What is Strategy? Ethan BrownErin Hillman

Laura MorenoGarrett Stricklen

3 Successes

• Gaga

• Dyson

• Ferguson

What is strategy?

Strategy is the means by which individuals or organizations achieve their objectives.

Key elements of success

1. Simple goals

2. Understand the competitive environment

3. Objective appraisal of resources

4. Effective implementation

Keep it simple

• Clearly recognized goal

• Consistency

• Persevere

Understand your environment

• Brands

• Location

• Variety

Resource Appraisal

• Exploit strengths

• Protect weakness

Effective Implementation

• Leadership

• Energy

• Loyalty & Commitment

Strategy in history

• Origins

– Good Strategy needs to:

• Give direction

• Utilize resources

• Coordinate decisions

Strategy in History

• Strategy vs. Tactics• “…tactics are concerned with the maneuvers necessary to

win battles, strategy is concerned with winning the war” (13).

Strategic Evolution

Financial

Budgeting

Corporate

Planning

Strategy as Positioning

Quest for

Competitive Advantage

Strategy for

the New

Economy

Strategy for

the Millennium

Strategy in

Turbulent

Times

Foundations of Strategy: Figure 1.2

Strategic Evolution

• Financial Budgeting– Annual Financial Planning – Investment Appraisal

Disadvantages:• No long term development

Strategic Evolution

• Corporate Planning– Formal– Diversification and Synergy– 1960s Corporate Planning Departments

– Disadvantage:• Failed to deliver• Macroeconomic instability

Strategic Evolution

• Strategy as Positioning– In markets and in relation to competitors

• Quest for Competitive Advantage– Resource Based view– Resources and Capabilities – “Competitive Strategy is about being different. It

means deliberately choosing a different set of activities to deliver a unique mix of value” (15).

Strategic Evolution

• Strategy for the New Economy– TMT and the new knowledge economy

• Strategy in the New Millennium– Competing for Standards• Responsiveness and flexibility• Reconfiguring resources and capablities

Strategic Evolution

• Strategy in Turbulent Times– Managing Risk and Uncertainty – Social Responsibilities – New thinking

Strategy Today

• Strategy: “The means by which individuals or organizations achieve their objectives” (17).

• Corporate Strategy

• Business Strategy

Corporate Strategy

• Which industry should the firm compete in?• Defines the scope of the firm in terms of the

industries or markets it competes in.– Diversification Investments– Vertical Integration– Acquisitions and New Ventures– Divestments

Business Strategy

• How should the firm compete in the market?• Also referred to as Competitive Strategy• Considers how the firm competes within a

particular industry or market. • Primary focus revolves around competitive

advantage.

Corporate vs. Business StrategyRate of Return Above the Cost of Capital

How do we make money?Industry Attractiveness

Which industries should we be in?Corporate

Strategy

Competitive Advantage

How should we compete?BusinessStrategy

How to identify a firm’s strategy

• Mission Statements– “Why we exist”

• Statement of values– “What we believe in and how we will behave”

• Vision Statements– “What we want to be”

• Strategy Statements– “What our competitive game plan will be”

Competitive Game Plans

Comprised of three major components:

1. Objectives– What do we want to accomplish?

2. Scope– Where will we compete to meet these goals?

3. Advantage– How will we compete to meet these goals?

How is Strategy Made?

• Intended Strategy– The strategy conceived by the top management team of a firm.

• Realized Strategy– The actual strategy that is implemented.– Typically only 10-30% of a firm’s intended strategy.

• Emergent Strategy– The decisions that emerge in which individual managers

interpret the intended strategy and adapt to changing circumstances.

The Benefits of a Good Strategy

What Roles Does Strategy Perform?

Strategy as Decision SupportStrategy improves decision making in primarily three ways:1. Simplifies decision making by constraining the range of decision alternatives

considered.2. Strategy-making processes permit the knowledge of different individuals to be

pooled and integrated.3. Strategy-making processes facilitate the use of analytical tools.

Strategy as a Coordinating Device• Promotes coordination through communication.• Goals, commitments (through buy-ins), and performance targets that are

monitored ensure the organization moves in a consistent and favorable direction.

What Roles Does Strategy Perform?

Strategy as Target• Forward-looking strategies establish direction for the firm’s development, as well

as set aspirations that can motivate members.• Stretch and Resource leverage is necessary to successful implementation of a

firm’s strategy.

Strategy as Animation and Orientation• The most important role of strategy is to essentially paint a clear picture of the

organization’s strategy for individuals so that they are mobilized, encouraged, and work in harmony toward the shared goals.

• Having a strategy that is clear and accurate ensures greater success toward meeting a firm’s goals.

Shareholders vs. Stakeholders

• Value created by firms is distributed among different parties: employees, customers, lenders, owners, government, etc.

• Firms also create Consumer Surplus– Value created for a firm’s customers to the extent that the satisfaction

gained exceeds the price that was paid.

• Stakeholder Approach of a firm.– The view of an organization as a coalition of interest groups, where

top management’s role is to balance the different interests for the benefit of all stakeholders.

Whose Interests Should be Prioritized?

• There are two views on companies’ legal obligations:– In the US, Canada, the UK and Australia, company

boards are required to act in the interest of the shareholder.

– While in continental European countries, companies are legally required to take account of the interest of employees.

Profit and Purpose

• The world’s most consistently successful companies in terms of profits and shareholder value tend to be those that are motivated by factors other than profit.

• On the other side, companies that are more focused on profitability and the creation of shareholder value tend to be unsuccessful at achieving profit.

Profit and Purpose

• One company who is consistently successful at having a sense of purpose is Google.

• Google’s mission is “to organize the world’s information and make it universally accessible and useful.”

• With this sense of purpose there is no question why Google’s net worth is $367.6 Billion. Retrieved from http://www.forbes.com/companies/google/.

Profit and Purpose

• The pursuit of profit often fails to realize its goals when:– Profit will only be a guide to management if

managers know what determines profit.• Obsession with profitability can hinder managers’

perception of the real drivers of superior performance.

– Motivation is lost.• The goal of maximizing the return to stockholders is

unlikely to inspire employees.

The Debate Over Corporate Social Responsibility

• What Is Corporate Social Responsibility?

• Corporate Social Responsibility (CSR)- is the issue of ‘whose interests should strategy serve’. (33)

• The main question is, “What are a company’s obligations to society as a whole?”

The Debate Over Corporate Social Responsibility

• There are two views about management responsibility:– Firm as property• It is management’s responsibility to operate in the

interests of shareholders

– Firm as social entity• Company’s have a responsibility to maintain the firm

within its overall network of relationships and dependencies.

Takeaways

• Strategy is not a detailed plan or program, it is a unifying

theme that gives direction to actions and decisions.

• The purpose of strategy is not to provide quick fix

answers, but to better understand the issues.

• Strategy helps us find the initial threads that are the key

to untangling complex knots.