Strategic Management

Chapter 1: What is Strategy and Why Is It

Important?
Meherun Nahar (s111286)
QUESTIONS
1. What do we mean by Strategy? Explain four of the most
frequently used and dependable approach to set a company apart
from rivals and winning a sustainable competitive advantages
2. Why a companys strategy evolves over time. !escribe the
concept of " #$ company is partly proactive and partly reactive%.
&. Why are crafting and executing strategies important?
'. Explain the relationship between a companys strategy and its
business model
(. #Ethical and )oral standards are not governed by what is legal*
rather they involves issues of right versus wrong and of duty%+
what one should do?
1. What do we mean by Strategy? Explain four of the most frequently used
and dependable approah to set a ompany apart from ri!als and winning a
sustainable ompetiti!e ad!antages
Answer:
A companys strategy is managements action plan for running the usiness an! con!ucting
operations" #he crafting of a strategy represents a managerial commitment to pursue a particular
set of actions in growing the usiness$ attracting an! pleasing customers$ competing successfully$
con!ucting operations$ an! impro%ing the companys financial an! mar&et performance" #hus$ a
companys strategy is all aout how:
' (ow management inten!s to grow the usiness"
' (ow it will uil! a loyal clientele an! out compete ri%als"
' (ow each functional piece of the usiness (research an! !e%elopment$ supply chain acti%ities$
pro!uction$ sales an! mar&eting$ !istriution$ finance$ an! human resources) will e operate!
' (ow performance will e ooste!"
)n choosing a strategy$ management is in effect saying$ *Among all the many !ifferent ways of
competing we coul! ha%e chosen$ we ha%e !eci!e! to employ this comination of competiti%e
an! operating approaches to mo%e the company in the inten!e! !irection$ strengthen its mar&et
position an! competiti%eness$ an! oost performance"+ #he strategic choices a company ma&es
are sel!om easy !ecisions$ an! some of them may turn out to e wrong,ut that is not an
e-cuse for not !eci!ing on a concrete course of action"
)n most in!ustries companies ha%e consi!erale free!om in choosing the howls of strategy"
)ts nice when a companys strategy pro!uces at least a temporary competiti%e e!ge$ ut a
sustainale competiti%e a!%antage is plainly much etter" .hat ma&e a competiti%e a!%antage
sustainale as oppose! to temporary are actions an! elements in the strategy that cause an
attracti%e numer of uyers to ha%e a lasting preference for a companys pro!ucts or ser%ices"
/ompetiti%e a!%antage is the &ey to ao%e0a%erage profitaility an! financial performance
ecause strong uyer preferences for the companys pro!uct offering translate into higher sales
%olumes (.al0Mart) an!1or the aility to comman! a higher price (Merce!es02en3)$ thus !ri%ing
up earnings$ return on in%estment$ an! other measures of financial performance"
4our of the most fre5uently use! an! !epen!ale strategic approaches to setting a company apart
from ri%als$ uil!ing strong customer loyalty$ an! winning a sustainale competiti%e a!%antage
are:
1" Stri%ing to e the in!ustrys low0cost pro%i!er" .al0Mart an! Southwest Airlines ha%e
earne! strong mar&et positions ecause of the low0cost a!%antages they ha%e achie%e!
o%er their ri%als an! their conse5uent aility to un!er price competitors" Achie%ing a cost0
ase! a!%antage o%er ri%als can pro!uce a !urale competiti%e e!ge when ri%als fin! it
har! to match the low0cost lea!ers approach to !ri%ing costs out of the usiness"
a" /rafting a strategy to achie%e the !esire! outcomes"
" /rafting a strategy to stri%e to e the in!ustrys low0cost pro%i!er"
2" /reating a !ifferentiation0ase! a!%antage &eye! to such features as higher 5uality$ wi!er
pro!uct selection$ a!!e! performance$ %alue0a!!e! ser%ices$ more attracti%e styling$
technological superiority$ or unusually goo! %alue for the money" Successful a!opters of
!ifferentiation strategies inclu!e 6ohnson on strategies can e powerful so long as a
company is sufficiently inno%ati%e to thwart cle%er ri%als in fin!ing ways to copy or
closely imitate the features of a successful !ifferentiators pro!uct offering"
7" 4ocusing on ser%ing the special nee!s an! tastes of uyers comprising a narrow mar&et
niche" 8rominent companies that en9oy competiti%e success in a special McAfee in %irus
protection software$ Staruc&s in premium coffees an! coffee !rin&s$ .hole 4oo!s
Mar&et in natural an! organic foo!s$ an! #he .eather /hannel in cale #:"cialMcAfee
in %irus protection software$ Staruc&s in premium coffees"
;" Developing expertise and resource strengths that give the company competitively
valuable capabilities that rivals cant easily match, copy, or trump with substitute
capabilities. 4e!<- has !e%elope! a resource0ase! competiti%e a!%antage through its
superior capailities in ne-t0!ay !eli%ery of small pac&ages" .alt r manufacturing
capailities in computer har!ware ha%e consistently allowe! it to earn healthy profit
margins while offering usinesses an! consumers competiti%e prices"
#he strategy0ma&ing$ strategy0implementing process consists of fi%e interrelate!
managerial tas&s"
". Why a ompany#s strategy e!ol!es o!er time. $esribe the onept of % &'
ompany is partly proati!e and partly reati!e(.
Answer:
4re5uent fine0tuning an! twea&ing of a company strategy$ first in one !epartment or functional
area an! then n another$ are 5uite normal" =n occasion$ 5uantum changes in strategy are calle!
for,when a competiti%ely" 2ecause strategic mo%es an! new action approaches are ongoing
across the usiness$ an organi3ations strategy forms o%er a perio! of time an! then reforms as
the numer of changes egin to mount"
)rrespecti%e of where the strategy comes from,e it the pro!uct of top e-ecuti%es or the
collaorati%e pro!uct of numerous company personnel,it is unli&ely that the strategy$ as
originally concei%e!$ will pro%e entirely suitale o%er time" <%ery company must e willing an!
rea!y to mo!ify its strategy in response to changing mar&et con!itions$ a!%ancing technology$
the fresh mo%es of competitors$ shifting uyer nee!s an! preferences$ emerging mar&et
opportunities$ new i!eas for impro%ing the strategy$ an! mounting e%i!ence that the strategy is
not wor&ing well" #hus$ a companys strategy is always a wor& in progress"
Most of the time a companys strategy e%ol%es incrementally from managements ongoing efforts
to fine0tune this or that piece of the strategy an! to a!9ust certain strategy elements in response to
unfol!ing e%ents" 2ut$ on occasion$ ma9or strategy shifts are calle! for$ such as when a strategy is
clearly failing an! the company faces a financial crisis$ when mar&et con!itions or uyer
preferences change significantly$ or when important technological rea&throughs occur" )n some
in!ustries$ con!itions change at a fairly slow pace$ ma&ing it feasile for the ma9or components
of a goo! strategy to remain in place for long perio!s" 2ut in in!ustries where in!ustry an!
competiti%e con!itions change fre5uently an! in sometimes !ramatic ways$ the life cycle of a
gi%en strategy is short" )n!ustry en%ironments characteri3e! y high0%elocity change re5uire
companies to rapi!ly a!apt their strategies"7 4or e-ample$ companies in in!ustries with rapi!0fire
a!%ances in technology,li&e me!ical e5uipment$ electronics$ an! wireless !e%ices,often fin!
it essential to a!9ust one or more &ey elements of their strategies se%eral times a year$ sometimes
e%en fin!ing necessary to rein%ent their approach to pro%i!ing %alue to their customers"
/ompanies in online retailing an! the tra%el an! resort in!ustries fin! it necessary to a!apt their
strategies to accommo!ate su!!en ursts of new spen!ing or sharp !rop0offs in !eman!$ often
up!ating their mar&et prospects an! financial pro9ections e%ery few months"
2ut regar!less of whether a companys strategy changes gra!ually or swiftly$ the important point
is that a companys present strategy is always temporary an! on trial$ pen!ing new i!eas for
impro%ement from management$ changing in!ustry an! competiti%e con!itions$ an! any other
new !e%elopments that management elie%es warrant strategy a!9ustments" #hus$ a companys
strategy at any gi%en point is flui!$ representing the temporary outcome of an ongoing process
that$ on the one han!$ in%ol%es reasone! an! creati%e management efforts to craft an effecti%e
strategy an!$ on the other han!$ in%ol%es ongoing responses to mar&et change an! constant
e-perimentation an! tin&ering" A!apting to new con!itions an! constantly learning what is
wor&ing well enough to continue an! what nee!s to e impro%e! is conse5uently a normal part
of the strategy0ma&ing process an! results in an e%ol%ing strategy"
&' ompany is partly proati!e and partly reati!e(
#he e%ol%ing nature of a companys strategy means that the typical company strategy is a len!
of
(1) 8roacti%e actions to impro%e the companys financial performance an! secure a competiti%e
e!ge an!
(2) as0nee!e! reactions to unanticipate! !e%elopments an! fresh mar&et con!itions
#he iggest portion of a companys current strategy flows from pre%iously initiate! actions an!
usiness approaches that are wor&ing well enough to merit continuation an! newly launche!
initiati%es aime! at oosting financial performance an! e!ging out ri%als" #ypically$ managers
proacti%ely mo!ify this or that aspect of their strategy as new learning emerges aout which
pieces of the strategy are wor&ing well an! which arent$ an! as they hit upon new i!eas for
strategy impro%ement" #his part of managements action plan for running the company is
!elierate an! proacti%e$ stan!ing as the current pro!uct of managements latest an! est strategy
i!eas"
2ut managers must always e willing to supplement or mo!ify all the proacti%e strategy
elements with as0nee!e! reactions to unanticipate! !e%elopments" )ne%italy$ there will e
occasions when mar&et an! competiti%e con!itions ta&e an une-pecte! turn that calls for some
&in! of strategic reaction or a!9ustment" (ence$ a portion of a companys strategy is always
!e%elope! on the fly$ coming as a response to fresh strategic maneu%ers on the part of ri%al firms$
une-pecte! shifts in customer re5uirements an! e-pectations$ fast0changing technological
!e%elopments$ newly appearing mar&et opportunities$ a changing political or economic climate$
or other unanticipate! happenings in the surroun!ing en%ironment" #hese a!apti%e strategy
a!9ustments form the reacti%e strategy elements"
). Why are rafting and exeuting strategies important?
Answer:
/rafting an! e-ecuting strategy are top0priority managerial tas&s for two %ery ig reasons"
*irst+ there is a compelling nee! for managers to proactively shape$ or craft$ how the
companys usiness will e con!ucte!" A clear an! reasone! strategy is managements
prescription for !oing usiness$ its roa! map to competiti%e a!%antage$ its game plan for pleasing
customers an! impro%ing financial performance" .inning in the mar&etplace re5uires a well0
concei%e!$ opportunistic strategy$ usually one characteri3e! y strategic offensi%es to out
inno%ate an! outmaneu%er ri%als an! secure sustainale competiti%e a!%antage$ then using this
mar&et e!ge to achie%e superior financial performance" A powerful strategy that !eli%ers a home
run in the mar&etplace can propel a firm from a trailing position into a lea!ing one$ clearing the
way for its pro!ucts1ser%ices to ecome the in!ustry stan!ar!" (igh0achie%ing enterprises are
nearly always the pro!uct of astute$ creati%e$ proacti%e strategy ma&ing that sets a company apart
from its ri%als"
Seond+ a strategy-focused enterprise is more li&ely to e a strong ottom0line performer than
a company whose management %iews strategy as secon!ary an! puts its priorities elsewhere"
#heres no escaping the fact that the 5uality of managerial strategy ma&ing an! strategy
e-ecution has a highly positi%e impact on re%enue growth$ earnings$ an! return on in%estment" A
company that lac&s clear0cut !irection$ has %ague or un!eman!ing performance targets$ has a
mu!!le! or flawe! strategy$ or cant seem to e-ecute its strategy competently is a company
whose financial performance is proaly suffering$ whose usiness is at long0term ris&$ an!
whose management is sorely lac&ing"
)n contrast$ when crafting an! e-ecuting a winning strategy !ri%e managements whole approach
to operating the enterprise$ the o!!s are much greater that the initiati%es an! acti%ities of
!ifferent !i%isions$ !epartments$ managers$ an! wor& groups will e unifie! into a coordinated,
cohesive effort. Moili3ing the full complement of company resources in a total team effort
ehin! goo! e-ecution of the chosen strategy an! achie%ement of the targete! performance
allows a company to operate at full power"
,. Explain the relationship between a ompany#s strategy and its business
model
Answer:
/losely relate! to the concept of strategy is the concept of a companys business model. .hile
the wor! model con9ures up images of i%ory0tower i!eas that may e loosely connecte! to the
real worl!$ such images !o not apply here" A companys usiness mo!el is managements story
line for how the strategy will e a moneyma&er" #he story line sets forth the &ey components
of the enterprises usiness approach$ in!icates how re%enues will e generate!$ an! ma&es a
case for why the strategy can !eli%er %alue to customers in a profitale manner"6 A companys
usiness mo!el thus e-plains why its usiness approach an! strategy will generate ample
re%enues to co%er costs an! capture a profit"
/ompanies that ha%e een in usiness for a while an! are ma&ing acceptale profits ha%e a
pro%en usiness mo!el,ecause there is har! e%i!ence that their strategies are capale of
profitaility" /ompanies that are in a start0up mo!e or that are losing money ha%e 5uestionale
usiness mo!els> their strategies ha%e yet to pro!uce goo! ottom0line results$ putting their story
line aout how they inten! to ma&e money an! their %iaility as usiness enterprises in !out"
-. &Ethial and .oral standards are not go!erned by what is legal+ rather they
in!ol!es issues of right !ersus wrong and of duty(/ what one should do?
Answer:
)n choosing from among strategic alternati%es$ company managers are well a!%ise! to emrace
actions that are ao%e oar! an! can pass the test of moral scrutiny" 6ust&eeping a companys
strategic actions within the oun!s of what is legal !o not mean the strategy is ethical" <thical
an! moral stan!ar!s are not go%erne! y what is legal" ?ather$ they in%ol%e issues of oth right
%ersus wrong an! duty,what one should !o" A strategy is ethical only if
(1) )t !oes not entail actions an! eha%iors that cross the line from *shoul! !o+ to *shoul! not
!o+ (ecause such actions are unsa%ory$ unconscionale$ or in9urious to other people or
unnecessarily harmful to the en%ironment) an!
(2) )t allows management to fulfill its ethical !uties to all sta&ehol!ers,owners1sharehol!ers$
employees$ customers$ suppliers$ the communities in which it operates$ an! society at large"
Senior e-ecuti%es with strong ethical con%ictions are generally proacti%e in lin&ing strategic
action an! ethics: #hey fori! the pursuit of ethically 5uestionale usiness opportunities an!
insist that all aspects of company strategy reflect high ethical stan!ar!s" #hey ma&e it clear that
all company personnel are e-pecte! to act with integrity$ an! they put organi3ational chec&s an!
alances into place to monitor eha%ior$ enforce ethical co!es of con!uct$ an! pro%i!e gui!ance
to employees regar!ing any gray areas" #heir commitment to con!ucting the companys usiness
in an ethical manner is genuine$ not hypocritical"