Chapter 1: What is Strategy and Why Is It Important? Flashcards
What is strategy?
A company’s strategy is management’s action plan for competing successfully and operating profitably, based on an integrated array of considered choices.
It consists of the competitive moves and business approaches that managers are employing to compete successfully, improve performance, and grow the business.
Strategy is all about “how”:
1) How to outcompete rivals
2) How to respond to changing economic and market conditions and capitalise on growth opportunities
3) How to manage each functional piece of the business (eg. sales and marketing, finance, HR)
4) How to improve the company’s financial and market performance
Why crafting and executing strategy are important tasks?
Strategy provides:
1) A game plan for pleasing customers
2) A road map to competitive advantage
3) A prescription for doing business
4) A formula for attaining long-term standout marketplace performance
9 broad types of actions and approaches that often characterise a company’s strategy in a particular business or industry.
1) Actions to gain sales and market share via more performance features, more appealing design, better quality or customer service, wider product selection, or other such actions (differentiation)
2) Actions to gain sales and market share with lower prices based on lower costs (low-cost)
3) Actions to enter new product or geographic markets or to exit existing ones
4) Actions to capture emerging market opportunities and defend against external threats to the company’s business prospects
5) Actions to strengthen market standing and competitiveness by acquiring or merging with other companies
6) Actions to strengthen competitiveness via strategic alliance and partnerships
7) Actions and approaches used in managing R&D, production, sales and marketing, finance, and other key activities
8) Actions to upgrade , build, or acquire competitively important resources and capabilities
9) Actions to strengthen the firm’s bargaining positions with suppliers, distributors, and others
McDonald’s Strategy in the Quick-Service Restaurant Industry. Its key initiatives of the Plan-to-Win strategy are:
1) Improved restaurant operations
2) Affordable pricing
3) Wide menu variety and beverage choices
4) Convenience and expansion of dining opportunities
5) Ongoing restaurant reinvestment and international expansion
What is competitive advantage?
It comes from an ability to meet customer needs more effectively, with products or services that customers value more highly, or more efficiently, at lower cost. Eg. Walmart
What makes a competitive advantage sustainable (durable), as opposed to temporary?
The presence of elements of the strategy that give buyers lasting reasons to prefer a company’s products or services over those of competitors
How to create a sustainable competitive advantage?
1) Develop valuable expertise and competitive capabilities over the long-term that rivals cannot readily copy, match or best
2) Put the constant quest for sustainable competitive advantage at center stage in crafting your strategy
What is the company’s business model?
It is management’s blueprint for delivering a valuable product or service to customers in a manner that will generate ample revenues to cover costs and yield an attractive profit.
What is the relevancy of a company’s business model?
It is to clarify how the business will:
1) Provide customers with value (the firm’s customer value proposition)
2) Generate revenues (repeat sales) sufficient to cover costs and produce attractive profits
What are three tests that can be applied to determine whether a strategy is a winning strategy?
1) The fit test - how well does the strategy fit the company’s external and internal situation?
2) The competitive advantage test - can the strategy help the company achieve a sustainable competitive advantage?
3) The performance test - is the strategy producing good company performance? Based on profitability and financial strength, and competitive strength and market standing.
