BUS460 - Chapter 1 What is Strategy

What are the elements of a Good Strategy?

(1) A diagnosis of the competitive challenge (2) A guiding policy to address the competitive challenge (3) A set of coherent actions to implement the firm's guiding policy

Key Steps to the Stakeholder Impact Analysis

(1) Who are our stakeholders? (2) What are our stakeholder's interests and claims? (3) What opportunities and threats do our stakeholders present? (4) What economic, legal, ethical , and philanthropic responsibilities do we have to our stakeholders? (5) What should we do to effectively address the stakeholder concerns?

Industry Vs. Firm Effects In Determining Firm Performance

(Pie Diagram) (- 25%) Other Effects (- 20%) Industry Effects Up to 55% Firm Effects

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

Key Steps to the Stakeholder Impact Analysis: (3) What opportunities and threats do our stakeholders present?

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.

Sustainable Competitive Advantage

Outperforming competitors or the industry average over a prolonged period of time

Competitive Parity

Performance of two or more firms at the same level

Stakeholder Impact Analysis

Primary stakeholders: achieve their objectives - Shareholders and investors • Other stakeholders: satisfy concerns - Employees, suppliers, and customers It is used as: - A decision tool - Managers recognize, prioritize, and address stakeholder needs A five-step process recognizing stakeholders' claims. • Managers must note three stakeholder attributes: - Power - Legitimacy - Urgency

Overview of AFI

Remember the 3 broad tasks - Analyze (A) - Formulate (F) - Implement (I) 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.

The AFI Strategy Framework

Analysis, Formulation, and Implementation. Analysis (1) Getting Started (2) External and Internal Analysis Formulation (1) Business Strategy (2) Corporate Strategy Implementation

Competitive Advantage

superior performance relative to other competitors in the same industry or the industry average

Key Steps to the Stakeholder Impact Analysis: (5) What should we do to effectively address the stakeholder concerns?

Managers decide the appropriate course of action. • The attributes of power, legitimacy, and urgency help to prioritize legitimate claims.

Competitive Disadvantage

Underperformance relative to other competitors in the same industry or the industry average

Take Away Concepts: 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. Good Strategy enables a firm to: - 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.

The Pyramid of CSR

(Top to Bottom) (1) Philanthropic Responsibilities (2) Ethical Responsibilities (3) Legal Responsibilities (4) Economic Responsibilities

Take Away Concepts: 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.

Corporate Social Responsibility (CSR)

- A framework to recognize and address economic, legal, social, and philanthropic expectations

List External Stakeholders

- Customers - Suppliers - Alliance Partners - Creditors - Unions - Communities - Governments - Media

List of Internal Stakeholders

- Employees - Stockholders - Board Members

P.L.U.

- Managers must note three stakeholder attributes: - Power - Legitimacy - Urgency

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.

What Strategy Is Not

1. Grandiose statements - Statements of desire - Ex: "Our strategy is to win" or "We will be No. #1" 2. A failure to face a competitive challenge - Managers must know whether they are making progress in addressing the challenge. 3. Operational effectiveness, competitive benchmarking, or other tactical tools - These support competitive strategy, but are not sufficient to sustain it.

The AFI Strategy Framework

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

External stakeholders

Customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels

Key Steps to the Stakeholder Impact Analysis: (1) Who are our 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

Key Steps to the Stakeholder Impact Analysis: (2) What are our stakeholder's interests and claims?

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,

Take Away Concepts: 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: 1. Who are our stakeholders? 2. What are our stakeholders' interests and claims? 3. What opportunities and threats do our stakeholders present? 4. What economic, legal, and ethical responsibilities do we have to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?

Internal stakeholders

Stockholders, employees (including executives, managers, and workers), and board members

Competitive Advantage

Superior performance relative to other competitors in the same industry or the industry average

Strategy

a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

Strategic Management

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

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

Firm Effects

firm performance is attributed to managerial actions. - More important factors in determining firm performance than external environment forces• - - A firm's strategy can explain up to 55% of its performance.

Key Steps to the Stakeholder Impact Analysis: (4) 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

Take Away Concepts: 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.

Take Away Concepts: 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.