Introduction To Strategy

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What is a Strategy ?
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Principles of Strategy - Introduction

Itai Ater
School of Management
Tel Aviv University
October 20, 2015
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Administrative details
1231.2322.02: Tuesday. 15:45-17:00; (Recanati, 105).

1231.2322.03: Wednesday. 15:45-17:00; (Recanati,
252).
Office: Recanati 326.
Phone number: 03-6406318.
Email: ater@post.tau.ac.il
Website: moodle (moodle.tau.ac.il).
Office hours: meetings can be set by email.
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Overview
The purpose of strategy is to create a competitive
advantage that generates superior, sustainable
financial returns.
Topics:
Introduction.
External Analysis.
Internal Analysis.
Competitive Advantage.
Approach - hands-on:
Cases.
Presentations.
Exam.
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Materials
Reader (L-233):
Michael Porter (1996), What is Strategy, HBR.
Michael Porter (2008), The Five Competitive Forces
the Shape Strategy, HBR.
Chapters 2, 5 and 12 in Besanko, Dranove, Stanley
and Schaefer, Economic of Strategy, 5th edition, 2010,
Wiley (Economics of Scale and Scope, Sustaining
and Industry Analysis)
Chapter 3 in Saloner, Shepard and Podolny, Strategic
Management, 2001, Wiley (Competitive Advantage).
Cases (L-250).
SIFRUT ZOLA is located near the university main
entrance and operates every weekday between
09:00-19:00 and on Fridays between 09:00-12:00.
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Schedule
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Requirements
Two case-studies (each 10% of final grade).

Case studies are submitted in groups of three
students.
Class presentation (10% of final grade).
Exam (case-based, 70% of final grade).
Class participation (up to 5 points).
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Class presentations
12 minutes presentation of an Israeli industry (end of

December, beginning of January)
The presentation will contain an external analysis of
an industry that underwent an important event (e.g.
entry/exit; new technology; new regulation)
Groups of six students who will all present
Note - need to submit the chosen industry and the
draft presentation in advance
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Industries to look at - examples

Taxis (Get-Taxi, Uber)
Groceries (Food Law, Online Shopping, Private Label)
Book market
Flights (Open skies, Up)
Telecommunication market (cellular, TV, Internet)
Newspapers
Coffee Machines
3d printing
Banks
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Strategy and operational effectiveness

What strategy is not?
Profit maximization is the goal of most firms - Too
General.
A detailed list of planned actions - Too Specific.
Strategy is also not operational effectiveness (tactic

vs. strategy)
Every firm constantly strives to improve its production
process:
Better use of resources.
Improved (more attractive) product.
Faster production.
Both Strategy and Operational Effectiveness refer,

among other things, to improving the production
process.
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Strategy is not operational effectiveness
Operational effectiveness is a necessary but not a

sufficient condition for high performance.
Operational Effectiveness is short-termed due to
diffusion.
Firms become similar due to imitation and competition
becomes fierce.
Strategy is Doing Better Things Rather Than Doing

Things Better.
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Strategy
Strategy is the firms answer to two fundamental
questions:
1
2
Where to compete?
How to compete?
The firm is facing a complicated problem. For

instance, the firm must consider:
The forces that shape competition.
The dynamics among firms.
The evolution of the industry and the underlying
technology.
Its own resources and capabilities
Uncertainty.
Since it is a complicated problem, the solution is a

series of generic guidelines.
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Business models
The firm decides how to compete with its business

model.
A business model is the underlying logic of the firm,
how it operates and how it creates and captures value.
Two fundamental strategic choices in a business
model are: value proposition and target market.
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The value proposition and the target market

The value is the difference between the willingness to
pay and the production costs. A firm is interested in
capturing a larger fraction of the value that it creates.
The value proposition can be based either on
low-cost or differentiation.
A differentiated firm offers a product perceived to be
better by customers, thereby increasing the
willingness-to-pay.
A firm with low cost positioning attracts customers by
offering low prices - or better value - than its rivals.
The target market can be broad ("mass market") or
narrow ("niche" or "focused").
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Examples
BMW follows a differentiated and focused business

model or strategy. Ford, in the same industry, targets
the mass market.
IKEA is considered a low-cost firm that targets the
mass market, while Kastiel is a boutique furniture
store that has a focused, differentiated strategy
In the multi-channel TV market Rami Levy adopted a
low-cost business model and HOT/Yes adopt a
differentiated business model and targeting the mass
market
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Example: Ikea
Segmentation: Ikea focuses on young customers.

Competitive advantage: low cost style.
Partial list of supporting actions:
Self service (vs. personal service).
Modular parts.
All the products are on display.
Child care, convenient hours and cheap food.
low cost (vs. longevity).
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Example 2: Southwest Airlines
Segmentation: Southwest Airlines focuses on price

sensitive customers in the U.S. short-haul domestic
market
Competitive advantage: low cost flights.
Partial list of supporting actions:
Airports in medium-size cities and secondary airports
in large cities.
Short time at the gate, no food on the flight, no
reserved seats.
One type of aircraft.
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Possible definition
Articulates the firms long-term goals, the scope of its
activities, its source of competitive advantage and the
logic through which that competitive advantage will
enhance firm performance.
The optimal position (the solution for the global
optimization problem) may differ between firms
depending on their initial state.
For a strategy to be successful in the long-term it must
be differentiated, imitation-proof and demonstrates
consistency.

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Principles of Strategy - Introduction

October 20, 2015

1231.2322.02: Tuesday. 15:45-17:00; (Recanati, 105).

Two case-studies (each 10% of final grade).

12 minutes presentation of an Israeli industry (end of

Industries to look at - examples

Strategy and operational effectiveness

Strategy is also not operational effectiveness (tactic

Both Strategy and Operational Effectiveness refer,

Strategy is not operational effectiveness

Operational effectiveness is a necessary but not a

Strategy is Doing Better Things Rather Than Doing

The firm is facing a complicated problem. For

Since it is a complicated problem, the solution is a

The firm decides how to compete with its business

The value proposition and the target market

BMW follows a differentiated and focused business

Segmentation: Ikea focuses on young customers.

Example 2: Southwest Airlines

Segmentation: Southwest Airlines focuses on price

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