Chapter 1: What is Strategy?

Four Pillars of Reality (+3 for bonus points)

1. Continuous Change 2. Here / Now (should always be Primary) -Most important dimension of time we're working with. 3. Interdependence -Trying to understand phenomena and how factors affect other factors. 4. Uniqueness -Growth is unique to each person and consciousness comes from the inside - out. —Emergence —Uncertainty —Ebb+Flow —Everything going on has its own rhythm, we need to understand the rhythm. What's trending in and what's trending out.

Sustainable competitive advantage

A firm able to outperform its competitors or the industry average over a prolonged period.

Firm Effects

Attribute firm performance to the actions strategic leaders take. For now, the key point is that strategic leaders' actions tend to be more important in determining firm performance than the forces exerted on the firm by its external environment.

Competitive Advantage/Disadvantage (V-C)

Is always relative, not absolute. To assess, we compare performance to a benchmark-that is, either the performance of other firms in the same industry or an industry average. -A firm with superior performance relative to the benchmark has competitive advantage. -To gain a competitive advantage, a firm needs to provide either goods or services consumers value more highly than those of its competitors, or goods or services similar to the competitors' at a lower price. -Creating shareholder value and making money is the consequence of filing a need and providing a product, service, or experience consumers wanted, at a price they could afford.

Stakeholder strategy

Is an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage. The unit of analysis is the web of exchange relationships between a firm with its stakeholders. This strategy allows firms to analyze and manage how various external and internal stakeholders interact to jointly create and trade value. -Internal stakeholder: Include employees (including executives, managers, and workers), stockholders, and board members. -External stakeholder: Include customers, suppliers, alliance partners, creditors, unions, communities, governments at various levels, and the media.

Value Creation

Relates to its ability to create value for customers (V) while containing the cost to do so (C) . -Competitive advantage flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it (V-C). -Way more than financial profit, it means that you are bringing value to society in ways such as employment, infrastructure of area, reinvestment, public safety, education, etc. -Firms create economic value by expanding as much as possible the gap between the value (V) the firm's product or services generate and the cost to produce it (C). -Firms must also be able to capture a significant share of the value created to gain and sustain a competitive advantage.

Strategic Positioning and its Trade-Offs

Strategy is about creating superior value, while containing the cost to create it, or by offering similar value at a lower cost. -Managers achieve these combinations of value and cost: they stake out a unique position within an industry that allows the firm to provide value to customers, while controlling costs. -The greater the difference between value creation and cost, the greater the firm's economic contribution and the more likely it will gain competitive advantage.

Competitive Disadvantage

The firm underperforms the benchmark.

Competitive Parity

When two or more firms perform at the same level.

Creative Destruction

With disruptive technological innovation, new things come to market and destroy old things. -"Process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." -Constant Evolution, Continuous Change

Formulation

coming up with a plan, addresses the firm's competitive challenge. Results in firms corporate, business, and functional strategies. -Business Strategy: Differentiation, Cost Leadership, and Blue Oceans. -Business Strategy: Innovation, Entrepreneurship, and Platforms -Corporate Strategy: Vertical Integration and Diversification -Corporate Strategy: Strategic Alliances, Mergers and Acquisitions -Global Strategy: Competing Around the World

AFI Framework

embodies this view of strategic management. Effectively managing the strategy process is the result of three broad tasks: - Analyze (A) the external and internal environments - Formulate (F) an appropriate business and corporate strategy - Implement (I) the formulated strategy through structure, culture, and controls

Trade-Offs

giving up something in order to focus on another aspect of the business i.e. Walmart giving up quality for quantity.

Strategic Management

is the integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage. -Mastery enables you to view an organization such as a firm or a nonprofit outfit in its entirety. -It enables you to think like a general manager to help position your organization for superior performance.

Analysis (External & Internal Analysis)

of the firm's internal and external environment, understanding as much as you can, where you have a chance to be successful. -Strategic Leadership: Managing the Strategy Process -External Analysis: Industry Structure, Competitive Forces, and Strategic Groups -Internal Analysis: Resources, Capabilities, and Core Competencies -Competitive Advantage: Firm Performance and Business Models

Implementation

putting your plan into measurable steps. -Organizational Design: Structure, Culture, and Control -Corporate Governance and Business Ethics

Definition of Functional Intelligence

Effectively adapting to continuous change. -Can't adapt easily to what we don't understand. Aware: -Analysis and re-evaluation help us with awareness -You can't adapt to things you aren't aware of -Be a dynamic learner

Industry Effects

Describe the underlying economic structure of the industry. They attribute firm performance to the industry in which the firm competes. -The structure of an industry is determined by elements common to all industries, elements such as entry and exit barriers, numbers and size of companies, and types of products and services offered. -In a series of empirical studies, academic researchers have found that about 20% of a firm's profitability depends on the industry it is in.

Moore's Law

Capacity of tech will double about every two years - exponential growth increases rate of change (creative destruction).

Stakeholders (relationships/impact analysis)

Companies with a good strategy generate value for society. When firms compete in their own self-interest while obeying the law and acting ethically, they ultimately create value. -Value creation occurs because companies with a good strategy are able to provide products and services to consumers at a price point that they can afford while making a profit at the same time. -Both parties benefit from this trade as each captures a part of the value created. In doing so, they leave society better off. -Value creation in turn lays the foundation for the benefits that successful economies can provide: infrastructure, education, public safety, health care, clean water and air, among others.