Week 1 Flashcards
Strategy
Set of goal-directed actions a firm takes to gain and maintain superior performance compared to competitors. This superior performance is attained by competing for new resources.
3 Elements of a good strategy
- A diagnosis of the competitive challenge; achieved through an analysis of the company’s external and internal environments;
- A guiding policy that addresses the competitive challenge; attained through strategy formulation, which leads to the formation of the firm’s corporate, business, and functional strategies;
- A set of coherent actions to implement the company’s guiding policy; achieved through strategy implementation.
2 things a firm needs to do to gain a competitive advantage
- Provide goods or services that consumers value higher than those of its competitors;
- Provide goods or services similar to the competitors’, but for a lower price.
Strategic positioning
Finding a unique position within an industry in which the firm can provide value to customers while containing its costs.
Problems with trying to do what your competitors are doing just a little better
Can lead to cut-throat competition and low profit potential.
Consider what would happen if all firms chose to be cost leaders. If this was the case; no single firm could gain a competitive advantage.
Additionally, since companies would have no money to reinvest into their products, there would be little value creation for customers.
Problems with trying to do what your competitors are doing just a little better
This can lead to cut-through competition and low-profit potential. Consider what would happen if all firms chose to be cost leaders.
If this was the case; no single firm could gain a competitive advantage. Additionally, since companies would have no money to reinvest into their products, there would be little value creation for customers.
What is NOT Strategy
- Strategy is not grandiose statements. These statements are often not backed up by strategic actions, provide little managerial guidance, and can therefore lead to goal conflict and confusion;
- Strategy is not a failure to face a competitive challenge. If a firm does not define a competitive challenge, employees cannot work towards addressing it;
- Strategy is not Operational effectiveness, competitive benchmarking, or other tactical tools. These are part of a firm’s functional and global initiatives to support its competitive strategy but are insufficient to gain a competitive advantage individually.
Vision
A statement defining what an organization ultimately wants to accomplish and its aspirations.
- Briefly identifies the organization’s primary long-term objectives.
- Employees in visionary companies feel part of something bigger and gain a sense of purpose.
- Visionary companies often outperform their competitors in the long run.
Customer oriented vision statements
Define a business in terms of offering solutions to customer needs. Therefore, employees are focused on how to best solve a problem for customers. Hence, companies are allowed and able to adapt to changing environments.
Product oriented vision statements
Define a business in terms of a good or service provided. Therefore, employees are focused on improving existing products and services without considering the underlying customer problems to be solved and therefore constrain the company’s adaptability to changing environments.
Additionally, managers operating with a product-oriented vision are often forced to take a more myopic, or short sighted, view on the Competitive landscape.
Under what circumstances is there a positive relationship between Vision Statement and Firm Performance
- The visions are customer-oriented;
- Internal stakeholders are invested in defining the vision;
- Organisational structures such as compensation systems align with the firm’s vision statement.
Strategic commitments
When the enterprise undertakes credible actions, which are costly, long-term Oriented, and difficult to reverse.
The core values statement
Statement of principles that guides an organization as it works to achieve its vision and fulfill its mission.
This statement is important since it gives insight into company culture and offers principles that employees can use to handle complexity and conflicts.
The organisational core values
Ethical standards and norms that govern the behavior of employees in a firm.
2 important functions of strong ethical values:
- They underlay the vision statement and give stability to the strategy. It, therefore, lays the groundwork for long-term success;
- They serve as guardrails to keep the company on track when the company is pursuing its vision and mission to achieve competitive advantage.
AFI framework
- Analyse internal and external environments;
- Formulate a suitable business and corporate strategy;
- Implement this strategy through culture, structure, and controls.
Strategic leadership
The use of power by executives to influence and direct the actions of others when pursuing a company’s goals.
The upper-echelons theory
Conceptual framework that sees organizational outcomes (strategic choices and performance levels) as reflections of the top management team’s values.
The theory explains that strategic leaders interpret situations through the lens of their unique perspectives based on personal circumstances, values and experiences.
Hence, their leadership actions reflect their age, education, and career experiences. This means good strategic leaders have both a natural talent, as well as learned skills.
The level 5 leadership pyramid
Conceptual framework that shows how leadership progresses through 5 stages. According to research, great companies have level-5 executives as leaders. The pyramid also shows what skills a leader needs to develop to move to the next stage.
The 5 levels of the pyramid
- Level 1 is a highly capable individual who makes productive contributions through motivation, talent, knowledge, and skills.
- However, to move to level 2, the individual has to become a contributing team player, working effectively with others to achieve common goals.
- Level 3 is when the team player turns into an effective manager who is able to organize resources to accomplish firm goals.
- To attain level 4, the professional has learned to do the right things, meaning the manager understands what choices need to be taken in any situation to pursue the firm strategy.
- Lastly, at level 5, the strategic leader builds enduring greatness by combining willpower and humility. A level 5 leader works to help the organization succeed and helps others reach their full potential.
Strategy Process
The strategy process can be broken down into two parts:
- Strategy formulation is about the choice of strategy in terms of where and how the firm will compete.
- Strategy implementation focuses on how work gets done, or the execution of the strategy.
The 3 separate areas in which Strategy formulation and implementation can be split into
- Corporate strategy looks at where to compete in terms of industries, markets, and geography;
- Business strategy tackles the question of how to compete. The three generic business strategies are cost leadership, differentiation, or value innovation;
- Functional strategy is concerned with the implementation of the chosen business strategies. Different corporate and business strategies will need different activities across the various functions.
Strategic Business Units (SBU)
These are the standalone divisions of large conglomerates, which are each responsible for their own profitability.
Each business unit also has its own business functions, like accounting, human resources, or operations.
Functional Managers
Responsible for the decisions and actions within that functional area, and should help the firm implement the business-level strategy.
