1. Lesson 1 WHAT IS STRATEGY AND WHY IS IT IMPORTANT?

2. Outline What Is Strategy?
What Does the Strategy-Making, Strategy-Executing Process Entail?
Phase 1: Developing a Strategic Vision
Phase 2: Setting Objectives
Phase 3: Crafting a Strategy
Phase 4: Implementing and Executing the Strategy
Phase 5: Evaluating Performance and Initiating Corrective Adjustments
Corporate Governance: Role of Board of Directors in the Strategy-Making, Strategy-Executing Process
Why Crafting and Executing Strategy Are Important Tasks

3. Thinking Strategically: The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
Businesses to be in and market positions to stake out
Buyer needs and groups to serve
Outcomes to achieve
3. How will we get there?

4. What Is Strategy? Achieve target objectives
Consists of the combination of competitive moves and business approaches used by managers to run the company
Management’s “game plan” to
Stake out a market position
Attract and please customers
Compete successfully
Conduct operations
Achieve target objectives

5. An Example of Strategy: Comcast
Roll out a new video-on-demand service to allow customers to watch TV programs at any time
Partner with Sony, MGM, and others to expand Comcast’s library of movie offerings
Continue to roll out high-speed Internet or broadband service to customers via cable modems
Use “voice-over-Internet-protocol” (VOIP) technology to offer subscribers Internet-based phone at a fraction of the cost charged by other providers
Use the video-on-demand and VOIP service offerings to
Differentiate Comcast’s service offering and
Combat competition from direct-to-home satellite TV providers
Employ a sales force to sell advertising to businesses that were shifting some of their advertising dollars from sponsoring network programs to sponsoring cable programs
Significantly improve Comcast’s customer service

6. Striving for Competitive Advantage
Central thrust of a company’s strategy involves moves to strengthen a company’s
Long-term competitive position and
Financial performance
Achieving a sustainable competitive advantage greatly enhances a company’s prospects for
Winning in the marketplace and
Earning above-average profits
What separates a powerful strategy from an ordinary one is management’s ability to forge a series of moves, both in the marketplace and internally, that produce sustainable competitive advantage!

7. Strategic Approaches to Building Competitive Advantage
Strive to be the industry’s low-cost provider
Differentiate the company’s product offering from rival brands in ways that customers find more appealing
Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers
Develop expertise, resource strengths, and capabilities not easily imitated by rivals

8. Examples of Companies Pursuing Competitive Advantage Based on Distinctive Capabilities
Sophisticated distribution systems – Wal-Mart
Product innovation capabilities – 3M Corporation
Complex technological process – Michelin
Defect-free manufacturing – Toyota and Honda
Specialized marketing and merchandising know-how – Coca-Cola
Global sales and distribution capability – Black & Decker
Superior e-commerce capabilities – Dell Computer
Personalized customer service – Ritz Carlton Hotels

9. Fig. 1.1: Identifying a Company’s Strategy

10. Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive

11. Why Do Strategies Evolve?
Changes in a company’s strategy are typically necessary in order to respond and react to
Shifting market conditions
Evolving customer preferences
Fresh moves of competitors
Technological breakthroughs
Strategy changes also make sense
When a strategy is performing poorly and needs to be “fixed”
When management comes up with ideas for improving the strategy
Thus, a company’s strategy is always a work in progress!

12. What Does the Term “Business Model” Mean?
A company’s business model is the storyline for how and why the company’s strategy will generate a revenue stream and entail a cost structure that produces attractive earnings and return on investment
In other words, do the revenue-cost-profit economics of the strategy make good business sense?
Without the ability to deliver good profits
The strategy is not viable
The survival of the business is in doubt
The company’s business model is sorely lacking and both the strategy and the business model have to be overhauled

13. Relationship Between Strategy and Business Model
Strategy - Deals with a company’s competitive initiatives and business approaches
Business Model -Concerns whether the revenues and costs flowing from the strategy are likely to generate attractive profits and return on investment, thus signifying whether the strategy and business model are viable

14. Microsoft’s Business Model
Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users
Sell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit sales
Most costs in developing software are fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profit
Provide technical support to users at no cost

15. What Makes a Strategy a Winner?
How well does the strategy fit the company’s internal and external situation?
Is the strategy helping the company achieve a sustainable competitive advantage?
Is the strategy resulting in better company performance?

16. Fig. 1.3: The Strategy-Making, Strategy-Executing Process

17. Developing a Strategic Vision
Phase 1 of the Strategy-Making Process
Involves thinking strategically about
Future of company
Where are we going?
Developing a strategic vision entails
Creating a roadmap of where the company is headed and why
Deciding what position the company needs to stake out in the marketplace
Providing long-term direction
Giving company a strong identity

19. Characteristics of a Strategic Vision
Well-stated vision statements
Are distinctive and specific to a particular organization
Avoid generic language
Excite strong emotions
Are challenging, uncomfortable, nail biting

22. Mission vs. Strategic Vision
A mission statement focuses on current business activities -- “who we are and what we do”
Current product and service offerings
Customer needs being served
Technological and business capabilities
A strategic vision concerns a firm’s future business path -- “where we are going”
Markets to be pursued
Future technology-product-customer focus
Kind of company management is trying to create

23. Characteristics of a Mission Statement
Defines current business activities, highlighting boundaries of current business
Present products and services
Types of customers served
Conveys
What we do,
Why we are here, and
Where we are now
A company’s mission is not to make a profit! Its true mission is its answer to “What will we do to make a profit?” Making a profit is an objective or intended outcome!

24. Trader Joe’s Mission Statement
(a unique grocery store chain)
Our mission: To give our customers the best food and beverage values that they can find anywhere and to provide them with the information required for informed buying decisions. We provide these with a dedication to the highest quality of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit.

25. Communicating the Strategic Vision
An exciting, inspirational vision
Contains memorable language
Clearly maps company’s future direction
Challenges and motivates workforce
Provokes emotion and enthusiasm
Winning support for the vision involves
Putting “where we are going and why” in writing
Distributing the statement organization-wide
Having executives explain the vision to the workforce

26. Examples: Vision Slogans
Levi Strauss & Company
“We will clothe the world by marketing the most appealing and widely worn casual clothing in the world.”
Microsoft Corporation
“Empower people through great software— any time, any place, and on any device.”
Mayo Clinic
“The best care to every patient every day.”

27. Linking the Vision With Company Values
A statement of values is often provided to guide a company’s pursuit of its vision
Values -- Beliefs, business principles, and ways of doing things incorporated into
Company’s operations
Behavior of workforce
Values statements
Contain between four and eight values
Are ideally tightly connected to and reinforce a company’s vision, strategy, and operating practices

28. Example: Company Values
Home Depot
Entrepreneurial spirit
Creating shareholder value
Excellent customer service
Building strong relationships
Giving back to the community
Taking care of people
Respect for all people
Doing the right thing

29. Phase 2 of the Strategy-Making Process
Setting Objectives
Phase 2 of the Strategy-Making Process
Purpose of setting objectives
Converts vision into specific performance targets
Creates yardsticks to track performance
Pushes firm to be inventive, intentional, and focused in its actions
Setting challenging, achievable objectives guards against
Complacency
Internal confusion
Status quo performance

30. Types of Objectives Required
Financial Objectives
Strategic Objectives
Outcomes focused on improving financial performance
Outcomes focused on improving long-term, competitive business position

31. Strategic Performance Fosters Better Financial Performance
A company’s achievement of satisfactory financial performance, by itself, is not enough
Financial performance measures are “lagging indicators” reflecting results of past decisions and actions
Of equal or greater importance is a company’s performance on measures of its strategic well-being — its competitiveness and market position
Strategic performance measures are “leading indicators” of a company’s future financial performance
Achievement of strategic performance targets
Signals growing competitiveness
Signals growing strength in the marketplace

32. Balanced Scorecard Approach – Strategic and Financial Objectives
Balanced scorecard approach for measuring company performance requires having and pursuing both
Financial objectives
Strategic objectives
Emphasis on achieving financial objectives should generally assume priority over achieving strategic objectives when a company’s
Financial performance is dismal and/or
The company’s survival is threatened
Otherwise, management is advised to put more emphasis on achieving strategic objectives that strengthen a company’s business position and give it a growing competitive advantage over rivals—Why?
Because an ever stronger market position is a company’s surest path to improving its profitability!

33. Nissan’s Strategic and Financial Objectives
Increase sales to 4.2 million cars and trucks by 2008 (up from 3 million in 2003)
Cut purchasing costs 20% and halve the number of suppliers
Have zero net debt
Maintain a return on invested capital of 20%
Maintain a 10% or better operating margin

34. Concept of Strategic Intent
A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective!

35. Characteristics of Strategic Intent
Indicates a firm’s intent to
Stake out a particular business position over the long-term
Be a winner in marketplace
Involves establishing a grandiose performance target
Out of proportion to its immediate capabilities and market posiItion and
Devoting the company’s full resources and energies to achieving the target over time
Signals relentless commitment to achieving a particular market position and competitive standing

36. Phase 3 of the Strategy-Making Process
Crafting a Strategy
Phase 3 of the Strategy-Making Process
Strategy-making involves entrepreneurship – searching for opportunities
To do new things or
To do existing things in new or better ways
Strategizing involves
Picking up on happenings in the external environment and
Steering company activities in new directions dictated by shifting market conditions

37. The Hows That Define a Firm's Strategy
How to grow the business
How to please customers
How to outcompete rivals
How to respond to changing market conditions
How to manage each functional piece of the business and develop needed organizational capabilities
How to achieve strategic and financial objectives

38. Activities Involved in Crafting a Strategy
Studying market trends and actions of competitors
Listening to customers, anticipating their changing needs
Scrutinizing business possibilities based on new technology
Building a firm’s market position via acquisitions or new products
Pursuing ways to strengthen firm’s competitive capabilities

39. Fig. 1.4: A Company’s Strategy-Making Hierarchy

40. Levels of Strategy-Making in a Diversified Company
Corporate-Level Managers
Corporate
Strategy
Two-Way Influence
Business-Level Managers
Business Strategies
Two-Way Influence
Functional Managers
Functional Strategies
Two-Way Influence
Operating
Managers
Operating Strategies

41. Levels of Strategy-Making in a Single-Business Company
Business-Level Managers
Business
Strategy
Two-Way Influence
Functional Managers
Functional Strategies
Two-Way Influence
Operating
Managers
Operating Strategies

42. Tasks of Corporate Strategy
Moves to achieve diversification
Actions to boost performance of individual businesses
Capturing valuable cross-business synergies to provide = 3 effects!
Establishing investment priorities and steering corporate resources into the most attractive businesses

43. Tasks of Business Strategy
Initiating approaches to produce successful performance in a specific business
Crafting competitive moves to build sustainable competitive advantage
Developing competitively valuable competencies and capabilities
Uniting strategic activities of functional areas
Gaining approval of business strategies by corporate-level officers and directors

44. Tasks of Functional Strategies
Game plan for a strategically-relevant function, activity, or business process
Detail how key activities will be managed
Provide support for business strategy
Specify how functional objectives are to be achieved

45. What Is a Strategic Plan?
Its strategic vision and business mission A
Company’s
Strategic
Plan
Consists of
Its strategic and financial objectives
Its strategy

46. Implementing and Executing Strategy
Phase 4 of the Strategy-Making Process
Action-oriented, operations-driven activity aimed at shaping performance of core business activities in a strategy-supportive manner
Tougher and more time- consuming than crafting strategy
Key tasks include
Improving efficiency of the strategy being executed
Showing measurable progress in achieving targeted results

47. What Does Implementing and Executing the Chosen Strategy Involve?
Building a capable organization
Creating a strategy-supportive corporate culture
Allocating resources to strategy-critical activities
Establishing strategy-supportive policies
Instituting best practices and programs for continuous improvement
Installing information, communication, and operating systems
Motivating people to pursue the target objectives
Tying rewards to achievement of results
Exerting the leadership necessary to drive the process forward and keep improving

48. Characteristics of Good Strategy Execution
Involves creating strong “fits” between strategy and
Organizational capabilities
Organization’s work climate and culture
Reward structure
Internal operating systems
The stronger the “fits” the
Better the execution
Higher a company’s odds of achieving its performance targets

49. Evaluating Performance and Making Corrective Adjustments
Phase 5 of the Strategy-Making Process
Tasks of crafting and implementing the strategy are not a one-time exercise
Customer needs and competitive conditions change
New opportunities appear; technology advances; any number of other outside developments occur
One or more aspects of executing the strategy may not be going well
New managers with different ideas take over
Organizational learning occurs
All these trigger the need for corrective actions and adjustments on an as-needed basis

50. Corporate Governance: Strategic Role of a Board of Directors
Exercise strong oversight to ensure the five tasks of strategic management are executed to benefit
Shareholders or
Stakeholders
Make sure executive actions are not only proper but also aligned with interests of stakeholders

51. Obligations of a Board of Directors
Be inquiring critics and overseers
Evaluate caliber of senior executives’ strategy-making and strategy-executing skills
Institute a compensation plan for top executives rewarding them for results that serve interests of
Stakeholders and
Shareholders
Oversee company’s financial accounting and reporting practices

52. Good Corporate Governance Matters
The whole fabric of effective corporate governance is undermined when boards of directors shirk their responsibility to maintain ultimate control over
Company’s strategic direction
Major elements of a company’s strategy
Business approaches management is using to implement and execute the strategy
Board members are obligated to rein in a CEO who oversteps the bounds of sound business principles and ethical behavior
A rubber stamp board abdicates its responsibility to shareholders
Boards of directors have a very important oversight role in the strategy-making, strategy-executing process!

53. Why Is Strategy Important?
A compelling need exists for managers to proactively shape how a firm’s business will be conducted
A strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary

54. Good Strategy + Good Strategy Execution = Good Management
Crafting and executing strategy are core management functions
Nothing affects a company’s ultimate success or failure more fundamentally than how well its management team
Charts the company’s direction
Develops competitively effective strategic moves and business approaches
Excellent execution of an excellent strategy is the best test of managerial excellence – and the most reliable recipe for winning in the marketplace!

55. Benefits of a “Strategic Approach” to Managing
Good strategic thinking and management of the strategy-making, strategy-executing process
Guides entire firm regarding “what it is we are trying to do and to achieve”
Helps unify numerous strategy-related decisions across the company
Creates a proactive atmosphere
Promotes development of an evolving business model focused on bottom-line success
Provides basis for determining how best to allocate company resources