Chapter 1: What is Business Strategy? / Week 1 Flashcards
The word strategy comes from the Greek word strategos, meaning,
“the art of the general.”
business strategy (blue)
defined as a company’s dynamic plan to gain and sustain competitive advantage in the marketplace.
A plan to achieve competitive advantage that involves making four inter-related strategic choices:
(1) markets to compete in (what’s our sandbox);
(2) unique value the firm will offer in those markets; Why will we win with the customers
(3) the resources and capabilities required to offer that unique value better than competitors; How will we deliver that unique value?
(4) ways to sustain the advantage by preventing imitation. How will we sustain a competitive advantage once it has been achieved?
competitive advantage
When a firm generates consistently higher profits compared to its competitors.
market
The industry, customer segment, or geographic area that a company competes in
unique value
The reason a firm wins with customers or the value proposition it offers to customers, such as a low cost advantage or differentiation advantage or both.
Strategies are more likely to be successful when the plan explicitly takes into account four factors:
Expanded from the definition of business strategy above:
1) Where to compete, or the attractiveness of a market or customer segment in the targeted markets
2) How to offer unique value relative to the competition in the targeted markets
3) What resources or capabilities are necessary to deliver that unique value
4) How to sustain a competitive advantage once it has been achieved
Risk
an investor’s uncertainty about the profits or losses that will result from a particular investment. For example, investors suffer a lot of uncertainty (and, hence, risk) when they put their money into a start-up company that is trying to launch products based on a new technology, such as a solar power company
above-average profits (blue)
Returns in excess of what an investor expects from other investments with a similar amount of risk.
The ________________for formulating and implementing strategy involves thorough external analysis and internal analysis
strategic management process
Strategic management process
The process by which organizations formulate a plan and allocate resources to achieve competitive advantage that involves making four strategic choices:
(1) markets to compete in,
(2) unique value the firm will offer in those markets,
(3) the resources and capabilities required to offer that unique value better than competitors, and
(4) ways to sustain the advantage by preventing imitation.
external analysis
Examining the forces that influence industry attractiveness, including opportunities and threats that exist in the environment.
Internal analysis
The analysis of a firm’s resources and capabilities (its strength and weaknesses) to assess how effectively the firm is able to deliver the unique value (value proposition) that it hopes to provide to customers.
Strategy formulation process
The central task is specifying the high-level plan and set of actions the company will take in its quest to achieve competitive advantage.
After the plan for creating competitive advantage is created, the final step is to develop a detailed plan to effectively implement, or put into action, the firm’s strategy through specific activities.
The focus of the strategic management process should be to make four key strategic choices:
Figure 1.2 depicts this
1) Which markets will the company pursue? A company’s markets include the high-level industry and specific customer segments in which it competes and its geographic markets.
2) What unique value does the company offer customers in those markets? This is the firm’s value proposition, the reason the company wins with a set of customers
3) What resources and capabilities are required? What does the company need to have and know how to do so that it can deliver its unique value better than competitors, and exactly how will the company deliver its unique value through an implementation plan?
4) How will the company capture value and sustain a competitive advantage over time? Firms need to create barriers to imitation to keep other companies from delivering the same value
Unique Value (aka value proposition)
Two generic strategies for offering unique value:
1) low cost
2) differentiation
1) Low cost
- Companies such as Walmart, Ryanair, Taco Bell, and Kia
- focuses on reducing its costs below those of its competitors
- Key sources of cost advantage include economies of scale, lower-cost inputs, or proprietary production know-how.
Cost advantage (blue)
An advantage that a firm has over its competitors in the activities associated with producing a product or service, thereby allowing it to produce the same product at lower cost.
2) differentiation strategy
- focuses on offering features, quality, convenience, or image that customers cannot get from competitors.
- Example: Starbucks, Apple
Differentiation strategy (blue)
An advantage a firm has over its competitors by making a product more attractive by offering unique qualities in the form of features, reliability, and convenience that distinguish it from competing products.
Resources definition
refer to assets that the firm accumulates over time, such as plants, equipment, land, brands, patents, cash, and people.
Capabilities definition
refer to processes (or recipes) the firm develops to coordinate human activity to achieve specific goals.
Mission definition (blue)
A company’s primary purpose that often specifies the business or businesses in which the firm intends to compete—or the customers it intends to serve.
PRIMARY PURPOSE
Starbucks Mission: Our mission: to nurture and inspire the human spirit—one person, one cup, and one
neighborhood at a time
______ is critical for addressing the first strategic choice: Where should we compete?
External analysis
External analysis involves
(1) an examination of the competition and the forces that shape industry competition and profitability, and
(2) customer analysis to understand what customers really want
SWOT analysis (blue)
Or can be TOWS analysis
Strategic planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a business.
Price sensitivity
The degree to which the price of a product or service affects consumers’ willingness to purchase the product or service.
Ford vs Mercedes
Segmentation analysis
Dividing up customers into groups or segments based on similar needs or wants.
Resource-based review of firm (aka resource-based model)
Determining the strategic resources available to a company.
A company will also need to formulate, and then implement, strategy at three different levels of the organization:
1) corporate,
2) business unit (product),
3) and functional
Corporate strategy (blue)
Decisions about what markets to compete in (industries too), made by executives at the corporate level of an organization
Business unit strategy (blue)
Decisions about how to gain and sustain advantage, made at the manager level for each standalone business unit within a company.
Functional strategy (blue)
Decisions about how to effectively implement the business unit strategy within functional areas like finance, product development, operations, information technology, sales and marketing, and customer service.
Strategy vehicles (Blue)
Activities and strategic choices—such as make versus buy, acquisitions, and strategic alliances—that influence a firm’s ability to enter particular markets, deliver unique value to customers, or create barriers to imitating its product.
Diversifying
An option for growth by adding products to their line
Acquisition
a strategy vehicle used for growth and diversification or to acquire key resources.
Strategic alliance
an exclusive relationship with another firm
Vertical integration (make-buy decision)
also a vehicle for achieving objectives
Strategy Implementation (blue)
occurs when a company adopts a set of organizational processes that enable it to effectively carry out its strategy
or
The translation of a chosen strategy into organizational action so as to effectively implement the activities required to achieve strategic goals and objectives.
Effective implementation typically requires the following:
1) The functional strategies within the company—research and development, operations, sales and marketing, human resource management—are well aligned with delivering the unique value identified in the overall strategy
2) The organization’s structure, systems, staff (people), skills (processor capabilities), style, and shared values (culture) are designed to facilitate the execution of the strategy
Strategic leaders (blue)
Organizational leaders charged with formulating and implementing a strategy with the objective of ensuring the survival and success of an organization.
Deliberate strategy (blue)
A plan or pattern of action that is formulated through a deliberate planning process that is then carried out to achieve the mission or goals of an organization
Emergent strategy (blue)
A plan or pattern of action that develops and emerges over time in an organization despite a mission or goals.
Stakeholders
Those who have a share or an interest in the activities and performance of an organization.
Organizations have four primary stakeholder groups:
1) Capital market stakeholders (shareholders, banks, etc.)
2) Product market stakeholders (customers, suppliers)
3) Organizational stakeholders (employees)
4) Community stakeholders (communities, government bodies, community activists)
Shareholders
Owners of a company
Those who possess the stock to the company which grants partial ownership
Strategy as per class discussion
Gaining and sustaining competitive advantage in markets
Used as a buzz word, it must always address competitive advantage with the where and how explained, if not, it is not strategy
4 Strategic questions
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
Strategy should always be in the middle, the center. Then surrounding strategy is
Process
Learning and Growth
Customer
Financial
3C’s
Concise statement
Competitive advantage
Clearly defined scope (includes the who i.e. who you are selling to, who you are not selling to, geographic market
Scope
Define your “Sandbox”
1) Financial
How can the organization achieve financial success in the eyes of the shareholders
Generally:
Revenue Growth
Productivity Improvement
2) Customer
How does the organization create and deliver value to customers
Focus:
Attract, retain, and deepen relationships with target customers
3) process
At which processes must the organization excel to meet customer and shareholder expectations
How can an organization plan and measure process excellence
4) Learning and growth
How can an organization
**Missed the slide before it changed :(
How great leaders inspire action | Simon Sinek
18 mins video
How great leaders inspire action | Simon Sinek
18 mins video
The golden circle
In the middle, why
Second ring: How
Outer circle: What
Outer circle: What
Every organization on the planet knows what they do
Second ring: How
Some organizations know how they do it (pro
In the middle, why
Very few know why they do what they do
What is your purpose, cause, belief, why do you exist?
Should the golden circle be outside in or indside out?
Inside out!
start with why, go to how, and then what
People don’t buy what you do but why you do it
People don’t buy what you do but why you do it
Homo sapien brain
Neocortex deals with the what
Limbic brain deals with all the feelings (decision making and not language)
Law of diffusion of innovation
If you want mass market access you must reach 15-18% market penetration before it tips (crossing the kasem)
Timing matters in strategy
True
According to Mintzberg, there are important differences between an intended strategy, an emergent strategy and a realized strategy?
True
A good strategy provides clear answers to four key questions. Which of the following is NOT one of the four questions
Where will we be as an organization in 10 years
What is the difference between resources and capabilities
Resources are assets (tangible or intangible) where capabilities are processes or ways a company uses resources towards an end goal
Business strategy is defined as a company’s plan to gain, and _______, competitive advantage in the marketplace
Sustain
What are the two “generic strategies” for offering unique value?
Low cost or differentiation
Which of the following statements best describes the term internal analysis
It examines a company’s resources and capabilities to configure a firm’s ability to deliver unique value
_____ can be best defined as the reason a firm wins with customers or the value proposition it offers to customers, such as low cost advantage or differentiation advantages
Unique value
The industry and geographic area that a company competes in, is referred to as its ____
market
Lecture Slide notes
Lecture Slide Notes
Balanced scorecard
It is essentially a circle
In the middle is strategy
Around it i:
1) Process
2) Learning and growth
3) Financial
4) Customer
Any good strategy should have two essential components:
- Clear statement of the company’s advantage in the
competitive marketplace …; and, - The scope for the strategy …”
3C
3 C
Concise Statement
Competitive advantage
Clearly defined scope
Scope =
Your sandbox
Who is in your market, who is not in your market, what products are offered in your market, what product are not offered in your market
Once a strategy has been selected, the organization needs management accounting information to:
help implement the strategy;
allocate resources for the strategy;
communicate the strategy; and,
link employees and operational processes to achieve the strategy.
You can’t manage or improve
what you can’t measure!
You can’t manage or improve
what you can’t measure!
Financial
Balanced Scorecard
How can the organization achieve financial “success” in the eyes of its shareholders?
How can financial performance / “success” be measured?
Generally:
A. Revenue Growth
B. Productivity Improvements
Customer
Balanced Scorecard
How can the organization create and deliver value to
customers?
How can an organization measure value to customers?
Focus: -Attract, retain, and deepen relationships with target customers ... -... differentiate from competitors
Process
Balanced Scorecard
At which processes must the organization excel to
meet customer and shareholder expectations?
How can an organization plan and measure process
excellence?
Learning and Growth
Balanced Scorecard
How does an organization align and enhance its
intangible assets to achieve process
excellence?
i.e. What employee capabilities, information systems, and organizational capabilities are needed to continually improve processes and customer relationships?
How can an organization plan and measure enhancement and alignment of intangible
assets?
