Without a strategy the organization is like a ship without a rudder'

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Without a strategy the organization is like a
ship without a rudder.

• Daniel F. Duran, Ph D.
• HD 328
• Spring 2009

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Chapter Roadmap

• What Do We Mean By Strategy?
• Strategy and the Quest for Competitive Advantage
• Identifying a Companys Strategy
• Why a Companys Strategy Evolves Over Time
• A Companys Strategy Is Partly Proactive and
  Partly Reactive
• Strategy and Ethics Passing the Test of Moral
  Scrutiny
• The Relationship Between a Companys Strategy and
  Its Business Model
• What Makes a Strategy a Winner?
• Why Are Crafting and Executing Strategy Important?

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Thinking StrategicallyThe Three Big
Strategic Questions

• 1. Whats the companys present situation?
• 2. Where does the company need to go from here?
• Business(es) to be in and market positions to
  stake out
• Buyer needs and groups to serve
• Direction to head
• 3. How should it get there?
• A companys answer to how will we get there?
  is its strategy

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What Do We Mean By Strategy?

• Consists of competitive moves and business
  approaches used by managers to run the company
• Managements action plan to
• Grow the business
• Attract and please customers
• Compete successfully
• Conduct operations
• Achieve target levels oforganizational
  performance

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The Hows ThatDefine a Firm's Strategy

• How to grow the business
• How to please customers
• How to outcompete rivals
• How to manage each functionalpiece of the
  business (RD, production, marketing, HR,
  finance, and so on)
• How to respond to changing market conditions
• How to achieve targeted levels of performance

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Key Elements of a Successful Strategy

• Developing a successful strategy hinges on making
  competitive moves aimed at
• Appealing to buyers in ways to set the enterprise
  apart from rivals and
• Carving out its own market position
• Involves developing a distinctive ahaelement
  to
• Attract customers and
• Produce a competitive edge

Copying competitive moves of other successful
companies rarely works!
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Strategy and the Quest for Competitive
Advantage

• The heart and soul of any strategy are the
  actions and moves in the marketplace that a
  company makes to strengthen its competitive
  position and gain a competitive advantage over
  rivals
• A creative distinctive strategy that sets a
  company apart from rivals and yields a
  competitive advantage is a companys most
  reliable ticket to above average profitability
• Competing with a competitive advantage is more
  profitable than competing with no advantage
• Competing with a competitive disadvantage nearly
  always results in below-average profitability

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A Powerful Strategy Leads to Sustainable
Competitive Advantage

• A company achieves sustainable competitive
  advantage when an attractive number or buyers
  prefer its products/services over those of rivals
  and when the basis for this preference can be
  maintained over time
• Its nice when a strategy produces a temporary
  competitive edge but a durable edge over rivals
  greatly enhances a companys prospects for
  winning in the marketplace and realizing
  above-average profits

What separates a powerful strategy from an
ordinarystrategy is managements ability to
forge a series ofmoves, both in the marketplace
and internally, that produces sustainable
competitive advantage!
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Four Best Strategic Approaches toBuilding
Sustainable Competitive Advantage

• Being the industrys low-cost provider (a
  cost-based competitive advantage)
• Incorporate differentiating features (a superior
  product type of competitive advantage keyed to
  higher quality, better performance, wider
  selection, value-added services, or some other
  attribute)
• Focusing on a narrow market niche (winning a
  competitive edge by doing a better job than
  rivals of serving the needs and preferences of
  buyers comprising the niche)
• Developing expertise and resource strengths not
  easily imitated or matched by rivals (a
  capabilities-based competitive advantage)

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Competitive Advantage Examples

• Strive to be the industrys low-cost provider
• Wal-Mart/Acer
• Southwest Airlines/Costco
• Outcompete rivals on a key differentiating
  feature
• Johnson Johnson Reliability in baby products
• Harley-Davidson King-of-the-road styling
• Rolex Top-of-the-line prestige
• Mercedes-Benz Engineering design and
  performance
• L.L. Bean/Joseph Banks Good value
• Amazon.com Wide selection and convenience

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Competitive Advantage Examples (cont)

• Focus on a narrow market niche
• eBay Online auctions
• Jiffy Lube International Quick oil changes
• McAfee Virus protection auctions
• Starbucks Premium coffees and coffee drinks
• The Weather Channel Cable TV
• Develop expertise, resource strengths,
  andcapabilities not easily imitated by rivals
• FedEx Next-day delivery of small packages
• Walt Disney Theme park management and family
  entertainment
• Toyota Sophisticated production system
• Ritz-Carlton Personalized customer service

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Key Elements Comcasts Strategy

• Roll out high-speed Internet or broadband service
  to customers via cable modems
• Promote a new video-on-demand service to allow
  digital subscribers to watch TV programs whenever
  they want
• Promote a video-on-demand service so digital
  customers can order and watch pay-per-view movies
• Partner with Sony, MGM, and others to expand
  movie offerings
• Use VoIP technology to offer subscribers
  Internet-based phone service at a fraction of the
  cost charged by others
• Use video-on-demand and CDV offerings to combat
  mounting competition from satellite TV providers
• Employ a sales force to sell advertising to
  businesses that were shifting advertising dollars
  from sponsoring network programs to sponsoring
  cable programs
• Significantly improve customer service

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For Discussion Your Opinion

• From your perspective as a cable or satellite
  service consumer, does Comcasts strategy seem to
  be well-matched to industry and competitive
  conditions?
• Does the strategy seem to be keyed to a cost
  advantage, differentiating features, serving the
  unique needs of a niche, or developing resource
  strengths and competitive capabilities rivals
  cant imitate or trump (or a mixture of these)?
• What is there about Comcasts strategy that
  can lead to sustainable competitive advantage?

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Fig. 1.1 Identifying a Companys Strategy
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Why Do Strategies Evolve?

• A companys strategy is a work in progress
• Changes may be necessary to react to
• Shifting market conditions (Southern Pacific)
• Technological breakthroughs (Motorola)
• Fresh moves of competitors (Dell)
• Evolving customer preferences (digital
  photography)
• Emerging market opportunities (e-commerce)
• New ideas to improve strategy (Apple)
• Crisis situations (Homeland Security/Katrina/9-11)

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Fig. 1.2 A Companys Strategy Is Partly
Proactive and Partly Reactive
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Crafting Strategy Is anExercise in
Entrepreneurship

• Strategy-making is a market-driven activity
  involving
• Studying market trends and competitors actions
• Keen observation of customer needs
• Scrutinizing business possibilities based on new
  technologies
• Building firms market position via acquisitions
  or new product introductions
• Pursuing ways to strengthen firms competitive
  capabilities
• Proactively searching out opportunities to
• Do new things or
• Do existing things in new or better ways

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Linking Strategy With Ethics

• Ethical and moral standards go beyond
• Prohibitions of law and the language of thou
  shalt not
• to issues of
• Duty and right vs. wrong (cyber profiles/CRM)
• Ethical and moral standards addressWhat is the
  right thing to do?
• Two criteria of an ethical strategy
• Does not entail actions and behaviors that cross
  the line from should do to should not do and
  unsavory or shady and
• Allows management to fulfill its ethical duties
  to all stakeholders

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A Firms EthicalResponsibilities to Its
Stakeholders
Owners/shareholders Rightfully expect some form
of return on their investment
Employees - Rightfully expect to be treated with
dignity and respect for devoting their energies
to the enterprise
Customers - Rightfully expect a seller to provide
them with a reliable, safe product or service
Suppliers - Rightfully expect to have an
equitable relationship with firms they supply and
be treated fairly
Community - Rightfully expect businesses to be
good citizens in their community
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Role of Senior ExecutivesLinking Strategy
with Ethics

• Forbid pursuit of ethically questionable business
  opportunities
• Insist all aspects of company strategyreflect
  high ethical standards
• Make it clear all employees areexpected to act
  with integrity
• Install organizational checks and balances to
• Monitor behavior
• Enforce ethical codes of conduct
• Provide guidance to employees in gray areas
• Display genuine commitment to conduct business
  activities ethically

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Test Your Knowledge

• A company's strategy can be considered ethical
• A. if all of its different actions and elements
  are legal and in compliance with governmental
  rules and regulations.
• B. so long as its actions and behaviors can pass
  the test of moral scrutiny and are aboveboard
  in the sense of not being shady or
  unconscionable, injurious to others, or
  unnecessarily harmful to the environment.
• C. only if all elements of the strategy are in
  accord with what is generally considered as being
  in the overall best interests of society at
  large.
• D. so long as religious authorities and noted
  ethics experts find nothing wrong in the
  companys actions.
• E. if it is in compliance with the companys code
  of ethics and has been approved by the companys
  chief ethics officer.

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What Is a Business Model?

• A business model addresses How do we make money
  in this business?
• Is the strategy capable of deliveringgood
  bottom-line results?
• Do the revenue-cost-profit economicsof the
  strategy make good business sense?
• Look at revenue streams the strategy is expected
  to produce
• Look at associated cost structure and potential
  profit margins
• Do resulting earnings streams and ROI indicate
  the strategy makes sense and the company has a
  viable business model for making money?

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Relationship Between Strategy and Business
Model

• Strategy . . .
• Deals with a companys competitive initiatives
  and business approaches

• Business Model . . . Concerns whether revenues
  and costs flowing from the strategy demonstrate a
  business can be amply profitable and viable

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Microsofts Business Model
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Tests of a Winning Strategy

• GOODNESS OF FIT TEST
• How well does strategy fitthe firms situation?
• COMPETITIVE ADVANTAGE TEST
• Does strategy lead to sustainablecompetitive
  advantage?
• PERFORMANCE TEST
• Does strategy boost firm performance?

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Test Your Knowledge

• The nitty-gritty issue surrounding a companys
  business model is whether
• A. the strategy is capable of producing
  sustainable competitive advantage.
• B. it matches the companys external and internal
  situation.
• C. the chosen strategy makes good business sense
  from a money-making perspective.
• D. the companys strategy and strategic moves are
  mostly proactive.
• E. the companys strategy stands a really good
  chance of hitting a home-run in the marketplace.

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Other Criteria for Judgingthe Merits of a
Strategy

• Internal consistency and unity among all pieces
  of the strategy
• Degree of risk the strategy poses as compared to
  alternative strategies
• Degree to which the strategy is flexible and
  adaptable to changing circumstances

While these criteria are relevant, they seldom
override the importance of the three tests of a
winning strategy!
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Why Is Strategy Important?

• A compelling need exists for managersto
  proactively shape how a firmsbusiness will be
  conducted
• A strategy-focused firm is more likelyto be a
  strong bottom-line performerthan one that views
  strategy as secondary

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Good Strategy Good Strategy Execution Good
Management

• Crafting and executing strategy are core
  management functions
• Among all things managers do, nothing affects a
  companys ultimate success or failure more
  fundamentally than how well its management team
• Charts a companys direction,
• Develops competitively effective strategic moves
  and business approaches, and
• Pursues what needs to be done internally to
  produce good day-in/day-out strategy execution

Excellent execution of an excellent strategy is
thebest test of managerial excellence and
themost reliable recipe for winning in the
marketplace!