chapter

WHAT IS STRATEGY AND WHY IS IT IMPORTANT?

Student Version
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategys Three Central Questions

Where are we now?

Current financial performance Market standing Competitive resources and capabilities Changing industry conditions

Where do we want to go from here?

What buyer needs to try to satisfy? Which growth opportunities to emphasize? How to change the business makeup?

How are we going to get there?

Which competitive moves and business

approaches to use as a strategy?

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What Do We Mean By Strategy ?

A

firms strategy is all about how:

How to attract and please customers. How to compete against rivals. How to position the firm in the marketplace to

capitalize on attractive growth opportunities.

How best to respond to changing economic and

market conditions.
How to manage each functional piece of the

business.
How to achieve the firms performance targets.

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Strategy and the Quest for Competitive Advantage

Gaining

a sustainable competitive advantage requires:

Choosing to compete differently by

doing what rivals dont do or cant do.

Appealing to buyers in ways that

set the firm apart from its rivals.

Staking out a market position that

is not crowded with strong rivals.

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Choosing a Strategic Approach

low-cost provider

broad differentiation

focused low-cost

focused differentiation

best-cost provider

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Why Strategy Evolves Over Time

A

strategy changes over time as:

Competitors make unexpected moves The needs and preferences of buyers change New market opportunities emerge

Managers develop new ideas to improve the strategy

Evidence mounts that the strategy is not working well
A

strategy evolves:

Incrementally or dramatically
Proactively and adaptively

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The Relationship Between a Firms Strategy and Its Business Model

Business

Model

Managements blueprint for delivering a product or

service to customers that will generate revenues sufficient to cover costs and yield an attractive profit.
Business

Model Elements

The firms customer value proposition for satisfying

buyer wants and needs at a perceived good value.

The firms profit formula sets out how the firms cost

structure will allow for acceptable profits given the pricing tied to its customer value proposition.
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The Three Tests of a Winning Strategy

Fit

How well does the strategy fit the firms situation?

Competitive Advantage

Is the firm achieving sustainable competitive advantage?

Is the strategy producing good company performance?

Performance

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Measuring the Caliber of a Firms Strategy

Is

the strategy producing good performance?

Is the firm gaining in profitability

and financial strength?

Is the firm gaining in competitive strength

and market standing?

Assessing

current and proposed strategies:

Do they have good fit? Do they offer a sustainable competitive advantage? Are they capable of contributing to above-average

performance or performance improvements?

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The Road Ahead

Strategy

is about asking and answering a most important question:

What must managers do, and do well, to make

a company a winner in the marketplace?

The answer is that doing a good job of managing

requires good strategic thinking and good management of the strategy-making, strategyexecuting process.

Best wishes for your success in the class!!

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