What is Strategy and Why is it Important? Chapter One What is Strategy and Why is it Important?

Why do we need strategy? The reasons why firms succeed and fail is perhaps the central question in strategy Answers the fundamental question of the firm Where we are now? Where we going? How are we going to get there?

Strategic Management Defined decisions and actions that determine long-term performance formulation and implementation of plans designed to achieve objectives an action managers take to achieve one or more of an organization’s goals unifying theme that gives coherence and direction to organizational/individual decisions game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance management’s action plan for running the business and conducting operations; commitment to pursue a particular set of actions in growing the business, attracting customers, competing successfully, conducting operations, and improving financial and market performance

What is Strategy? Strategy is not doing similar activities better than your rivals – that’s operational effectiveness continual improvement not a sustainable advantage industry-wide cost reductions do not lead to increased profitability

What is Strategy? Strategy is performing different activities or performing similar activities in a different way As suggested by the book: 4 of the most dependable approaches are 1) low cost, 2) differentiating features, 3) fulfilling specialized needs, and 4) build unassailable set of capabilities.

What is Strategy? 1) Strategy is performing different activities or performing similar activities in a different way Strategy is about positioning a) Variety-based positioning b) Needs-based positioning c) Access-based positioning

What is Strategy? Tradeoffs arise from 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate Tradeoffs arise from inconsistent image/reputation different activities, products, equipment, employees, skills, systems, machines priorities, internal coordination, and control

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

What is Strategy? 4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages

Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive Emergent strategy elements

What is Strategic Effectiveness?

Managerial Process of Crafting and Executing Strategy Chapter Two Managerial Process of Crafting and Executing Strategy

Fig. 2.1: The Strategy-Making, Strategy-Executing Process

Developing a Strategic Vision A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future. A strategic vision exists only as words and has no organizational impact unless and until it wins the commitment of company personnel and energizes them to act in ways that move the company along the intended strategic path!

Elements of a Strategic Vision Delineates management’s aspirations for the business Provides a panoramic view of “where we are going” by charting a strategic path Is distinctive and specific Avoids use of generic, dull & boring language that could apply to most any company Captures employees’ emotions steers them in a common direction Is challenging and a bit beyond a company’s immediate reach

Strategic Vision vs. Mission A strategic vision concerns “where we are going” Markets to be pursued Future product/ market/ customer/ technology focus Kind of company management is trying to create The mission statement focuses on its “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

Mission Statements Boundaries of the current business A well-conceived mission statement distinguishes a company’s business makeup from that of other profit-seeking enterprises in language specific enough to give the company its own identify! Boundaries of the current business Fundamental purpose that sets it apart from other firms of its type Conveys Who we are, What we do, and Why we are here

Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term All levels of the organization Top-down, not Bottom-up

Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving financial performance Outcomes focused on improving competitive vitality and future business position $

6 Characteristics of a Good Objective

Leading versus Lagging Indicators Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance Unless a company sets and achieves stretch strategic objectives, it is not developing the competitive muscle to deliver even better financial results in the years ahead!

One Balanced Scorecard A balanced scorecard for measuring company performance is optimal; it entails Setting financial and strategic objectives Placing balanced emphasis on achieving both types of objectives Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market position. The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a company’s business position and give it a growing competitive advantage over rivals!

A Second Balanced Scorecard Comprehensive view of the firm from the customer, internal, financial and innovation/learning perspectives 1) How do customers see us? Time, quality, service & performance, costs 2) What must we excel at? 3) How do we look to shareholders? 4) Can we continue to improve and create value?

A Third Balanced Scorecard Triple Bottom-line Economic, social and environmental performance

Levels of Strategic Management

HP’s Business Strategy Financial Services Enterprise Storage & Servers HP Services Software Personal Systems Imagining and Printing

So….how can firm’s be profitable? Choose an attractive industry in which to compete - 2) Attain a competitive advantage within an industry -

Two Models of Profitability I/O Model (Industrial/Organizational Economics Model) Resource Based View of the Firm

I/O Model Strategy & Performance General Environment Industry Environment Competitive Environment General Environment Industry Environment Competitive Environment 3 Assumptions 1) 2) 3)

Resource Based View Strategy The Firm’s & Resources & Performance Capabilities Strategy & Performance 3 assumptions 1) 2) 3)