Northern Arizona University
College of Business Administration
MGT 490C -- Strategic Management
Chapter 1—What Is Strategy and Why Is It Important?
· Three central questions:
o What is the company’s current situation? [Environment, company situation]
o Where does it go from there? [Vision, goals, objectives]
o How should it get there? [Strategy, tactics]
· Strategy—management’s action plan for running the business and conducting operations … a commitment to a set of actions
o Lower costs, product superiority, customer service, competencies & capabilities
o High end, middle, low end
o Wide variety, narrow lineup
o One part of value chain, integration
o Local, regional, national, international, global
o One industry, multiple industries
o Related or unrelated industries
o Acquisition, joint venture, strategic alliance, internal start-up
· Competition—NOT!
o Strategy should differ from the choices made by competitors
o Better chance of succeeding when:
§ Sets company apart from rivals in mind of consumer
§ Carves out its own market position
o Comcast example p. 5
· Sustainable competitive advantage—a lasting preference
o Four most common and dependable strategies [generic strategies]
§ Low-cost provider—Wal-Mart, SW Airlines
§ Differentiation (quality, selection, performance, service, styling, technology, value)
· Johnson & Johnson—product reliability
· Harley-Davidson—styling
· Chanel and Rolex—top-of-the-line prestige
· Mercedes-Benz and BMW—engineering design & performance
· L.L. Bean—value
· Amazon.com—selection & convenience
· Sufficiently innovative to thwart clever rivals
§ Market niche (special needs and tastes)—eBay, Jiffy Lube, Starbucks, Weather Channel
§ Expertise and resource strengths (unrivaled competitive capabilities)—FedEx, Walt Disney, IBM, Ritz-Carlton and Four Seasons
· Identifying a company’s strategy—final exam!
o Researching information about the company’s actions in the marketplace and statements of senior managers
§ Annual report and 10-K reports
§ Press releases, company news
§ Company websites, business news
· Strategy is a work in progress
o Incremental (ongoing efforts to improve, fine-tune)
o Major shifts (crisis, breakthrough)
o Velocity of change in the industry, e.g., technology
· Nature of change
o Proactive—new initiatives
o Reactive—changing circumstances
· Ethics—right vs. wrong
o Not always clear
o Beyond what’s legal/illegal
o “Should” vs. “should not”
§ Ads to underage viewers
§ Substandard wages, child labor, unsafe working conditions
§ Paying coaches to use products
§ Differential pricing for drugs
§ Damage to the environment [global warming]
o Sr. executives set the example, walk-the-talk
§ Forbid questionable business opportunities
§ Insist on high ethical standards
§ [Teach ethical behavior and decision-making]
o Clearly long-range risks
§ Customers go elsewhere
§ Suppliers tread carefully
§ Employees do not want to work there
§ Legal issues
· Business model
o Strategy—broad competitive initiatives and action plan
o Business model—how and why the company will generate revenues to cover costs and produce profit and return on investment
· What makes a strategy a winner?
o How well does the strategy fit the company’s situation?
§ Industry and competitive conditions
§ Market opportunities
§ Resources
§ Competencies
§ Capabilities
o Is the strategy helping the company achieve a sustainable competitive advantage?
o Is the strategy resulting in better company performance?
o Does the strategy build internal consistency and unity among the pieces of the strategy? [synergy]
o What is the degree of risk compared to alternative strategies?
o How flexible and adaptable is the strategy to changing circumstances?
· Crafting and executing strategy are top-priority managerial tasks
o Roadmap to competitive advantage … sets the company apart
o Delivers higher profitability and return on investment
o Requires a total team effort and good execution
§ “More often than not, the difference between their level of success and ours lies in the relative thoroughness and self-discipline with which we and they develop and execute our strategies for the future” (p. 15).
o The foremost question: What must managers do, and do well, to make a company a winner in the marketplace?
o Ralph Waldo Emerson: Commerce is a game of skill which many people play, but which few play well.
NEXT: Reading 1 and simulation practice decisions