THINKING STRATEGICALLY:

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THINKING STRATEGICALLY

• The Concept of Strategy and the Pursuit of
  Sustained Superior Profits

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Business Proposition
Profits Quantity (Revenue - Cost)
MARGIN
3 most fundamental variables in Business
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Domain of Strategy

• strategic competitiveness and above normal
  returns
• concerns managerial decisions and actions which
  materially affect the success and survival of
  business enterprises
• involves the judgment necessary to strategically
  position a business and its resources so as to
  maximize long-term profits in the face of
  irreducible uncertainty and aggressive
  competition
• strategy is the linkage between a business and
  its current and future environment

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Key Characteristics of Strategic Decisions

• What makes a decision strategic?
• decision-making in the face of irreducible
  uncertainty
• requires irreversible commitments...involves
  allocation of sunk investments (, time, tangible
  intangible resources)
• requires choice and trade-offs
• multi-functional in scope/consequences
• entrepreneurial theorizing/future oriented
• infrequent and non-recurring
• dealing with competition
• concerning the external environment... primarily
  product/market choices

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Definitions

• The determination of the long run goals and
  objectives of an enterprise, and the adoption of
  courses of action and the allocation of resources
  necessary for carrying out these goals
• Alfred Chandler, Strategy and Structure

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Distinguishing Strategy from Tactics

• Strategy is the overall plan for deploying
  resources to establish a favorable position
• Tactic is a scheme for a specific maneuver

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Common Elements in Successful Strategy
Successful Strategy
EFFECTIVE IMPLEMENTATION

Source Adapted from Robert S. Grant, 1991
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Concepts of Firm Performance

• firm survival
• accounting profits (ROA, ROE, ROS)
• surplus of revenues over expenses
• economic profit/rent (economic value added,
  positive NPV)
• normal return on capital
• abnormal return - surplus after all inputs
• shareholder value/market value(EVA, Tobins q)
• Change in market value over time

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Sources of Superior Performance
Above Normal Profits (in Excess of the
Competitive Level)
AvoidCompetitors
Be Better ThanCompetition
AttractiveIndustry
AttractiveNiche
AttractiveStrategic Group
CostAdvantage
DifferentiationAdvantage
Entry Barriers
Isolating Mechanisms
Mobility Barriers
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Elements of a Strategy

• 1. BUSINESS DEFINITION
• Customer Needs
• Technology
• Products
• Geographic Scope
• 2. BUSINESS STRATEGIC INTENT
• Direction
• Rate
• Priorities

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Elements of a Strategy
3. FINANCIAL TARGETS Short-term Long-term ROA
ROE ROS 4. SOURCES OF COMPETITIVE
ADVANTAGE Reputation and Consumer Loyalty Brand
name Producer Learning Economies of Scale
and/or Scope Location Access to lower cost
factors of production Distribution and
Shelf-space etc.
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Elements of a Strategy
5. KEY STRATEGIC DIMENSIONS Product line
Specialization Brand Identification Push vs
Pull Marketing Selling Approach Distribution
and Channel Selection Product Quality Technologi
cal leadership Vertical Integration Cost
Position Customer Service Price
Policy Financial Leverage Relationship with
Parent Company, if any
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Elements of a Strategy

• 6. VALUE-ADDING ACTIVITIES
• Research
• Development
• Procurement
• Raw Material Processing
• Intermediate Production
• Final Production
• Marketing
• Selling
• Distribution
• Customer Service

For service businesses use Production
Operations, Support Operations, and Delivery
Operations instead.
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Elements of a Strategy
7. COMPETITIVE STRATEGY Competitor A
Competitor B Competitor C Competitor D etc.
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Levels of Strategy

• Corporate strategy... defines the scope of the
  business in terms of the industries and markets
  in which it competes.
• includes decisions about diversification,
  vertical integration, acquisitions, new ventures,
  divestments, allocation of scarce resources
  between business units
• Business strategy... is concerned with how the
  firm competes within a particular industry or
  market... to win a business unit must adopt a
  strategy that establishes a competitive advantage
  over its rivals.
• Functional strategy... the detailed deployment of
  resources at the operational level

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Levels of Strategy
CORPORATE STRATEGY
CORPORATE HEAD OFFICE
BUSINESS STRATEGY
FUNCTIONAL STRATEGIES
Source Robert M. Grant,
Contemporary Strategy Analysis,
Basil Blackwell, 1991.