Chapter 1 What Is Strategy?

Chapter 1 What Is Strategy?
Be sure to see the NEW integrated Instructor’s Manual located in the Connect Library under Instructor’s Resources. Chapter 1 What Is Strategy?

The AFI Strategy Framework
Jump to Appendix 1 long image description

Chapter 1 Outline 1.1 What Strategy Is: Gaining and Sustaining Competitive Advantage What Is Competitive Advantage? Industry vs. Firm Effects in Determining Firm Performance 1.2 Stakeholders and Competitive Advantage Stakeholder Strategy Stakeholder Impact Analysis 1.3 The AFI Strategy Framework 1.4 Implications for the Strategist

Learning Objectives LO 1-1 Explain the role of strategy in a firm’s quest for competitive advantage. LO 1-2 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity. LO 1-3 Differentiate the roles of firm effects and industry effects in determining firm performance. LO 1-4 Evaluate the relationship between stakeholder strategy and sustainable competitive advantage. LO 1-5 Conduct a stakeholder impact analysis.

What Strategy Is: Gaining and Sustaining Competitive Advantage

Strategic Management Strategic Management: an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

Strategy Strategy: a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors To achieve superior performance, companies compete for resources: New ventures: for financial and human capital Existing companies: for profitable growth Charities: for donations Universities: for the best students and professors Sports teams: championships Celebrities: media attention

Elements of a Good Strategy
Analysis Diagnosis of the competitive challenge Formulation Guiding policy to address the competitive challenge Implementation A set of coherent actions to implement the firm’s guiding policy Instructors: The digital companion to this book McGraw-Hill Connect has an interactive exercise on this section of the textbook. It provides more background with a short Nvidia case and builds student confidence on how strategy helps build competitive advantage. (LO 1-1).

Elements of a Good Strategy: Analysis
Diagnosis of the competitive challenge Accomplished through strategy analysis of the firm’s internal and external environments Example: Twitter Competitive challenge: grow its user base Become more valuable for online advertisers Also: Facebook allows advertisers to target their online ads precisely based on demographic data

Elements of a Good Strategy: Formulation
Guiding policy to address the competitive challenge Accomplished through strategy formulation, resulting in the firm’s corporate, business, and functional strategies Example: Twitter Rather than formulating a guiding policy to grow active core users, Twitter defined its user base more broadly. Defined users into 3 types to compare with Facebook User types were hard to track and less valuable to advertisers.

Elements of a Good Strategy: Implementation
A set of coherent actions to implement the firm’s guiding policy Accomplished through strategy implementation Example: Twitter Different user definitions confused management and limited guidance for employees. Consequences of the unclear mission: Frustration among managers and engineers Turnover of key personnel Internal turmoil resulted, including management demotions and promotions of CEO friends.

Competitive Advantage
Competitive Advantage: a firm that achieves superior performance relative to other competitors in the same industry or the industry average Always relative, not absolute To assess competitive advantage: Compare firm performance to a benchmark Performance of other firms in the same industry An industry average

Competitive Advantage: Examples
In digital advertising: Google Google has a competitive advantage over Facebook, Twitter, and Yahoo In smartphones: Apple Apple has achieved a competitive advantage over Samsung, Microsoft, and BlackBerry

Competitive Advantage: Key Points
Superior performance relative to other competitors in the same industry or the industry average Sustainable Competitive Advantage Outperforming competitors or the industry average over a prolonged period of time Competitive Disadvantage Underperformance relative to other competitors in the same industry or the industry average Competitive Parity Performance of two or more firms at the same level For example: a 15 percent return on invested capital may sound like superior firm performance. In the consulting industry, though, where the average return on invested capital is often above 20 percent, such a return puts a firm at a competitive disadvantage. In contrast, if a firm’s return on invested capital is 2 percent in a declining industry, like newspaper publishing, where the industry average has been negative (–5 percent) for the last few years, then the firm has a competitive advantage.

Strategy Is About Creating Superior Value
The rewards of superior value creation and capture are profitability and market share. Sam Walton (Walmart): offered lower prices. Steve Jobs (Apple): “put a ding in the universe.” Mark Zuckerberg (Facebook): made the world open and connected. Larry Page and Sergey Brin (Google): made information accessible. Sam Walton: Wal-Mart Steve Jobs: Apple Mark Zuckerberg: Facebook Larry Page and Sergey Brin: Google

Strategic Positioning
Stake out a unique position within an industry to provide value to customers, while controlling costs. The greater the difference between value creation and cost: the greater the firm’s economic contribution. the more likely it will gain competitive advantage.

Strategic Positioning Requires Trade-offs
Managers must make conscious trade-offs. Enables competitive advantage In the retail industry, for example: Walmart: “everyday low prices” Nordstrom’s: professional sales people in a luxury setting

Unique Positioning The key to successful strategy: combine activities for a unique position in an industry Competitive advantage has to come from: performing different activities or performing the same activities differently than rivals Example: Walmart’s strategic activities strengthen its position as cost leader Big stores in rural locations Low corporate overhead Low base wages Example: Walmart’s strategic activities strengthen its position as cost leader: big retail stores in rural locations, extremely high purchasing power, sophisticated IT systems, regional distribution centers, low corporate overhead, and low base wages and salaries combined with employee profit sharing reinforce each other, to maintain the company’s cost leadership.

Strategy Highlight 1.1 (1 of 2)
Threadless: an online design community and apparel store Let consumers “work for them” Community members vote on which t-shirt designs they like best. Leverages the wisdom of the crowds At Threadless, the customers play a critical role across the entire value chain. From idea generation to design, marketing, sales forecasting, and distribution

Business model translates market research and design into quick sales. Good understanding of the market Design contest participation Threadless has sold every T-shirt it has printed. Has a cult-like following It is outperforming established companies American Eagle, Old Navy, and Urban Outfitters

What Strategy Is Not Grandiose statements
Statements of desire Ex: “Our strategy is to win” or “We will be No. #1” A failure to face a competitive challenge Managers must know whether they are making progress in addressing the challenge. Operational effectiveness, competitive benchmarking, or other tactical tools These support competitive strategy, but are not sufficient to sustain it. On point 2: Blockbuster, for example, failed to address the competitive challenges posed by new players like Netflix, Redbox, Amazon Prime, and Hulu.

Industry Vs. Firm Effects In Determining Firm Performance (1 of 3)
Industry effects: describe the underlying economic structure of the industry. Determined by elements common to all industries Examples: Entry and exit barriers Number and size of companies Types of products and services offered About 20% of a firm’s profitability depends on the industry it’s in. In Chapter 3, when studying external analysis, we’ll gain a deeper understanding of an industry’s underlying structure and how it affects firm performance.

Firm effects: firm performance is attributed to managerial actions. More important factor in determining firm performance than external environment forces A firm’s strategy can explain up to 55% of its performance. In Chapter 4, we’ll look inside the firm to understand why firms within the same industry differ, and how differences among firms can lead to competitive advantage.

Exhibit 1.1

Stakeholders and Competitive Advantage

Value Creation for Society (1 of 2)
Companies with good strategy generate value for society. Firms compete in their own self-interest. Firms obeying the law and acting ethically Companies with a good strategy: Provide products or services to consumers at an affordable price Make a profit Benefit both parties Make society better Instructors: The digital companion to this book McGraw-Hill Connect has an interactive exercise on this section of the textbook. It builds student confidence on stakeholders (LO 1-4).

Value Creation for Society (2 of 2)
Successful companies create value for the economy: Education, public safety, and health care Superior performance allows a firm to reinvest some of its profits for growth More opportunities for employment Example: Google Employs 55,000 people People rely on Google for information Although Google started as a research project in graduate school by Larry Page and Serge Brin, it is worth roughly $350 billion and employs some 55,000 people worldwide, not to mention the billions of people across the world who rely on it for information gathering.

Strategic Failure is Expensive
HP has not been able to address the competitive challenges effectively: Stakeholders suffered Shareholder value was destroyed Had to lay off thousands of employees Customers no longer received innovative products Google and HP illustrate the relationship between individual firms and society at large Hewlett-Packard was known for innovation, resulting in superior products. The “HP way of management” included lifetime employment, generous benefits, work/life balance, and freedom to explore ideas, among other perks.

Black Swan Events (1 of 2) In the past, most people assumed that all swans were white. When they first encountered swans that were black, they were surprised. Today, the metaphor of a black swan describes the high impact of a highly improbable event. In the first decade of the 21st century, several black swan events eroded the public’s trust in business as an institution and capitalism as an economic system. Examples: the fall of the Berlin Wall and the subsequent collapse of the Soviet Union, the 9/11 terrorist attacks, the Fukushima nuclear disaster in Japan, and the Arab Spring.

Black Swan Events (2 of 2) Trust between corporations and society have deteriorated because of black swans . Accounting Scandals: Enron Real Estate Bubble: 2008 financial crisis Managerial actions can affect the well-being of people around the globe. Most black swan events result from executive actions (or inactions.) Accounting Scandals: Enron, Arthur Andersen, WorldCom, Tyco, Adelphia, and Parmalat (of Italy) Real Estate Bubble: The fall of 2008 with the global financial crisis, which shook the entire free-market system

Stakeholders (1 of 2) Stakeholders:
Organizations, groups, and individuals They can affect or are affected by a firm’s actions. Have a vested claim or interest in the performance and continued survival of the firm. Internal stakeholders: Stockholders, employees (including executives, managers, and workers), and board members External stakeholders: Customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels

Stakeholders (2 of 2) Stakeholders make contributions, and they also receive benefits. Employees Shareholders Communities The firm is embedded in an exchange relationship with internal and external stakeholders. Employees: contribute their time and talents, and receive wages and salaries. Shareholders: contribute capital in the hope that the stock will rise and the firm will pay dividends. Communities: provide real estate, infrastructure, and public safety. In return, they expect that companies will pay taxes, provide employment, and not pollute the environment.

Jump to Appendix 2 long image description
Exhibit 1.2 Internal and External Stakeholders in an Exchange Relationship with the Firm If any stakeholder withholds participation in the firm’s exchange relationships, it can negatively affect firm performance. The aerospace company Boeing, for example, has a long history of acrimonious labor relations, leading to walk-outs and strikes. This in turn has not only delayed production of airplanes but also raised costs. Borrowers who purchased subprime mortgages are stakeholders (in this case, customers) of financial institutions. When they defaulted in large numbers, they threatened the survival of these financial institutions and, ultimately, of the entire financial system. Jump to Appendix 2 long image description

Stakeholder Strategy Managing stakeholders in order to gain and sustain competitive advantage Firms analyze and manage stakeholders Determine how external and internal stakeholders interact Stakeholders can create and trade value Exemplifies how managers can act to improve firm performance Enhances competitive advantage Enhances continued survival Example: Target Corporation Example: Target Corporation has gathered numerous awards that reflect its strong relationship with its stakeholders. It has been named on lists such as best places to work, most admired companies, most ethical companies, best in class for corporate governance, and grassroots innovation. Since its founding, Target has contributed 5 percent of its profits to education, the arts, and social services in the communities in which it operates and reached the milestone of contributing $4 million per week in To demonstrate its commitment to minorities and women, Target launched a program to bring minority- and women-owned businesses into its supply chain. Volunteerism and corporate giving strengthen the relationship Target has with its employees, consumers, local communities, and suppliers. These actions, along with many others, can help Target gain competitive advantage as a retailer as long as the benefits Target accrues from its stakeholder strategy exceed the costs of such programs. Kapner, S., L. Stevens and S. Germano, “Wal-Mart and Target take fight to Amazon for holiday sales,” The Wall Street Journal, November 28, 2014.

Effective Stakeholder Management Benefits Firm Performance
Cooperation and information availability Lowered costs Greater organizational adaptability and flexibility More predictable and stable returns Stronger reputation Satisfied stakeholders are more cooperative and thus more likely to reveal information that can further increase the firm’s value creation or lower its costs. Increased trust lowers the costs for firms’ business transactions. Effective management of the complex web of stakeholders can lead to greater organizational adaptability and flexibility. The likelihood of negative outcomes can be reduced, creating more predictable and stable returns. Firms can build strong reputations that are rewarded in the marketplace by business partners, employees, and customers.

“World’s Most Admired Companies”
Most managers care about public perception. Fortune magazine publishes the “World’s Most Admired Companies” annually: In 2014, the top five companies were Apple, Amazon, Google, Berkshire Hathaway, and Starbucks. Because of its continued innovation in products, services, and delivery, Apple has been ranked as the world’s most admired company for the past several years by Fortune.

Stakeholder Impact Analysis (1 of 3)
Primary stakeholders: achieve their objectives Shareholders and investors Other stakeholders: satisfy concerns Employees, suppliers, and customers Stakeholder impact analysis: A decision tool Managers recognize, prioritize, and address stakeholder needs

Stakeholder Impact Analysis (2 of 3)
A five-step process recognizing stakeholders’ claims. Managers must note three stakeholder attributes: Power Legitimacy Urgency ■ A stakeholder has power over a company when it can get the company to do something that it would not otherwise do. ■ A stakeholder has a legitimate claim when it is perceived to be legally valid or otherwise appropriate. ■ A stakeholder has an urgent claim when it requires a company’s immediate attention and response.

Exhibit 1.3 Stakeholder Impact Analysis (3 of 3)

Step 1: Identify Stakeholders
Focus on stakeholders that the firm has, or potentially can have Identify: powerful internal and external stakeholders and their needs For public-stock companies: shareholders and suppliers of capital Also: customers, suppliers, and unions Example: Boeing Its new 787 Dreamliner will be built in its non-unionized South Carolina factory If shareholders are not satisfied with returns to investment, they will sell the company’s stock, leading to depreciation in the firm’s market value. If this process continues, it can make the company a takeover target, or launch a vicious cycle of continued decline. Local communities and the media are also powerful stakeholders that can materially affect the smooth operation of the firm. Any of these groups, if their needs are not met, can materially affect the company’s operations. Boeing opened a new airplane factory in South Carolina in 2011 to move production away from its traditional plant near Seattle, Washington. In contrast to Washington state, in South Carolina the work force is nonunionized, which should lead to fewer work interruptions due to strikes, higher productivity, and improvements along other performance dimensions (like on-time delivery of new airplanes).

Step 2: Identify Stakeholder Interests
Specify and assess the interests and claims of stakeholders. Use the power, legitimacy, and urgency criteria. Shareholders: Legal owners Have legitimate claim on a company’s profits Employees can be turned into shareholders. Coca-Cola, Google, Microsoft, Southwest Airlines, Starbucks, Walmart, and Whole Foods all offer stock ownership plans. ‘Shareholder activists’ put public pressure on a company to change its strategy, Shareholder activists, such as Carl Icahn, Daniel Loeb, or T. Boone Pickens, tend to buy equity stakes in a corporation that they believe is underperforming to put public pressure on a company to change its strategy. Examples include the takeover battle at Dell Computer (which founder Michael Dell subsequently took private), the pressure on PepsiCo to spin off its Frito-Lay brand, or on eBay to sell PayPal, which it did.

Step 3: Identify Opportunities and Threats
Opportunities and threats are two sides of the same coin. Example: consumer boycotts can be a credible threat. Example: PETA: called for a boycott of McDonald’s due to alleged animal-rights abuses. Managers should try to transform threats into opportunities. Example: Sony Dutch government blocked PlayStation shipments due to a toxic cable. Sony’s response included a redesign of its supplier management system. Sony Corp., for example, was able to turn a threat into an opportunity. During one holiday season, the Dutch government blocked Sony’s entire holiday season shipment of PlayStation game systems, valued at roughly $500 million, into the European Union because of a small but legally unacceptable amount of toxic cadmium discovered in one of the system’s cables. This incident led to an 18-month investigation in which Sony inspected over 6,000 supplier factories around the world to track down the source of the problem. The findings allowed Sony to redesign and develop a cutting-edge supplier management system that now adheres to a stringent extended value chain responsibility. This example is drawn from: Esty, D.C., and A.S. Winston (2006), Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage (Hoboken, NJ: Wiley).

Step 4: Identify Societal Responsibilities
“What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders?” Corporate Social Responsibility (CSR): A framework to recognize and address economic, legal, social, and philanthropic expectations

Exhibit 1.4 The Pyramid of Corporate Social Responsibility
Instructors: The digital companion to this book McGraw-Hill Connect has an interactive exercise on this section of the textbook. It builds student confidence on corporate and societal responsibilities (LO 1-5). According to the CSR perspective, managers need to realize that society grants shareholders the right and privilege to create a publicly traded stock company. Therefore, the firm owes something to society. Moreover, CSR provides managers with a conceptual model that more completely describes a society’s expectations and can guide strategic decision making more effectively. For an insightful but critical treatment of this topic, see the 2003 Canadian documentary film The Corporation. SOURCE: Adapted from A. B. Carroll (1991), “The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders,” Business Horizons, July-August: 42. Jump to Appendix 4 long image description

Step 5: Address Stakeholder Concerns
Managers decide the appropriate course of action. The attributes of power, legitimacy, and urgency help to prioritize legitimate claims.

On April 20, 2010, an explosion occurred. At a drilling rig off the Louisiana coastline Killed 11 workers The oil spill continued for over three months. It released an estimated 5 million barrels of crude oil into the Gulf of Mexico. The largest environmental disaster in U.S. history

The cleanup cost was $14 billion. Tony Hayward, BP’s CEO at the time, was fired. Experts said BP’s problems were systemic: Management repeatedly failed to put a safety culture in place. In 2005, for example, BP experienced a catastrophic accident at a Texas oil refinery, which killed 15 workers. A year later, a leaking BP pipeline caused the largest oil spill ever on Alaska’s North Slope. BP’s strategic focus on cost reductions, initiated a few years earlier, may have significantly compromised safety across the board. In a fall 2014 ruling, a Federal judge declared that BP’s measures to cut costs despite safety risks “evince an extreme deviation from the standard of care and a conscious disregard of known risks.”

BP faced thousands of claims by many small business owners. Mainly in the tourism and seafood industries Collectively, the small business owners became powerful BP stakeholders. BP paid out over $25 billion to settle their claims.

Total cost for this incident: $60 billion The Environmental Protection Agency (EPA) banned BP from any new contracts with the U.S. government. This ban puts BP at a major competitive disadvantage.

The AFI Strategy Framework

Overview of AFI Outlines actions that managers take to gain and sustain competitive advantage AFI helps managers craft and execute a strategy that enhances the chances of achieving superior performance. AFI includes three broad tasks: Analyze (A) Formulate (F) Implement (I)

The AFI Strategy Framework (1 of 2)
AFI: A model that links three interdependent strategic management tasks Analyze Formulate Implement This model help managers plan and implement a strategy that can Improve performance Result in competitive advantage. Each of these tasks are interdependent. Each of these tasks can happen simultaneously. Each of these tasks can happen simultaneously: Effective managers formulate strategy and think about how to implement it. While implementing strategy, managers analyze the need to adjust.

Exhibit 1.5 The AFI Strategy Framework (2 of 2)

Strategy Analysis (A) Topics and Questions
Strategic leadership and the strategy process: What roles do strategic leaders play? What are the firm’s vision, mission, and values? What is the firm’s process for creating strategy and how does strategy come about? (Chapter 2) External analysis: What effects do forces in the external environment have on the firm’s potential to gain and sustain a competitive advantage? How should the firm deal with them? (Chapter 3) Internal analysis: What effects do internal resources, capabilities, and core competencies have on the firm’s potential to gain and sustain a competitive advantage? How should the firm leverage them for competitive advantage? (Chapter 4) Competitive advantage, firm performance, and business models: How does the firm make money? How can one assess and measure competitive advantage? What is the relationship between competitive advantage and firm performance? (Chapter 5)

Strategy Formulation (F) Topics and Questions
Business strategy: How should the firm compete: cost leadership, differentiation, or integration? (Chapters 6 and 7) Corporate strategy: Where should the firm compete: industry, markets, and geography? (Chapters 8 and 9) Global strategy: How and where should the firm compete: local, regional, national, or international? (Chapter 10)

Strategy Implementation (I) Topics and Questions
Organizational design: How should the firm organize to turn the formulated strategy into action? (Chapter 11) Corporate governance and business ethics: What type of corporate governance is most effective? How does the firm anchor strategic decisions in business ethics? (Chapter 12)

Implications for the Strategist

The Difference Between Success and Failure Lies in a Firm’s Strategy
Applying tools and frameworks can enable your firm to be more successful. You can apply the strategic management toolkit to your own career: To pursue your professional goals Reference the myStrategy modules Strategy is the art and science of success and failure

Competition Is Everywhere
Strategic management principles can be applied universally. Strategists work in: Small start-ups and large, multi-national companies For-profit and nonprofit organizations Private and public sectors Developed and emerging economies

The Strategist Follows a Three-step Process
Analyze the external and internal environments. Formulate an appropriate business and corporate strategy. Implement the formulated strategy through structure, culture, and controls.

The Role of Uncertainty and Complexity
Decisions must consider uncertainty and complexity. Maintain awareness of key stakeholders. They can affect or be affected by decisions. Monitor and evaluate progress toward strategic objectives. Make adjustments as necessary.

Chapter 1 Summary

Take Away Concepts (1 of 5)
LO 1-1 Explain the role of strategy in a firm’s quest for competitive advantage. Strategy is the set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors. A good strategy enables a firm to achieve superior performance. It consists of three elements: A diagnosis of the competitive challenge. A guiding policy to address the competitive challenge. A set of coherent actions to implement the firm’s guiding policy. A successful strategy requires three integrative management tasks—analysis, formulation, and implementation.

LO 1-2 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity. Competitive advantage is always judged relative to other competitors or the industry average. To obtain a competitive advantage, a firm must either create more value for customers while keeping its cost comparable to competitors, or it must provide the value equivalent to competitors but at a lower cost. A firm able to outperform competitors for prolonged periods of time has a sustained competitive advantage. A firm that continuously underperforms its rivals or the industry average has a competitive disadvantage. Two or more firms that perform at the same level have competitive parity. An effective strategy requires that strategic trade-offs be recognized and addressed— for example, between value creation and the costs to create the value.

LO 1-3 Differentiate the roles of firm effects and industry effects in determining firm performance. A firm’s performance is more closely related to its managers’ actions (firm effects) than to the external circumstances surrounding it (industry effects). Firm and industry effects, however, are interdependent. Both are relevant in determining firm performance.

LO 1-4 Evaluate the relationship between stakeholder strategy and sustainable competitive advantage. Stakeholders are individuals or groups that have a claim or interest in the performance and continued survival of the firm. They make specific contributions for which they expect rewards in return. Internal stakeholders include stockholders, employees (for instance, executives, managers, and workers), and board members. External stakeholders include customers, suppliers, alliance partners, creditors, unions, communities, and governments at various levels. Several recent black swan events eroded the public’s trust in business as an institution and in free -market capitalism as an economic system. The effective management of stakeholders—the organization, groups, or individuals that can materially affect or are affected by the action of a firm—is necessary to ensure the continued survival of the firm and to sustain any competitive advantage.

LO 1-5 Conduct a stakeholder impact analysis. Stakeholder impact analysis considers the needs of different stakeholders, which process enables the firm to perform optimally and to live up to the expectations of good citizenship. In a stakeholder impact analysis, managers pay particular attention to three important stakeholder attributes: power, legitimacy, and urgency. Stakeholder impact analysis is a five-step process that answers the following questions for the firm: Who are our stakeholders? What are our stakeholders’ interests and claims? What opportunities and threats do our stakeholders present? What economic, legal, and ethical responsibilities do we have to our stakeholders? What should we do to effectively address the stakeholder concerns?

Key Terms AFI strategy framework Black swan events
Competitive advantage Competitive disadvantage Competitive parity Corporate social responsibility (CSR) Firm effects Industry effects Stakeholders Stakeholder impact analysis Stakeholder strategy Strategic management Strategy Sustainable competitive advantage

Chapter 1 Cases & Exercises

Chapter Case 1: Consider This… (1 of 2)
Launched in 2006 Users send short messages: “tweets” Restricted to 140 characters 300 million worldwide active users Twitter’s business model: Grow its user base Charge advertisers for promotion

Chapter Case 1: Consider This… (2 of 2)
Why is Twitter struggling? What role do industry and firm effects? What grade would you give Dick Costolo? Twitter’s CEO from 2010 until 2015 Why is crafting a good strategy at Twitter so difficult?

My Strategy Exercise Considerations for your career choices
Referencing Table 1.1: What effect does industry growth play in your career choices? Why are growth rates an important consideration?

Small Group Exercise Hurricanes Katrina and Sandy highlighted the need for: Resilient infrastructure and buildings More flexible & effective responses Each group should search the Internet for options and plans to: (1) build more sustainable communities (2) organize responses to black swan events (3) additional recommendations for policy makers

End of Chapter 01

Strategy Smart Videos

Strategy Smart Videos (1 of 6)
Professor Frank T. Rothaermel Meet your textbook author - a personal introduction Link: 1:55 Minutes

Professor Frank T. Rothaermel An Overview of Your Textbook Link: 1:59 Minutes

Professor Michael E. Porter What is Strategy? Link: 1:46 Minutes

Professor Michael E. Porter 2 critical aspects of management: Have the right goal - to achieve a superior return on investment. Differentiation - to be better and unique from your competitors. Link: 1:35 Minutes

An Interview with Warren Buffett Maintaining the Competitive Advantage Link: The first 2:06 minutes of an 8:48 minute video

Doreen Shanahan, Professor of Marketing at Pepperdine University 7 Steps to Creating a Competitive Advantage Link: 5:29 Minutes

Chapter Case 1

Chapter Case 1: Twitter (1 of 2)
Twitter is currently not flying high. In 2015, stock was 50% what it was in 2013. Departure of CEO who served from Turmoil among executive ranks Overview of Twitter Users send short messages of 140 characters. Users can follow each other. 300 million active users worldwide Twitter appears constantly in the mass media.

Chapter Case 1: Twitter (2 of 2)
Business model Grow user base (individual users pay nothing) Advertisers charged for promotion of goods/services. Companies pay for promoted tweets. Ads can be delivered real time. Twitter’s current challenges Turnover / reshuffling in management & engineering Struggles to grow its user base Twitter = 300 million; Facebook = 1.5 billion User growth continues to slow Could it be taken over? Advertisers value how Twitter can deliver their ads in real time. In one famous episode, when a blackout halted the 2013 Super Bowl for over half an hour, Nabisco promoted Oreo cookies by tweeting, “Power out? No problem. You can still dunk in the dark.” Advertisers can also target their ads based on the user’s interests or location, the time of day, etc.

Appendix 1 The AFI Strategy Framework
This image shows several circles, representing the main themes from the textbook, as well as how the chapters map into each theme. The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation. Each of these outer five circles have a brief description beside them to explain what the circle means: Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)." Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)." Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter 7)." Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy: Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9)", and "Global Strategy: Competing Around the World (Chapter 10)." Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure, Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)." Return to slide

Appendix 2 Exhibit 1.2 Internal and External Stakeholders in an Exchange Relationship with the Firm
This image shows a firm in the middle, with External Stakeholders on the left side of it and Internal Stakeholders on the right. An arrow points from the firm to External Stakeholders named "Benefits," and an arrow points from External Stakeholders to the firm named "Contributions." Under External Stakeholders are the following sub-bullets: customers, media, suppliers, alliance partners, creditors, unions, communities and governments. An arrow points from the firm to Internal Stakeholders named "Benefits,” and an arrow points from Internal Stakeholders to the firm named "Contributions." Under Internal Stakeholders are the following sub-bullets: employees, stockholders, and board members. Return to slide

Appendix 3 Exhibit 1.3 Stakeholder Impact Analysis (3 of 3)
Step 1 - Who are our stakeholders? Step 2 - What are our stakeholders' interests and claims? Step 3 - What opportunities and threats do our stakeholders present? Step 4 - What economic, legal, ethical and philanthropic responsibilities do we have to our stakeholders? Step 5 - What should we do to effectively address stakeholder concerns? Return to slide

Appendix 4 Exhibit 1.4 The Pyramid of Corporate Social Responsibility
This image depicts a pyramid, with four separate sections. The bottom (and broadest) section is named Economic Responsibilities, the next smaller one up is labeled Legal Responsibilities, the next smaller one up is named Ethical Responsibilities, and at the top of the pyramid is Philanthropic Responsibilities. A brief clarification for each section of the pyramid is provided: Economic responsibilities - gain and sustain competitive advantage Legal responsibilities - laws and regulations are society's codified ethics. Define minimum acceptable standard Ethical responsibilities - do what is right, just, and fair Philanthropic responsibilities - corporate citizenship Return to slide

Appendix 5 Exhibit 1.5 The AFI Strategy Framework (2 of 2)
This image shows several circles, representing the main themes from the textbook, as well as how the chapters map into each theme. The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with five different circles on on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation. Each of these outer five circles have a brief description beside them to explain what the circle means: Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)". Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)". Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter 7)". Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy: Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9)", and "Global Strategy: Competing Around the World (Chapter 10)". Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure, Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)". Return to slide

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Chapter 1 What Is Strategy?

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Presentation on theme: "Chapter 1 What Is Strategy?"— Presentation transcript:

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