8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
1/33
CHAPTER 1
WHAT IS STRATEGY ANDWHY IS IT IMPORTANT?
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
2/33
1 –2Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
1. Understand why every company needs a sound strategy tocompete successfully, manage the conduct of its business, andstrengthen its prospects for long-term success.
2. Develop an awareness of the four most dependable strategicapproaches for setting a company apart from rivals and
winning a sustainable competitive advantage.
3. Understand that a company’s strategy tends to evolve overtime because of changing circumstances and ongoingmanagement efforts to improve the company’s strategy.
4. Learn why it is important for a company to have a viablebusiness model that outlines the company’s customer valueproposition and its profit formula.
5. Learn the three tests of a winning strategy.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
3/33
1 –3Copyright © 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
● Firm’s financial and competitive capabilities
♦ Where do we want to go from here?
● Creating a vision for the firm’s future direction
♦ How are we going to get there?
● Crafting an action plan that will get us there
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
4/33
1 –4Copyright © 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 marketconditions and growth opportunities.
● How to manage functional pieces of the
business.
● How to improve the firm’s financial andmarket performance.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
5/33
1 –5Copyright © 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.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
6/33
1 –6Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGY AND COMPETITORS
♦ Strategy is about competing differently
from rivals—
● Doing what they don’t do or doing it better!
● Doing what they can’t do!
● Doing that which sets the firm apart and
attracts customers.
● Doing what we should or should not do to
produce a competitive edge.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
7/331 –7Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
1.1 Identifying a Company’s Strategy—What to Look For
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
8/331 –8Copyright © 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
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
9/331 –9Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
• Which of McDonald’s Plan-to-Win strategy
initiatives are associated with meeting
customer needs more effectively ?
• Which initiatives are focused on moreefficiently delivering products and services?
• Which initiatives will likely result in the most
enduring competitive advantage?
• Which of the initiatives will competitors likelyattempt to overcome first?
Fol low-up
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
10/331 –10Copyright © 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, atlower cost.
♦ Sustainable Competitive Advantage
● Giving buyers lasting reasons to prefer afirm’s products or services over those of its
competitors.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
11/331 –11Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC APPROACH CHOICES
Low-costprovider
Differentiationon features
Focus onmarket niche
Best-costprovider
Building Competitive Advantage
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
12/331 –12Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC APPROACHES
♦ Building a competitive advantage by:
1. Striving to become the industry’s low-cost
provider (efficiency ).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche market’s
needs (efficiency and\or effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider ).
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
13/331 –13Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Strategic Positioning
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
14/331 –14Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Strategic Positioning
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
15/331 –15Copyright © 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 incrafting your strategy.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
16/331 –16Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Competitive Advantage
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
17/33
1 –17Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Competitive Advantage
Th V l Ch i F k f
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
18/33
1 –18Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
The Value Chain as a Framework forCompetitive Advantage
D d th l h i B
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
19/33
1 –19Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Decomposed the value chain : Bebetter than competitor
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
20/33
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
21/33
1 –21Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Value Chain
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
22/33
1 –22Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Why a Firm’s 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
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
23/33
1 –23Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
The Evolving Nature of a Firm’s 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.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
24/33
1 –24Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
1.2 A Company’s Strategy Is a Blend of Proactive Initiativesand Reactive Adjustments
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
25/33
1 –25Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
THE RELATIONSHIP BETWEEN AFIRM’S STRATEGY AND ITS
BUSINESS MODEL
Realized
StrategyCompetitiveInitiatives
BusinessApproaches
Business
ModelValue
Proposition
Profit Formula
$$$?
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
26/33
1 –26Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
A Company’s Business Model
♦ How the business will make money :
● By providing customers with value.
The firm’s customer value proposition
● By generating revenues sufficient to cover
costs and produce attractive profits.
The firm’s profit formula
It takes a proven business model —one thatyields appealing profitability —to demonstrate
viability of a firm’s strategy.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
27/33
1 –27Copyright © 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.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
28/33
1 –28Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Business Model Elements (cont’d)
♦ The Profit Formula
● Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition. V—the value provided to customers
P—the price charged to customers
C—the firm’s costs
● The lower the costs (C) for a given customer
value proposition (V –P), the greater the ability
of the business model to be a moneymaker.
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
29/33
1 –29Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
IS OUR STRATEGY A WINNER?
WinningStrategy
The StrategicFit Test
The CompetitiveAdvantage Test
The PerformanceTest
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
30/33
1 –30Copyright © 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 firm’s 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 firm’s profitability, financial and
competitive strengths, and market standing?
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
31/33
1 –31Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
WHY CRAFTING AND EXECUTINGSTRATEGY 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
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
32/33
1 –32Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
THINKING STRATEGICALLY
♦ Google’s web browser -based Chrome operating
system and its online applications suite are now
challenging Microsoft’s long-term dominance of
those marketplace sectors.● What should be Microsoft’s first response to this
competitive challenge?
● How will Microsoft’s response to this competitor’s
actions affect its business model?
● Which competitor’s strategy will likely be the eventual
winner in the marketplace?
8/20/2019 Crafting & Executing Strategy Chapter 1 Summary
33/33
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!