2. Chapter One What is Strategy and Why is it Important?

4. 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?

5. Strategic Management Defined decisions and actions that determine long-term performance formulation and implementation of plans designed to achieve objectives an action managers take to achieve one or more of an organization’s goals 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 management’s action plan for running the business and conducting operations; commitment to pursue a particular set of actions in growing the business, attracting customers, competing successfully, conducting operations, and improving financial and market performance

6. The “How” of Strategy How will we Grow? Build clientele? Improve performance? Lower cost? Superior products? Outstanding service? Target high or low end? Narrow or board product line? Focus on one part of the vertical chain or be fully integrated? Local or global competitor? Single or multiple industry? Manufacture or outsource? Offensive or defensive? Incremental or radical change? Conservative or bold?

7. 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

8. What is Strategy? 1)Strategy is performing different activities or performing similar activities in a different way As suggested by the book: 4 of the most dependable approaches are 1) low cost, 2) differentiating features, 3) fulfilling specialized needs, and 4) build unassailable set of capabilities.

9. Who sells the most toilet paper in the U.S? 1 billion rolls Who is the country’s largest retailer of wine? Who is the country’s third largest grocer? Where can you buy Dom Perignon for $90, $11,000 crystal vases, 42-plasma screen TVs for $3,000, and live Maine lobsters?

10. 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

11. What is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate vs.

12. Time Magazine So why haven't American, United, US Airways and the three other full-service carriers, which lost $11 billion last year and stand to lose an additional $5 billion this year, followed the lead of the profitable discounters by cutting costs and fares? Because that's not the way their business works. They have made, and lost, their money by providing the frequent departures, quick connections, spacious seats and other amenities that have been demanded by business flyers and charging them dearly for that service — more than five times the cost of a discount fare. HARD TO STRADDLE AND REPOSITION!

13. What is Strategy? 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

14. What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing

15. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

16. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

17. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

18. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

19. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

20. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports No baggage transfers Low Fares Secondary Airports Quick Turns No meals No baggage transfers

21. Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports No baggage transfers Low Fares Secondary Airports Quick Turns No meals No baggage transfers How can Delta copy that? What about Jet Blue?

22. 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

23. What is Strategy? 4) The desire to grow is most threatening to an effective strategy

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

25. Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive

26. Emergent strategy elements

27. What is strategic effectiveness? Consistent, long-term goals and objectives

28. What is strategic effectiveness? Consistent, long-term goals and objectives Reflects and understanding of the environment

29. What is strategic effectiveness? Consistent, long-term goals and objectives Reflects and understanding of the environment Takes resources into consideration

30. What is strategic effectiveness? Consistent, long-term goals and objectives Reflects and understanding of the environment Takes resources into consideration Effectively implemented

31. What is strategic effectiveness? Consistent, long-term goals and objectives Reflects and understanding of the environment Takes resources into consideration Effectively implemented Strategic Effectiveness (fit)

32. Chapter Two Managerial Process of Crafting and Executing Strategy

33. Fig. 2.1: The Strategy-Making, Strategy-Executing Process

34. Developing a Strategic Vision A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future. A strategic vision exists only as words and has no organizational impact unless and until it wins the commitment of company personnel and energizes them to act in ways that move the company along the intended strategic path!

35. Elements of a Strategic Vision Delineates management’s aspirations for the business Provides a panoramic view of “where we are going” by charting a strategic path Is distinctive and specific Avoids use of generic, dull & boring language that could apply to most any company Captures employees’ emotions steers them in a common direction Is challenging and a bit beyond a company’s immediate reach

38. Examples of Strategic Visions Hilton Hotels Corporation Our vision is to be the first choice of the world’s travelers. Hilton intends to build on the rich heritage and strength of our brands by: Consistently delighting our customers Investing in our team members Delivering innovative products and services Continuously improving performance Increasing shareholder value Creating a culture of pride Strengthening the loyalty of our constituents.

39. Examples of Strategic Visions Caterpillar Be the global leader in customer value. eBay Provide a global trading platform where practically anyone can trade practically anything.

40. Strategic Vision vs. Mission A strategic vision concerns “where we are going” 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 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

41. 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 A well-conceived mission statement distinguishes a company’s business makeup from that of other profit-seeking enterprises in language specific enough to give the company its own identify!

42. Don’t offer me things Don’t offer me shoes Offer me comfort for my feet & the pleasure of walking Don’t offer me clothes Offer me fashion, style, or an certain image Don’t offer me books Offer me hours of escape & the benefit of knowledge Don’t offer me furniture Offer me comfort and a peaceful place to lounge Don’t offer me things Offer me ideas, emotions, ambience, feelings, benefits

43. (Our) vision is to dominate the global foodservice business industry. Global dominance means setting the performance standards for customer satisfaction while increasing market share and profitability through our Convenience, Value and Execution Strategies.

44. (Our) vision is to dominate the global toothpick industry. Global dominance means setting the performance standards for customer satisfaction while increasing market share and profitability through our Convenience, Value and Execution Strategies.

45. Our mission is to provide a customer a means of moving people and things up, down, sideways over short distances with higher reliability than any similar enterprise in the world.

46. One vision drives everything we do: A computer on every desk and in every home using great software as an empowering tool

47. Our business is renting cars. Our mission is total customer satisfaction.

48. Our business is leasing camels. Our mission is to totally alienate all of our customers.

49. To be the premier organization in nurturing and enriching the bond between people and animals

50. We supply the computing industry with chips, boards, systems, and software. Our products are used as “building blocks” to create advanced computing systems for PC users. Our mission is to be the preeminent building block supplier to the new computing industry worldwide. To be the leading supplier of PCs and PC servers in all customer segments.

51. Fig. 2.1: The Strategy-Making, Strategy-Executing Process

52. Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term All levels of the organization Top-down, not Bottom-up

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

54. 6 Characteristics of a Good Objective

55. 2) Measurable

56. 6 Characteristics of a Good Objective

60. U SMART Understandable Stretching Measurable Agreeable Realistic Timebound

61. Objectives To be one of the top three banking companies in terms of market share in all significant markets we serve. To provide shareholders a secure investment with a superior return. To be the low-cost producer of aluminum and to outperform the average ROE of the Standard and Poor’s industrial stock index. To achieve 100% total customer satisfaction… everyday…in every restaurant…for every customer To be the industry's innovative leader 30% of the company’ annual sales must come from products fewer than four years old

62. Objectives Increase sales growth 6% to 8% and accelerate core earning growth from 13% to 15% per share in each of the next five years Capitalize on e-commerce Develop a smart card strategy that will help us play a key role in shaping on-line payments Reduce greenhouse gasses by 10% by 2010 We want to operate 6,000 stores by 2010 Cut corporate overhead costs by $30 million per year

63. 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 Unless a company sets and achieves stretch strategic objectives, it is not developing the competitive muscle to deliver even better financial results in the years ahead! Leading versus Lagging Indicators

64. A balanced scorecard for measuring company performance is optimal; it entails Setting financial and strategic objectives Placing balanced emphasis on achieving both types of objectives Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market position. The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a company’s business position and give it a growing competitive advantage over rivals! One Balanced Scorecard

65. A Second Balanced Scorecard Comprehensive view of the firm from the customer, internal, financial and innovation/learning perspectives 1) How do customers see us? Time, quality, service & performance, costs 2) What must we excel at? 3) How do we look to shareholders? 4) Can we continue to improve and create value?

66. A Third Balanced Scorecard Triple Bottom-line Economic, social and environmental performance

67. Fig. 2.1: The Strategy-Making, Strategy-Executing Process

68. Levels of Strategic Management

69. Answers the question “Where?”

70. Levels of Strategic Management Answers the question “How?”

71. HP’s Corporate Strategy Enterprise Storage & Servers HP Services SoftwarePersonal Systems Imagining and Printing Financial Services Where are we going to compete? What businesses are we in?

72. HP’s Business Strategy Enterprise Storage & Servers HP Services SoftwarePersonal Systems Imagining and Printing Financial Services How are we going to compete against Dell? How are we going to compete against Sun Microsystems? Xerox? Cannon?

73. HP’s Business Strategy Enterprise Storage & Servers HP Services SoftwarePersonal Systems Imagining and Printing Financial Services Profits are won and lost at the business level!!

74. 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

75. Two Models of Profitability I/O Model (Industrial/Organizational Economics Model) Resource Based View of the Firm

76. I/O Model General Environment Industry Environment Competitive Environment Strategy & Performance 3 Assumptions 1) external environment imposes pressures/constraints 2) firms within an industry possess similar resources 3) resources are highly mobile Therefore, firms must identify attractive segments within an industry and acquire skills/resources to achieve superior profitability It’s about finding the right “place” to compete. General Environment Industry Environment Competitive Environment

77. Resource Based View The Firm’s Resources & Capabilities Strategy & Performance 3 assumptions 1) internal environment critical to strategic action 2) firms are bundles of unique resources 3) resources may not be mobile across firms Therefore, firms must develop the skill and resources to take advantage of opportunities in their industries It’s about finding the right “way” to compete.