McGraw-Hill/IrwinCopyright©2010byTheMcGraw-HillCompanies,Inc.Allrightsreserved.Chapter1:WhatIsStrategyandWhyIsItImportant?Screengraphicscreatedby:JanaF.Kuzmicki,Ph.D.TroyUniversity“Strategymeansmakingclear-cutchoicesabouthowtocompete.”JackWelchFormerCEO,GeneralElectric“Withoutastrategytheorganizationislikeashipwithoutarudder.”JoelRossandMichaelKami1-4ChapterLearningObjectives1.Understandtheroleofbusinessstrategiesinmovingacompanyintheintendeddirection,growingitsbusiness,andimprovingitsfinancialandmarketperformance.2.Developanawarenessofthefourmostreliablestrategicapproachesforsettingacompanyapartfromrivalsandwinningasustainablecompetitiveadvantage.3.Learnthatbusinessstrategiesevolveovertimebecauseofchangingcircumstancesandongoingmanagementeffortstoimprovethecompany’sstrategy.4.Understandwhyacompany’sstrategymustunderpinnedbyabusinessmodelthatproducesrevenuessufficienttocovercostsandearnaprofit.5.Gainawarenessofthethreeteststhatdistinguishawinningstrategyfromaso-soorflawedstrategy.6.Learnwhygoodstrategyandgoodstrategyexecutionarethemosttrustworthysignsofgoodmanagement.1-5ChapterRoadmapWhatDoWeMeanby“Strategy?”StrategyandtheQuestforCompetitiveAdvantageIdentifyingaCompany’sStrategyWhyaCompany’sStrategyEvolvesOverTimeACompany’sStrategyIsPartlyProactiveandPartlyReactiveStrategyandEthics:PassingtheTestofMoralScrutinyTheRelationshipBetweenaCompany’sStrategyandItsBusinessModelWhatMakesaStrategyaWinner?WhyAreCraftingandExecutingStrategyImportant?1-6ThinkingStrategically:TheThreeBigStrategicQuestions1.What’sthecompany’spresentsituation?2.Wheredoesthecompanyneedtogofromhere?Business(es)tobeinandmarketpositionstostakeoutBuyerneedsandgroupstoserveDirectiontohead3.Howshoulditgetthere?Acompany’sanswerto“howwillwegetthere?”isitsstrategy1-7WhatDoWeMeanBy“Strategy?”ConsistsofcompetitivemovesandbusinessapproachesusedbymanagerstorunthecompanyManagement’s“actionplan”toGrowthebusinessAttractandpleasecustomersCompetesuccessfullyConductoperationsAchievethetargetedlevelsoforganizationalperformance1-8TheHowsThatDefineaFirm'sStrategyHowtogrowthebusinessHowtopleasecustomersHowtooutcompeterivalsHowtomanageeachfunctionalpieceofthebusiness(R&D,production,marketing,HR,finance,andsoon)HowtorespondtochangingmarketconditionsHowtoachievetargetedlevelsofperformanceStrategyisHOWto...1-9Choosingthe“Hows”ofStrategyStrategicchoicesabout“how”arebasedonTrial-and-errororganizationallearningaboutwhathasworkedandwhathasnotworkedManagement’sappetitefortakingrisksManagerialanalysisandstrategicthinkingabouthowbesttoproceed,givenmarketconditionsandacompany’scircumstancesInchoosingastrategy,managementisineffectsaying,“Amongallthemanydifferentwaysofcompetingwecouldhavechosen,wehavedecidedtoemploythiscombinationofcompetitiveandoperatingapproachestomovethecompanyintheintendeddirection,strengthenitsmarketpositionandcompetitiveness,andboostperformance.”1-10KeyElementsofaSuccessfulStrategyDevelopingasuccessfulstrategyhingesonmakingcompetitivemovesaimedatAppealingtobuyersinwaystosetthecompanyapartfromrivalsandCarvingoutitsownmarketpositionInvolvesdevelopingadistinctive“aha”elementtoAttractcustomersandProduceacompetitiveedgeCopyingcompetitivemovesofothersuccessfulcompaniesrarelyworks!1-11Starbucks’Strategy:TheKeyElementsExpandnumberofStarbucksstoresdomesticallybyblanketingmetropolitanareas,thenaddingstoresonthecity’sperimeterMakeStarbucksaglobalbrandbyopeningstoresinanincreasingnumberofforeignlocationsVieweachstoreasabillboardforthecompanyandasacontributortobuildingthecompany’sbrandandimageBroadenin-storeproductstoincludecoffee-flavoredicecream,teas,freshpastries,musicCDs,andcoffeeaccessoriesFullyexploitthegrowingpoweroftheStarbucks’nameandbrandimagewithout-of-storesalesDisplaycorporateresponsibilityandenvironmentalsustainabilityControlcostsofopeningnewstoresPromotecustomer-friendlyserviceandenhancestoreambiencebymakingStarbucksagreatplacetowork1-12ForDiscussion:YourOpinionFromyourperspectiveasaconsumer,doesStarbucks’strategy(describedinIllustrationCapsule1.1)seemtobewell-matchedtoindustryandcompetitiveconditions?1.Doesthestrategyseemtobekeyedtoacostadvantage,differentiatingfeatures,servingtheuniqueneedsofaniche,ordevelopingresourcestrengthsandcompetitivecapabilitiesrivalscan’timitateortrump(oramixtureofthese)?2.WhatisthereaboutStarbucks’strategythatcanleadtosustainablecompetitiveadvantage?1-13StrategyandtheQuestforCompetitiveAdvantageTheheartandsoulofanystrategyareactionsacompanymakestoImproveitsfinancialperformance,Strengthenitscompetitiveposition,andGainacompetitiveadvantageoverrivalsAcreative,distinctivestrategythatsetsacompanyapartfromrivalsandyieldsacompetitiveadvantageisacompany’smostreliabletickettoaboveaverageprofitabilityOperatingwithacompetitiveadvantageismoreprofitablethanoperatingwithoutoneOperatingwithacompetitivedisadvantagenearlyalwaysresultsinbelow-averageprofitability1-14APowerfulStrategyLeadstoSustainableCompetitiveAdvantageAcompanyachievessustainablecompetitiveadvantagewhenAnattractivenumbero