What is Strategy and Why is it Important? Chapter One

Why do we need strategy? The reasons why firms succeed and fail is perhaps the central question in strategy Answers the fundamental question of the firm Where we are now? Where we going? How are we going to get there?

Strategic Management Defined decisions and actions that determine long-term performance formulation and implementation of plans designed to achieve objectives unifying theme that gives coherence and direction to organizational/individual decisions game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage What is a competitive advantage?

Competitive Advantage When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitate

Today’s Competitive Landscape New Managerial Mindset Global Economy Strategic Flexibility Intelligence Management Global Perspective Speed, Innovation & Integration Technology Change & Diffusion Hypercompetition Information Technology Knowledge Intensity

What is Strategy? Strategy is not doing similar activities better than your rivals – that’s operational effectiveness continual improvement not a sustainable advantage industry-wide cost reductions do not lead to increased profitability examples: PCs, automobiles, airlines

What is Strategy? 1) Strategy is performing different activities or performing similar activities in a different way Strategy is about positioning a) Variety-based positioning offering a unique choice of goods/services - Chic-fil-a, GameStop b) Needs-based positioning serving most/all of a particular group of customers’ needs - Babies R Us c) Access-based positioning serving a set of customers that require unique access – Kinkos, Movie Gallery, Superette

What is Strategy? Tradeoffs arise from 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate Tradeoffs arise from inconsistent image/reputation different activities, products, equipment, employees, skills, systems, machines priorities, internal coordination, and control

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

What is Strategy? 4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages

So….how can firm’s be profitable? 1) Choose an attractive industry in which to compete - Where we compete? Corporate level strategy 2) Attain a competitive advantage within an industry - How we compete? Business level strategy

Two Models of Profitability I/O Model (Industrial/Organizational Economics Model) Resource Based Model

I/O Model Environment Drives Strategy & Performance Three Key Assumptions Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability

I/O Model Environment Drives Strategy & Performance

Resource Based Model Firms’ Resources Drive Strategy & Performance Three Key Assumptions Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability

Resource Based Model Firms’ Resources Drive Strategy & Performance

What is strategic effectiveness?

Strategic Vision vs. Mission A strategic vision concerns “where we are going” or ”what do we want to be.” Markets to be pursued Future product/ market/ customer/ technology focus Kind of company management is trying to create The mission statement focuses on its “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

Mission Statements Boundaries of the current business Fundamental purpose that sets it apart from other firms of its type Conveys Who we are, What we do, and Why we are here

Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term

Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving financial performance Outcomes focused on improving competitive vitality and future business position $

6 Characteristics of a Good Objective U SMART Understandable Stretching Measurable Agreeable Realistic Timebound

Leading versus Lagging Indicators Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance

Stakeholders Individual or groups who Capital Market Stakeholders Affect mission/vision of the firm Are affected by strategic outcomes of the firm Have enforceable claims on the performance of the firm Capital Market Stakeholders Shareholders and capital suppliers Product Market Stakeholders Customers, suppliers, communities, unions Organizational Stakeholders Employees Today’s firms must affectively balance the demands and expectations of all stakeholders.

Levels of Strategic Management

HP’s Corporate Strategy Financial Services Enterprise Storage & Servers HP Services Software Personal Systems Imagining and Printing