Strategic Management

The evolution of strategy

• Many of the concepts that form the basis of today's understanding of strategy development were developed during the first half of the twentieth century.

• Examples include Frederick Taylor's work on efficiency,• the rapid growth of forecasting and measurement

techniques during the 1930s and • the development of organizational structures and • the transformation from production to demand-driven

organizations after the Second World War.

• In 1951, Newman was the first to demonstrate the nature and importance of strategy[9].

• His work was soon expanded on by others. • In the early 1960s Andrews and Christiansen[10] and

Ansoff[11] laid the foundations for strategic planning by demonstrating the need to match business opportunities with organizational resources and illustrating the usefulness of strategic plans.

• This early phase was followed by a phase of generalization in which researchers attempted to identify common patterns of success.

• These studies culminated in a large number of strategy tools and frameworks that are still used for analysis purposes today.

• In the 1980s, the focus shifted from strategic planning towards strategic management.

• Led by M Porter, a broad range of concepts and techniques evolved which were aimed at building and sustaining competitive advantage by anticipating and exploiting business opportunities.

• In parallel, increasing attention was given to the issue of strategy implementation.

• Major contributions which resulted from work carried out on strategy implementation during this time include the value chain concept and the 7S framework which help in developing and understanding on internal issues that need to be addressed in order to achieve the organization's goals.

• During the 1970s and 1980s researchers increasingly recognized that strategy development cannot be regarded as a simple design mechanism.

• strategy

• In warfare, coordinated application of all the forces of a nation to achieve a goal

• In contrast to tactics, strategy's components include a long-range view, the preparation of resources, and planning for the use of those resources before, during, and after an action.

MEANING:

• Strategy is the mean by which objectives are consciously and systematically pursued and obtained over time.

• The word “strategy” derives from the Greek word stratçgos; which derives from two words: -

• "stratos" – meaning army. • "ago" – which is the ancient Greek for

leading/guiding/moving.

• In its military aspect,

• the term had to do with stratagems by which a general sought to defeat an enemy,

• with plans he made for a campaign, and

• with the way, he moved and disposed his forces in war.

• The strategy definition most commonly known today is as the art of analysing, projecting and directing campaigns.

• Strategy is not planning.• Strategy deals with competitive situation in an

uncontrolled environment. • Planning deals with situations in a controlled

environment.

• Strategy is the greatest "winning tool" that man ever invented!

• It enables the practitioners to see clearly the future of any encounter they undertake - Whilst reacting rationally and consciously without the need for intuition or guesswork.

• It is the Art of the "Conscious Mind"; the Art of the General in the battlefield; therefore, it is:

• "A style of thinking; a conscious and deliberate process; an intensive implementation system; the art of ensuring future success."

• When you know "what strategy is",

• have learnt and practiced,

• you develop the strategist's mind.

• "The Thinking General" has trained himself to think several moves ahead of his opponents. (chess)

• Strategy is the art of success in utilisation of the mind;

• for the last 2500 years, it has been the preserve knowledge of the ruling classes in politics and business throughout the world.

• Strategy, "the thinking of the General" is the Forbidden and Secret Art of Success for thousands of years!

• "All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved."

Sun Tzu the Art of War

Sun Tzu’s Military Strategy and Management

“An army shouldn’t go to war, unless it is certain that it has an advantage over the enemy.”

• Lesson: Management should not only know their own internal capability but also the resources and competences of their competitors.

“

Contd………………..

A territory must be conquered as quickly as possible, and unnecessary blood shed should be avoided.”

Lesson: Management should avoid unnecessary waste of time and resources.

STRATEGY• Strategy refers to the determination of

the purpose and basic long term objectives of an enterprise

• Involves adoption of different courses of action, with proper allocation of resources.

• Strategy is a means to achieve an organization's missions and objectives.

Strategy:

• Consists of the combination of competitive moves and business approaches used by managers to run the company

• Management’s “game plan” to -– Attract and please customers– Stake out a market position– Compete successfully– Grow the business– Achieve targeted objectives

• Strategy is about positioning an organization for sustainable competitive advantage.

• It involves making choices about which industries to participate in, what products and services to offer, and how to allocate corporate resources to achieve a sustainablecompetitive advantage.

• And its primary goal is to create value for shareholders and other stakeholders by providing customer value (de Kluyver, 2000).

Strategy• Strategies are just complex decisions for telling the

importance things to be done and for guiding actions.

• Strategies have to base on purpose, wish and reality.– Mission is our ultimate purpose– Vision is our ultimate wish– Our environment and situation are the current reality

• We set strategies to fulfill our mission and to progressively realize our vision. We also set strategies to alter our reality.

• Strategies have to be implemented effectively to be meaningful. This means strategies must be realiable.

Definition of Strategy

“Strategy is the direction and scope of an organisation over the long term: which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.” (Johnson and Scholes, 2005:9).

What is Strategic Management?Definition

“Strategic Management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organisation to achieve its objectives” David Fred (2003: 5)

“Strategic Management is a process of formulating, implementing, and evaluating cross-functional decisions that enable the organisation to define and achieve its mission, and ultimately to create value” Stephen Porth (2003: 2).

• Strategic management is about

– To achieving the organization’s purpose and materializing our vision through the use of strategies

• Emphasis and direction

• Optimum use of resources

• Development

Exhibit 1-3: Single-business Firms

P O M /R & Ds tra te g ies

F in a n c ia l/a cco u n tings tra te g ies

M a rke tings tra te g ies

H u m anre la tio ns

s tra te g ies

C o rp ora te /b u s ine ss le ve l

Fun

ctio

nal

Lev

el

Ex 1-3: Multiple business Firms

Bus

ines

s L

evel

Fun

ctio

nal L

evel

Corporatestrategies

Corporatestrategies

Business 1Business 1 Business 2Business 2 Business 3Business 3

POM/R&Dstrategies

POM/R&Dstrategies

Financial/accountingstrategies

Financial/accountingstrategies

Marketingstrategies

Marketingstrategies

Human relations

strategies

Human relations

strategies

Policy

• Policies are general statements that guide managers' thought process in decision making.

• In simple terms, policies act as guidelines; enabling organizations to achieve their goals

Nature and Purpose of Strategies and Policies

• Direction

• Framework for plans

• Need for operational planning

• All perspective

Strategic Managers for All Levels

Corporate level strategy• Formulated at the top-level, corporate.• Ideal for those organizations having more

than one business unit. • Two approaches in the formulation of strategy

are• Value-based approach: Value-based

approach takes into account the individual's beliefs and helps to do business ethically.

• Corporate portfolio approach: The top management evaluates business units on the basis of marketplace and organizational strategy

Business level strategy• Business strategy focuses on a

firm's competitiveness in the marketplace.

• Developed by the heads of respective departments, and approved by the top management;

• These strategies are designed in response to the changing environment and competitive conditions.

Functional level strategy

• Functional strategies are designed to emphasize functional competencies so that firms can gain the competitive advantage.

• These strategies are designed and developed by the functional heads, and are approved by the top management.

Functional level Strategy• Principally involve action oriented operational

issues.

• Relatively short range and involve less risk.

• Requires company wide cooperation.

• Relatively concrete & quantifiable

• They receive critical attention

• Brand name labeling, R&D, inventory level

Characteristics of Strategic Management

Characteristic Levels of strategy

Corporate Business Functional

Type Conceptual Mixed Operational

MeasurabilityValue judgments

dominantsSemi

quantifiableUsually

quantifiable

Frequency

Periodic or sporadic

(irregular)

Periodic or sporadic-(irregular) Periodic

Profit potential Large Medium Small

Characteristic Levels of strategy

  Corporate Business Functional

Cost Major Medium Modest

Time horizon Long range Medium range Short range

Flexibility High Medium Low

Cooperation Considerable Moderate little

Adaptability Low Medium High

Relation to present activities Innovative Mixed Supplementary

Risk Wide range Moderate Low

The strategy Development and management process

The Strategic Management Process

• Strategic Management– Provides the theme and focus of the future direction

for the firm.• Responding to changes in the external environment—

environmental scanning

• Allocating scarce resources of the firm to improve its competitive position—internal responses to new action programs

– Requires strong links among mission, goals, objectives, strategy, and implementation.

The Strategic Management Process

• Is the process of assessing ‘what we are’ and deciding and implementing ‘What we intend to be and how we are going to get there’

• Strategy describes how an organization intends to compete with the resources available in the existing and perceived future environment

Strategic Management Process

Strategic Management Process (cont’d)

• Four of Activities of the Strategic Management Process

1. Review and define the organizational mission.

2. Set long-range goals and objectives.

3. Analyze and formulate strategies to reach objectives.

4. Implement strategies through projects

• Strategic management is defined as the set of decisions and actions that results in the formulation and implementation of plans designed to achieve a company’s objectives.

• It comprises of some critical tasks:

• Formulate the company’s mission, • including broad statements about its purpose, philosophy

and goals

• Conduct an analysis that reflects the company’s internal conditions and capabilities

• Assess the company’s external environment, including both the competitive and the general contextual factors

Thinking StrategicallyThe Three Big Strategic Questions

1.Where are we now?

2. Where do we want to go?

Business(es) to be in and market positions to stake out Buyer needs and groups to serve Outcomes to achieve

3. How will we get there?

A company’s answer to “how will we get there?” is its strategy

The Purpose of StrategyThe essence of strategy is coping with competition.

The corporate strategist’s goal is to find a position in the market ,

where his or her company can best defend itself against the collective industry forces or

can influence them in its favor.

• It provides direction• It provides coherence/consistency• It allows day-to-day processes to be designed

• Analyze the company’s options by matching its resources with the external environment

• Identify the most desirable options by evaluating each option in light of the company’s mission

• Select a set of long-term objectives and grand strategies that will achieve the most desirable options

• Develop annual objectives and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies

• Implement the strategic choices by means of budgeted resource allocations in which the matching of tasks, people, structures, technologies and reward system is emphasized

• Evaluate the success of the strategic process as an input for future decision making.

Organizational Strategy

• Organizational Strategy is the way in which an organization uses its knowledge and other resources to achieve its economic purpose.

The Nature of Strategy

• Defined--- Toyota• Planned--- Godrej• Proactive ---Future Group• With detail--- M&M, AB Group• Vague---• Loose---• Reactive--- Mc Donald’s

Why Is Strategy Important?

• A compelling need exists for managers to proactively shape how a firm’s business will be conducted

• A strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary

A Business Model

• A business model addresses “How do we make money in this business?”

• Is the strategy capable of delivering good bottom-line results?

• Do the revenue-cost-profit economics of the strategy make good business sense?

Contd….

• 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?

The context business modelCorporate level Strategy

• Tend to be value oriented, conceptual and less concrete than functional & business level strategy.

• CLS are also characterized by greater risk, cost, and profit potential as well as long time horizon

• Ex-choice of business, dividend policies, sources of LT financing and priorities of growth.

The purpose of business model:Business model assures a conformable frame, which offers technological characteristics and potentials as entrance,

which is being transformed with the help of partners and market into economical output with the emphasis on urgent usage of information technology systems.

• It is interface between a degree of information technology development and

• a degree of creating economical value.

• Besides that, the purpose of business model is to: • help in understanding, capturing, visualizing and

distributing business strategy of organization,• contribute to analysis of business strategy of

organization,• improve managing business strategy and organization

logic,• describe expectations of organization, because it actually

presents future way of organizational functioning, which can be simulated,

• Be patented; business model is by itself a product.

Relationship between Strategy and Business Model

• Strategy - Deals with a company’s competitive initiatives and business approaches

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

Business model as tacit component of organization strategy

• Strategy includes defining long-term organization positions on the market, creating distinct labels on what kind of values organization offers to its client and which it does not (Porter, 2001).

Business level Strategy

• BLS is less costly, risky, and potentially profitable than CLS.

• Common BLS plant location, market segmentation, geographic coverage and distribution channels.

• Based on extensive presentation Oliver, (2001) defines business strategy as

• "understanding economic structure and dynamic, determining relative organization positions in economy and executing actions to change economic structures or organizational positions to improve organizational results".

To realize business strategy organizations develop business models. Business model actually presents specified demands of business strategy, what is presented in figure

• Business model is treated as conceptual and architectural implemented business strategy or

• as base to execute differentiated organization business that presents its tacit potential to reach competitive advantages.

• It is an interface between a degree of development of information technology systems and a degree of creating economic value through e-business.

Test Your Knowledge

A company’s strategy and its quest for competitive advantage are tightly related because

A. a company’s strategy determines whether it will have lower or higher costs than rivals and thus be at a competitive advantage or disadvantage.

B. competitive advantage is essential to having a profitable business model.

C. choosing a competitive advantage to pursue also helps a company choose which business model is most appropriate.

D. competitive advantage enables a company to achieve its strategic objectives.

E. a strategy that leads to sustainable competitive advantage is a company’s most reliable means of achieving above-average profitability and financial performance.

Chapter Roadmap• What Do We Mean By Strategy?

– Strategy and the Quest for Competitive Advantage

– Identifying a Company’s Strategy

– Why a Company’s Strategy Evolves Over Time

– A Company’s Strategy Is Partly Proactive and Partly Reactive

• Strategy and Ethics: Passing the Test of Moral Scrutiny

• The Relationship Between a Company’s Strategy and Its Business Model

• What Makes a Strategy a Winner?

• Why Are Crafting and Executing Strategy Important?

Thinking Strategically:The Three Big Strategic

Questions1. What’s the company’s 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 company’s answer to “how will we get there?” is its strategy

What Do We Mean By “Strategy”?

• Consists of competitive moves and business approaches used by managers to run the company

• Management’s “action plan” to

– Grow the business

– Attract and please customers

– Compete successfully

– Conduct operations

– Achieve target levels oforganizational performance

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 (R&D, production, marketing, HR, finance, and so on)

• How to respond to changing market conditions

• How to achieve targeted levels of performance

Strategy is HOW

to . . .

Choosing the “Hows” of Strategy

• Strategic choices about “how” are based on – Trial-and-error organizational learning about

what has worked and what has not worked– Management’s appetite for taking risks– Managerial analysis and strategic thinking

about how best to proceed, given market conditions and the company’s circumstances

• In choosing a strategy, management is in effect saying,

“Among all the many different business approaches and ways of competing we could have chosen, we have decided to employ this particular combination of competitive and operating approaches in moving the company in the intended direction, strengthening its market position, and competitiveness, and boosting performance.”

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 “aha”element to

– Attract customers and

– Produce a competitive edgeCopying competitive moves of other successful companies rarely works!

Key Elements: Comcast’s 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

For Discussion: Your Opinion

From your perspective as a cable or satellite service consumer, does Comcast’s strategy (as described in Illustration Capsule 1.1) 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 can’t imitate or trump (or a mixture of these)?

What is there about Comcast’s strategy that can lead to sustainable competitive advantage?

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 company’s 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

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 company’s prospects for winning in the marketplace and realizing above-average profits

What separates a powerful strategy from an ordinarystrategy is management’s ability to forge a series ofmoves, both in the marketplace and internally, that

produces sustainable competitive advantage!

Four “Best” Strategic Approaches to

Building Sustainable Competitive Advantage• Being the industry’s 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)

Competitive Advantage Examples

• Strive to be the industry’s low-cost provider

– Wal-Mart

– Southwest Airlines

• 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 – Good value

– Amazon.com – Wide selection and convenience

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

Fig. 1.1: Identifying a Company’s Strategy

Test Your Knowledge

A company’s strategy and its quest for competitive advantage are tightly related because

A. a company’s strategy determines whether it will have lower or higher costs than rivals and thus be at a competitive advantage or disadvantage.

B. competitive advantage is essential to having a profitable business model.

C. choosing a competitive advantage to pursue also helps a company choose which business model is most appropriate.

D. competitive advantage enables a company to achieve its strategic objectives.

E. a strategy that leads to sustainable competitive advantage is a company’s most reliable means of achieving above-average profitability and financial performance.

Why Do Strategies Evolve?

• A company’s strategy is a work in progress

• Changes may be necessary to react to

– Shifting market conditions

– Technological breakthroughs

– Fresh moves of competitors

– Evolving customer preferences

– Emerging market opportunities

– New ideas to improve strategy

– Crisis situations

Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive

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 firm’s market position via acquisitions or new product introductions

– Pursuing ways to strengthen firm’s competitive capabilities

– Proactively searching out opportunities to• Do new things or• Do existing things in new or better ways

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”

• Ethical and moral standards address“What 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

A Firm’s EthicalResponsibilities to Its

StakeholdersOwners/shareholders – Rightfully expect some form of return on their investmentOwners/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 enterpriseEmployees - 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 serviceCustomers - 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 fairlySuppliers - 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 communityCommunity - Rightfully expect businesses to be good citizens in their community

Role of Senior Executives:Linking Strategy with Ethics

• Forbid pursuit of ethically questionable business opportunities• Insist all aspects of company strategy

reflect high ethical standards• Make it clear all employees are

expected 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

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 company’s actions.

E. if it is in compliance with the company’s code of ethics and has been approved by the company’s chief ethics officer.

What Is a Business Model?

• A business model addresses “How do we make money in this business?”– Is the strategy capable of delivering

good 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?

Relationship Between Strategy and Business Model

Strategy . . . Deals with a company’s competitive initiatives

and business approaches

Business Model . . . Concerns whether revenues and costs flowing from the

strategy demonstrate a business can be amply profitable and viableStra

tegy

Business

Model

Microsoft’s Business ModelEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from usersEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users

Sell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market shareSell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market share

Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit

Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit

Provide modest level of technical support to users at no costProvide modest level of technical support to users at no cost

Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

Red Hat’s Business ModelRely on collaborative efforts of volunteer programmers to create the softwareRely on collaborative efforts of volunteer programmers to create the software

Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux

Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux

Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages

Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages

Make source code open and available to all usersMake source code open and available to all users

Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users

Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users

Test Your Knowledge

The nitty-gritty issue surrounding a company’s business model is whether

A. the strategy is capable of producing sustainable competitive advantage.

B. it matches the company’s external and internal situation.

C. the chosen strategy makes good business sense from a money-making perspective.

D. the company’s strategy and strategic moves are mostly proactive.

E. the company’s strategy stands a really good chance of hitting a home-run in the marketplace.

For Discussion: Your Opinion

Who has the best business model –

Microsoft or Red Hat?

Tests of a Winning Strategy

• GOODNESS OF FIT TEST

– How well does strategy fitthe firm’s situation?

• COMPETITIVE ADVANTAGE TEST

– Does strategy lead to sustainablecompetitive advantage?

• PERFORMANCE TEST

– Does strategy boost firm performance?

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 circumstancesWhile these criteria are relevant, they seldom override

the importance of the three tests of a winning strategy!

Why Is Strategy Important?

• A compelling need exists for managersto proactively shape how a firm’sbusiness will be conducted

• A strategy-focused firm is more likelyto be a strong bottom-line performerthan one that views strategy as secondary

Good Strategy + Good Strategy Execution

= Good Management• Crafting and executing strategy are core management

functions

• Among all things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team– Charts a company’s 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 executionExcellent execution of an excellent strategy is thebest test of managerial excellence – and the

most reliable recipe for winning in the marketplace!