Chapter 1 Roadmap (Thompson/David)

n What Is Strategy?
n Why is it Ignored?
n What are the Benefits of Strategy?
n What is Strategic Management?
n What Is a Business Model?
n What is a Winning Strategy?
n Important Terms
Without a strategy, the
organization is like a ship
without a rudder, going around
in circles. It is like a tramp. It
has no place to go.
Joel Ross and Michael Kami
What are some realities today that make STRATEGY important?
What is Strategy?
n The combination of competitive moves and
business approaches used by managers to run the
company, to achieve and sustain competitive
advantage;
n STRATEGY is managements game plan to
1) Attract and please customers
2) Stake out a market position
3) Compete successfully
4) Grow the business over the long term
5) Achieve targeted objectives
 Why is Strategy Important?
Consider some realities:

n Fast changing global market

n Globalization; transnational supply chains
n Adapt or Die: Need for Speed, Quality, Flexibility, Price, Services..
n Certifications / NGO advocacies
n ISO9XXXX/ ISO14XXXX/ IAS

n Emerging competitive economies..

n Brazil, Russia, India, China, Thailand, Vietnam

n Soft US Market; Global Financial

Crisis
n Global Recession excess capacity
What is a financial crisis
n Almost all wealth is embodied in Long Lived Assets (LLA)
that pay off over time
n Some fraction of wealth is needed to back short-term safe
assets used in transaction (money)
n We cannot convert LLA to money at the same time into
something we are sure about
n Panic happens when enough people get nervous and try
to convert
n Financial crisis happens when a panic affect the
functioning financial system
n Panic is whereby we lose confidence to transform LLA
assets. Financial crisis is a reaction to that.
 Why is Strategy Important?
n Philippines Boom & Bust cycle..
n Political Economic volatility;
n Poverty - 75Million live below P8,000/mo. income
n Lack Jobs - Diaspora, 2,500 OFWs leave each day
n 54% of children live with only ONE parent
n P1.4 Trillion Budget, P0.65 Trill for debt service
n Highest in Corruption- Lack of leaders w integrity
n Peace & Order terrorism, insurgency, kidnapping
n Vacuum in political leadership;
 Why is Strategy Important?
n Boom: Opportunities abound!
n Emerging global markets: B.R.I.C.
n Last year, 6.6% GDP growth, highest among peers.
n 75% increase in FDIs in 2015
n No reduction of wealth in any economy
n New Investment frontiers: BPO, Tourism, OFW,
basic materials, franchising,
n LGU revolution -NLuzon; S.Luzon;Cebu, Davao
n Logistics: RORO, inter-island connections
n Weak Peso; increase interest rates
 Why is Strategy Important?

n Formulating & executing Strategy, are a

leaders 2 most significant functions because:
n In todays age of globalization and information
technology, firms must:
n ADAPT or DIE
n constantly change how business is conducted, to
achieve its vision/mission/objectives, despite
weaknesses and external threats
n Strategy-focused institutions are stronger financial
achievers, than firms with dysfunctional strategies;

What are some benefits of good STRATEGY?

Why do some managers/ leaders
ignore Strategic Thinking?
Why some managers/leaders ignore
Strategic thinking..

n Over-confidence Content with Success

n Different Priorities Waste of Time or Too Expensive
n Tyranny of the Urgent Fire-fighting; Crisis management
n Self-interest Win-Lose; zero sum game; narrow-mindedness
n Resistance to change Fear of Failure; of Uncertainty
n Lack of Trust Suspicion of colleagues motives
n Bad Experience; previous failed planning efforts
n No incentive poor reward structures; non-strategic; short term
What are the benefits of good STRATEGY?
 Benefits of Good Strategy
FINANCIAL
n Allocates limited resources towards
focused, relevant activity that impact
on the strategy
n More sales and bigger market share

n More sustained profitability

n Less waste on materials & services

n Lower marketing & operating expenses

n Long term financial viability

How about non-financial benefits of good STRATEGY?

Strategic Management Concepts and Cases, 10th Ed, by Fred R. David, Pearson/ Prentice Hall, All Rights Reserved
 Benefits of Good Strategy
NON-FINANCIAL
n Sustained Competitive Advantage

n Easier to find team Synergies and alliances

n Gives an objective, disciplined view of issues

n Neutralizes threats, weaknesses

n Improves internal communication

n Integrates individual behavior to total effort

n Provides for ethical, environmental concern

n Encourages favorable attitude to change

Strategic Management Concepts and Cases, 10th Ed, by Fred R. David, Pearson/ Prentice Hall, All Rights Reserved
What Is Strategic Management?

F.R.David the art and science of

formulating, implementing and
evaluating cross-functional
decisions (towards clear directions)
that enable an organization to
achieve its objectives.
What is Military Strategy?

n Military Strategy the science of

planning and directing large scale
military operations, of maneuvering
forces into the most advantageous
position prior to actual engagement
with the enemy. Webster
Military Strategy:Sun Tzus Art of
War
n War is a matter of life & death to the
state, and must therefore be mastered;
n Know your enemy & know yourself,
choose your battlefield, & you will never
be defeated.
n Winning 100 victories in 100 battles is
not the acme of skill. To subdue the
enemy without fighting, is supreme
excellence.
STAKEHOLDERS - A Firms Ethical Responsibilities to Its Stakeholders
A Firms Ethical Responsibilities
to Its Stakeholders
Owners/shareholders a decent return on their investment;
ENRON/ WORLDCOM, CEO Sr. Management Perks vs. Shareholder Profit

Employees - be treated with dignity and respect for their efforts;

the desire to live, to learn, to love, to leave a legacy

Customers to receive safe, quality products, excellent

customer service, prompt delivery, & best price

Suppliers reasonable terms and conditions, prompt payment,

fair margins, ethical treatment;

Community - good corporate citizenship or social responsibility

in their community; pay taxes, respect environment
Thinking Strategically:
3 Big Strategic Questions

1. Where are we now?

2. Where do we want to go?
n Buyer needs and groups to serve
n Business/es to be in
n Market positions to stake out
n Results to achieve

3. How will we get there?

n A companys STRATEGY answers the question how will we get there?
Copyright 2007
Prentice Hall Ch 2 -20
3-Stages of the Strategic
Management Process
Strategy Formulation Crafting
Strategy

Strategy Implementation
Executing Strategy

Strategy Evaluation
Assessing Strategy
Strategy Formulation

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection
Strategy Implementation

Annual Objectives

Policies

Motivate Employees

Resource Allocation
Strategy Evaluation

Review
External & Internal

Measure Performance

Corrective Action
 Strategic Management in Business
Group/ Corporate Strategy

Generic Competitive
Business-Level
Business Strategy
Managers

Two-Way Influence Complementary

Strategies

Functional
Functional Strategies
Managers

Two-Way Influence

Operating
Managers Operating Strategies
 Strategic Planning Framework

STRATEGY:
Internal: How to attack the most External:
Strengths significant Opportunities
And Opportunities & Threats, And
Weaknesses given Internal Threats
Realities (S/W).

Vision, Mission, Values, Objectives

Strategic Formulation Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Blue Ocean Strategy
n Red Ocean Strategy - Good strategy
results in synergy between a firms
interdependent parts, collectively tapping
the best external opportunities, in order to
beat rivals, win market share, and gain
sustained competitive advantage.
n Blue Ocean Strategy innovates on value
to create new, uncontested market space,
and render competition irrelevant.
 What separates a powerful
strategy from an ordinary
strategy?
It is managements ability to act
& decide in ways that produce
Sustainable Competitive
Advantage!
To Achieve Sustainable
Competitive Advantage:

n Provide distinctive products or services, or

n Develop distinctive skills or capabilities
which rivals cannot easily match!!
n Sustained competitive advantage results in
n Winning in the market/ game,

n Making more money/ medals..

Now and for the long term

4 Most Common Strategies
to Build Sustained Competitive Advantage

n Cost leadership- Be the industrys Lowest-cost

provider (not always price) e.g. Southwest, 168
n Differentiation Be the best in a distinct
feature/s or perceived value/s e.g. Volvo - Safety
n Focus differentiation on a narrow market niche;
serve unique needs of niche buyers better than
rivals e.g. SAS, NMP
n Distinctive Functional Competency - Develop
distinctive capabilities not easily imitated by
rivals, e.g. Toyota, Li &Fung, e-supply chain management, product development,
customer service
 Scope Source

The company could target a: The company could either be a

Broad Market Low Cost Leader

Narrow Focused Market Differentiator
 Broad

OVERALL
OVERALL COST
DIFFERENTATION
SCOPE

Narrow

DIFFERENTIATION
COST FOCUS
FOCUS

Low Cost Differentiation

SOURCE
 Scandinavian Air Strategy
n Focus Differentiation Strategy
n Vision: Europes Best Airline for the frequent business traveller
n Most Valued needs = SPEED, TIMING, FLEXIBILITY
n Resource Allocation: Junked fourteen 747s (Diseconomy of
Scale), bought 60 DC-10s
n Product Development: Preference to target;Change wine list
n Operations: Reduce Check-in, On/Off loading
n Introduce Express Lane; Business class

n MORE frequent On-time flights (every 15minutes)

n Cut baggage retrieval time; redesign unloading mechanism

n Collaborate with Business hotels (transport &services)

n Revise all Functional plans

n Achieved Vision in 1 year. Airline of the YEAR in 3 years
 Key Elements: Southwest Airlines
n Pioneered Web-based ticket sales
n Low Cost Strategy
n Economize on ALL costs; no frills
n Marginal Costing - Gradually more flights on
existing routes; service to new airports
n Friendly service
n Only Boeing 737s- economy of scale
n Increase turnover (Avoid congested airports)
n Reduce check-in, loading, off-loading
 Other Examples: Strategies Based
on Distinctive Competency

n Zero-Defect manufacturing Toyota and Honda

n Product innovation 3M Corporation
n High Tech distribution systems Wal-Mart
n Operational Excellence McDonalds
n Superior E-commerce Dell Computer
n Global Supply Chain Integration Li & Fung
n Customized services Ritz Carlton hotels
n Safety Volvo
 Core Concept:
A Winning Strategy is one that:
(1) Fits/ Matches internal with external
realities,
(2) Builds Sustainable Competitive
Advantage and
(3) IMPROVEs the companys
strategic and financial
performance.
(4) & championed by good Leaders
 What Is a Business Model?
n Business Model answers the question
How do we make money in this
business?
n What REVENUE STREAMS or cash-flows?
Sales? Lease? Subscription? Commission? Remittances?
Eg Rent?

n Will the strategy reduce costs? Eg Will outsourcing overseas reduces OPEX?

n Will it improve profit margins, ROI?

n A strategy has a viable business model IF it
helps the company make more money.
n Purpose of strategy is not to make money
per se, but to help a company gain market
leadership and sustained competitive
advantage.
Business Model
Business Business Model

Manufacturers, Retailers, Sales

Wholesalers
Insurance, property brokers, Commission
Car Dealers, Artist
promoters
Property owners Sales, Lease, Rent,
Cellphone company % of sales
Newspaper, Subscriptions, Ads
Association, Golf Club, Membership Dues
 Business Model
..\..\..\5-PGC Champion\GENESIS INSTITUTE\GIPA Prof Forma Financials.xls

n How Revenues are generated

n How much Gross Profit is attained
n How many turns to exceed Operating Expense
Financial Statement:
Revenues Php 100,000,000
Less: Cost of Sales -60,000,000
= Gross Profit 40% 40,000,000
Less: Operating Expense 30,000,000
Net Profit Php 10,000,000
 Difference Between
Strategy & Business Model
Strategy - How to win in Business Model How
the market place & keep to make money in the
winning.. How to gain chosen strategy? Income
Sustainable Competitive Sources?
advantage.
 Case: How DLSU can be UAAP
Basketball Champion FOREVER!
1. Strengths - List the DLSU Basketball teams
best strengths compared to Ateneo (& other
teams)?
2. Weaknesses- What are DLSUs weaknesses
as a team?
3. Opportunities - What external opportunities
might be helpful to the DLSU Basketball team
at this point? (include rivals weaknesses,
gaps)
4. Threats - What external threats are obstacles
to DLSUs championship aspiration? What are
Ateneos strengths?
 Case: How DLSU can be UAAP
Basketball Champion FOREVER!

n Strategies - Given this situation, what would you

recommend to coach Ayo to help our team,
n beat Ateneo this season?
n Be champion this next UAAP Season;
n Be champion on a sustained basis for the next 10 years?
n Join the PBA and be at par with professional teams?
n Win the Asian Games?
n Summarize groups report in two (2) pages
Group Case: Redhat Linux
n Browse www.redhat.com Annual Report/
Financials, and determine:
1. What is Redhat Linuxs business model? How
does it compare with Microsofts business
model?
2. Is the business model working? Explain why
or why not.
3. Compare Redhat Linux Strengths vs. Microsoft
Strengths
4. What strategies would you recommend for
Redhat Linux to increase its market share vis--
vis Microsoft, and why?
Summary

n Strategy is managements game plan to:

n to win and to keep winning;
n to attract and please customers,
n to stake out a market position,
n to compete successfully,
n to grow the business and achieve its
objectives.
Summary
n Strategic Management defines:
n how to focus a teams efforts and
resources,
n Leverage on its strengths and
opportunities,
and WIN over the competition,
n despite internal weaknesses and external
threats.
n Red Ocean Strategy differentiate or low cost
to gain sustained competitive advantage
n Blue Ocean Strategy innovate on value to
create uncontested market space
Summary

n Good ETHICS is good STRATEGY.

n The best Strategy depends on:
n the best FIT between a firms internal
strengths and its external realities.
n what best develops & sustains an
organizations competitive advantage,
n good execution.

n Good execution requires leaders of

conviction, character, charisma/ compassion,
competence, and courage.