Illinois College Paper Database
(College Database for Your Homework Assignments, Work Documents, Personal Notes, Research Papers, Images, etc.)

This website was designed to be a database for all your documents, school assignments, or anything else that might be useful for your future reference or to someone else. Contribute by clicking here. No registration required!


Home      |      Post      |      Images      |      About Us














What is Strategy and Why is it Important?

Chapter Summary
Chapter 1 explores the concepts surrounding organizational strategy. It begins with an explanation of the term “strategy” and offers a basis for how to identify a company’s particular strategy. Next, it explores the importance of striving for competitive advantage in the marketplace and examines the role strategy plays in achieving this advantage. The chapter then explores the idea that strategy is partly proactive and partly reactive. Next, a discussion on strategy and ethics is given. This is followed by a close look at the relationship between a company’s strategy and its business model. The chapter proceeds forward with a look at what makes strategy a winner and then presents reasons for why crafting and executing strategy are important. The chapter concludes with thoughts on the equation: good strategy + good strategy execution = good management.
Lecture Outline

I. Introduction
Managers at all companies face three central questions in thinking strategically about their company’s present circumstances and prospects: “What’s the company’s present situation?” “Where does the company need to go from here?” “How should it get there?”

“What’s the company’s present situation?” prompts managers to evaluate industry conditions and competitive pressures, the company’s current performance and market standing, its resource strength and capabilities and its competitive weaknesses.

“Where does the company need to go from here?” pushes managers to make choices about the direction the company should be headed—what new or different customer groups and customer needs it should endeavor to satisfy, what market positions it needs to be staking out, what changes in its business makeup are needed.

“How should it get there?” challenges managers to craft and execute a strategy—a full-blown action plan—capable of moving the company in the intended direction, growing its business, and improving its financial and market performance.


II. What Do We Mean by Strategy?

1. A company’s strategy is management’s action plan for running the business and conducting operations.

a. The crafting of a strategy represents a commitment to pursue a particular set of actions: how to attract and please customers, how to compete successfully, how to conduct operations, and how to improve the company’s financial and market performance.


2. Normally, companies have a wide degree of strategic freedom in choosing the “hows” of strategy:

a. They can compete in a single industry.
b. They can diversify broadly or narrowly.


3. For companies that are intent on gaining sales and market share at the expense of competitors, managers typically opt for the offensive strategies while risk-avoiding companies prefer conservative or defensive strategies.


4. There is no shortage of opportunity to fashion a strategy that tightly fits a company’s own particular situation and that is discernibly different from the strategies of rivals.


5. See Illustration Capsule 1.1 – McDonald’s Strategy in the Quick-Service Restaurant Industry

a. Discussion Question: To what would you attribute McDonald’s sales growth during the recent global economic downturn? Why?

b. Answer: The company’s success can be attributed directly to both excellent strategy formulation and effective strategy execution. Their “Plan to Win” strategy improved the company’s value proposition allowing sales growth in 2010 despite the economic meltdown experienced worldwide, as well as improved their business model to ensure profitability. This comprehensive strategy included initiatives to improve and streamline operations, maintain affordable prices, and maintain a wide menu selection. Their overall focus was on “being better, not just bigger,” and this dual approach illustrates the importance of focusing on increasing revenue as well as decreasing costs in order to optimize profit.


6. Core Concept: A company’s strategy consists of the competitive moves and business approaches that managers are employing to compete successfully, improve performance, and grow the business.


III. Strategy and the Quest for Competitive Advantage

1. The heart and soul of any strategy is the actions and moves in the market place that managers are taking to improve the company’s financial performance, strengthen its long-term competitive position, and gain a competitive edge over rivals.


2. What makes a competitive advantage sustainable as opposed to temporary are actions and elements in the strategy that cause an attractive number of buyers to have a lasting preference for a company’s products or services as compared to the offerings of competitors.


3. Strategy is about competing differently from rivals or doing what competitors don’t do or, even better, can’t do. In this sense, every strategy needs a distinctive element that attracts customers and produces a competitive edge.


4. Core Concept: A company achieves sustainable competitive advantage when an attractive number of buyers prefer its products or services over the offerings of competitors and when the basis for this preference is durable.

5. Four of the most frequently used strategic approaches to setting a company apart from rivals and achieving a sustainable competitive advantage are:

a. Striving to be the industry’s low-cost provider, thereby aiming for a cost-based competitive advantage over rivals.

b. Outcompeting rivals on the basis of differentiating features such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority.

c. Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of buyers in the niche.

d. Aiming to offer the lowest (best) prices for differentiated goods that at least match the features and performance of higher-priced rival brands.


6. The bigger and more sustainable the competitive advantage, the better the company’s prospects for winning in the market place and earning superior long-term profits relative to its rivals.


IV. Identifying a Company’s Strategy

1. A company’s strategy is reflected in its actions in the marketplace and the statements of senior managers about the company’s current business approaches, future plans, and efforts to strengthen its competitiveness and performance.

3. Once it is clear what to look for, the task of identifying a company’s strategy is mainly one of researching information about the company’s actions in the marketplace and business approaches.

4. To maintain the confidence of investors and Wall Street, most public companies have to be fairly open about their actions which can allow us to determine the likely strategy.

5. Except for some about-to-be-launched moves and changes that remain under wraps and in the planning stage, there is usually nothing undiscoverable about what a company’s present strategy is.


V. Why a Company’s Strategy Evolves over Time

1. Every company must be willing and ready to modify its strategy in response to changing market conditions, advancing technology, competitive moves, shifting buyer needs and preferences, emerging market opportunities, new ideas for improving the strategy, and mounting evidence that the strategy is not working well.

2. Most of the time a company’s strategy evolves incrementally from management’s ongoing efforts to fine tune pieces of the strategy, but, on occasion, major strategy shifts are called for.

3. Industry environments characterized by high velocity change require companies to rapidly adapt their strategies.

4. Thus, a company’s strategy at any given point in time is fluid.

5. Core Concepts
a. A company’s proactive strategy consists of strategy elements that are both planned and realized as planned; its reactive strategy consists of new strategy elements that emerge as changing conditions warrant. Therefore, a company’s strategy is both deliberate and emergent.

b. Changing circumstances and ongoing management efforts to improve the strategy cause a company’s strategy to emerge and evolve over time—a condition that makes the task of crafting a strategy a work in progress, not a one-time event.

c. A company’s business model sets forth the economic logic for making money in a business, given the company’s strategy. It describes two critical elements; (1) the customer value proposition and (2) the profit formula.


VI. A Company’s Strategy Is Partly Proactive and Partly Reactive

1. A company’s strategy is typically a blend of proactive actions (deliberate strategy) on the part of managers to improve the company’s market position and financial performance and as-needed reactions (emergent strategy) to unanticipated developments and fresh market conditions.

2. See Figure 1.2 – A Company’s Strategy is a Blend of Proactive Initiatives and Reactive Adjustments

3. The biggest portion of a company’s current strategy flows from previously initiated actions and business approaches that are working well enough to merit continuation and newly launched managerial initiatives to strengthen the company’s overall position and performance. This part of management’s game plan is deliberate and proactive.

4. There will be occasions when market and competitive conditions take an unexpected turn that calls for some kind of strategic reaction or adjustment.

5. A portion of a company’s strategy is always developed on the fly. It comes about as a reasoned response to unforeseen developments.

6. A company’s strategy thus tends to be a combination of proactive and reactive elements.


VII. The Relationship Between a Company’s Strategy and Its Business Model

1. Core Concept: A company’s business model sets forth the economic logic for making money in a business, given the company’s strategy. It describes two critical elements: the customer value proposition and the profit formula.

2. Closely related to the concept of strategy is the concept of a company’s business model.

3. A company’s business model is management’s storyline for how and why the company’s product offerings and competitive approaches will generate a revenue stream and have an associated cost structure that produces attractive earnings and return on investment.


I. Introduction
Managers at all companies face three central questions in thinking strategically about their company’s present circumstances and prospects: “What’s the company’s present situation?” “Where does the company need to go from here?” “How should it get there?”

“What’s the company’s present situation?” prompts managers to evaluate industry conditions and competitive pressures, the company’s current performance and market standing, its resource strength and capabilities and its competitive weaknesses.

“Where does the company need to go from here?” pushes managers to make choices about the direction the company should be headed—what new or different customer groups and customer needs it should endeavor to satisfy, what market positions it needs to be staking out, what changes in its business makeup are needed.

“How should it get there?” challenges managers to craft and execute a strategy—a full-blown action plan—capable of moving the company in the intended direction, growing its business, and improving its financial and market performance.


II. What Do We Mean by Strategy?

7. A company’s strategy is management’s action plan for running the business and conducting operations.

b. The crafting of a strategy represents a commitment to pursue a particular set of actions: how to attract and please customers, how to compete successfully, how to conduct operations, and how to improve the company’s financial and market performance.


8. Normally, companies have a wide degree of strategic freedom in choosing the “hows” of strategy:

c. They can compete in a single industry.

d. They can diversify broadly or narrowly.


9. For companies that are intent on gaining sales and market share at the expense of competitors, managers typically opt for the offensive strategies while risk-avoiding companies prefer conservative or defensive strategies.

10. There is no shortage of opportunity to fashion a strategy that tightly fits a company’s own particular situation and that is discernibly different from the strategies of rivals.

11. See Illustration Capsule 1.1 – McDonald’s Strategy in the Quick-Service Restaurant Industry

c. Discussion Question: To what would you attribute McDonald’s sales growth during the recent global economic downturn? Why?

d. Answer: The company’s success can be attributed directly to both excellent strategy formulation and effective strategy execution. Their “Plan to Win” strategy improved the company’s value proposition allowing sales growth in 2010 despite the economic meltdown experienced worldwide, as well as improved their business model to ensure profitability. This comprehensive strategy included initiatives to improve and streamline operations, maintain affordable prices, and maintain a wide menu selection. Their overall focus was on “being better, not just bigger,” and this dual approach illustrates the importance of focusing on increasing revenue as well as decreasing costs in order to optimize profit.


12. Core Concept: A company’s strategy consists of the competitive moves and business approaches that managers are employing to compete successfully, improve performance, and grow the business.



III. Strategy and the Quest for Competitive Advantage

7. The heart and soul of any strategy is the actions and moves in the market place that managers are taking to improve the company’s financial performance, strengthen its long-term competitive position, and gain a competitive edge over rivals.

8. What makes a competitive advantage sustainable as opposed to temporary are actions and elements in the strategy that cause an attractive number of buyers to have a lasting preference for a company’s products or services as compared to the offerings of competitors.

9. Strategy is about competing differently from rivals or doing what competitors don’t do or, even better, can’t do. In this sense, every strategy needs a distinctive element that attracts customers and produces a competitive edge.

10. Core Concept: A company achieves sustainable competitive advantage when an attractive number of buyers prefer its products or services over the offerings of competitors and when the basis for this preference is durable.


11. Four of the most frequently used strategic approaches to setting a company apart from rivals and achieving a sustainable competitive advantage are:

e. Striving to be the industry’s low-cost provider, thereby aiming for a cost-based competitive advantage over rivals.

f. Outcompeting rivals on the basis of differentiating features such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority.

g. Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of buyers in the niche.

h. Aiming to offer the lowest (best) prices for differentiated goods that at least match the features and performance of higher-priced rival brands.


12. The bigger and more sustainable the competitive advantage, the better the company’s prospects for winning in the market place and earning superior long-term profits relative to its rivals.



IV. Identifying a Company’s Strategy

6. A company’s strategy is reflected in its actions in the marketplace and the statements of senior managers about the company’s current business approaches, future plans, and efforts to strengthen its competitiveness and performance.

7. See Figure 1.1 – Identifying a Company’s Strategy-What to Look For

8. Once it is clear what to look for, the task of identifying a company’s strategy is mainly one of researching information about the company’s actions in the marketplace and business approaches.

9. To maintain the confidence of investors and Wall Street, most public companies have to be fairly open about their actions which can allow us to determine the likely strategy.

10. Except for some about-to-be-launched moves and changes that remain under wraps and in the planning stage, there is usually nothing undiscoverable about what a company’s present strategy is.


V. Why a Company’s Strategy Evolves over Time

6. Every company must be willing and ready to modify its strategy in response to changing market conditions, advancing technology, competitive moves, shifting buyer needs and preferences, emerging market opportunities, new ideas for improving the strategy, and mounting evidence that the strategy is not working well.

7. Most of the time a company’s strategy evolves incrementally from management’s ongoing efforts to fine tune pieces of the strategy, but, on occasion, major strategy shifts are called for.

8. Industry environments characterized by high velocity change require companies to rapidly adapt their strategies.

9. Thus, a company’s strategy at any given point in time is fluid.

10. Core Concepts
d. A company’s proactive strategy consists of strategy elements that are both planned and realized as planned; its reactive strategy consists of new strategy elements that emerge as changing conditions warrant. Therefore, a company’s strategy is both deliberate and emergent.

e. Changing circumstances and ongoing management efforts to improve the strategy cause a company’s strategy to emerge and evolve over time—a condition that makes the task of crafting a strategy a work in progress, not a one-time event.

f. A company’s business model sets forth the economic logic for making money in a business, given the company’s strategy. It describes two critical elements; (1) the customer value proposition and (2) the profit formula.


VI. A Company’s Strategy Is Partly Proactive and Partly Reactive

7. A company’s strategy is typically a blend of proactive actions (deliberate strategy) on the part of managers to improve the company’s market position and financial performance and as-needed reactions (emergent strategy) to unanticipated developments and fresh market conditions.

8. See Figure 1.2 – A Company’s Strategy is a Blend of Proactive Initiatives and Reactive Adjustments

9. The biggest portion of a company’s current strategy flows from previously initiated actions and business approaches that are working well enough to merit continuation and newly launched managerial initiatives to strengthen the company’s overall position and performance. This part of management’s game plan is deliberate and proactive.

10. There will be occasions when market and competitive conditions take an unexpected turn that calls for some kind of strategic reaction or adjustment.

11. A portion of a company’s strategy is always developed on the fly. It comes about as a reasoned response to unforeseen developments.

12. A company’s strategy thus tends to be a combination of proactive and reactive elements.


VII. The Relationship Between a Company’s Strategy and Its Business Model

4. Core Concept: A company’s business model sets forth the economic logic for making money in a business, given the company’s strategy. It describes two critical elements: the customer value proposition and the profit formula.

5. Closely related to the concept of strategy is the concept of a company’s business model.

6. A company’s business model is management’s storyline for how and why the company’s product offerings and competitive approaches will generate a revenue stream and have an associated cost structure that produces attractive earnings and return on investment.

7. The concept of a company’s business model is consequently more narrowly focused than the concept of a company’s business strategy. A company’s strategy relates broadly to its competitive initiatives and business approaches while the business model zeros in on whether the revenues and costs flowing from the strategy demonstrate business viability.

8. See Illustration Capsule 1.2 – Sirius XM and Over-the-Air Broadcast Radio: Two Contrasting Business Models

a. Discussion Question: What is the prominent difference between the business models of these two organizations?

b. Answer: While both provide essentially the same type of entertainment service, the business models employed by Sirius XM and Over-The-Air Broadcast Radio are completely different. In the area of value proposition (what the customer sees), Sirius XM provides commercial free entertainment with some local content based upon a monthly fee, while Broadcast Radio provides entertainment with some local content with interruptions for commercials without a fee. For profit, Sirius XM must attract a large enough customer base in order to cover costs and provide profit, while Broadcast Radio must attract a large enough advertiser base to cover costs and provide profit.


VIII. What Makes a Strategy a Winner?

1. Three questions can be used to test the merits of one strategy versus another and distinguish a winning strategy from a losing or mediocre strategy:

a. The Fit Test: How well does the strategy fit the company’s situation? To qualify as a winner, a strategy has to be well matched to industry and competitive conditions, a company’s best market opportunities, and other aspects of the enterprise’s external environment. Unless a strategy exhibits a tight fit with both the external and internal aspects of a company’s overall situation, it is likely to produce less than the best possible business results.

b. The Competitive Advantage Test: Can the strategy help the company achieve a sustainable competitive advantage? The bigger and more durable the competitive edge that a strategy helps to build, the more powerful and appealing it is.

c. The Performance Test: Is the strategy resulting in good company performance? Two kinds of performance improvements tell the most about the caliber of a company’s strategy: gains in profitability and financial strength and gains in the company’s competitive strength and market standing.

2. Strategies that come up short on one or more of the above questions are plainly less appealing than strategies passing all three test questions with flying colors.

3. Other criteria for judging the merits of a particular strategy include internal consistency and unity among all the pieces of strategy, the degree of risk the strategy poses as compared to alternative strategies, and the degree to which it is flexible and adaptable to changing circumstances.

4. Core Concept: A winning strategy must pass three tests: the Fit Test, the Competitive Advantage Test, and the Performance Test.


IX. Why are Crafting and Executing Strategy Important?

1. Crafting and executing strategy are top priority managerial tasks for two very big reasons:

a. There is a compelling need for managers to proactively shape or craft how the company’s business will be conducted.

b. A strategy-focused organization is more likely to be a strong bottom-line performer.


X. Good Strategy + Good Strategy Execution = Good Management

1. Crafting and executing strategy are core management functions.

2. Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts the company’s direction, develops competitively effective strategic moves and business approaches, and pursues what needs to be done internally to produce good day-to-day strategy execution and operating excellence.

3. Good strategy and good strategy execution are the most trustworthy signs of good management.

a. The better conceived a company’s strategy and the more competently it is executed, the more likely it is that the company will be a standout performer in the marketplace.

b. Being first off the starting block turns out to be competitively important only when pioneering early introduction of a technology or product delivers clear and substantial benefits to early adopters and buyers.

.......