mcgraw-hill/irwin copyright ©2010 the mcgraw-hill companies, all rights reserved. chapter 1...

McGraw-Hill/Irwin Copyright ©2010 The McGraw-Hill Companies, All Rights Reserved.

CHAPTER 1CHAPTER 1

Strategy and the Strategy and the Quest for Quest for

Competitive Competitive AdvantageAdvantage

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Thinking Strategically:Thinking Strategically:The Three Big Strategic QuestionsThe 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 willwe get there?” is its strategy

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What Do We Mean By “Strategy?”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 oforganizational performance

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Answering the Question, “How Are Answering the Question, “How Are We Going to Get There?”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

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Elements of a Company’s Business Elements of a Company’s Business StrategyStrategy

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McDonald’s StrategyMcDonald’s Strategy

Key initiatives of McDonald’s “Plan to Win” Strategy Improved restaurant operationsAffordable pricingWide menu variety and beverage choicesConvenience and expansion of dining

opportunitiesOngoing restaurant reinvestment

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Strategy and Sustainable Strategy and Sustainable Competitive AdvantageCompetitive 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

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Four Proven Strategic Approaches toFour Proven Strategic Approaches toWinning a Sustainable Competitive Winning a Sustainable Competitive AdvantageAdvantage

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

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Competitive Strategy ExamplesCompetitive 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

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Competitive Strategy ExamplesCompetitive Strategy Examples

Focus on a narrow market nicheBest Buy– Home electronicseBay – Online auctionsThe Weather Channel – Cable TV

Develop competitively important resources or capabilities not easily imitated by rivalsFed Ex– Superior distribution capabilitiesRitz-Carlton – Personalized customer

service

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Why Do Strategies Evolve?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

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A Company’s Strategy Is a Blend of A Company’s Strategy Is a Blend of Planned Initiatives and Unplanned Planned Initiatives and Unplanned Reactive AdjustmentsReactive Adjustments

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The Importance of a Company’s The Importance of a Company’s Business ModelBusiness 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?

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Elements of a Business ModelElements 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

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Tests of a Winning StrategyTests of a Winning Strategy

GOODNESS OF FIT TEST

How well does strategy fitthe firm’s situation?

COMPETITIVE ADVANTAGE TEST

Does strategy lead to sustainable competitive advantage?

PERFORMANCE TEST

Does strategy boost firm performance?