The document discusses the importance of strategy for companies and defines key strategic concepts. It explains that an effective strategy must pass three tests: fitting the company's situation, providing competitive advantage, and leading to good performance. A company's strategy is a blend of deliberate initiatives and reactive adjustments over time. It also depends on the business model, which outlines the customer value proposition and profit formula. The document uses examples to illustrate strategic approaches for gaining competitive advantage.

1. CHAPTER 1
WHAT IS STRATEGY AND
WHY IS IT IMPORTANT?

2. 1. Understand why every company needs a sound strategy to
compete successfully, manage the conduct of its business, and
strengthen its prospects for long-term success.
2. Develop an awareness of the four most dependable strategic
approaches for setting a company apart from rivals and
winning a sustainable competitive advantage.
3. Understand that a company’s strategy tends to evolve over
time because of changing circumstances and ongoing
management efforts to improve the company’s strategy.
4. Learn 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.
5. Learn the three tests of a winning strategy.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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3. WHAT DO WE MEAN BY STRATEGY ?
♦ What is our present situation?
●
Business environment and industry conditions
●
Firm’s financial and competitive capabilities
♦ Where do we want to go from here?
●
Creating a vision for the firm’s future direction
♦ How are we going to get there?
●
Crafting an action plan that will get us there
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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4. WHAT IS STRATEGY ABOUT?
♦ Strategy is all about How:
●
How to outcompete rivals.
●
How to respond to economic and market
conditions and growth opportunities.
●
How to manage functional pieces of the
business.
●
How to improve the firm’s financial and
market performance.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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5. WHY DO STRATEGY ?
♦ A firm does strategy:
●
To improve its financial performance.
●
To strengthen its competitive position.
●
To gain a sustainable competitive.
advantage over its market rivals.
♦ A creative, distinctive strategy:
●
Can yield above-average profits.
●
Makes competition difficult for rivals.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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6. STRATEGY AND COMPETITORS
♦ Strategy is about competing differently
from rivals—
●
Doing what they don’t do or doing it better!
●
Doing what they can’t do!
●
Doing that which sets the firm apart and
attracts customers.
●
Doing what we should or should not do to
produce a competitive edge.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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7. 1.1
Identifying a Company’s Strategy—What to Look For
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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8. Key initiatives of the Plan-to-Win strategy:
• Improved restaurant operations
• Affordable pricing
• Wide menu variety and beverage choices
• Convenience and expansion of dining opportunities
• Ongoing restaurant reinvestment and international
expansion
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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9. Follow-up
• Which of McDonald’s Plan-to-Win strategy
initiatives are associated with meeting
customer needs more effectively?
• Which initiatives are focused on more
efficiently delivering products and services?
• Which initiatives will likely result in the most
enduring competitive advantage?
• Which of the initiatives will competitors likely
attempt to overcome first?
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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10. The Quest for Competitive Advantage
♦ Competitive Advantage
●
Meeting customer needs more effectively,
with products or services that customers
value more highly, or more efficiently, at
lower cost.
♦ Sustainable Competitive Advantage
●
Giving buyers lasting reasons to prefer a
firm’s products or services over those of its
competitors.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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11. STRATEGIC APPROACH CHOICES
Building Competitive Advantage
Low-cost
provider
Differentiation
on features
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Focus on
market niche
Best-cost
provider
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12. STRATEGIC APPROACHES
♦ Building a competitive advantage by:
1. Striving to become the industry’s low-cost
provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche market’s
needs (efficiency andor effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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13. GAINING SUSTAINABLE COMPETITIVE
ADVANTAGE
♦ How to create a sustainable competitive
advantage:
●
Develop valuable expertise and competitive
capabilities over the long-term that rivals
cannot readily copy, match or best.
●
Put the constant quest for sustainable
competitive advantage at center stage in
crafting your strategy.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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14. Why a Firm’s Strategy Evolves over Time
♦ Managers modify strategy in response to:
●
●
●
●
●
●
Changing market conditions
Advancing technology
Fresh moves of competitors
Shifting buyer needs
Emerging market opportunities
New ideas for improving the strategy
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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15. The Evolving Nature of a Firm’s Strategy
♦ Realized (current) strategy is a blend of:
●
Proactive (deliberate) strategy elements that
include both continued and new initiatives.
●
Reactive (emergent) strategy elements that
are required due to unanticipated competitive
developments and fresh market conditions.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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16. 1.2
A Company’s Strategy Is a Blend of Proactive Initiatives
and Reactive Adjustments
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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17. THE RELATIONSHIP BETWEEN A
FIRM’S STRATEGY AND ITS
BUSINESS MODEL
Realized
Strategy
$$$?
Business
Model
Competitive
Initiatives
Value
Proposition
Business
Approaches
Profit Formula
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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18. A Company’s Business Model
♦ How the business will make money :
●
By providing customers with value.
 The firm’s customer value proposition
● By generating revenues sufficient to cover
costs and produce attractive profits.
 The firm’s profit formula
It takes a proven business model—one that
yields appealing profitability—to demonstrate
viability of a firm’s strategy.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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19. Business Model Elements
♦ The Customer Value Proposition
●
Satisfying buyer wants and needs at a price
customers will consider a good value.

The greater the value provided (V) and
the lower the price (P), the more
attractive the value proposition is to
customers.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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20. Business Model Elements (cont’d)
♦ The Profit Formula
●
Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition.

V—the value provided to customers
P—the price charged to customers
 C—the firm’s costs
The lower the costs (C) for a given customer
value proposition (V–P), the greater the ability
of the business model to be a moneymaker.

●
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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21. IS OUR STRATEGY A WINNER?
The Strategic
Fit Test
The Competitive
Advantage Test
Winning
Strategy
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
The Performance
Test
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22. WHAT MAKES A STRATEGY
A WINNER?
♦ A winning strategy must pass three tests:
●
The Fit Test
 Does it exhibit dynamic fit with the external and
internal aspects of the firm’s overall situation?
● The Competitive Advantage Test
 Can it help the firm achieve a significant and
sustainable competitive advantage?
● The Performance Test
 Can it produce good performance as measured
by the firm’s profitability, financial and
competitive strengths, and market standing?
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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23. WHY CRAFTING AND EXECUTING
STRATEGY ARE IMPORTANT TASKS
♦ Strategy provides:
●
A prescription for doing business.
● A road map to competitive advantage.
● A game plan for pleasing customers.
● A formula for attaining long-term standout
marketplace performance.
Good Strategy + Good Strategy Execution =
Good Management
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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24. THINKING STRATEGICALLY
♦ Google’s web browser-based Chrome operating
system and its online applications suite are now
challenging Microsoft’s long-term dominance of
those marketplace sectors.
●
What should be Microsoft’s first response to this
competitive challenge?
●
How will Microsoft’s response to this competitor’s
actions affect its business model?
●
Which competitor’s strategy will likely be the eventual
winner in the marketplace?
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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25. THE ROAD AHEAD
♦ Strategy is about asking the right questions:
●
What must managers do, and do well, to make a
firm a winner in the marketplace?
♦ Strategy requires getting the right answers:
●
Good strategic thinking and good management of
the strategy-making, strategy-executing process.
●
First-rate capabilities and skills in crafting and
executing strategy are essential to managing
successfully.
Welcome and best wishes for your success!
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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