Chapter 1: What is Strategy

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Chapter 1 What is Strategy?

• Strategy is the overall plan for deploying
  resources to establish a favorable position.
  (evolved from military sources)
• Strategic decisions are
• Important
• Involve a significant commitment of resources
• Not easily reversible

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Common Elements in Successful Strategies

Successful Strategy
Effective Implementation
Long-term, simple agreed objectives
Profound understanding of the competitive environm
ent
Objective appraisal of resources
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Elements of Success

• Goals a single-minded commitment to a clearly
  recognized goal.
• Competitive environment a deep and insightful
  appreciation of the arena in which you are
  competing.
• Appraisal of resources exploitation of internal
  strengths while protecting areas of weakness.
• Implementation capacity to reach decisions,
  energy, instilling commitment from the team,
  marshaling of resources and capabilities, quick
  responses to changing environment.

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Mini-Case Analysis

• How do the four elements of successful strategies
  come into play for Madonna, General Giap, and the
  Williams Sisters?
• Goals
• Understanding the environment
• Resource appraisal
• Implementation

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Elements of Success
6
Framework for Strategy Analysis

• Views strategy as a link between the firm and its
  external environment (mostly the industry
  environment).
• The firm embodies three sets of key
  characteristics
• Goals and values
• Resources and capabilities
• Organizational structure and systems

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Basic Framework

• Beyond SWOT to a simple two-way
• Internal and External

The Environment
The Firm
Goals values Resources capabilities Structure
systems
Competitors Customers Suppliers Macro-stuff
Strategy
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Strategy Levels

• If we accept that the fundamental goal of the
  firm is to earn a return on its capital that
  exceeds the cost of that capital, what determines
  the ability of the firm to earn that rate of
  return?
• First, the firm may find an industry with
  favorable conditions or
• Second, the firm may attain a position of
  advantage vis-à-vis its competitors in an
  industry.
• These two sources of superior performance define
  the difference between corporate and business
  level strategies.

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Corporate Business Strategy

Industry Attractiveness
Corporate Strategy
Which industries should we be in?
ROR above the cost of capital
Domain Selection Domain Navigation
How do we make money?
Competitive Advantage
Business Strategy
How should we compete?
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Design vs. Process

• The design school sees strategy as a logical,
  intended process.
• The process school sees strategy as less
  structured and more diffused.
• In essence, strategy has an intended, emergent,
  and realized component (Mintzberg).
• Honda is a great example of all three.
• This book will take a design approach.

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The Multiple Roles of Strategies

• Strategy as Decision Support improves the
  quality of decision making
• Strategy as Coordination and Communication
  creates consistency and unity
• Strategy as Target improves performance by
  setting high aspirations

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The Evolution of Strategic Management
1950s 1960s-early 70s Mid-70s-mid-80s Late
80s 1990s 2000s Budgetary Corporate Positio
ning Competitive Strategic planning
planning advantage innovation control
Financial
Planning Selecting Focusing on
Reconciling control growth -
sectors/markets. sources of size
with diversification Positioning for
competitive flexibility leadership
advantage agility Capital Forecasting. Indus
try analysis Resources
Cooperative budgeting. Corporate Segmentation
capabilities. strategy. Financial
planning. Experience curve Shareholder
Complexity. planning Synergy Portfolio
analysis value. Owning
E-commerce. standards. Knowledge
Management Coordination Corporate Diversificati
on. Restructuring. Alliances control
by planning depts. Global strategies.
Reengineering. networks Budgeting created.
Rise of Matrix structures Refocusing. Self
-organiz systems corporate Outsourcing.
ation virtual planning organization
DOMINANT THEME
MAIN ISSUES
KEY CONCEPTS TOOLS
MANAGE-MENT IMPLIC- ATIONS
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The Framework of the Book

• Introduction The concept of strategy
• Tools for strategic analysis
• Industry analysis (external)
• Firm analysis (internal)
• Analyzing competitive advantage
• Cost analysis
• Differentiation analysis
• Business strategy in different industries
• Corporate strategy