McGraw-Hill/Irwin Copyright ©2010 The McGraw-Hill Companies, All Rights Reserved. CHAPTER 1 Strategy and the Quest for Competitive Advantage

1-2 Thinking Strategically: The Three Big Strategic Questions 1.Where are we now? Current situational analysis 2. Where do we want to go? Business(es) to be in and market positions to stake out Buyer needs and groups to serve Direction to head 3. How are we going to get there? A company’s answer to “how will we get there?” is its strategy

1-3 What Do We Mean By “Strategy?”  Consists of competitive moves and business approaches used by managers to run the company  Management’s “action plan” to Attract and please customers Compete successfully Conduct operations Achieve target levels of organizational performance

1-4 Answering the Question, “How Are We Going to Get There?”  How to please customers  How to outcompete rivals  How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on)  How to respond to changing market conditions  How to achieve targeted levels of performance

1-5 Elements of a Company’s Business Strategy

1-6 McDonald’s Strategy  Key initiatives of McDonald’s “Plan to Win” Strategy Improved restaurant operations Affordable pricing Wide menu variety and beverage choices Convenience and expansion of dining opportunities Ongoing restaurant reinvestment

1-7 Strategy and Sustainable Competitive Advantage  A company achieves sustainable competitive advantage when a sufficiently large number of buyers develop a lasting preference for its products/services over those offered by rivals

1-8 Four Proven Strategic Approaches to Winning a Sustainable Competitive Advantage  Developing a cost-based advantage  Creating a differentiation-based advantage  Focusing on a narrow market niche  Developing competitively valuable resources and capabilities rivals can’t easily match, copy, or trump with substitute resources

1-9 Competitive Strategy Examples  Strive to be the industry’s low-cost provider Wal-Mart - distribution capabilities Southwest Airlines – no frills service  Outcompete with a key differentiating feature Harley-Davidson – Outlaw image and distinctive engine sound Rolex – Top-of-the-line prestige Amazon.com – Wide selection and convenience Amazon.com

1-10 Competitive Strategy Examples  Focus on a narrow market niche Best Buy– Home electronics eBay – Online auctions The Weather Channel – Cable TV  Develop competitively important resources or capabilities not easily imitated by rivals Fed Ex– Superior distribution capabilities Ritz-Carlton – Personalized customer service

1-11 Why Do Strategies Evolve?  A company’s strategy is a work in progress  Changes may be necessary to react to Shifting market conditions Changing competitor moves Evolving customer preferences Emerging market opportunities New ideas to improve strategy Crisis situations

1-12 A Company’s Strategy Is a Blend of Planned Initiatives and Unplanned Reactive Adjustments

1-13 The Importance of a Company’s Business Model A business model is management’s blueprint for delivering value to customers and earning an attractive profit Is the strategy capable of delivering profits? How will business provide customers with value and generate revenues sufficient to cover costs and produce profits? What resources are needed to deliver value to customers?

1-14 Elements of a Business Model  Specifies a customer value proposition (its approach to satisfying buyer wants and needs at a price customers will consider a good value)  Develops a profit formula (determining a cost structure that will allow for acceptable profits given the pricing tied to its customer value proposition)  Identifies key resources and processes necessary to create value and deliver value to customers

1-15 Tests of a Winning Strategy  GOODNESS OF FIT TEST How well does strategy fit the firm’s situation?  COMPETITIVE ADVANTAGE TEST Does strategy lead to sustainable competitive advantage?  PERFORMANCE TEST Does strategy boost firm performance?