4490 - 1: What is Strategy?

pyramid of corporate social responsibility

(Top) philanthropic, ethical, legal, economic *toward the moral management stakeholders

What firms have achieved a competitive advantage - in digital advertising? - in smartphones?

- Google - Apple

Why so much bad strategy?

- The inability to choose - Template-style strategy

The AFI Framework: Formulation

- business strategy - corporate strategy - global strategy

Primary strategy objectives

- controlling costs - creating value

Tesla

- generated 500,000 preorders for an unseen model - success can be attributed to the implementation of its secret strategy - competitive advantage in terms of stock appreciation due to reinvesting profits to continually design and produce better electric vehicles

The AFI Framework: Implementation

- organizational design - corporate governance and business ethics

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.

Which of the following factors would be examined in the External Analysis stage of the AFI strategy framework?

- strategic groups - competitive forces

The AFI Framework: Analysis

- strategic leadership and the strategy process - external analysis - internal analysis - competitive advantage, firm performance, and business models

Components of bad strategy

1. Failure to face the problem 2. Mistaking goals for strategy 3. Bad "fuzzy" strategic objectives 4. Fluff (i.e., superficial abstraction)

Steps in Stakeholder Impact Analysis

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, ethical, and philanthropic responsibilities do we have to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?

AFI strategy framework

Analysis- diagnosis of the competitive challenge Formulation- guiding policy to address the competitive challenge Implementation- set of coherent actions to implement the firm's guiding policy

Implications for the strategist

Applying tools and frameworks can enable your firm to be more successful o you can apply the strategic management toolkit to your own career Top firms and bottom firms may not be the same in the future Strategic management principles learned here can be applied universally o small start-ups, and large, multinational companies o for-profit and nonprofit organizations o private and public sectors o developed and emerging economies Strategy is the art and science of success and failure

Organizational core values are the answer to which of the following questions?

How do we accomplish our goals?

Industry vs. Firm Effects in Performance

Industry effects: Firm performance attributed to the structure of the industry in which the firm competes. --Determined by elements common to all industries Examples: --Entry and exit barriers --Number and size of companies --Types of products and services offered Firm effects: Firm performance attributed to the actions managers take. --More important factor in determining firm performance than external environment forces

Industry vs. Firm Effects in determining performance - percentages

Industry: ~20% Firm: up to 55%

Internal stakeholders vs. External stakeholders

Internal: employees, stockholders, board members External Stakeholders: customers, suppliers, alliance partners, creditors, unions, communities, governments, media

Quick Eats is a fast-food restaurant that has recently entered the hospitality industry. Since most of its competitors are pursuing a low-cost position and doing well, Quick Eats also wants to adopt the same strategy. Which of the following will be a likely implication of this decision?

Quick Eats will face low profit potential.

How to achieve competitive advantage

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

Strategy

The set of goal-directed actions a firm takes to gain and sustain competitive advantage.

Which of the following statements accurately brings out the difference between an organization's vision and mission?

Vision defines what the organization wants to accomplish ultimately, whereas the mission defines the means by which vision is accomplished.

A well-devised strategy helps a firm understand...

What to do and what not to do

Stakeholder Impact Analysis

a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

Corporate Social Responsibility

a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time

benchmarking

a process by which a company compares its performance with that of high-performing organizations

stakeholder strategy

an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

Strategic management

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

In a(n) _________ strategy formulation, managers focus on deciding HOW the firm should compete

business

How has Walmart staked out a unique strategic position?

by cutting costs to offer lower prices than competitors.

A statement of guiding principles that typically provide very specific ethical considerations is a(n)

core values statement

Merck's decision to donate more than 1 billion treatments to help end river blindness free of charge was ... Merck's choice to pull the drug Vioxx off the market in 2004 was an example of ...

driven by its organizational core values adhering to core organizational values

Managers have _________ resources in their quest for competitive advantage.

limited

Stakeholders

organizations, groups, and individuals that can affect or are affected by a firm's actions

sustainable competitive advantage

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

The overall purpose of a firm's strategy is to...

perform better than other companies in the same industry

competitive parity

performance of two or more firms at the same level

Managers must note three stakeholder attributes:

power, legitimacy, urgency (A stakeholder has POWER OVER 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.)

The type of vision statement that tends to limit a manager's flexibility and ability to adapt is the _________ vision statement

product-oriented

What type of vision is most likely to fail?

product-oriented

The rewards of superior value creation and capture are...

profitability & market share

competitive advantage

superior performance relative to other competitors in the same industry or the industry average *always relative, not absolute

The Bright Bulb light bulb company produces a line of LED bulbs that customers consider very similar to competitors' LED bulbs. Which of the following conditions must be true for Bright Bulb to have a competitive advantage?

the bulbs must have a lower cost than competitors' bulbs

Which of the following actions of an automobile firm will be considered as a strategic commitment?

the firm investing eight years and $4 billion to develop a range of hybrid cars with which it will compete in the future

What are strategic commitments?

they are actions that are costly, long-term oriented, and difficult to reverse

Two conflicting strategic options are known as _______

trade-offs

competitive disadvantage

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

The online startup Threadless

uses different activities than rivals to gain competitive advantage in the apparel industry • crowdsourcing and prosumers

The element of a firm's strategy that summarizes the ultimate goals of a firm are known as ________

vision

The first step to gain and sustain a competitive advantage is to define an organization's vision, mission, and values. Managers must ask the following questions: Vision - Mission - Values -

▪ Vision. What do we want to accomplish ultimately? ▪ Mission. How do we accomplish our goals? ▪ Values. What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission?