1. The Concept of Strategy
Chapter 1
The Concept of Strategy

2. Opening Case- Strategy and success
What do you think of when someone mentions Lady Gaga?
The case lists her accomplishments including: 3 incredibly successful albums, five grammy awards, and a Forbes listing her of the worlds 100 most powerful women.
Lady Gaga’s strategy revolves around developing her Lady Gaga persona.
She has used many medias to assure that no one can match her strategy.

3. Opening Case- Strategy and success
The second person mentioned in the opening case is Jeff Bezos, the CEO of Amazon.
Bezos strategy includes a powerful customer service focus.
The strategy he has implemented has allowed Amazon to continue to grow in all aspects of business.

4. The role of strategy in success
GOALS THAT ARE SIMPLE, CONSISTENT AND LONG TERM
Lady Gaga has remained devoted to promoting her persona and developed a power image for herself.
Bezos has stayed true to his desire to continuously grow and improve the customer’s experience.

5. The role of strategy in success
2. PROFOUND UNDERSTANDING OF THE COMPETITIVE ENVIRONMENT
Lady Gaga utilizes social media to connect with those who align with her music style and political views.
Bezos relies on his knowledge of customer needs to change with the business environment

6. The role of strategy in success
3. OBJECTIVE APPRAISAL OF RESOURCES
Lady Gaga has exploited her talents with design, creativity, theatricality, and self promotion.
Bezos exploited his own knowledge, including his vision for business and brought in others for any know-how he lacked.

7. The role of strategy in success
4. EFFECTIVE IMPLEMENTATION
Both Gaga and Bezos were not guaranteed their success. Without effective implementation, their strategies would have been useless.
Leaders must maintain high determination and the ability to collaborate with others when needed.

8. The role of strategy in success
The four previously stated observations about the role of strategy in success can be made in relation to most fields of human endeavor.
Typically, strategies built on these four basic elements play an influential role in the world.
Success usually follows those who implement a combination of these elements.

9. Combination of the factors
Goal focused- their career goals have taken primacy to other life goals.
Knowing the environment- they tend to be fast-learners and play to the keys of advancement
Know themselves- they pay attention to both their strengths and weaknesses
Implementation- their implement their strategies with commitment, consistency, and determination

10. Origins of strategy
Strategies give both direction and purpose, deploy resources in the most effective manner, and coordinate the decisions made by individuals.
Strategy is derived from the Greek word strategia meaning “generalship”
The concept of strategy originated from Sun Tzu’s classic The Art of War.

11. Strategy versus tactics
Strategy- the overall plan for deploying resources to establish a favorable position
Tactics- a scheme for a specific action
In military terms, tactics are used to win battles, while strategy is a design to win the war.
3 common characteristics of strategic decisions:
-they are important
-they involve a significant commitment of resources
-they are not easily reversible

12. Financial Budgeting versus Corporate Planning
Financial budgeting- annual financial planning and investment appraisal provided a short term control for growing businesses
Corporate planning- five-year economic forecasting that set goals and objectives
Before the 1960’s, financial budgeting was used but was ineffective for businesses growing in size and complexity.
By mid 1960’s most large corporations had set up corporate planning departments.
This seemed like an unshakable process for most until the 1970’s and 1980’s. Oil shocks and increased economic instability made it difficult to predict future business for five years ahead. Something had to change

13. Strategic Management
Late ‘70s and ‘80s: Focus less on the detailed management of company’s growth paths than on positioning the company in markets and in relations to competitors in order to maximize potential for profit
Primary goal: competitive advantage
1990s: focus of strategy analysis shifted from sources of profit in external environment to sources of profit within the firm
Resource Based View- resources and capabilities of firm regarded as main source of competitive advantage and primary basis for formulating strategy
“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” -Michael Porter
Disruptive technologies and accelerated rates of change have meant that strategy has become less about plans and more about creating options for the future, fostering strategic innovation and seeking uncontested market space
Renewed interest in corporate social responsibility, ethics, sustainability of natural environment and role of social legitimacy

14. Strategy Today What is strategy?
The means by which individuals or organizations achieve their objectives
Strategy implies consistency, integration, and cohesiveness
As business environment becomes less stable and less predictable, strategy has become less concerned with detailed plans and more about the quest for success
Strategy as plan→ strategy as direction
Must embrace flexibility and responsiveness
Corporate strategy- defines the scope of the firm in terms of the industries and markets in which it competes
Decisions include investment in diversification, vertical integration, acquisitions and new ventures allocation of resources between different businesses of the firm and divestments
Business Strategy- concerned with how the firm competes within an industry or market
If the firm is to prosper, it must establish a competitive advantage over rivals (a.k.a. competitive strategy)

15. How do we describe a firm’s strategy?
2 questions:
How is the firm competing?
Where is the firm competing?
Where:
Industry or industries in which the firm is located
Products it supplies
Customer group that is targeted
Countries and localities in which it operates
Vertical range of activities it undertakes
How:
Competing for the future
Purpose of the firm (mission)
What is seeks to become (vision)
Specific performance targets

16. How do we identify a firm’s strategy?
Located in 3 places:
In the heads of the chief executive, senior managers and other members of organization
In top management team’s articulations of strategy in speeches and written documents
In the decisions through which strategy is enacted
Mission statement is the basic statement of organizational purpose
“Why we exist”
Statement of principles or values
“What we believe in and how we will behave”
Vision statement
“What we want to be”
Strategy statement
“What our competitive game plan will be”

17. For example: Costco Mission statement:
“Costco aims to continually provide our members with quality goods and services at the lowest possible prices”
Vision statement:
“A place where efficient buying and operating practices give members access to unmatched savings”

18. Strategy 3 definite components of strategy: Objectives
Scope- Where will we compete?
Advantage- How will we compete?
The usefulness of public statements of strategy is limited by their role as public relations vehicles
Explicit statements of strategy need to be checked against decisions and actions

19. How Strategy Is Made
Intended Strategy - Strategy conceived by top management
Realized Strategy - Actual strategy that is implemented
Only 10-30% of intended strategy
Emergent Strategy - The decisions that emerge from the complex processes in which individual managers interpret the intended strategy and adapt to changing external circumstances

20. Emergent Strategy Continued
Planned emergence of strategy involves combination of
Centrally driven rational design
Strategy discussed, deliberated, and decided
Occurs in board meetings and strategy workshops
Decentralized adaption
Continually enacted by every member of organization
Balance between design and adoption depends on stability and predictability of business environment
Roman Catholic Church stable, Google not as stable

21. Roles of Strategy: Decision Support
Strategy improves decision making by:
Simplifies decisions by constraining alternatives by acting as a rule of thumb
Process permits the pooling and integration of knowledge from different individuals
Facilitates the use of analytical tools
Use cost managerial as an example of strategy in field

22. Roles of Strategy: Coordinating Device
Strategy as a coordinating device involves:
Communication
Statements allow CEO to communicate identity, goals, and positioning to organizational members
Provides forum for views to be exchanged and consensus developed
Monitoring
Monitoring of goals, commitments, and performance targets helps organization move forward

23. Roles of Strategy: Target
Strategy needs to both establish a direction and motivate/inspire members of the organization
Strategic Intent describes articulations of a desired leadership position
Strategy less about fit and resource allocation and more about stretch and resource leverage
Southwest example

24. Roles of Strategy: Animation and orientation
Strategy needs to be used to animate and orientate individuals
Helps mobilize and encourage
Assists in achieving focus and direction regardless if plan is correct
Platoon in the Alps example

25. Strategy: Shareholders Versus Stakeholders
Generally, businesses seek to create value through the activities they undertake
Stakeholder Approach - view of business organizations as coalitions of interest groups where top management’s role is to balance these different interests
Groups may include employees, lenders, landlords, government, and owners
Stakeholder Analysis - tool for identifying, understanding, and prioritizing needs of stakeholders

26. Stakeholder Analysis Key steps in stakeholder analysis:
Identify potential stakeholders
Rank stakeholders according to importance and influence on organization
Identify what each stakeholder uses to judge performance or extent to which the organization is meeting expectations
Decide how well the organization is doing form stakeholder’s perspective
Identify what can be done to satisfy each stakeholder
Identify and record longer-term issues with stakeholders

27. Power Interest Grids
Level of interest - stakeholder’s political interest in an organization or issue
Power - stakeholder’s ability to affect the organization’s or issue’s future
Level of interest
Level of interest
Low High
Low High
Crowd
Subjects
Context
setters
Players
Monitor
Keep
informed
satisfied
Manage
closely
Low
Low
Power
Power
High
High

28. Profit and Purpose There is more to business than just making money
When Henry Ford said he wanted “to build a motor car for the great multitude that everyone will be able to afford” he of course wanted to make money but he also had a purpose to make cars affordable for everyone.
Having a purpose behind the profits has proven to be very helpful for a lot of companies.

29. Profit and Purpose Cont.
Most companies that are consistently successful in profits tend to be also motivated by a bigger purpose other that their profits alone.
And the opposite is also true if a company cares only about their profits it could really hurt the company because it can blinker managers’ perception of the real drivers of superior performance.
There are two main factors why the pursuit of profit alone can hurt.

30. The Two Main Factors
The first is profit will only be and effective management guide if the managers know what determines profit.
The second factor has to deal with motivation. It is much easier to motivate a worker if there is a purpose behind making the money rather than just making money period.

31. A Sense of Purpose
To keep alive a sense of purpose for your company it has to come from the top first.
It has to be embedded in organizational culture and in the behavior of corporate leaders.
Most companies do this through mission, vision, and purpose statements.
Our company Costco has a mission statement saying “ to continually provide our members with quality goods and services all at the lowest possible prices”.

32. Profits and Purpose Cont.
Dennis Bakke had a great quote about profits in the business world. He said “Profits are to business as breathing is to life”.
This quote basically means yes profits are an essential part of business but not the reason for its existence.
So I feel it’s better for a company in the long run to have a purpose behind the profits.

33. Debate Over Corporate Social Responsibility
Corporate social responsibility - What are a company's obligations to the society as a whole?
Some experts believe corporate social responsibility is a bad thing and others believe that it is essential for a company to grow in the long run.

34. Corporate Social Responsibility Cont.
Milton Freeman is a free-market economist who believes that corporate social responsibility is unethical and undesirable.
Unethical because it spends owners money on projects that owners had not agreed on.
Undesirable because corporate executives are basically determining the intent of society.
Freeman also believes that there is only one social responsibility for a business and that is to maximize profits as long as it’s within the rules of the game, or legal.

35. Corporate Social Responsibility Cont. Main Arguments Against
Competition - the heat of international competition is so high that few companies have the luxury of pursuing goals that diverge from profit maximization.
The market for corporate control - companies that underperform financially suffer a declining share price that acquirers will use as a basis of personnel replacement.
Convergence of stakeholder interest - beyond a common interest in the survival of the firm, there is likely to be more community of interests than conflict of interests among different stakeholders.
Simplicity - considering multiple goals and specifying trade-offs between them vastly increase the complexity of decision making.

36. Corporate Social Responsibility Cont.
Despite these arguments more and more companies are taking on responsibility outside of their company.
William Allen contrasts two different view of public corporations:
Firm as Property - the responsibility of the firm is to operate in the interests of the shareholders. Meaning put your shareholders first and don’t mind the outside responsibility.
Firm as Social Entity - a responsibility to maintain the firm within its overall network of relationships and dependencies. Meaning the firm is more of a social figure rather than just a money maker.

37. Strategic Management of Non-Profit Organizations
Can non-profit organizations have the same strategic management systems as for-profit organizations?
The short answer is yes they can.
One big reason is because strategy is just as important to a non-profit as it is to a for-profit organization.
The benefits to strategic management in terms of improved decision making, achieving coordination, and setting performance targets may even be more important to non-profit organizations.

38. Basic Framework for Strategy Analysis
The Firm
Goals and Values
Resources and Capabilities
Structure and Systems
The Industry Environment
Competitors
Customers
Suppliers
Strategy

39. Sources