What is Strategy and Why is it Important Chapter One 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 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 Competitive Advantage When a firm implements a strategy that rivals can t duplicate or find it too expensive to do try to imitate Today s Competitive Landscape New Managerial Mindset Global Economy Technology Change Diffusion Information Technology Knowledge Intensity Hypercompetition Strategic Flexibility Intelligence Management Global Perspective Speed Innovation Integration What is Strategy Strategy is not doing similar activities better 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 What is Strategy 1 Strategy is performing different activities or performing similar activities in a different way What is Strategy 1 Strategy is performing different activities or performing similar activities in a different 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 What is Strategy 2 Strategy is about choosing a position which requires tradeoffs choosing what not to do without tradeoffs all firms would imitate vs vs vs vs Time Magazine So why haven t American United US Airways and the three other full service carriers which lost 11 billion last year and stand to lose an additional 5 billion this year followed the lead of the profitable discounters by cutting costs and fares Because that s not the way their business works They have made and lost their money by providing the frequent departures quick connections spacious seats and other amenities that have been demanded by business flyers and charging them dearly for that service more than five times the cost of a discount fare HARD TO STRADDLE AND REPOSITION What is Strategy 2 Strategy is about choosing a position which requires tradeoffs choosing what not to 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 What is Strategy 3 Strategy is about combining activities as advantages come from fit and reinforcing Secondary Airports No meals No seats Short hauls No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares Secondary Airports No meals No seats Short hauls No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares Secondary Airports No meals No seats Short hauls No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares Secondary Airports No meals No seats Short hauls No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares Secondary Airports No meals No seats Short hauls No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares Secondary Airports No meals No seats Short hauls No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares Secondary Airports No meals Short hauls No seats No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares How can Delta copy that What about Jet Blue What is Strategy 3 Strategy is about combining activities as advantages come from fit and reinforcing Operational effectiveness is about excellence in individual activities Fit integration increases sustainability by reducing imitability What is Strategy 4 The desire to grow is most threatening to an effective strategy What is Strategy 4 The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages 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 Two Models of Profitability I O Model Industrial Organizational Economics Model Resource Based Model I O Model Environment Drives Strategy Performance Three Key Assumptions Firm s environment imposes pressures constraints upon the firm Firms possess similar resources Resources are mobile across firms Therefore firms must find an attractive industry or segment within the industry to gain above average profitability I O Model Environment Drives Strategy Performance 27 Resource Based Model Firms Resources Drive Strategy Performance Three Key Assumptions Firms resources and capabilities are critical to strategic action Firms possess unique resources Resources are not mobile across firms Therefore firms must find an attractive industry or segment within the industry to gain above average profitability Resource Based Model Firms Resources Drive Strategy Performance What is strategic effectiveness Consistent long term goals and objectives What is strategic effectiveness Consistent long term goals and objectives Reflects and understanding of the environment What is strategic effectiveness Consistent long term goals and objectives Takes resources into consideration Reflects and understanding of the environment What is strategic effectiveness Consistent long term goals and objectives Reflects and understanding of the environment Strategic Effectiveness fit Takes resources into consideration Effectively implemented Strategic Vision vs Mission A strategic vision concerns where we 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