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CHAPTER 1: What Is Strategy and Why Is It Important? - Coggle Diagram
CHAPTER 1:
What Is Strategy and Why Is It Important?
LO1. - What we mean by a company's strategy
Strategy
Set of actions that its managers take to outperform the company’s competitors and achieve superior profitability over the long term.
Consider choices of:
How to attract and please.
How to compete.
How to position and capitalize.
How to respond.
How to manage.
How to achieve performance.
Competitive moves aim:
Appeal to buyers.
Stake out a not crowded market position
Is about competing differently from rivals, doing what competitors don’t do or, even better, doing what they can’t do!
LO2. - The concept of a
sustainable competitive advantage
Secures future profitability. A durable or sustainable advantage results when it proves buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm.
The goal: it should persiste despite the best efforts of competitors to match or surpass this advantage.
To secure sustainability, the company should identify the pattern of actions and approaches:
Actions to gain sales and market share.
Low prices
Enter to new geographic markets.
Capture emerging opportunities.
Strengthen market standing.
Strategic alliances
Manage key activities
Upgrade resources.
LO3. - The five most basic strategic approaches for setting a company apart from rivals and
winning a sustainable competitive advantage
Competitive Advantage:
Low-cost provider: A cost-based advantage over rivals. E.g.: Walmart
Differentiation: Offering buyers customized attributes that meet their specialized needs and tastes better than rivals’ products. E.g.: Lululemon
Niche: Narrow or Broad, offering low-costs or differentiation. E.g.: Starbucks
Best-cost provider: giving customers more value for the money by satisfying their expectations. E.g.: Toyota
Other strategies to consider:
Valuable expertise
Capabilities that rivals cannot match
LO4. - That a company’s strategy tends to evolve because of changing circumstances and
ongoing efforts by management to improve the strategy
Modifications occur due to:
Changing market conditions.
Advancing technology
Unexpected moves by competitors
Shifts in buyer needs.
New opportunities in the market.
New ideas
Changing circumstances and ongoing management efforts to improve the strategy cause a company’s strategy to evolve over time—a condition that makes the task of crafting strategy a work in progress, not a one-time event.
Deliberate Strategy:
Consists of proactive elements that are previously planned. They are new planned initiatives + ongoing strategy elements from past periods
A company’s strategy is shaped partly by management analysis and choice and partly by the necessity of adapting and learning by doing.
Emergent/Realized Strategy:
Consists of reactive strategy elements that emerge as changing conditions appear. These elements emerge as managers react adaptively to changing circumstances.
LO6. - The three tests of a winning strategy
Three tests can be applied to determine a winning strategy
The Fit Test:
How well does the strategy fit the company's situation? It must exhibit good external fit (market conditions), internal fit (management, operations, sales and marketing, etc.), and dynamic fit (strategies evolve over time)
The Competitive Advantage Test:
Is the strategy helping the company to achieve a sustainable competitive advantage?
It must enable to achieve competitive advantage that is long-lasting.
The Performance Test:
Is the strategy producing good company performance?
2 Indicators:
a) Competitive strength and market standing.
b) Profitability and financial strength.
LO5. - Why it is important for a company to have a viable business model that outlines the
company’s customer value proposition and its profit formula
Business Model
Sets forth the logic for how its strategy will create value for customers and at the same time, generate enough revenues to cover costs and yield an attractive profit.
Elements
Customer Value Proposition:
Lays out the company’s approach to satisfying buyer wants and needs at a price customers will consider a good value.
Profit Formula: describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition.
Value-Price-Cost Framework
Good Strategy + Good Strategy Execution =
Good Management
