[MHR 410] WHAT IS STRATEGY AND WHY IS IT IMPORTANT?

Learning Objectives:

• Understand why every company needs a sound strategy to compete successfully, manage the conduct of its business, and strengthen its prospects for long-term success. 
• Develop an awareness of the four most dependable strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage.
• Understand that a company’s strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company’s strategy. 
• Learn why it is important for a company to have a viable business model that outlines the company’s customer value proposition and its profit formula.
• Learn the three tests of a winning strategy.

What is Strategy? 
WHAT DO WE MEAN BY STRATEGY ? 

• What is our present situation? 
• Business environment and industry conditions 
• Firm’s financial and competitive capabilities 
• Where do we want to go from here? 
• Creating a vision for the firm’s future direction 
• How are we going to get there? 
• Crafting an action plan that will get us there

WHAT IS STRATEGY ABOUT? 

• Strategy is all about How: 
• How to outcompete rivals. 
• How to respond to economic and market conditions and growth opportunities. 
• How to manage functional pieces of the business. 
• How to improve the firm’s financial and market performance.

WHY DO STRATEGY ? 

• A firm does strategy: 
• To improve its financial performance. 
• To strengthen its competitive position. 
• To gain a sustainable competitive advantage over its market rivals. 
• A creative, distinctive strategy: 
• Can yield above-average profits. 
• Makes competition difficult for rivals.

The Concept of Strategic Management

• Strategic management is the process of analysis, decisions and actions an organization undertakes in order to create and sustain competitive advantages. 
• Strategies are large-scale action plans for interacting with the environment in order to achieve long-term goals. 

The Quest for Competitive Advantage 

• Competitive Advantage 
• Meeting customer needs more effectively, with products or services that customers value more highly, or more efficiently, at lower cost. 
• Sustainable Competitive Advantage 
• Giving buyers lasting reasons to prefer a firm’s products or services over those of its competitors.

STRATEGY AND COMPETITORS 

• Strategy is about competing differently from rivals— 
• Doing what they don’t do or doing it better! 
• Doing what they can’t do! 
• Doing that which sets the firm apart and attracts customers. 
• Doing what we should or should not do to produce a competitive edge.

Why a Firm’s Strategy Evolves over Time 

• Managers modify strategy in response to: 
• Changing market conditions 
• Advancing technology 
• Fresh moves of competitors 
• Shifting buyer needs 
• Emerging market opportunities 
• New ideas for improving the strategy

The Evolving Nature of a Firm’s Strategy 

• Realized (current) strategy is a blend of: 
• Proactive (deliberate) strategy elements that include both continued and new initiatives. 
• Reactive (emergent) strategy elements that are required due to unanticipated competitive developments and fresh market conditions.

Strategic Management Process

THE RELATIONSHIP BETWEEN A FIRM’S STRATEGY AND ITS BUSINESS MODEL

• Realized Strategy
• Competitive Initiatives
• Business Approaches

Leads to: $$$?

• Business Model
• Value Proposition
• Profit Formula

A Company’s Business Model

• How the business will make money :
• By providing customers with value.
• The firm’s customer value proposition
• By generating revenues sufficient to cover costs and produce attractive profits.
• The firm’s profit formula
• It takes a proven business model—one that yields appealing profitability—to demonstrate viability of a firm’s strategy.

Business Model Elements

• The Customer Value Proposition
• Satisfying buyer wants and needs at a price customers will consider a good value.
• The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to customers.
• The Profit Formula
• Creating a cost structure that allows for acceptable profits, given that pricing is tied to the customer value proposition.
• V—the value provided to customers
• P—the price charged to customers
• C—the firm’s costs
• The lower the costs (C) for a given customer value proposition (V–P), the greater the ability of the business model to be a moneymaker.

Sirius XM Vs. Free Radio Stations

• Are the business models the same?

Who listens to the radio anymore?

• Given the shifts in how people listen to music, are the business models of Sirius XM and over-the-air broadcasters viable over the long term?
• Does Sirus XM’s strategy pass the three tests of a winning strategy? Does the strategy of over-the-air broadcasters pass the same tests?
• What internal and external factors will create difficulties for either competitor in changing its strategy or business model?

IS OUR STRATEGY A WINNER?

• Winning Strategy:
• The Strategic Fit Test
• The Competitive Advantage Test
• The Performance Test

WHAT MAKES A STRATEGY A WINNER?

• A winning strategy must pass three tests:
• The Fit Test
• Does it exhibit dynamic fit with the external and internal aspects of the firm’s overall situation?
• The Competitive Advantage Test
• Can it help the firm achieve a significant and sustainable competitive advantage?
• The Performance Test
• Can it produce good performance as measured by the firm’s profitability, financial and competitive strengths, and market standing?

THE ROAD AHEAD

• Strategy is about asking the right questions:
• What must managers do, and do well, to make a firm a winner in the marketplace?
• Strategy requires getting the right answers:
• Good strategic thinking and good management of the strategy-making, strategy-executing process.
• First-rate capabilities and skills in crafting and executing strategy are essential to managing successfully.

The Strategic Management Process:

1. Internal Environment & External Environment
2. Strategic Intent & Strategic Mission
• Strategy Formulation
• Business Level Strategy
• Acquisitions & Restructuring
• Competitive Dynamics
• International Strategy
• Corporate-Level Strategy
• Cooperative Strategies
• Strategy Implementation
• Corporate Governance
• Strategic Leadership
• Structure & Control
• Entrepreneurship & Innovation
3. Strategic Competitiveness Above Average Returns
4. Back to #1. Internal & External Environments

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