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.
