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Chapter 1: What Is Strategy

and Why Is It Important?

McGrawHill/Irwin

Copyright2010byTheMcGrawHillCompanies,Inc.Allrightsreserved.

Learning Outcomes
Able to learn about the key characteristics of

strategy
Distinguish between an effective and
ineffective straetgy

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Without a strategy the


organization is like a ship
without a rudder.
Joel Ross and Michael Kami

The Three Questions for Evaluating A


Companys Business Prospects
1. Whats the companys present situation?
2. Where does the company need to go from
here?
3. How should it get there?
A companys answer to how
will we get there? is its strategy

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What Do We Mean By Strategy?


Consists of competitive moves and

business approaches used by managers to


run the company
Managements action plan to
Grow the business
Attract and please customers
Compete successfully
Conduct operations
Achieve the targeted levels of
organizational performance
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The Hows That Define a Firm's Strategy


How to grow the business
How to please customers
How to outcompete rivals
How to manage each functional

piece of the business (R&D, production,


marketing, HR, finance, and so on)
How to respond to changing market

conditions
How to achieve targeted levels of

performance
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Identifying a Companys Strategy

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Choosing the Hows of Strategy


Strategy is about making choices what a

company should do and what it should not


do
Strategic choices about how are based on
Trial-and-error organizational learning about
what has worked and what has not worked
Managements appetite for taking risks
Managerial analysis and strategic thinking about
how best to proceed, given market conditions
and a companys circumstances
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Strategy means making


clear-cut choices about
how to compete.

Jack Welch
Former CEO, General Electric

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Strategy is the way to create competitive


advantage
Companies need to compete for
Market opportunities
Resources
A company achieves sustainable competitive

advantage when
An attractive number of buyers prefer its
products/services over those of rivals and
The basis for this preference is durable

Strategy is about the creation of a unique and

valuable position, involving a different set of


activities
http://www.youtube.com/watch?v=DViVtgD0xwE
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Strategic Approaches to Building


Sustainable Competitive Advantage
Be the industrys low-cost provider

Achieve a cost-based competitive advantage


Incorporate differentiating features

Superior product/service keyed to higher quality,


better performance, wider selection, value-added
services, or some other attribute
Focus on a narrow market niche

Win a competitive edge by doing a


better job than rivals of serving the
needs and preferences of buyers in the niche
Develop expertise and resource strengths

not easily imitated or matched by rivals


Achieve a capabilities-based competitive advantage
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Strategies Evolve
A companys strategy is a work in progress
Changes may be necessary to react to
Financial crisis
Fresh moves of competitors
Evolving customer preferences
Technological breakthroughs
Emerging market opportunities
Changing political or economic climate
New ideas to improve strategy
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A Companys Strategy Is a Blend of


Proactive Initiatives and Reactive Adjustments

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Linking Strategy With Ethics


What is the right thing to do?
Two criteria of an ethical strategy
Does not entail actions and behaviors that cross the line
from should do to should not do (because such
actions are unsavory, shady, unconscionable, injurious
to others, or harmful to the environment)
Allows management to fulfill its ethical duties to all
stakeholders

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Relationship Between
Strategy and Business Model
Strategy . . .

Business Model . . .

Deals with a companys


competitive initiatives and
business approaches

Concerns whether revenues


and costs flowing from the
strategy demonstrate a
business can be profitable
and viable

ra
St

gy
e
t

s
es
n
si el
Bu od
M

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Tests of a Winning Strategy


GOODNESS OF FIT TEST
How well does the strategy fit
the companys external and
internal situation?
COMPETITIVE ADVANTAGE TEST
Is the strategy helping the company achieve a
sustainable competitive advantage?
PERFORMANCE TEST
Is the strategy resulting in better company
performance?
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Testing an organizations strategy


Will your strategy beat the market?
Does your strategy tap a true source of

advantage?
Does your strategy put you ahead of trends?
Does your strategy embrace uncertainty?
Does your strategy balance commitment
and flexibility?
Is there conviction to act on your strategy?

Source: Bradley et al, (2011), McKinsey Quarterly, January pp 1-14

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One must have strategies to


execute dreams.

Azim Premji, CEO Wipro Technologies

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https://www.youtube.com/w
atch?v=gDdq2rIqAlM

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