Foundations of Strategy:Concept of Strategy

Team 1:Andrew McDaniel

Ryan SchaferBrad Schaefer

Brandon ChristianRob Pace

The Role of Strategy in Success

1. Goals: simple, consistent, and long term.

• Lady Gaga left college to pursue singing career.

• James Dyson persisted for more than 5 years and 5000 prototypes.

• Ferguson’s life was dominated by soccer.

The Role of Strategy in Success cont.

2. Good understanding of competitive environment.

• Lady Gaga understood her name was a brand.

• James Dyson realized the importance of tv advertising to sell his product.

• Alex Ferguson recognized the new realities of European soccer

The Role of Strategy in Success cont.

3. Objective appraisal of resources.• Lady Gaga exploited her ability to develop

and project her image.

• Dyson realized his product would likely be imitated.

• Ferguson is masterful in apprising the talents of both his teams and individual players.

The Role of Strategy in Success cont.

4. Effective implementation.• Without effective implementation, the best

laid strategies are of little use.

• Look at the ‘high achievers’ of any competitive area.

• Focusing on a certain goal can lead to success but also failure.

A Brief History of Strategy Origins

• Strategic had its origin from the military and shares many similarities:

They are important.

They involve a significant commitment of resources.

They are not easily reversible.

A Brief History of Strategy cont.

Evolution of business strategy• Corporate planning(1960)-long term financial

planning and investment appraisals for a 5 year period.

• Replaced with strategic management(1980)- Positioning the company in markets and in relation to competitors in order to maximize a potential for profit.

• Changed because they couldn’t plan for economic downfalls.

A Brief History of Strategy cont.

• Resource-based view(1990)- strategy analysis shifted from the source of profit in the external environment, to how the firm could maximize profit internally.

• Continuous changes and tough competition in the market has led to more responsive and flexible strategies for temporary advantages.

Strategy Today What is Strategy?

• Strategy- means by which organizations and individuals achieve their objectives.

• Corporate strategy- includes investment and diversification.

• Business Strategy- concerned with how the firm competes with other companies in industry.

Strategy Today cont. How do we describe a firms strategy?

• Static vs. Dynamic

• Static- competing in the present. Where are we competing? How are we competing?

• Dynamic- preparing for the future. What do we want to become? What do we want to achieve? How will we get there?

Strategy Today cont. How we identify a firms strategy?

• Mission statement Why we exist?

• Statement of principles What we believe in? How we will behave?

• Vision statement What we want to be?

• Strategy statement What our competitive game plan will be?

Strategy Today cont. Important info outside of financial

statements.• Where is the company investing its money?

• What technologies is the company developin?

• What new products have been released?

• Major investment projects initiated and/ or top management hires made?

Strategy Today cont. How is strategy made? Design vs.

emergence

• Intended strategy- made by top management team.

• Realised strategy- actual strategy ~10 – 30% of intended strategy actually realized.

• Emergent strategy- decisions that emerge from complex processes in which managers interpret the intended strategy and adapt to changing circumstances.

Strategy Today cont. What roles does strategy perform?

• Helps in simplifying and limiting alternatives for decision making.

• Statements of strategy are a powerful means in which the CEO can communicate goals to organizational members.

• Strategy helps to target what the firm will become in the future.

Strategy Today cont. In whose interest? Shareholders vs.

Stakeholders• “Organizations ate composed of man different

individuals and groups, many of which may have different agendas”.

• Consumer surplus- firms create value for their customers to the extent that the satisfaction customers gain exceeds the price they pay.

• Stakeholder approach- organization is a coalition of interest groups and top level management balances their conflicts of interest.

Strategy: whose interests should be prioritized?

Profit and purpose• “The worlds most consistently successful

companies in terms of profits and shareholder value tend to be those that are motivated by factors other than profit”

• Blue ocean strategy: Driving costs down while increasing value and price.

• Mission statement: Not always to gain profit but to provide useful

purpose to its users.

Strategy: whose interests should be prioritized? cont.

• Henry Ford’s quote of “I will build a motor car for the great multitude… It will be so low in price that no man making good wages will be unable to own one and to enjoy with his family the blessing of hours of pleasure in God’s great open spaces… When I’m through, everyone will be able to afford one and everyone will have one.”

Strategy: whose interests should be prioritized? cont.

Debate over corporate social responsibility.

Milton Friedman statement on CSR: “ There is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

Approach Taken in this Book• The justification of why companies operate

solely in the interests of their owners seeking to maximize profits:

• Competition- as competition increases, the interests of different

stakeholders converge around the goal of survival.

• The market for corporate control- Companies that underperform financially suffer a

declining share price.

Approach Taken in this Book cont.

• Convergence of stakeholder interests- Profitability over the long run requires employee

loyalty and trusting relationships with suppliers and customers.

• Simplicity- Key problem of stakeholder approach is multiple

goals and specific tradeoffs between them vastly increases the complexity of decision making.

Approach Taken in this Book cont.

The basic framework for strategy analysis• “For a strategy to be successful, it must be

consistent with the firms external environment and with its internal environment – its goals and values, resources and capabilities and structure and systems.”