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Introduction to Corporate Strategy
By Professor G.S. (Andy) Andrews PhD.
Five Definitions
Strategy as…
a consciously and purposefully developed plan;
a ploy to outmaneuver a competitor;
a pattern in a stream of actions, whether intended or not;
a position defined either with respect to a competitor, in the context of a number of competitors, or with respect to markets; and as
a perspective, i.e. a certain mindset of how to perceive the world.
Mintzberg, H. (1987). "The Strategy Concept I: Five Ps For Strategy." California Management Review 30(1) Fall: 11-24.
2
What is Strategy? A Definition
The choice of a future for the company and of a way to reach that future, understood as the framework
that coordinates, unifies and integrates the company’s decisions
and actions
Another definition….
.. .the determination of the basic long term goals and objectives of an enterprise and the adoption of the courses of action
and the allocation of resources necessary for carrying out those
goals- Chandler
“Strategy is what you have in mind until you get the first
blow.”
Mike Tyson, heavy weight champion.“No plan survives contact with the enemy”
Von Clausewitz –”On War”
Strategy Formation
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Source: Henry Mintzberg
$243 B$566
B
$130 B
$172B
$174B
$210 B
$199 B
$42 B
What do they have in common?
They re-constructured
their industries
Or
re-invented their industries!
Through a process of Innovation Led
Change!
$243 B
$61 B
$89 B
$101 B
$21 B
Who created $40 billion of market value right
under their noses?
What is Strategy? Choice of a Future
Industry Value System Users
CustomersCompetitors
Suppliers
Firm-specific AspectsScope
Activities Resources and Capabilities
Strategic Decisions
CommitmentHard to reverse
Vision & MissionValuesLong term
SharedCommunicated
Implementation
Key Questions for Strategy
How do we create value?
How do we capture value?
How can we sustain this value?
The five major elements of strategy
Economic Logic
Arenas
Staging
Differentiators
Vehicles
Where will we be active?
How will we get there?
How will we win in the market place?
What will be our speedand sequence of moves?
How will we obtain our returns?
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“Are you sure you have a strategy?” Donald C. Hambrick and James W. Frederickson Academy of Management Executive 2001 Vol. 15 No. 4
The five major elements of strategy
Strategy is an integrated set of choices.
Arenas Where will we be active?
Vehicles How will we get there?
Differentiators How will we win in the market place?
Staging What will be our speed and sequence of moves?
Economic Logic How will we obtain our returns?
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“Are you sure you have a strategy?” Donald C. Hambrick and James W. Frederickson Academy of Management Executive 2001 Vol. 15 No. 4
What drives competition in the industry?Porter’s Five Forces
Suppliers
Potential Entrants
Buyers
Substitutes
The Industry
Threat of new entrants
Bargaining power ofcustomers / buyers
The threat ofsubstitue products
Bargaining powerof suppliers
Competition withinthe industry
An industry =the group of companies
producing productsfulfilling the samecustomer needs.
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The Activity SystemValue Chain
An activity system is an integrated set of value creation processes leading to the supply of product and/ or service offerings. This activity system is frequently referred to as the value chain. (Porter, 1985)
15
“Strategy: Process, Content, Context” 3rd edition De Wit & Meyer Thomson Learning 2004
Key Questions for Strategy- Let us start with the first question..
How do we create value?
How do we capture value?
How can we sustain this value?
Apple 1978 ...an easy-to-use computer to every man, woman and
child!
Wal-Mart 1962...to put good-
sized stores into little one-horse
towns which everybody else was ignoring...
Canon...to build a low-volume desk-top
copier, 50% cheaper than conventional
copiers, 10 times as reliable and
maintenance free. .
.
How do you create customer value?
Key Questions for Strategy
How do we create value?
How do we capture value?
How can we sustain this value?
Understand the Industry
How do we determine strategy?
Decide what the Firm Can and Will Do
Income Statement
External consistencyInternal consistencyDynamic consistency
Do we create value? Do we capture value?
• Value Created
–willingness to pay
–costs of providing good or service
• Value Captured
WTP
Cost
ValueCreate
d
ValueCapture
dFirm
ValueCapture
dClientPrice
Position in the Industry affects Results
Source: McKinsey
Explains forward integration?Different industries = different structures!
FirmResults
What do you look for in an industry?
Income Statement
UsersRivalry SuppliersCustomers
Entry Barriers
Substitutes
Industry Value System
Firm Specific Factors
Income Statement
Industry Value System
What do you look for inside?
Firm Specific Resources & Capabilities
Activities Scope
Income Statement
External consistencyInternal consistencyDynamic consistency
+Strengths vs weaknesses
Opportunities and threats
Positioning: Scope
Product Scope“What do I sell?”
Customer Scope“For whom?”
Geographical Scope“Where?”
Competitive Positioning
Buyer value generated (willingness to pay)
Costs incurred (including opportunity cost of capital)
Industry average
competitor
Successful differentiated
competitor
Successful low-cost
competitor
Competitor with dual
advantage
Source: Ghemawat (2006)
Key Questions for Strategy
How do we create value?
How do we capture value?
How can we sustain this value?
What are Resources and Capabilities?
Tangible•Physical •Financial
Intangible•Technology •Reputation•Patents
Organizational•Knowledge•Integration•Motivation
Resources and “capabilities”
Sales 1902 2661 4071 5284 5558 Cost of sales 891 1296 1991 2695 2606 I+D 128 192 273 421 478
Operating income 274 371 620 634 712 Net Income 154 218 400 454 475 ROS 8,10% 8,19% 9,83% 8,59% 8,55%
ROA 13,28% 14,75% 19,21% 16.55% 15,96%
ROE 28% 28% 44% 36% 32%
1986 1987 1988 1989 1990
Apple Computer
APPLE loses 700 M. in just one Q in 1996!
1996
2000
Strategy is about the choices you make…
Thank you!!