Management

132 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

THINKING STRATEGICALLY

Googles web browser-based Chrome operating system and its online applications suite are now

challenging Microsofts long-term dominance of those marketplace sectors.

What should be Microsofts first response to this competitive challenge?

How will Microsofts response to this competitors actions affect its business model?

Which competitors strategy will likely be the eventual winner in the marketplace?

133 Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

THE ROAD AHEAD

Strategy is about asking the right questions:

What must managers do, and do well, to make a

firm a winner in the marketplace?

Strategy requires getting the right answers:

Good strategic thinking and good management of

the strategy-making, strategy-executing process.

First-rate capabilities and skills in crafting and

executing strategy are essential to managing

successfully.

Welcome and best wishes for your success!