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8/13/2019 Strategicmgmt1_what is Strategy
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WHAT DO WE MEAN BY STRATEGY?
What is our present situation?
Business environment and industry conditions
Firms financial and competitive capabilities
Where do we want to go from here?
Creating a vision for the firms future direction
How are we going to get there?
Crafting actionsthat will get us there
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WHAT IS STRATEGYABOUT?
Strategy is all about How:
Howto outcompete rivals.
Howto respond to economic and marketconditions and growth opportunities.
Howto manage functional pieces of the
business.
Howto improve the firms 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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STRATEGYAND COMPETITORS
Strategy is about competing differently
from rivals
Doing what they dont do or doing it better!
Doing what they cant do!
Doing that which sets the firm apart and
attracts customers.
Doing what we shouldor should notdo to
produce a competitive edge.
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1.1 Identifying a Companys StrategyWhat to Look For
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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 reasonsto prefer afirms products or services over those of its
competitors.
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STRATEGIC APPROACH CHOICES
Low-costprovider
Differentiationon features
Focus onmarket niche
Best-costprovider
Building Competitive Advantage
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STRATEGIC APPROACHES
Building a competitive advantage by:
1. Striving to become the industrys low-cost
provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche markets
needs (efficiency and\or effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).
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Example: 3M
Elements of Buckleys turnaround
Set clear business goals for the company
Wanted 3M to develop lower-costproducts to compete in emerging markets
Became an outspoken champion for 3M
labs
1-10
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GAINING SUSTAINABLE COMPETITIVEADVANTAGE
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.
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Why a Firms 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 Firms 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 Companys Strategy Is a Blend of Proactive Initiativesand Reactive Adjustments
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THE RELATIONSHIP BETWEEN AFIRMS STRATEGY AND ITS
BUSINESS MODEL
Realized
StrategyCompetitiveInitiatives
BusinessApproaches
Business
ModelValue
Proposition
Profit Formula
$$$?
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A Companys Business Model
Howthe business will make money :
By providing customers with value.
The firms customer value proposition
By generating revenues sufficient to cover
costs and produce attractive profits.
The firms profit formula
It takes a proven business modelone thatyields appealing profitabilityto demonstrate
viability of a firms 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 (contd)
The Profit Formula
Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition. Vthe value provided to customers
Pthe price charged to customers
Cthe firms costs
The lower the costs (C) for a given customer
value proposition (VP), 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 STRATEGYA WINNER?
A winning strategy must pass three tests:
The Fit Test
Does it exhibit dynamic fit with the external and
internal aspects of the firms 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 firms 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