Chapter One

1. What is Strategy and Why is it Important? Chapter One

2. Why do we need strategy? The reasons why firms succeed and fail is perhaps the central question in strategy Answers the fundamental question of the firm Where we are now? Where we going? How are we going to get there?

3. Strategic Management Defined • decisions and actions that determine long-term performance • formulation and implementation of plans designed to achieve objectives • unifying theme that gives coherence and direction to organizational/individual decisions • game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance • integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage What is a competitive advantage?

4. Competitive Advantage • When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitate

5. Today’s Competitive Landscape New Managerial Mindset Global Economy • Strategic Flexibility • Intelligence Management • Global Perspective • Speed, Innovation & Integration Technology Change & Diffusion Hypercompetition Information Technology Knowledge Intensity

6. What is Strategy? Strategy is not doingsimilar activitiesbetter than your rivals – that’s operational effectiveness • continual improvement not a sustainable advantage • industry-wide cost reductions do not lead to increased profitability • examples: PCs, automobiles, airlines

7. What is Strategy? 1) Strategy is performingdifferent activitiesor performing similar activities in adifferent way Strategy is about positioning a) Variety-based positioning • offering a unique choice of goods/services - Chic-fil-a, GameStop b) Needs-based positioning • serving most/all of a particular group of customers’ needs - Babies R Us c) Access-based positioning • serving a set of customers that require unique access – Kinkos, Movie Gallery, Superette

8. What is Strategy? 2) Strategy is about choosing apositionwhich requirestradeoffs, choosing whatnotto do • without tradeoffs, all firms would imitate Tradeoffs arise from • inconsistent image/reputation • different activities, products, equipment, employees, skills, systems, machines • priorities, internal coordination, and control

9. What is Strategy? 3) Strategy is aboutcombiningactivities as advantages come fromfit andreinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

10. What is Strategy? 4) The desire to grow is most threatening to an effective strategy • Blurs uniqueness • Creates compromises • Reduces fit • Erodes original advantages

11. So….how can firm’s be profitable? 1) Choose an attractive industry in which to compete - Where we compete? • Corporate level strategy 2) Attain a competitive advantage within an industry - How we compete? • Business level strategy

12. Two Models of Profitability I/O Model (Industrial/Organizational Economics Model) Resource Based Model

13. I/O ModelEnvironment Drives Strategy & Performance • Three Key Assumptions • Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability

14. I/O ModelEnvironment Drives Strategy & Performance

15. Resource Based ModelFirms’ Resources Drive Strategy & Performance • Three Key Assumptions • Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability

16. Resource Based ModelFirms’ Resources Drive Strategy & Performance

17. What is strategic effectiveness?

18. Strategic Vision vs. Mission • A strategic vision concerns “wherewe are going” or ”what do we want to be.” • Markets to be pursued • Future product/ market/customer/ technology focus • Kind of company management is trying to create • The mission statement focuses on its “who we are and what we do” • Current product and service offerings • Customer needs being served • Technologicaland businesscapabilities

19. Mission Statements • Boundaries of the currentbusiness • Fundamental purpose that sets it apart from other firms of its type • Conveys • Who we are, • What we do, and • Why we are here

20. Objectives • Turns mission into performance outcomes • Organizations produce what is measured • Long and Short term

21. $ Types of Objectives Required Strategic Objectives Financial Objectives Outcomes focusedon improving financial performance Outcomes focused on improving competitive vitality and future business position

22. 6 Characteristics of a Good Objective • U SMART • Understandable • Stretching • Measurable • Agreeable • Realistic • Timebound

23. Leading versus Lagging Indicators • Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later • However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead • Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance

24. Stakeholders • Individual or groups who • Affect mission/vision of the firm • Are affected by strategic outcomes of the firm • Have enforceable claims on the performance of the firm • Capital Market Stakeholders • Shareholders and capital suppliers • Product Market Stakeholders • Customers, suppliers, communities, unions • Organizational Stakeholders • Employees • Today’s firms must affectively balance the demands and expectations of all stakeholders.

25. Levels of Strategic Management

26. HP’s Corporate Strategy Enterprise Storage & Servers Financial Services HP Services Software Personal Systems Imagining and Printing