crafting & executing strategy chapter 1 summary

8/20/2019 Crafting & Executing Strategy Chapter 1 Summary

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CHAPTER 1

WHAT IS STRATEGY ANDWHY IS IT IMPORTANT?


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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.


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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


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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.


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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.


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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.


7/331 –7Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

1.1 Identifying a Company’s Strategy—What to Look For



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



• 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



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.



STRATEGIC APPROACH CHOICES

Low-costprovider

Differentiationon features

Focus onmarket niche

Best-costprovider

Building Competitive Advantage



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 ).



Strategic Positioning



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.



Competitive Advantage


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Competitive Advantage

Th V l Ch i F k f


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The Value Chain as a Framework forCompetitive Advantage

D d th l h i B


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Decomposed the value chain : Bebetter than competitor


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Value Chain


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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


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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.


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1.2 A Company’s Strategy Is a Blend of Proactive Initiativesand Reactive Adjustments


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THE RELATIONSHIP BETWEEN AFIRM’S STRATEGY AND ITS

BUSINESS MODEL

Realized

StrategyCompetitiveInitiatives

BusinessApproaches

Business

ModelValue

Proposition

Profit Formula

$$$?


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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.


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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.


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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.


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IS OUR STRATEGY A WINNER?

WinningStrategy

The StrategicFit Test

The CompetitiveAdvantage Test

The PerformanceTest


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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?


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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


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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?


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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!

crafting & executing strategy chapter 1 summary

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