What Is Strategy?

Question 1

Purpose of strategy is to…

Answer 1

Enable a company to gain a sustainable competitive advantage.

• No competition = no need to strategize
• Optimization ≠ Strategy

Question 2

Definition of Strategy:

Answer 2

“Strategy is the integrated set of choices that positions the business in its industry so as to generate superior financial returns over the long run”

(Ghemawat, 2010)

The creation of a unique and valuable position, involving a different set of activities.

Question 3

Operational Effectiveness (OE) =

Answer 3

Performing similar activities better than rivals perform them

• A company that better utilize its inputs by e.g. developing better products faster

While operational effectiveness is important and even a mandatory requirement of doing business, being operationally effective is not a strategy.

Question 4

Porter’s Central Argument:

Answer 4

Various management tools (total quality management, benchmarking, time-based competition, outsourcing, partnering, etc.), that are used today, do enhance and dramatically improve the operational effectiveness of a company but fail to provide the company with sustainable profitability

Porter argues the problem is the failure of management to distinguish between operational effectiveness and strategy

Question 5

Flaws with OE:

Answer 5

• Imitation and homogeneity:
• Competitors can quickly imitate management techniques, new technologies etc.
• Competitive Convergence: strategies tend to converge along the same basic dimensions of competition (i.e. price)

OE is necessary but not sufficient

“Once a company establishes a new best practice, its rivals tend to copy it quickly. Best practice competition eventually leads to competitive convergence, with many companies doing the same things in the same ways. Customers end up making decisions based on price, undermining industry profitability.”

Question 6

Difference between operational effectiveness (OE) and Strategic positioning :

Answer 6

Differentiation arises from both the choice of activities and how they are performed.

Question 7

Strategic positioning =

Answer 7

Performing different activities from rivals’ or performing similar activities in different ways.

Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company.

Question 8

Competition based on operational effectiveness (OE) (schema):

Answer 8

Question 9

Southwest Airlines’ Activity System (schema):

Answer 9

Question 10

What are the three different strategic positions:

Answer 10

• Serving few needs of many customers (e.g. Screw Manufacturers)
• Serving broad needs of few customers (e.g. Private Wealth Management Firms)
• Serving broad needs of many customers in a narrow market (targeting rural instead of urban- based customers) (e.g. local cinema chain)

Question 11

Strategic Positioning & Fit :

Answer 11

Strategy involves creating “fit” among a company’s activities:

• the ways a company’s activities interact and reinforce one another
• Fit drives both competitive advantage and sustainability: when activities mutually reinforce each other, competitors can’t easily imitate them.

Southwest’s strategy involves a whole system of activities, not a collection of parts. Its competitive advantage comes from the way its activities fit and reinforce one another

Question 12

Strategy as Positioning:

(Competing for the present)

Answer 12

Where are we competing?

• Product market
• Segment
• Geography
• Vertical scope

How are we competing?

• What is the basis of our competitive advantage (what to do differently with respect to competitors)

Question 13

Strategy as a direction:

(Preparing for the future)

Answer 13

What do we want to become?

• Vision

What do we want to achieve

• Mission
• Performance goals

How will we get there?

• Guidelines for development
• Priorities for capital expenditure, R&D
• Growth mode : organic growth, alliances, M&A

Question 14

The pay-off of a strategy depends on the alignment of:

Answer 14

• Strategic choices
• Internal resources
• Structural forces
• Competitive dynamics

Question 15

A Hierarchy of Company Statements:

Answer 15

Question 16

The 3 Basic Elements of a Strategy Statement:

Answer 16

1. Objective: precise objective of what will drive the business
   
   • should include end point + time frame for reaching it
2. Scope: the part of the landscape in which the firm will operate
   
   • Customer, Geography, Vertical Integration
3. Advantage: What your business will do differently from or better than others.

Most critical aspect of a strategy statement, defines the all-important means by which the company will achieve its stated objective

That advantage has complementary external and internal components:

• a value proposition that explains why the targeted customer should buy the company’s product above all the alternatives
• a description of how internal activities must be aligned so that only the company can deliver that value proposition

(Porter’s activity-system map)

Question 17

Trade-offs:

Answer 17

• Defining the objective, scope, and advantage requires trade-offs. They are fundamental to strategy

Examples of Trade-Offs:

• If growth or size, then profitability will suffer.
• If institutional clients, then may ignore retail customers.
• If lower prices, then low quality

Question 18

Madonna’s successful strategy:

Answer 18

• Madonna’s success cannot solely be attributed to superior resources:

While possessing energy, intelligence, and an impressive capacity for work, she lacks outstanding talents as a vocalist, musician, actress etc.

• Madonna’s success cannot solely be attributed to luck

Occasional failures (particularly in acting)

BUT

• Obsession with stardom and career building
• Continually changing look and evolving musical styles
• Willingness to surround herself with talented people
• Growth and importance of her production companies

Question 19

Elements of successful strategy:

Answer 19

1. Long term mission and vision (clear goals)
2. Profound understanding of consumers and the industry environment
3. Leveraging strengths and addressing weaknesses (resource appraisal)
4. Consistent Implementation
5. Continuous Renewal

Superiority in initial endowments of skills and resources is usually not the determining factor