Slide strategic core concept and analytical approach 5e by thomson chapter1

STRATEGY Core Core Concepts Concepts and and Analytical Analytical Approaches Approaches Arthur Arthur A A Thompson Thompson 5th 5th Edition Edition (2018-2019) (2018-2019) Strategy – Core Concepts and Analytic Approaches 5e The The University University of ofAlabama Alabama Authur A Thompson, The University of Alabama CHAPTER What Is Strategy and Why Is It Important? CHAPTER CHAPTER 11 What What Is Is Strategy Strategy and and Why Why Is Is ItIt Important? Important? An Ane-book e-bookpublished publishedand anddistributed distributed by byMcGraw McGrawHill HillEducation, Education,Burr BurrRidge, Ridge,Illinois Illinois Copyright Copyright©©2018 2018by byArthur ArthurA A.Thompson, Thompson,Glo-Bus Glo-BusSoftware, Software,Inc Inc All Allrights rightsreserved reserved.Not Notfor fordistribution distribution “Strategy means making clear-cut choices about how to compete.” Jack Welch Former CEO General Electric Copyright © 2018 by Glo-Bus Software, Inc 1–2 “Without a strategy the organization is like a ship without a rudder.” Joel Ross and Michael Kami Copyright © 2018 by Glo-Bus Software, Inc 1–3 “If your firm’s strategy can be applied to any other firm, you don’t have a very good one.” David J Collis and Michael G Rukstad Copyright © 2018 by Glo-Bus Software, Inc 1–4 Learning Objectives Understand the concept of “strategy,” how to identify a firm’s strategy, and the tight connection between its strategy and its quest for sustainable competitive advantage Learn why a firm’s strategy evolves over time and why its strategy is partly proactive and partly reactive Understand the “business model” concept, how a firm’s business model connects to its strategy, and why its business model is important Learn the three tests that distinguish a winning strategy from a weak or flawed strategy and why good strategy and good strategy execution are the most trustworthy signs of good management Copyright © 2018 by Glo-Bus Software, Inc 1–5 Chapter Chapter 11 Roadmap Roadmap  What Do We Mean by “Strategy”?  Strategy and the Quest for Competitive Advantage  Identifying a Firm’s Strategy  Why a Firm’s Strategy Evolves Over Time  A Firm’s Strategy Is Partly Proactive and Partly Reactive  Strategy and Ethics: Passing the Test of Moral Scrutiny  The Relationship of a Firm’s Strategy to Its Business Model  What Makes a Strategy a Winner  Why Crafting and Executing Strategy Are Important Tasks Copyright © 2018 by Glo-Bus Software, Inc 1–6 What What Do Do We We Mean Mean by by “Strategy” “Strategy” A company’s strategy is defined by the specific market positioning, competitive moves, and business approaches that form management’s answer to “What’s our plan for running the company and producing good results?” When company managers craft and embrace a strategy, they are committing to undertake one set of actions rather than another in endeavoring to make the company successful in the marketplace and achieve good business performance Copyright © 2018 by Glo-Bus Software, Inc 1–7 Core Core Concept Concept A firm’s strategy consists of the competitive moves and business approaches that managers employ to attract and please customers, compete successfully, capitalize on opportunities to grow the business, respond to changing market conditions, conduct operations, and achieve the targeted financial and market performance A strategy represents managerial commitment to undertake one set of actions rather than another Copyright © 2018 by Glo-Bus Software, Inc 1–8 Three Three Strategic Strategic Questions Questions All All Firms Firms Must Must Answer Answer • • • What is What direction to head and the firm’s present what performance targets to situation? set? Industry conditions Competitive pressures Market standing vis-à-vis rivals • • • • • New buyer needs to satisfy Growth opportunities to pursue Markets to deemphasize or abandon How to measure success How to run the firm in ways that produce good results? • • • • Strategy for competing successfully How to attract customers Deciding what market position to stake out Actions to achieve performance targets Competitive strengths and weaknesses Copyright © 2018 by Glo-Bus Software, Inc 1–9 The The Hows Hows That That Define Define aa Firm’s Firm’s Strategy Strategy How to respond to changing economic How to attract, please, and retain customers and market conditions A coherent combination How to compete of actions and How to manage the functional pieces against rivals approaches about how to of the business run the company How to capitalize on growth opportunities Copyright © 2018 by Glo-Bus Software, Inc How to achieve the firm’s performance targets 1–10 Testing Testing aa Firm’s Firm’s Profit Profit Proposition Proposition  Can the firm can create and deliver the intended customer value in a cost-efficient manner?  Can a profitable price be charged for the value it provides to customers? ► Revenues generated are a function of the volume of customers attracted at the price being charged ► The costs of the firm’s business model approach depend on the resources and business processes utilized and the cost efficiency of its operating systems ► Lower costs in relation to revenues increase the profit potential and the attractiveness of the firm’s profit proposition Copyright © 2018 by Glo-Bus Software, Inc 1–31 Proven Proven vs vs Unproven Unproven Business Business Models Models  Companies that have been in business for a while and are making at least reasonably attractive profits have a “proven” business model—because there is hard revenue-cost evidence that their strategies and approaches to operating can yield good profits  Start-up firms and unprofitable firms have “questionable” or “unproven” business models because their strategies and operating approaches have yet to produce good bottom-line results, thus raising doubts about their blueprint for making money and their viability as business enterprises  Companies that operate in uncertain, volatile market environments often have business models that quickly lose their effectiveness; for such companies to survive, they have to be adept at spotting the signs of impending crisis early and then swiftly reinvent their business model and strategy Copyright © 2018 by Glo-Bus Software, Inc 1–32 The Business Model of Network TV and Radio Broadcasters  The Customer Value Proposition ► Provide audiences with free and appealing programming content  The Profit Proposition ► Charge advertising fees to program sponsors based on an audience size that exceed the full costs of providing program content Copyright © 2018 by Glo-Bus Software, Inc 1–33 Gillette’s Gillette’s Business Business Model Model in in Razor Razor Blades Blades  The Customer Value Proposition ► To provide a close comfortable shave using a razor (a one-time purchase) and razor blades (repeat purchases)  The Profit Proposition ► To sell a “master product”—the razor—at an attractively low price and then make money on repeat purchases of inexpensively-produced razor blades priced to yield high profit margins ► Printer manufacturers pursue much the same business model—selling printers at low-tobreakeven prices to capture large profit margins on repeat purchases of printer supplies and, especially, ink cartridges Copyright © 2018 by Glo-Bus Software, Inc 1–34 The Business Model of Newspapers and Magazines  The Customer Value Proposition ► Delivering valuable or interesting information and entertainment to a diversity readers  The Profit Proposition ► Securing sufficient revenues from advertising fees and reader subscriptions to more than cover the costs of producing and delivering their products to readers Is this business model in danger of becoming obsolete and failing? Copyright © 2018 by Glo-Bus Software, Inc 1–35 What What Makes Makes aa Strategy Strategy aa Winner? Winner?  Testing a strategy’s merits versus another to distinguish a winning strategy from a flawed or weak strategy requires asking: How well does the strategy fit the company’s situation? Is the strategy helping the company achieve a sustainable competitive advantage? Is the strategy producing good company performance? Copyright © 2018 by Glo-Bus Software, Inc 1–36 The The Three Three Tests Tests of of aa Winning Winning Strategy Strategy The Goodness The Competitive Advantage Test The Performance Is the strategy helping the Test Is the strategy company achieve a sustainable Is the strategy producing well-matched to competitive advantage? good company performance? of Fit Test the company’s internal and external situation? To qualify as a winning strategy, a strategy must pass all three tests Copyright © 2018 by Glo-Bus Software, Inc 1–37 Core Core Concept Concept A winning strategy must be well-suited to the firm’s external and internal situation, help build a sustainable competitive advantage, and improve company performance Copyright © 2018 by Glo-Bus Software, Inc 1–38 Why Crafting and Executing Strategy Are Important Tasks  There is a compelling need for managers to proactively shape how the company’s business will be conducted ► A clear and reasoned strategy is management’s prescription for doing business, its road map to competitive advantage, and its game plan for pleasing customers and improving financial performance ► High-performing enterprises are nearly always the product of astute, creative, and proactive strategy-making Companies don’t get to the top of the industry rankings or stay there with flawed strategies, copycat strategies, or with strategies built around timid actions to try and better  Even the best-conceived strategies will result in performance shortfalls if they are not executed proficiently Good dayin/day-out strategy execution and operating excellence are essential for a company to perform close to its full potential ► Flawed and/or inept implementation and execution of a company’s strategy are a surefire recipe for underachievement, both financially and in competing against rivals Copyright © 2018 by Glo-Bus Software, Inc 1–39 Good Strategy + Good Strategy Execution = Good Management  The better conceived and more competently a firm’s strategy is executed, the more likely that the firm will be a standout performer financially in the marketplace  In contrast, a company that has a muddled or flawed strategy and/or can’t seem to execute its strategy competently is most likely an underperformer and in need of better management ► Weak implementation and execution undermine a strategy’s potential and pave the way for shortfalls in customer satisfaction and company performance Copyright © 2018 by Glo-Bus Software, Inc 1–40 Core Core Concept Concept How well a firm performs and the degree of market success it achieves are directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed Good strategy and good strategy execution are the most telling and trustworthy signs of good management Copyright © 2018 by Glo-Bus Software, Inc 1–41 The The Road Road Ahead Ahead  Every business student and aspiring manager needs to know the answer to the following question: ► What must managers do, and well, to give a firm its best chance to be attractively profitable and successful in the marketplace? ► The answer will become the biggest lesson of this course—doing a good job of managing requires good strategic thinking, good strategy-making, and good strategy execution Welcome and best wishes for your success! Copyright © 2018 by Glo-Bus Software, Inc 1–42 The The Road Road Ahead Ahead (continued) (continued)  The coming chapters explore strategic thinking, core concepts and tools of strategic analysis, and processes of crafting and executing strategy  In the strategy simulation exercise you will manage a firm in competition with firms managed by classmates, and have an excellent learn-by-doing opportunity to: ► Apply what you have read about in the chapters ► Gain experience in crafting and executing strategy and being held accountable for how well your firm performs Copyright © 2018 by Glo-Bus Software, Inc 1–43 What What You You Can Can Expect Expect to to Learn Learn  Lesson 1: ► First-rate capabilities in successfully crafting and executing strategy are basic skills every manager must possess  Lesson 2: ► Managers don’t deserve applause for coming up with a weak strategy that results in weak (or worse) financial performance and a weak (or worse) industry standing Copyright © 2018 by Glo-Bus Software, Inc 1–44 “Commerce is a game of skill which many people play, but which few play well.” Ralph Waldo Emerson, poet and essayist If the understanding you gain from the chapters, the experience of running your simulation company, and other course-related assignments help you to become a savvy competitor and better equip you to succeed in business, then your time and energy spent in this course will prove worthwhile Copyright © 2018 by Glo-Bus Software, Inc 1–45 ... marketplace and achieve good business performance Copyright © 2018 by Glo-Bus Software, Inc 1–7 Core Core Concept Concept A firm’s strategy consists of the competitive moves and business approaches... demonstrate the firm can be profitable approaches and viable 1–28 Core Core Concept Concept A firm’s business model sets forth how its strategy and operating approaches will create value for customers... actions and behaviors that are deceitful, unfair or harmful to others, disreputable, or unreasonably damaging to the environment Copyright © 2018 by Glo-Bus Software, Inc 1–25 Core Core Concept Concept