Chapter 1 Strategy, Business Models, and Competitive Advantage

CORE CONCEPT A companys strategy explains why the company

matters in the marketplace by specifying an approach to creating superior
value for customers and determining how capabilities and resources will
be utilized to deliver the desired value to customers.
A companys business model sets forth how its strategy and operating
approaches will create value for customers, while at the same time
generate ample revenues to cover costs and realize a profit. The two
elements of a companys business model are its (1) customer value
proposition and (2) its profit formula.
A company achieves sustainable competitive advantage when an
attractively large number of buyers develop a durable preference for its
products or services over the offerings of competitors, despite the efforts
of competitors to overcome or erode its advantage.
A companys realized strategy is a combination of deliberate planned
elements and unplanned, emergent elements. Some components of a
companys deliberate strategy will fail in the marketplace and become
abandoned strategy elements.
A winning strategy must fit the companys external and internal
situation, build sustainable competitive advantage, and improve company
performance.
Chapter 2 Charting a Companys Direction: Vision and Mission,
Objectives, and Strategy
A strategic vision describes where we are goingthe course and
direction management has charted and the companys future
productcustomer-market-technology focus.
A well-conceived mission statement conveys a companys purpose in
language specific enough to give the company its own identity.
A companys values are the beliefs, traits, and behavioral norms that
company personnel are expected to display in conducting the companys
business and pursuing its strategic vision and mission.
Financial objectives relate to the financial performance targets
management has established for the organization to achieve.
Strategic objectives relate to target outcomes that indicate a company
is strengthening its market standing, competitive vitality, and future
business prospects.
Objectives are an organizations performance targetsthe results
management wants to achieve.
The balanced scorecard is a widely used method for combining the use
of both strategic and financial objectives, tracking their achievement, and
giving management a more complete and balanced view of how well an
organization is performing.
Chapter 3 Evaluating a Companys External Environment
The macro-environment encompasses the broad environmental context
in which a company is situated and is comprised of six principal
components: political factors, economic conditions, sociocultural forces,
technological factors, environmental factors, and legal/regulatory
conditions.
PESTEL analysis can be used to assess the strategic relevance of the six
principal components of the macro-environment: political, economic,
social, technological, environmental, and legal forces.
Driving forces are the major underlying causes of change in industry and
competitive conditions.
Strategic group mapping is a technique for displaying the different
market or competitive positions that rival firms occupy in the industry.
A strategic group is a cluster of industry rivals that have similar
competitive approaches and market positions.
Key success factors are the strategy elements, product attributes,
competitive capabilities, or intangible assets with the greatest impact on
future success in the marketplace.
Chapter 4 Evaluating a Companys Resources, Capabilities, and
Competitiveness
A resource is a competitive asset that is owned or controlled by a
company; a capability is the capacity of a company to competently
perform some internal activity. Capabilities are developed and enabled
through the deployment of a companys resources.
Resource and capability analysis is a powerful tool for sizing up a
companys competitive assets and determining if the assets can support a
sustainable competitive advantage over market rivals.
The VRIN tests for sustainable competitive advantage ask if a resource or
capability is valuable, rare, inimitable, and nonsubstitutable.
A core competence is a proficiently performed internal activity that is
central to a companys strategy and competitiveness. A core competence
that is performed with a very high level of proficiency is referred to as a
distinctive competence.
Companies that lack a stand-alone resource that is competitively powerful
may nonetheless develop a competitive advantage through resource
bundles that enable the superior performance of important cross-
functional capabilities.
A dynamic capability is the ability to modify, deepen, or reconfigure the
companys existing resources and capabilities in response to its changing
environment or market opportunities.
A company requires a dynamically evolving portfolio of resources and
capabilities in order to sustain its competitiveness and position itself to
pursue future market opportunities.
SWOT analysis is a simple but powerful tool for sizing up a companys
internal strengths and competitive deficiencies, its market opportunities,
and the external threats to its future well-being.
Basing a companys strategy on its strengths resulting from most
competitively valuable resources and capabilities gives the company its
best chance for market success.
Competitive advantage hinges on how cost effectively a company can
execute its customer value proposition.
A companys value chain identifies the primary activities that create
customer value and related support activities.
Benchmarking is a potent tool for learning which companies are best at
performing particular activities and then using their techniques (or best
practices) to improve the cost and effectiveness of a companys own
internal activities.
Chapter 5 The Five Generic Competitive Strategies
A competitive strategy concerns the specifics of managements game
plan for competing successfully and securing a competitive advantage
over rivals in the marketplace.
A low-cost leader s basis for competitive advantage is lower overall
costs than competitors. Success in achieving a low-cost edge over rivals
comes from eliminating and/or curbing nonessential activities and/or
outmanaging rivals in performing essential activities.
A cost driver is a factor having a strong effect on the cost of a companys
value chain activities and cost structure.
The essence of a broad differentiation strategy is to offer unique
product or service attributes that a wide range of buyers find appealing
and worth paying for.
A uniqueness driver is a value chain activity or factor that can have a
strong effect on customer value and creating differentiation.
Best-cost provider strategies are a hybrid of low-cost provider and
differentiation strategies that aim at satisfying buyer expectations on key
quality/ features/performance/service attributes and beating customer
expectations on price.
Chapter 6 Strengthening a Companys Competitive Position:
Strategic Moves, Timing, and Scope of Operations
The best offensives use a companys most competitively potent resources
to attack rivals in those competitive areas where they are weakest.
Blue ocean strategies offer growth in revenues and profits by
discovering or inventing new industry segments that create altogether
new demand.
Because of first-mover advantages and disadvantages, competitive
advantage can spring from when a move is made as well as from what
move is made.
The scope of the firm refers to the range of activities the firm performs
internally, the breadth of its product and service offerings, the extent of its
geographic market presence, and its mix of businesses.
Horizontal scope is the range of product and service segments that a
firm serves within its focal market.
Vertical scope is the extent to which a firms internal activities
encompass one, some, many, or all of the activities that make up an
industrys entire value chain system, ranging from raw-material
production to final sales and service activities.
Combining the operations of two companies, via merger or acquisition, is
an attractive strategic option for achieving operating economies,
strengthening the resulting companys competencies and
competitiveness, and opening avenues of new market opportunity.
A vertically integrated firm is one that performs value chain activities
along more than one stage of an industrys overall value chain.
Backward integration involves performing industry value chain
activities previously performed by suppliers or other enterprises engaged
in earlier stages of the industry value chain;
forward integration involves performing industry value chain activities
closer to the end user.
Outsourcing involves contracting out certain value chain activities to
outside specialists and strategic allies.
A company should guard against outsourcing activities that hollow out the
resources and capabilities that it needs to be a master of its own destiny.
A strategic alliance is a formal agreement between two or more
companies to work cooperatively toward some common objective.
A joint venture is a type of strategic alliance that involves the
establishment of an independent corporate entity that is jointly owned
and controlled by the two partners.
Chapter 7 Strategies for Competing in International Markets
Political risks stem from instability or weakness in national governments
and hostility to foreign business; economic risks stem from the stability
of a countrys monetary system, economic and regulatory policies, and
the lack of property rights protections.
A companys international strategy is its strategy for competing in two
or more countries simultaneously.
A multidomestic strategy calls for varying a companys product offering
and competitive approach from country to country in an effort to be
responsive to significant cross-country differences in customer
preferences, buyer purchasing habits, distribution channels, or marketing
methods. Think local, act local strategy-making approaches are also
essential when host-government regulations or trade policies preclude a
uniform, coordinated worldwide market approach.
Global strategies employ the same basic competitive approach in all
countries where a company operates and are best suited to industries that
are globally standardized in terms of customer preferences, buyer
purchasing habits, distribution channels, or marketing methods. This is the
think global, act global strategic theme.
A transnational strategy is a think global, act local approach to
strategy making that involves employing essentially the same strategic
theme (low-cost, differentiation, focused, bestcost) in all country markets,
while allowing some country-to-country customization to fit local market
conditions.
Chapter 8 Corporate Strategy: Diversification and the
Multibusiness Company
Related businesses possess competitively valuable cross-business value
chain and resource matchups; unrelated businesses have dissimilar
value chains and resources requirements, with no competitively important
cross-business value chain relationships.
Strategic fit exists when value chains of different businesses present
opportunities for cross- business skills transfer, cost sharing, or brand
sharing.
Economies of scope are cost reductions stemming from strategic fit
along the value chains of related businesses (thereby, a larger scope of
operations), whereas economies of scale accrue from a larger operation.
A diversified company exhibits resource fit when its businesses add to a
companys overall mix of resources and capabilities and when the parent
company has sufficient resources to support its entire group of businesses
without spreading itself too thin.
A strong internal capital market allows a diversified company to add
value by shifting capital from business units generating free cash flow to
those needing additional capital to expand and realize their growth
potential.
A cash hog generates operating cash flows that are too small to fully
fund its operations and growth; a cash hog must receive cash infusions
from outside sources to cover its working capital and investment
requirements.
A cash cow generates operating cash flows over and above its internal
requirements, thereby providing financial resources that may be used to
invest in cash hogs, finance new acquisitions, fund share buyback
programs, or pay dividends.
Resource fit extends beyond financial resources to include a good fit
between the companys resources and core competencies and the key
success factors of each industry it has diversified into.
Corporate restructuring involves radically altering the business lineup
by divesting businesses that lack strategic fit or are poor performers and
acquiring new businesses that offer better promise for enhancing
shareholder value.
Chapter 9 Ethics, Corporate Social Responsibility, Environmental
Sustainability, and Strategy
Business ethics involves the application of general ethical principles to
the actions and decisions of businesses and the conduct of their
personnel.
According to the school of ethical universalism, the same standards of
whats ethical and whats unethical resonate with peoples of most
societies regardless of local traditions and cultural norms; hence, common
ethical standards can be used to judge employee conduct in a variety of
country markets and cultural circumstances.
According to the school of ethical relativism, different societal cultures
and customs create divergent standards of right and wrongthus, what is
ethical or unethical must be judged in the light of local customs and social
mores and can vary from one culture or nation to another.
According to integrative social contracts theory, universal ethical
principles based on collective views of multiple cultures combine to form a
social contract that all employees in all country markets have a duty to
observe. Within the boundaries of this social contract, there is room for
host-country cultures to exert some influence in setting their own moral
and ethical standards. However, first-order universal ethical norms
always take precedence over second-order local ethical norms in
circumstances where local ethical norms are more permissive.
Corporate social responsibility (CSR) refers to a companys duty to
operate in an honorable manner, provide good working conditions for
employees, encourage workforce diversity, be a good steward of the
environment, and actively work to better the quality of life in the local
communities where it operates and in society at large.
A companys corporate social responsibility strategy is defined by
the specific combination of socially beneficial activities it opts to support
with its contributions of time, money, and other resources.
Sustainable business practices are those that meet the needs of the
present without compromising the ability to meet the needs of the future.
Environmental sustainability involves deliberate actions to protect the
environment, provide for the longevity of natural resources, maintain
ecological support systems for future generations, and guard against the
ultimate endangerment of the planet.
Chapter 10 Superior Strategy ExecutionAnother Path to
Competitive Advantage
Good strategy execution requires a team effort. All managers have
strategy execution responsibility in their areas of authority, and all
employees are active participants in the strategy execution.
A network structure is the arrangement linking a number of
independent organizations involved in some common undertaking.
Corporate culture is a companys internal work climate and is shaped by
its core values, beliefs, and business principles. A companys culture is
important because it influences its traditions, work practices, and style of
operating.