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What Is Strategy?

What Is Strategy?. Distinguishing strategy from tactics: Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver. Characteristics of strategic decisions: Important. Involve a significant commitment of resources.

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What Is Strategy?

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  1. What Is Strategy? • Distinguishing strategy from tactics: • Strategy is the overall plan for deploying resources to establish a favorable position. • Tactic is a scheme for a specific maneuver. • Characteristics of strategic decisions: • Important. • Involve a significant commitment of resources. • Not easily reversible.

  2. Common Elements in Successful Strategy Successful Strategy EFFECTIVE IMPLEMENTATION Long-term, simple and agreed objectives Profound understanding of the competitive environment Objective appraisal of resources

  3. Sources of Superior Profitability INDUSTRY ATTRACTIVENESS CORPORATE STRATEGY Which industries should we be in? RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money? COMPETITIVE ADVANTAGE How should we compete? BUSINESS STRATEGY

  4. Resources As the Basis for Superior Profitability Patents Brands Retaliatory capability Barriers to Entry Industry Attractiveness Monopoly Market share Rate of Profit in Excess of the Competitive Level Firm size Financial resources Vertical Power Process technology Plant size Low-cost inputs Cost Advantage Competitive Advantage Brands Product technology Marketing capabilities Differentiation Advantage

  5. The Value Chain: The Mckinsey Business System TECHNOLOGY PRODUCT DESIGN MANUFACTURING MARKETING DISTRIBUTION SERVICE

  6. The Porter Value Chain SUPPORT ACTIVITIES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS & SALES PRIMARY ACTIVITIES

  7. The Rent-earning Potential of Resources and Capabilities Scarcity THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED Relevance Durability THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE Mobility Replicability Property rights Relative bargaining power APPROPRIABILITY Embeddedness of resources

  8. The Framework for Analyzing Resources and Capabilities STRATEGY 4. Select a strategy POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE 3. Appraise the rent-earning potential of resources/ capabilities 5. Identify resource gaps that need to be filled. 2. Identify capabilities CAPABILITIES 1. Identify the firm’s resources. Appraise strengths and weaknesses RESOURCES

  9. Exhibit 5:SWOT Analysis Numerous Environmental Opportunities Overcome Weakness Critical Internal Weaknesses Substantial Internal Strengths Grow Restructure Diversify Major Environmental Threats

  10. SWOT Analysis (Cont.) • Advantages of SWOT analysis • Easy to use. • Can be helpful framework for getting managers to think constructively about their firms’ external environments and internal strengths and weaknesses. • Drawbacks of SWOT analysis • Subjective. • Biased by managers’ perceptions of their firms’ strengths and weaknesses

  11. SWOT Analysis (Cont.) • For example, managers of strong firms will likely view environmental phenomena as opportunities, while their counterparts in weak companies will likely view them as threats. • The use of SWOT analysis is likely to yield few clear-cut recommendations.

  12. The Emergence of Competitive Advantage How does competitive advantage emerge? • External sources of • change e.g.: • Changing customer demand • Changing prices • Technological change Internal sources of change Some firms have greater creative and innovative capability Resource heterogeneity among firms means differential impact Some firms faster and more effective in exploiting change

  13. Sustaining Competitive Advantage Against Imitation REQUIREMENTS FOR IMITATIONISOLATING MECHANISMS Identification - Obscure superior performance - Deterrence--signal aggressive Incentives for imitation intentions to imitators - Pre-emption--exploit all available investment opportunities - Rely upon multiple sources of Diagnosis competitive advantage to create “causal ambiguity” - Base competitive advantage upon Resource acquisition resources and capabilities that are immobile and difficult to replicate

  14. Sources of Competitive Advantage COST ADVANTAGE Similar product at lower cost COMPETITIVE ADVANTAGE Price premium from unique product DIFFERENTIATION ADVANTAGE

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