1. C HAPTER 1 Introduction to Strategy

2. What does it mean to have a strategy? What is the key to a successful strategy? How can you evaluate a “good” or “bad” strategy? OVERVIEW

3. Strategy Competitive Advantage Shareholder Value 1. Markets: What markets (industries and geographic markets) the company will pursue in search of a high return on invested capital. 2. Unique Value (why we win with customers): What unique value to offer the customer in those markets (the firm’s value proposition : cost or differentiation). 3. Resources and Capabilities (how we deliver unique value): What resources (e.g., assets, brands, etc.) and capabilities (e.g., processes) will allow the firm to deliver a superior value proposition to customers. 4. Barriers to Imitation: How the company will prevent imitation of its strategy by competitors. S TRATEGY : P LAN TO A CHIEVE C OMPETITIVE A DVANTAGE

4. What does it mean to have a strategy? What is the key to a successful strategy? O VERVIEW

5. 1 1 Harmon’s 2 2 Acme 3 3 Safeway M INI -C ASE Current Grocery Stores in a High Growth City Market Freeway Exits

6. 4 4 Finast Strategic Intent: Avoid Rivalry Unique Value: Convenience; but no sustainable cost or differentiation advantage High Growth City Market Freeway Exits 1 1 Harmon’s 2 2 Acme 3 3 Safeway

7. 4 4 Finast Strategic Intent: Offer Unique Value Proposition (e.g., Costco; Trader Joes) Unique Value: Differentiation or low cost High Growth City Market Freeway Exits 1 1 Harmon’s 2 2 Acme 3 3 Safeway

8. 4 4 Finast 4 4 4 4 Strategic Intent: Eliminate Rival(s) Unique Value: Low Cost; equal convenience High Growth City Market Freeway Exits 1 1 Harmon’s 2 2 Acme 3 3 Safeway

9. 4 4 Finast 4 4 Strategic Intent: Eliminate Rival Unique Value: Low Cost High Growth City Market Freeway Exits 1 1 Harmon’s 2 2 Acme 3 3 Safeway

10. Finast Unique Value (Value Proposition) Low Price Better Selection Just as Convenient How Finast Delivers Unique Value Lower “local” costs (advertising, training, distribution, etc.) due to more stores than competitors Larger stores to offer more variety. Greater brand awareness due to more stores/lower marketing costs F INAST ’ S S TRATEGY

11. Costs Margins Industry Average Price Low Cost Product Differentiation G ENERIC F IRM -L EVEL S TRATEGIES TO D ELIVER U NIQUE V ALUE

12. Low Cost (Efficiency) – Providing similar product at lower cost – ETRADE, Walmart Differentiation (Premium Value) – Providing unique product with attributes buyers will pay for – Merrill Lynch, Apple Value (Best Value for the Price) – Providing a combination of features and price between low priced and premium value offerings – Charles Schwab, Costco G ENERIC F IRM -L EVEL S TRATEGIES TO D ELIVER U NIQUE V ALUE

13. Competitive Advantage Doing Different Things (skype) Doing Similar Things Differently (Southwest) S TRATEGY R ESTS ON C OMPETENCIES (A CTIVITIES ) THAT A LLOW F IRMS TO D ELIVER U NIQUE V ALUE

14. Example Companies/Industries Key activity or capability that confers advantage CompaniesIndustries Raw materials sourcing  DeBeers Diamonds/Jewelry Research and development  Genentech Biotechnology Design  Apple  IDEO Computers, MP3s, phones Anything Large scale, low cost production capabilities (economies of scale)  Intel  Boeing Semiconductors Aircraft Production technology  Toyota Automobiles Sales and marketing  P&G  Virgin Group Consumer products Airlines, cell phones, music Store location and design skills  McDonalds  Starbucks Fast food Coffee Servicing  Nordstrom Clothing, accessories Up- Stream Down- Stream E XAMPLES OF C APABILITIES THAT C ONFER A DVANTAGE

15. What is the key to a successful strategy? How can you evaluate a “good” or “bad” strategy? O VERVIEW

16. In the mid 1980s Delta’s market researchers found that customers (particularly business customers) were strongly influenced to choose a particular airline by the airline’s frequent flyer program. Consequently, to motivate customers to choose Delta, they teamed up with American Express (an exclusive arrangement) to offer a special program: customers could receive triple miles if they would fly on Delta and purchase the tickets using the American Express card. M INI C ASE : M ARKETING S TRATEGY AT D ELTA How would you evaluate Delta’s strategy? (Good or bad?)

17. W HAT H APPENED ? All competitors offer triple miles—regardless of how you paid Customers that wanted to pay some other way than AmEx —flew another airline Raised the costs of all airlines with no advantage –the customer only winner No sustainable advantage for Delta

18. G OOD S TRATEGIES H AVE B ARRIERS TO I MITATION What is the cost of the strategic initiative? How long will it take for competitors to imitate the strategic initiative? Is there a Barrier to Imitation? If competitors can quickly and easily imitate, then it raises all rival’s costs without creating advantage.

19. F OUR S TRATEGIC Q UESTIONS 1.Where do we compete? 2.What unique value do we bring? 3.What resources and capabilities do we utilize? 4.How do we sustain our value?

20. Analysis ‾ Strategic goals (vision, mission, strategic objectives) ‾ Internal and external environment of the firm Strategic decisions – Strategy Formulation ‾ What industries should we compete in? ‾ How should we compete in those industries? Actions – Strategy Implementation ‾ Allocate necessary resources ‾ Design the organization to bring intended strategies to reality S TRATEGIC M ANAGEMENT ( SEE F IGURE 1.1, P. 8)

21. S TRATEGIC I SSUES Results from Strategic Analysis Strategic issues require top-management decisions –Strategic decisions overarch several areas of a firm’s operations –Usually only top management has the perspective needed to understand their broad implications –Usually only top managers have the power to authorize necessary resource allocations

22. S TRATEGIC I SSUES Strategic issues require large amounts of the firm’s resources –They involve substantial allocations of people, physical assets, and money –Strategic decisions commit the firm to actions over an extended period –In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm

23. S TRATEGIC I SSUES Strategic issues often affect the firm’s long-term prosperity –Strategic decisions commit the firm for a long time, typically 5 years; however the impact lasts much longer –Once a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategy –Firms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.

24. S TRATEGIC I SSUES Strategic issues are future-oriented –They are based on what managers forecast, rather than what they know –Emphasis is on the development of solid projections that will enable a firm to seek the most promising strategic options –A firm will succeed only if it takes a proactive (anticipatory) stance toward change

25. S TRATEGIC I SSUES Strategic issues usually have multifunctional or multibusiness consequences. –Strategic decisions have complex implications for most areas of the firm –Decisions about customer mix, competitive emphasis, or organizational structure involve a number of the firm’s SBUs, divisions, or program units

26. S TRATEGIC I SSUES Strategic issues require considering the firm’s external environment –All businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their control –Successful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do

27. M ODERN F LOW OF S TRATEGIC M ANAGEMENT Top Management Subsidiary Functional Management Operating Management Employees

28. W HY M ODERN F LOW OF S TRATEGIC M ANAGEMENT ? Changes in and heightened competition driven by –Pressure for low cost products and services –Higher quality requirements –Globalization –Increasing rate of technological change and diffusion –Information technology –Knowledge as an organizational resource

29. C OHERENCE IN S TRATEGIC D IRECTION Company vision –Massively inspiring –Overarching –Long-term –Driven by and evokes passion –Fundamental statement of the organization’s Values Aspiration Goals Hierarchy of Goals Company vision

30. C OHERENCE IN S TRATEGIC D IRECTION Mission statements –Purpose of the company –Basis of competition and competitive advantages –More specific than vision –Focused on the means by which the firm will compete Hierarchy of Goals Company vision Mission statements