Week 1 - Chapter 1 Flashcards
What is Strategy?
Strategy - A company’s strategy is the set of coordinated set of actions that its managers take in order to attract customers, outperform the company’s competitors and achieve superior profitability.
What does the success of a company’s strategy depend on?
The success of a company’s strategy depends upon competing differently from rivals and gaining a competitive advantage over them.
A strategy stands a better chance at succeeding when it is predicated on actions, business approaches and competitive moves aimed at what 2 things?
1 - Appealing to buyers in ways that set a company apart from its rivals
2 - Staking out a market position that is not crowded with strong competitors.
What is a competitive advantage?
Competitive advantage - A company has a competitive advantage where it has some type of edge over rivals in attracting buyers and coping with competitive forces.
A competitive advantage is essential for realizing greater marketplace success and high profitability in the long term.
There are many routes to competitive advantage, although they all involve 1 of 2 basic mechanisms.
1 - Either they provide the customer with a product or service that the customer values more highly than others (higher perceived value)
2 - Or they product their product or service more efficiently (lower costs)
What’s a sustainable competitive advantage?
A competitive advantage is sustainable when there are elements of the strategy that give buyers lasting reasons to prefer a company’s products or services over those of competitors - reasons that competitors are unable to nullify, duplicate, or overcome despite their best efforts.
Identify the 5 most basis strategic approaches for setting a company apart from rivals, building customer loyalty, and gaining a competitive advantage are:
1 - A low-cost provider strategy - Achieving a cost based advantage over rivals. Rivals cannot match the low-cost leaders approach, producing a durable competitive edge. (Walmart, Southwest Airlines)
2 - A broad differentiation strategy - seeking to differentiate the company’s product or service from that of rivals in ways that will appeal to a broad spectrum of buyers.
3 - A focused low-cost strategy - Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs and thus being able to serve niche members at a lower price. (IKEA and modular furniture)
4 - A focused differentiation strategy - concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering buyers customized attributes that meet their specialized needs and tastes better than rivals’ products. (Lululemon, Tesla, LinkedIn)
5 - A best-cost provider strategy - giving customers more value for their money by satisfying their expectations on key quality features, performance, and/or service attributes while beating their price expectations. This approach is a hybrid strategy that blends elements of low-cost provider and differentiation strategies.
Explain why a company’s strategy tends to evolve.
Changing circumstances and ongoing management efforts to improve the strategy cause a company’s strategy to evolve over time - a condition that makes the task of crafting strategy a work in progress, not a one-time event.
What’s the deliberate strategy?
The deliberate strategy consists of proactive strategy elements that are planned.
It contains new planned initiatives plus ongoing strategy elements continued from prior periods.
What’s the emergent strategy?
The emergent strategy consists of reactive strategy elements that emerge as changing conditions warrant.
Is a strategy ethical because it involves actions that are legal?
No. To meet the standard of being ethical a strategy must entail actions and behavior that can pass moral scrutiny in the sense of not being deceitful, unfair or harmful to others, disreputable, or unreasonably damaging to the environment.
A strategy is ethical only if it does not entail actions that cross the moral line from “can do” to “should not do”.
When do strategic actions cross over into the “should not do” zone?
A company’s actions cross over into the “should not do” zone when they:
1 - reflect badly on the company
2 - adversely impact the legitimate interests and well-being of shareholders, customers, employees, suppliers, the communities where it operates, and society at large.
3 - they provoke public outcries about actions, behavior or outcomes.
What’s a business model?
What are 2 elements of a company’s business model?
Business model - A company’s business model sets forth the logic for how its strategy will create value for customers and at the same generate revenues sufficient to cover costs and realize a profit.
What are 2 elements of a customers business model?
Explain them.
1 - customer value proposition - this lays out the company’s approach to satisfying buyer wants and needs at a price customers will consider good value. (V - P)
2 - profit formula - describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition.
(P - C)
Identify the 3 tests of a winning strategy
1 - The Fit Test - How well does the strategy fit the company’s situation.
The strategy must exhibit good external fit with respect to prevailing market conditions.
It must exhibit internal fit and be compatible with a company’s ability to execute the strategy in a competent manner.
It must exhibit dynamic fit in the sense they can evolve over time in a manner that maintains close and effective alignment with a company’s situation even as external and internal conditions change.
2 - The Competitive Advantage Test - is the strategy helping the company achieve a competitive advantage. Is the competitive advantage likely to be sustainable?
3 - The Performance Test - is the strategy producing superior company performance.
The mark of a winning strategy is strong company performance.
2 signs of this:
(1) competitive strength and market standing
(2) profitability and financial strength
