CHAPTER

What Is Strategy and

Why Is It Important?

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
 SARI WAHYUNI, M.Sc., Ph.D.
Pasca Sarjana Manajemen UI

S1 (UGM), M.Sc. & PhD. (Groningen University, The

Netherlands)
Associate Professor Nottingham University
Academic Coordinator LERD (Local Resource Development)
Programme

Founder the South East Asian Journal of Management

President Indonesia Strategic Management Society

Email: Sari.whyn@gmail.com
Part 1 Strategy Analysis

1-3
LO 1-1 Define competitive advantage, sustainable competitive
advantage, competitive disadvantage, and competitive parity.
LO 1-2 Define strategy and explain its role in a firm’s quest for
competitive advantage.
LO 1-3 Explain the role of firm effects and industry effects in determining
firm performance.
LO 1-4 Describe the role of corporate, business, and functional managers
in strategy formulation and implementation.
LO 1-5 Outline how business models put strategy into action.
LO 1-6 Describe and assess the opportunities and challenges managers
face in the 21st century.
LO 1-7 Critically evaluate the role that different stakeholders play in the
firm’s quest for competitive advantage.

1-4
WHAT STRATEGY IS: GAINING AND SUSTAINING
COMPETITIVE ADVANTAGE

• What Is Competitive Advantage?

 Superior performance relative to competitors
 Examples: Google, Duke Basketball, Pfizer’s Lipitor
• What Is Strategy?
 Goal-directed actions to gain and sustain competitive
advantage
 NOT a zero-sum game
 Win – win scenarios – co-opetition
 Requires trade-offs for strategic positioning
 Southwest Airlines vs. Delta Song

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 Defining Strategy (for organization)

 Strategy is the direction and scope of an

organisation over the long term, which
achieves advantage in a changing
environment through its configuration of
resources and competences with the aim
of fulfilling stakeholder expectations

Strategic Management 1 @
Sari Wahyuni
 Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
 Business(es) to be in and market positions to stake out
 Buyer needs and groups to serve
 Outcomes to achieve

3. How will we get there?

A company’s answer to “how
will we get there?” is its strategy

Strategic Management 1 @
Sari Wahyuni
 What Is Strategy?
 Consists of the combination of competitive moves and
business approaches used by managers to run the
company
 Management’s “game plan” to
 Attract and please customers
 Stake out a market position
 Compete successfully
 Grow the business
 Achieve targeted objectives

Strategic Management 1 @
Sari Wahyuni
 The Hows That
Define a Firm's Strategy
 How to please customers

 How to respond to changing

market conditions Strategy
is HOW
 How to outcompete rivals to . . .

 How to grow the business

 How to manage each functional piece of the business and

develop needed organizational capabilities

 How to achieve strategic and financial objectives

Strategic Management 1 @
Sari Wahyuni
LO 1-1 Define competitive advantage, sustainable competitive advantage,
competitive disadvantage, and competitive parity.
LO 1-2 Define strategy and explain its role in a firm’s quest for competitive
advantage.
LO 1-3 Explain the role of firm effects and industry effects in
determining firm performance.
LO 1-4 Describe the role of corporate, business, and functional
managers in strategy formulation and implementation.
LO 1-5 Outline how business models put strategy into action.
LO 1-6 Describe and assess the opportunities and challenges
managers face in the 21st century.
LO 1-7 Critically evaluate the role that different stakeholders play in the
firm’s quest for competitive advantage.

1-10
EXHIBIT 1.2 What Is Strategy?

Definition: Strategy is the quest to gain and sustain

competitive advantage.
• It is the managers’ theories about how to gain and
sustain competitive advantage.
• It is about being different from your rivals.
• It is about creating value while containing cost.
• It is about deciding what to do, and what not to do.
• It combines a set of activities to stake out a unique
position.
• It requires long-term commitments that are often not
easily reversible.

1-11
What Strategy Is NOT….
• Raking in every penny • Operational
the firm can get
 Profit is a
consequence of good
strategy, it is NOT the
main goal!
effectiveness
 Enterprise Resource
Planning (ERP)
 Benchmarking
 Six Sigma
 “Necessary but not
sufficient” such as
Lean Manufacture

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Strategy Across the Levels
• Where to Compete? • CORPORATE
 Should GE move more STRATEGY
aggressively into the
health care industry?
• How to Compete?
 Should GE jet engines
• BUSINESS
have better fuel efficiency STRATEGY
than Rolls Royce?
• How to Implement? • FUNCTIONAL
 Should GE human STRATEGY
resources recruit more
science graduates?

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EXHIBIT 1.3 Strategy Formulation and Implementation Across Levels:
Corporate, Business, and Functional Strategy

1-14
EXHIBIT 1.4 Competing Business Models: Google vs. Microsoft

Microsoft
Operating Software Online
Systems Apps Search
Google

1-15
Small Group Exercise
 Given the different business models of
Google & Microsoft
- Microsoft revenues in 2009 were $58.4 B
- (down 3% from ‘08)
- Google revenues in 2009 were $23.6 B
- (up 9% from ‘08)

• 1) Is Microsoft in trouble or is this sales downturn just a

result of the recession? Should they change any
strategies?
• 2) 97% of Google’s revenues is from advertising. Is this
a problem? Should they change any strategies?

1-16
STRATEGY IN THE 21ST CENTURY

• Accelerating Technological Change

 84 years for half of U.S. families to own a car

 28 years for half to own a TV

 6 years for an MP3 player

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EXHIBIT 1.5 Accelerating Speed of Technological Change

1-18
STRATEGY IN THE 21ST CENTURY

• Accelerating Technological Change

 Why are we seeing this increased rate of change?

 What are the strategic implications here?

1-19
STRATEGY IN THE 21ST CENTURY
• Future Industries

 HEALTH CARE

 In the U.S., over 16% of GDP and still growing

 GREEN ECONOMY

 Potentially large growth in energy efficiency and technologies

 WEB 2.0

 Interactivity and using collective intelligence on the Internet

1-20
STAKEHOLDERS

• Successful business generates societal value

• Stakeholders – are affected by firm’s actions

 Internal

 External

• Vary by industry
 Autos

 Investment banking

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EXHIBIT 1.8 Internal and External Stakeholders

1-22
THE AFI STRATEGY FRAMEWORK
• Analyze (A)
 Getting Started; External & Internal Analysis
 Chapters 1 thru 5

• Formulate (F)
 Business and Corporate Strategy
 Chapters 6 thru 10

• Implement (I)
 Organizational Design & Corporate Governance
 Chapters 11 thru 12
1-23
Exhibit 1.9 Part 1 Strategy Analysis

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TRANSIENT COMPETITIVE
ADVANTAGE
 •

© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 1–26

Take-Away Concepts
LO 1-1 Define competitive advantage, sustainable competitive advantage,
competitive disadvantage, and competitive parity.
 Competitive advantage is relative rather than absolute.
 To obtain a competitive advantage, a firm must either create more value
for customers while keeping its cost comparable to competitors, or it
must provide value equivalent to competitors but at a lower cost.
 A firm dominating competitors over time has sustained competitive
advantage.
 A firm that continuously underperforms its rivals or the industry average
has a competitive disadvantage.
 Two or more firms that perform at the same level have competitive
parity.
 Strategy is goal-directed actions in quest of competitive advantage.

1-27
Take-Away Concepts (cont’d)
LO 1-2 Define strategy and explain its role in a firm’s request for
competitive advantage.
 Strategy is the set of goal-directed actions a firm intends to take in
its quest to gain and sustain competitive advantage.
 An effective strategy requires that strategic trade-offs be recognized
and addressed—e.g., between value creation and the costs to
create the value.
 Managers’ strategic assumptions are an outflow of their theory of
how to compete. Successful strategy requires three integrative
management tasks—analysis, formulation, and implementation.
 When managers align their assumptions closely with competitive
realities, they can create and implement successful strategies,
resulting in value creation and superior firm performance.
 When managers’ theories about how to gain and sustain competitive
advantage do not reflect reality, their firm’s strategy will destroy
rather than create value, leading to inferior firm performance.

1-28
Take-Away Concepts (cont’d)
LO 1-3 Explain the role of firm effects and industry effects in determining
firm performance.
 A firm’s performance is more closely related to its managers’ actions
(firm effects) than to the external circumstances surrounding it
(industry effects).
 Firm and industry effects, however, are interdependent and thus both
relevant in determining firm performance.
LO 1-4 Describe the role of corporate, business, and functional managers
in strategy formulation and implementation.
 Corporate executives must provide answers to the question of where
to compete (in industries, markets, and geographies), and how to
create synergies among different business units.
 General (or business) managers must answer the strategic question
of how to compete in order to achieve superior performance. They
must manage and align all value chain activities for competitive
advantage.
 Functional managers are responsible for implementing business
strategy within a single value chain activity. 1-29
Take-Away Concepts (cont’d)
LO 1-5 Outline how business models put strategy into action.
 A business model must translate strategy into effectively implemented
tactics and initiatives that make money for the firm.
LO 1-6 Describe and assess the opportunities and challenges managers
face in the 21st century.
 Ever-faster technological changes in a global marketplace.
 Health care, green economy, & Web 2.0 are likely good growth
opportunities.

1-30
Take-Away Concepts (cont’d)
LO 1-7 Critically evaluate the role that different stakeholders play in the
firm’s quest for competitive advantage.
 Stakeholders are individuals or groups that have a claim or interest
in the performance and continued survival of the firm; they make
specific contributions for which they expect rewards in return.
 Internal stakeholders include stockholders, employees (including
executives, managers, and workers), and board members.
 External stakeholders include customers, suppliers, alliance
partners, creditors, unions, communities, and governments at
various levels.
 Some stakeholders are more powerful than others, and may extract
significant rewards from a firm, so much so that any firm-level
competitive advantage may be negated.

1-31