Concept of Strategy.ppt

8/11/2019 Concept of Strategy.ppt

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STRATEGY &

COMPETITIVEADVANTAGE


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Business Proposition

Profits = Quantity (Revenue - Cost)

3 most fundamental variables in Business

MARGIN


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Definition

The determination of the long run goals and

objectives of an enterprise, and theadoption of courses of action and the

allocation of resources necessary for

carrying out these goals

Alfred Chandler, Strategy and Structure


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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 firmcompetes within a particular industry or market... to

win a business unit must adopt a strategy that

establishes a competitive advantage over its rivals.


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Domain of Strategystrategic competitiveness and above normal returns

concerns managerial decisions and actions which

materially affect the success and survivalof business

enterprises

involves thejudgmentnecessary to strategically

position a business and its resources so as to

maximize long-term profits in the face of irreducibleuncertainty and aggressive competition

strategy is the linkage between a business and its

current and futureenvironment


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Concepts of Firm

Performancefirm 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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Common Elements in Successful Strategy

Successful

Strategy

Profoundunderstanding ofthe competitiveenvironment

Objectiveappraisal ofresources

Long-term, simpleand agreed uponobjectives

$

EFFECTIVE IMPLEMENTATION

Source: Adapted from Robert S. Grant, 1991


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Above Normal

Profits(in Excess of the Competitive Level)

Avoid

CompetitorsBe Better Than

Competition

Attractive

Industry

Attractive

Niche Cost

Advantage

Differentiation

Advantage

Attractive

Strategic

Group

Entry

Barriers

Mobility

Barriers

Isolating

Mechanisms

Sources of Superior Performance


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Types of Competitive Advantage

Low Cost

Differentiation


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Sources of Competitive Advantage

Theoretical FrameworksThe Industrial Organization View

The Resource-based View

Relationship between these two views


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The Emergence of

Competitive AdvantageExternal Sources of Change

(fast food, cars, oil)

Responsiveness to Change

(soft drink, retail)

Innovation

(book-selling, video games)


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Documents

Concept of Strategy.ppt