Chapter 1: What is Business Strategy?

Emergent Strategy

-NOT part of the original strategy, but emerge when strategic leaders recognize and act on unexpected opportunities EX: Apple was a computer company that capitalized on the music industry after the introduction of the iPod

Discuss how strategies are formulated and implemented in order to achieve objectives

-formulating strategies involves selecting which actions the firm will take to gain and sustain a competitive advantage •Actions must be implemented at three levels 1. Corporate Level EX: Amazon HQ makes decisions about each business unit including the market where they will operate in and the unique value they will attempt to offer 2. Business Unit (product) Level EX: could be Kindle or Amazon Web Services, each appeals to a different market and requires different strategies 3. Functional Level EX: operations, sales, marketing, R&D of each business unit must develop their strategies and tactics to align with the overall business unit strategy OTHER WAYS to achieve strategic objectives; STRATEGY VEHICLES: •Acquisitions: (growth, diversification, access to key resources) EX: Apple purchasing Steve Jobs' software company led to OSX •Alliances: (new resources and capabilities) EX: Apple and AT&T iPhone launch + 5 year exclusive deal (huge promo and revenue kickbacks from AT&T to Apple for the right) •Vertical Integration: (unique value + capabilities) EX: Apple opened their own retail stores instead of using the services of a company like BestBuy or Walmart who charge fees and can't offer the same level of customer service •International Expansion: (economies of scale, access to key resources, learn new skills) STRATEGY IMPLEMENTATION: -making sure functional strategies (R&D, sales, operations, HR) are aligned to deliver the unique value identified in the overall strategy, usually most successful when a company can measure how effective functional strategies are being performed -the organizations structure, systems, staff, skills, style, and shared values are designed to facilitate execution of the strategy

Deliberate Strategies

-implemented as a result of careful analysis of the market, customers, competitors, and a firm's resources and capabilities EX: Target decided they couldn't compete with Walmart's low prices, so they implemented a deliberate strategy that involved upscale discount retail by partnering with high-end fashion designers and stores to create unique value for the final customer

A good strategy provides CLEAR answers to FOUR key questions:

1. Where do we compete? -the industry, product market inside the industry, customer segments, and geographic markets that are the most attractive 2. What unique value do we bring? -cost, differentiation, brand image, customization, or reliability that provide value to the consumer 3. What resources and capabilities do we utilize to deliver that unique value? -elite human capital, superior technology, unrivaled networking connections, unique software, unique reputation, etc. Resources: software, human capital, reputation Capabilities: anticipate rival actions/weaknesses -any barriers to entry/imitation? 4. How do we sustain that unique value? -factors that allow us to continue winning over time

Define the four choices that are critical to strategy formulation and the strategic management process

1. where do we compete? 2. how do we provide unique value? 3. what resources/capabilities do we utilize? 4. how do we sustain our unique value?

Apple Strategy: Part 4

After changing the music industry with iTunes, Steve Jobs capitalized on this opportunity and created another innovative software, "FairPlay" that changed iTunes from being compatible with ALL mp3 player to only being compatible with Apple devices. This took several competitors out of the market who were trying to introduce low cost mp3 devices compatible with iTunes. ***Apple was able to create a huge barrier to entry in the portable mp3 market Apple has sustained their success throughout the 2000s and 2010s. They began expanding their product line to phones, desktops, tablets, watches, and headphones. They have continued to introduce new software with innovations like Apple Music, iCloud, and constant iOS improvements. ***Apple has become one of the most successful music providers in the world by capitalizing on its resources and capabilities to provide a key competitive advantage, then implementing strategies to sustain that advantage over time.

Apple Strategy: Part 2

Apple began to take over portable mp3 market competitors like "Rio" for 3 primary reasons: 1. "iPod" was installed with a mini hard drive that held 500 songs compared to the flash memory of the Rio (15 songs) 2. "flywheel" technology which allowed the user to scroll between hundreds of songs in seconds 3. iPod was backed with Apple's name and have an innovative design ***these innovations allowed Apple to quickly move into a position of industry leadership despite charging 25% more than competitors

Apple Strategy: Part 3

Even with all of these innovations, there was still a key issue facing mp3 producers: Pirated music Steve Jobs understood that the biggest issue music artists/labels faced in the 2000s was losing sales to pirated music. Through the innovative software "iTunes", Jobs was able to create a way for artists to sell songs that would only allow the consumer to download the song to a few different computers. Apple gained a competitive advantage over Rio by working directly with label companies, however they used that advantage to bring in enormous profits.

IKEA: Strategy Example

IKEA sells relatively inexpensive, Scandinavian-style furniture and home furnishings to white collar customers all over the world. ADVANTAGES: -first furniture retailer in every major country means they have greater scale than local competitors -inexpensive, fashionable furniture design is one of their capabilities -fun, low-pressure showroom with immediate order fulfillment provides unique value for the consumer -mass production, shipment in flat boxes, and requiring the final consumer to assemble the product allows IKEA suppliers to reduce shipping costs and ship in massive volumes ***To compete with IKEA, competitors would have to drastically change how they design, manufacture, and ship their furniture

Apple Strategy: Part 1

In 2000, Apple was a pioneer in the personal computer market. They created a unique product by writing their own operating system software and much of their own application software. Despite their innovative efforts, they failed to gain more than 5% of the market share because their unique software led to higher prices, and their software was incompatible with leading Microsoft products making it less appealing to switch from Microsoft to Apple. Things began to change for Apple in 2001 with the launch of the "iPod", their own portable mp3 player.

Explain who is responsible for, and who benefits from a good business strategy.

Strategic Leaders are responsible for implementing a good business strategy. FOUR types of stakeholders: -capital market (shareholders, banks) -product market (customers, suppliers) -organizational (employees) -community (communities, government bodies, community activists)

Why are these examples NOT strategies? 1. Be a low-cost provider 2. Pursue a global strategy 3. Unrivaled customer service 4. Acquire a set of regional acquisitions 5. Move from defense to industrial applications 6. Always be the first mover

because they are examples of tactics, goals, objectives, and descriptions EX: "strategos" greek word for strategy means art of the general (war) -the strategy of the great Hannibal was not to "beat Rome", but rather to bring his teams strengths against the weaknesses of his enemy at the point of attack -the modern day Hannibal, a business executive, needs to develop a set of complex tactics and activities that lead to a victory (competitive advantage)

Define business strategy including the importance of a competitive advantage

•Business Strategy: a company's dynamic plan to gain and sustain a competitive advantage in the marketplace. •Based on theories its leaders have about: -how to succeed in a particular market -predicting what markets are attractive -how to offer unique value -how to provide unique value that won't be easily imitated •Competitive Advantage: when a firm can consistently generate above-average profits through a strategy competitors are unable to imitate, or find too costly to imitate. -provides unique value to customers in appropriate markets -develops resources and capabilities to deliver unique value better than competitors -sustain the unique advantage by preventing imitation •Above-Average Profits: profit returns in excess of what an investor expects from other investments with a similar amount of risk

Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy

•Mission: outlines the company's PRIMARY PURPOSE and often specifies the business(es) which the firm chooses to compete against, or customers it intends to serve. EX1: Starbucks founder Howard Schultz •original mission: to bring high-quality coffee to the masses in America, completed an external analysis of U.S. coffee market and determined there was an opportunity and very few threats •EXTERNAL ANALYSIS -Industry Analysis: Porter 5 forces, some industries more profitable than others (soft drinks, pharma) -Customer Analysis: current customers, potential customers, preferences, price sensitivity, customer segmentation (luxury car; Porsche) •INTERNAL ANALYSIS -company's resources and capabilities that can be developed to provide unique value to the customer ***The internal and external analysis help a firm decide what market they will compete in, what their strategy to deliver unique value will be, and how they will develop their resources and capabilities to execute and sustain that unique value