Team 1 Chris Athens Ben Baker Chris Bolinger Josh Carver Jordan Guenther Justin Turner Jeff Ward Strategy: A View from the Top Chapter 1 – What Is Strategy?

What is “strategy”? According to the Random House Unabridged Dictionary, strategy is a plan, method, or series of maneuvers or stratagems for obtaining a specific goal or result. A business strategy is more difficult to accurately and thoroughly define. Chapter 1 helps clarify the aspects and uses of business strategies in today’s world.

Key Points The Definition of Strategy What is a business strategy Reasons for a business strategy Strategy Formulation Process Steps of forming a business strategy Planning Evaluating Strategic Options Criteria Value

Definition of Strategy Business strategy is very difficult to express in a single sentence definition. Experts agree that there are principal dimensions of business strategies Strategy is about positioning an organization to have a competitive advantage by making choices about: which industries to participate in what products/services to offer how to allocate corporate resources Primary goal – create value for shareholders and other stakeholders by providing customer value.

Do business strategies make a difference? Disney has survived economic changes since 1922 by having sound a business strategy. Over the years, Disney has incorporated a human capital perspective into their business strategy. On 1/12/2009, The Wall Street Journal reported that Disney has filed a permit to open a resort in Shanghai.

Do business strategies make a difference? (continued) Dell also understand the importance of utilizing business strategies because of the constant changing technology industry. On 1/2/2009, The Wall Street Journal reported that Dell would now be taking advantage of human capital by letting to chief administrators go and promoting from within.

Business Strategy Evolution Over the last 50 years, business strategies have evolved from industrial economics perspective to a resource-based perspective and then finally to a human and intellectual perspective. industrial economics perspective focused on positioning a company within the environmental constraints. resource-based perspective focused on creating value through the resources that the company currently possessed.

Business Strategy Evolution (continued) Human and intellectual capital perspective focuses on having the right people and knowledge. This is an extension of the resource-based perspective, but put more focus on the people and knowledge. This perspective incorporates all personnel throughout the company and supply-chain.

Strategy vs. Tactics  Competitive Strength  Tactics -Quality -Time Oriented Completion -Outsourcing -Efforts to “Enhance Competitiveness” Example: Car Industries -Can easily be imitated

Strategy vs. Tactics (cont.)  Strategy’s -doing things to stand out -preserve meaningful differences -setting yourself apart -leadership  Example: (from Good to Great) Walgreen's vs. Eckerd Wells Fargo vs. Bank of America

Strategy Forces Trade-Offs  Deliver Value -Example: Dell- low cost, direct sales  Competing companies now must choose how to do business  Unique Competitive Positioning -the “essence of strategy” -create barriers to imitation -Example: Southwest Airlines

Focus On Creating Value  Strategy -create value for: Shareholders, Partners, Suppliers, Employees and Community BY: Satisfying needs and wants of customer better than anyone else  Subject to change -Knowledge, Competition

Strategy Creates Options  Strategy Formulation -Long term vision -While maintaining flexibility -Adopting to change  Learning -Environment -Rivals

Strategy: An Ecosystem Perspective  Charles Schwab, eBay, and Wal-Mart are all good examples of companies that use ecosystem strategies to plan and influence the outcomes of their own networks.  These companies all rely greatly on outside partners, suppliers, customers, and investors. They help achieve the focus companies success and sustained performance. (they succeed and fail as a collective whole)  Technology is the connective tissue that allows the ecosystem to function.  A technical infrastructure is needed for information sharing, collaboration, and integrated systems within for smooth error free transactions  Ecosystem = Supply Chain

The two forms of Strategic Alignment  (1) Strategic Capability Gaps  (2) Maintaining Strategic Focus

Strategy as Alignment  Strategic capability gaps- are substantive disparities in competences, skills and resources between customer demands and what the organization can deliver. Ways to solve this are by developing better technologies, creating faster delivery mechanisms, adopting a stronger branding, and building a stronger distribution network.  Maintaining Strategic Focus- you must find ways to successfully execute a companies chosen strategy, to make sure “what is said”, “is in fact done”. Communicating objectives clearly, allocating the necessary resources, and creating proper incentives for effective alignment are all good ways to maintain the strategic focus

Is All Strategy Planned?  The best laid out plans don’t always result in the intended manner.  The realized strategy can differ sometimes from the intended strategy. “It is good to plan, but you need to be able to role with the flow.” Chuck Ward

Three Different Levels of Strategy 1. Corporate Strategy- is concerned with what kind of businesses a firm should compete in and how the overall portfolio of businesses should be managed. 2. Business Strategy- is concerned with deciding what product or service to offer, how to manufacture or create it, and how to take it to the market place. 3. Functional Strategy- typically involves marketing, human resources, or technology. All three are a part of Strategic Management and theories.

Stakeholders Role Stakeholders play an intricate role in creating value for the customers. They are suppliers, partners, and even competitors. A misstep in the management of your stakeholders can set a companies progress for years.  Ownership Stake- shareholders, directors  Economic Stake- creditors, employees, customer, suppliers  Social Stake- regulatory agencies, charities, local community, activity groups.

Vision and Mission  Vision Statement: Represents senior management’s long-range goals for the organization  Mission Statement: Documents the purpose for an organization’s existence

Vision Statements  Most successful companies focus on relatively few activities and do them well Ex: McDonalds is successful precisely because it sticks to hamburgers  Successful companies achieve their leadership position by adopting a vision far greater than their resource base and competencies would allow

Vision Statements  A vision statement should provide both strategic guidance and motivational focus.  A good vision has the following characteristics: Clear but not so constraining that it inhabits initiative Meets the legitimate interests and values of all stockholders Must be feasable

Mission Statements  Companies around the world are adopting formal statements of corporate values as the core of their mission statement  A recent survey by consultants Booz Allen Hamilton, Inc. of companies showed:  89% had a written corporate values statement  90% specified ethical conduct as a key guiding principle  81% believed their management practices encouraged ethical behavior

Mission Statements  “We believe our first responsibility is to the Doctors, nurses, and patients, to the mothers and fathers and all who use out products and services....” - Johnsons and Johnson’s mission statement  The usefulness of a carefully crafted mission statement is illustrated by the history of Johnson and Johnson for more than 50 years  Credo- a statement of fundamental beliefs about how the company defines its corporate responsibilities

Strategic Intent  An executive summary of the strategic goals a company has adopted and a motivational message  A statement of strategic intent can do more than paint a vision of the future when properly articulated; It signals the desire to win

Stretch  Stretch reflects the recognition that successful strategies are built as much around what can be as around what is  Every company must create a fit between its resources and its opportunities  The question is over what time frame? Too short a time frame encourages a focus on fit rather than stretch Too long a time frame creates an unacceptable degree of uncertainty and threatens to turn stretch objectives into unrealistic goals

Strategy and the Nonprofit sector  The sector has grown to over 1 million organizations  Though Nonprofit companies aren’t structured around profit, they also experience problems in their environment that could lead to future problems.  A strategy is important towards measuring the Nonprofit organizations, which include 3 performance standards. 1) Mobilization 2) Effectiveness 3) Progress

Mobilization and Effectiveness  Mobilization Measuring the success of mobilizing the necessary resources. Examples  Fund-raising performance  Membership growth  Market share  Effectiveness Evaluating the effectiveness of the company’s people doing their job Examples  Number of people served by a program offered  Number of projects the organization completes

Progress  The toughest of the performance standards implemented by Nonprofit organizations.  For-profit organizations measure progress through Shareholder value Profitability Return on Investment (ROI)  Nonprofit organizations usually have broad missions and are difficult to measure For instance, the Girl Scouts have the mission of helping young girls reach their full potential as citizens? How Can This Be Measured?

Measuring Progress  McKinsey and Co. researched and found 3 options 1) Define a narrow mission statement to measure progress directly  Goodwill Industries measured how many people their training program brought out of poverty and into the working world. 2) Perform research of the activities to see if they prove true to the mission  Jump$tart Coalition performed research to see how many poor children going into kindergarten were better prepared than other kids once the program was complete 3) Set “micro-level” goals so success is achieved on a broader scale  Chesapeake Bay Foundation set 9 indicator’s of the bay’s health, collected the data, and set specific targets for future years.  Easily understood by the public and donors

The Strategy Formulation Process  Constructing a strategy is organized around 3 questions 1) Where are we now?  What is our mission?  What is-long term vision?  Who are our stakeholders? 2) Where do we go? (Drives the company forward)  At the business level  What segment? Large or Small  Partner with another company or not?  Value-added or Low-cost solutions for customers?  Corporate Level  Shaping the company’s portfolio  Making process adjustments 3) How do we get there?  Bridging the gap between current capabilities and what is needed for success  “Strategic Alignment” of core competences, market needs, and success factors in order to IMPLEMENT THE NEW STRATEGY.

Strategy and Planning  Most companies employ some form of strategic planning due to: 1. The need to cope with an increasingly complex range of issues 2. The speed which the competitive environment is changing  A formal system ensures that the required amount of time and resources are correctly allocated

The Planning Cycle  The planning process is organized in terms of a planning cycle. This cycle begins with a review at the corporate level of the overall competitive environment. Next, divisions and business units are asked to update their long-term strategies and to indicate how these strategies fit with the company’s goals.

The Planning Cycle (Cont.) Third, divisional and business unit plans are reviewed, adjusted, coordinated, and integrated. Finally, detailed operating plans are developed at the divisional/business unit level, and final approvals are obtained from corporate headquarters.

Evaluating Strategic Options  The ultimate test of any strategy is whether it produces a competitive advantage with above- average returns.  Strategy evaluation should focus on a firm’s future competitiveness and ask: Whether long-term objectives are appropriate Whether strategies chosen to attain such objectives are consistent and achievable Whether these strategies are likely to produce a sustainable competitive advantage

Shareholder Value  The shareholder value approach (SVA) to strategy evaluation holds that the value of the corporation is determined by the discounted future cash flows it is likely to generate.  Value is created when companies invest capital at returns that exceed the cost of that capital.

Shareholder Value (Cont.)  The use of shareholder value as the principal yardstick for evaluating alternative strategy proposals is somewhat misleading. Besides implementation problems, there are issues of transparency in the relationship between shareholder value on the one hand and the positioning for sustained competitive advantage on the other.

References Areddy, J., Sanders, P. (2009, January 12). Disney's Shanghai Park Plan Advances. The Wall Street Journal, Business. Retrieved from: Charny, B., Scheck, J., (2009, January 2). Dell Elevates Insiders in Strategy Change. The Wall Stree Journal, Business. Retrieved from: oglenews_wsj The Walt Disney Company. (2009). Stock History. Retrieved from: