1 CHAPTER What Is Strategy and Why Is It Important? McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Instructor: Dr.Gehan Shanmuganathan

Part 1 Strategy Analysis 1-2

LO 1-1Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity. LO 1-2Define strategy and explain its role in a firm’s quest for competitive advantage. LO 1-3Explain the role of firm effects and industry effects in determining firm performance. LO 1-4Describe the role of corporate, business, and functional managers in strategy formulation and implementation. LO 1-5Outline how business models put strategy into action. LO 1-6Describe and assess the opportunities and challenges managers face in the 21st century. LO 1-7Critically evaluate the role that different stakeholders play in the firm’s quest for competitive advantage. 1-3

ChapterCase 1 The Premature Death of a Google Forerunner at Microsoft Google founded in 1998Google founded in 1998  Two graduate students at Stanford  PageRank algorithm a clear improvement  Today, it is world’s leading online search/advertising firm Microsoft bought LinkExchange in 1998Microsoft bought LinkExchange in 1998  Keywords product for search engines was shut down Microsoft considered buying Overture Services in 2003Microsoft considered buying Overture Services in 2003  Gates and Ballmer passed on the deal  Yahoo buys Overture for its own search product Microsoft launches its own search in 2009Microsoft launches its own search in 2009  Bing now partnered with Yahoo 1-4

WHAT STRATEGY IS: GAINING AND SUSTAINING COMPETITIVE ADVANTAGE What Is Competitive Advantage?What Is Competitive Advantage?  Superior performance relative to competitors  Examples: Google, Duke Basketball, Pfizer’s Lipitor What Is Strategy?What Is Strategy?  Goal-directed actions to gain and sustain competitive advantage  NOT a zero-sum game  Win – win scenarios – co-opetition  Requires trade-offs for strategic positioning  JCPenney vs. Neiman Marcus  Southwest Airlines vs. Delta Song 1-5

What Strategy Is NOT…. Raking in every penny the firm can getRaking in every penny the firm can get  Profit is a consequence of good strategy, it is NOT the main goal! Operational effectivenessOperational effectiveness  Enterprise Resource Planning (ERP)  Benchmarking  Six Sigma  “Necessary but not sufficient” such as Lean Manufacture 1-6

Strategy Across the Levels Where to Compete?Where to Compete?  Should GE move more aggressively into the health care industry? How to Compete?How to Compete?  Should GE jet engines have better fuel efficiency than Rolls Royce? How to Implement?How to Implement?  Should GE human resources recruit more science graduates? CORPORATE STRATEGYCORPORATE STRATEGY BUSINESS STRATEGYBUSINESS STRATEGY FUNCTIONAL STRATEGYFUNCTIONAL STRATEGY 1-7

BUSINESS MODELS: PUTTING STRATEGY INTO ACTIONPUTTING STRATEGY INTO ACTION  Razor-blade model  Subscription model How is the firm going to make money to continue operations?How is the firm going to make money to continue operations? What’s happening now between Microsoft & Google?What’s happening now between Microsoft & Google?  Business models in opposite directions 1-8

STRATEGY IN THE 21ST CENTURY Accelerating Technological ChangeAccelerating Technological Change  84 years for half of U.S. families to own a car  28 years for half to own a TV  6 years for an MP3 player 1-9

EXHIBIT 1.5 Accelerating Speed of Technological Change 1-10

STRATEGY IN THE 21ST CENTURY Future IndustriesFuture Industries  HEALTH CARE  In the U.S., over 16% of GDP and still growing  GREEN ECONOMY   Potentially large growth in energy efficiency and technologies  WEB 2.0   Interactivity and using collective intelligence on the Internet 1-11

1–12 STRATEGY HIGHLIGHT 1.1 Threadless: Leveraging Crowdsourcing to Design Cool T-Shirts Online apparel companyOnline apparel company  Started in 2000 by 2 students with $1,000  “Prosumers” – a hybrid supplier/customer  Shirt designs are submitted by the community  Designs are voted on by the online community –Only winning designs are produced & sold Threadless Interview 1-12

STAKEHOLDERS Successful business generates societal valueSuccessful business generates societal value Stakeholders – are affected by firm’s actionsStakeholders – are affected by firm’s actions  Internal  External Vary by industryVary by industry  Autos  Investment banking 1-13

THE AFI STRATEGY FRAMEWORK Analyze (A)Analyze (A)  Getting Started; External & Internal Analysis  Chapters 1 thru 5 Formulate (F)Formulate (F)  Business and Corporate Strategy  Chapters 6 thru 10 Implement (I)Implement (I)  Organizational Design & Corporate Governance  Chapters 11 thru

CHAPTERCASE 1 Consider This… Microsoft has a new partner in the competition for a search engine with Google… FACEBOOKMicrosoft has a new partner in the competition for a search engine with Google… FACEBOOK In fall 2010, Mark Zuckerberg announced their surprising decision to partner with the “really scrappy…underdog”In fall 2010, Mark Zuckerberg announced their surprising decision to partner with the “really scrappy…underdog” The partners are aiming to make “search more social”The partners are aiming to make “search more social” “Our approach is about the speed of getting things done…not the speed of high volume of results”“Our approach is about the speed of getting things done…not the speed of high volume of results” …Bing !! 1-15