Chapter 1: What is strategy and why is it important?

Question 1

What is strategy?

Answer 1

A company’s strategy is the coordinated set of actions that its managers take in order to outperform the company’s competitors and achieve superior profitability.

Question 2

What is the objective of a well-crafted strategy?

Answer 2

Not merely temporary competitive success and profits in the short run, but rather the sort of lasting success that can support growth and secure the company’s future in the long term.

Question 3

What are the 3 central questions that all businesses face?

Answer 3

1. What is our present situation?
2. What should the company’s future direction be and what performance targets should we set?
3. What’s our plan for running the company and achieving good results?

Question 4

Strategy is about choosing HOW to… (6)

Answer 4

1. How to position the firm in the marketplace
2. How to attract customers
3. How to compete against rivals
4. How to achieve the firm’s performance targets
5. How to capitalize on opportunities to grow the business
6. How to respond to changing economic and market conditions

Question 5

What is strategy about at its essence?

Answer 5

Competing differently. Doing what rival firms don’t or can’t do.

Question 6

When does a company have a competitive advantage?

Answer 6

Whenever it has some type of edge over rivals in attracting buyers and coping with competitive forces.

Question 7

What are the two basic mechanisms of competitive advantage?

Answer 7

1. Higher perceived value - effectiveness

2. Lower cost - efficiency

Question 8

What makes a competitive advantage sustainable?

Answer 8

Elements of the strategy that give buyers lasting reasons to prefer a company’s products or services over those of competitors.

Question 9

What are the 5 most common strategic approaches to gaining competitive advantage?

Answer 9

1. Low-cost provider
2. Broad differentiation strategy
3. Focused low-cost strategy
4. Focused differentiation strategy
5. Best-cost provider strategy

Question 10

What is a broad differentiation strategy?

Answer 10

Seeks to differentiate the company’s products or services from that of rivals in ways that will appeal to a broad spectrum of buyers.

Question 11

What is a best-cost provider strategy?

Answer 11

Giving customers more value for their money by satisfying their quality expectations while beating their price expectations.

Question 12

When would major strategy shifts be called for?

Answer 12

When a strategy is clearly failing or when industry conditions change in dramatic ways.

Question 13

What is proactive strategy?

Answer 13

Planned initiatives to improve a company’s financial performance and secure competitive edge.

Question 14

What is reactive strategy?

Answer 14

Responses to unanticipated developments and fresh market conditions.

Question 15

What is deliberate strategy?

Answer 15

New planned initiatives plus ongoing strategy elements continued from prior periods.

Question 16

When should strategies be modified?

Answer 16

• Changing market conditions
• Advancing technology
• Fresh moves of competitors
• Shifting buyer needs
• Emerging market opportunities
• New ideas for improving strategy

Question 17

What is emergent strategy?

Answer 17

New strategy elements that emerge as managers react adaptively to changing circumstances.

Question 18

What makes up a company’s current (realized) strategy?

Answer 18

A blend of their proactive (deliberate) strategy and reactive (emergent) strategy.

Question 19

When would a firm’s strategic actions deemed unethical?

Answer 19

1. They reflect badly on the company
2. They adversely impact the legitimate interests and well-being of stakeholders
3. They provoke public outcries about inappropriate or irresponsible actions, behaviours, or outcomes.

Question 20

What are the two elements of a company’s business model?

Answer 20

1. Its customer value proposition

2. Its profit formula

Question 21

Why is a business model important?

Answer 21

Just because a strategy has been crafted for competing and running the business, it does not automatically mean that the strategy will lead to profitability.

Question 22

What 3 tests must a winning strategy pass?

Answer 22

1. The fit test
2. The competitive advantage test
3. The performance test

Question 23

What is the fit test?

Answer 23

Does the strategy exhibit good fit with the external and internal aspects of the firm’s dynamic situation?

Question 24

What is the customer value proposition?

Answer 24

The greater the value (V) provided and the lower the price (P) the more attractive the value proposition is to customers.
(V - P)

Question 25

What are the 3 components of the profit formula?

Answer 25

V - the value provided to customers
P - the price charged to customers
C - the firm’s costs

Question 26

What is the competitive advantage test?

Answer 26

Is the strategy likely to result in sustainable competitive advantage?

Question 27

What is the performance test?

Answer 27

Is the strategy producing superior performance, as indicated by profitability, financial strengths, market standing?

Question 28

What does strategy provide?

Answer 28

• Prescription for doing business
• Road map to competitive advantage
• Game plan for pleasing customers
• Formula for attaining long-term standout marketplace performance