Strategy: An Overview 1. The Origins of Strategy 2. Understanding Industry Dynamics and Competitive Dynamics 3. Creating and Sustaining Competitive Advantage

What is strategy?

What is strategy? The term “strategy” . . . Is intended to focus on the interdependence of the adversaries’ decisions and on their expectations about each other’s behavior. (Thomas C. Schelling) Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals. (Alfred D. Chandler) Strategy is a firm’s theory for how to earn superior profits (Jay Barney)

What is Strategy? Distinguishing strategy from tactics: Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuvre. Characteristics of strategic decisions: Important. Involve a significant commitment of resources. Not easily reversible. 6

The Rationalist School Versus The Process School Deliberate choice process Chaotic organizational Deliberate Strategy Emergent Strategy ‘ PLANNING` ‘ CRAFTING` Mintzberg’s critiques of strategic planning: The fallacy of prediction -- the future is unknown. The fallacy of detachment -- impossible to divorce formulation from implementation. The fallacy of formalization -- formalization inhibits flexibility, spontaneity, intuition and learning. 8

Levels of Strategy and Organization Structure Corporate Head Office Corporate Strategy Business Strategy Division A Division B R & D R & D Functional Strategies H R HR Finance Finance Production Production Marketing/Sales Marketing/Sales 17

Andrews’ Strategy Framework Environmental Conditions and Trends Economic Technical Physical Political Social Community Nation World Distinctive Competence Capabilities: Financial Managerial Functional Organizational Reputation History Consideration of all combinations Corporate Resources As extending or constraining opportunity Identification of strengths and weaknesses Programs for increasing capability Evaluation to determine best match of opportunity and resources Opportunities and Risks Identification Inquiry Assessment of Risk Choice of Products and Markets Economic Strategy © 1999 Pankaj Ghemawat Source: Kenneth R. Andrews, The Concept of Corporate Strategy, 1971

Ansoff’s Product/Mission Matrix © 1999 Pankaj Ghemawat Source: Ansoff

Experience Curve for Semiconductor Memories 1976 100 1977 75 1978 50 Price per bit (millicents) 1979 25 1980 10 1981 1982 1983 1984 0.1 1.0 10 100 Cumulated output (bits x 1012) © 1999 Pankaj Ghemawat Source: Integrated Circuit Engineering Corporation

BCG’s Growth-Share Matrix ? High Share Low Share High Growth Slow Growth “Star” “Question Mark” “Cash Cow” “Dog” © 1999 Pankaj Ghemawat

The Industry Attractiveness-Business Strength Matrix High Medium Low Investment and Growth Selective Growth High Selectivity Selective Growth Harvest/ Divest Medium Selectivity Harvest/ Divest Harvest/ Divest Business Strength Harvest/ Harvest/ Low Selectivity Divest Divest © 1999 Pankaj Ghemawat

Four Phases of Strategy Dynamic Analysis Static Analysis 1. Financial Planning: Meet Annual Budget 2. Forecast-Based Planning: Predict the Future 3. Externally Oriented Planning: Think Strategically 4. Strategic Management: Create the Future © 1999 Pankaj Ghemawat Source: Gluck et al

Two Determinants of Profitability Environmental Attractiveness Competitive Position Advantage Disadvantage Low High © 1999 Pankaj Ghemawat