Chapter one, What is Strategy?

What is our present

situation?
Business environment and
industry conditions
Firms financial and
competitive capabilities

Where do we want to go
from here?
Creating a vision for the firms
future direction

How are we going to get

there?
Crafting an action plan that
will get us there

The Strategy-Making, StrategyExecuting Process

WHAT IS STRATEGY ABOUT?

Strategy is all about
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 firms
financial and market
performance.

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.

STRATEGY AND
COMPETITORS
Strategy is about
competing differently
from rivals

Doing what they dont

do or doing it better!
Doing what they cant
do!
Doing that which sets
the firm apart and
attracts customers.

SunnyD and Rum - THE POP SINGLE!

Common elements in successful

strategies

Sources of superior profitability

1.1

Identifying a Companys StrategyWhat to Look For

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 firms products or services over
those of its competitors.

Why a Firms 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

1.2

A Companys Strategy Is a Blend of Proactive Initiatives

and Reactive Adjustments

What Roles does Strategy Perform?

Strategy
Strategy as
as Decision
Decision
Support
Support

Improves
Improves the
the quality
quality
of
of decision
decision making
making

Strategy
Strategy as
as aa Coordinating
Coordinating
Device
Device

Creates
Creates consistency
consistency
and
and unity
unity

Strategy
Strategy as
as Target
Target

Improves
Improves performperformance
ance by
by setting
setting
high
high aspirations
aspirations

Strategy
Strategy as
as Animation
Animation and
and
Orientation
Orientation

Motivates
Motivates
and
and mobilises
mobilises

2012 Robert M. Grant & Judith Jordan

www.foundationsofstrategy.com

12

What Is a Strategic Plan?

Elements of a Firms
Strategic Plan

Its strategic vision, business

mission, and core values
Its strategic and financial
objectives

Its chosen strategy

Vision Statement for UBS

We are determined to be the best global financial services company. We focus on

wealth and asset management, and on investment banking and securities
businesses. We continually earn recognition and trust from clients, shareholders,
and staff through our ability to anticipate, learn and shape our future. We share a
common ambition to succeed by delivering quality in what we do. Our purpose is to
help our clients make financial decisions with confidence. We use our resources to
develop effective solutions and services for our clients. We foster a distinctive,
meritocratic culture of ambition, performance and learning as this attracts, retains
and develops the best talent for our company. By growing both our client and our
talent franchises, we add sustainable value for our shareholders.

Effective Elements

Shortcomings

Focused
Feasible
Desirable

Not forward-looking
Bland or uninspiring
Hard to communicate

The Strategy-Making Hierarchy

Corporate
Strategy

Multibusiness Strategyhow to gain synergies from managing a

portfolio of businesses together rather than as separate businesses
Two-Way Influence

Business
Strategy

How to strengthen market position and gain competitive advantage

Actions to build competitive capabilities of single businesses
Monitoring and aligning lower-level strategies
Two-Way Influence

Functional Area
Strategies

Add relevant detail to the hows of the business strategy

Provide a game plan for managing a particular activity in ways that
support the business strategy
Two-Way Influence

Operating
Strategies

Add detail and completeness to business and functional strategies

Provide a game plan for managing specific operating activities with
strategic significance

IS OUR STRATEGY A
WINNER?
The Strategic
Fit Test

The Competitive
Advantage Test

Winning
Strategy

The Performance
Test

A winning strategy must pass three tests:

The Fit Test
Does it exhibit dynamic fit with the external and internal aspects of the firms 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 firms profitability, financial and
competitive strengths, and market standing?

Strategy Analysis How to gain a

competitive advantage.
What do you think the Mission and Vision for this business is?
What is the problem or issue to be resolved?
Finance, HR, Marketing, growth opportunity, merger or acquisition etc

Objectives - (What do you think this firm would like to accomplish over the next 5 years?)
Situation analysis (SWOT)
What internal strengths and weaknesses does this company have?
How well is the firms present strategy working?
What are the firms competitively important resources and capabilities?
Is the firm able to take advantage of market opportunities and overcome external threats to its external well-being?
Are the firms prices and costs competitive with those of key rivals, and does it have an appealing customer value
proposition?
Is the firm competitively stronger or weaker than key rivals?
What strategic issues and problems merit front-burner managerial attention?

What external environmental opportunities and threats

(driving forces) should this company be aware of?

PEST Analysis - Political, Economic, Social, Technology

global forces (trade policy)
general economic conditions
social forces (values attitudes)

demographic,
technology
the natural environment (climate change, water, habitat)

Financial Analysis
ROA
profit after tax/total assets
=
ROE
profit after tax/owners equity
=
Current Ratio
Current assets/current liability
=
Quick Ratio Current assets - Inventory/current liability
=
Debt to assets Debt/Assets
=
Debt Equity Debt/Equity
=

Financial Analysis:
On what basis do customers choose between competing brands of sellers?
Are the driving forces causing demand for product to increase or decrease?

Are the driving forces acting to make competition more or less intense?
Will the driving forces lead to higher or lower industry profitability?
Does this industry offer good prospects for attractive profits?

Structural determinants of the

competitive forces
Please analyze the following
competitive forces

How intense is the rivalry of existing

competitors for consumer dollars.

How likely/easy would it be for new

competitors to enter this market?

Are there a lot of suppliers to this industry or

very few?

Do customers have a lot of competitors to

choose from or very few?

Are there any firms in other industries

offering suitable substitutes?

Evaluating Sustainable Competitive Advantage

The VRIO Framework
Costly to Exploited by
Competitive
Valuable? Rare? Imitate? Organization? Implications
Disadvantage

Below
Normal

No

Parity

Normal

Yes

Yes

No

Temporary
Advantage

Above
Normal

Yes

Yes

Yes

Sustained
Advantage

Above
Normal

No

Yes

22

Economic
Implications

No

Yes

sustainable competitive
advantage tests
Does this business have a resource that is valuable/rare

Is the resource competitively superior ?

Do they have a resource that is hard to copy ?

Can the resource be made obsolete by the different capabilities of

competitors?

Is the firm organized to exploit its valuable, rare, costly to imitate resource?

Do you think this company has a sustainable competitive advantage?

What competitive strategy is this

business following?

Is this the best competitive strategy for them to follow?

Is their strategy well-matched to the industrys future key
success factors?

Growth Strategies
How are customer needs
and expectations
changing?

Are there any promising

market opportunities that
ought to be pursued?

What strategy would you

recommend and why?

Strategic Recommendation:
What do you advise the firm to do?
Tests of a winning Strategy
The tests of strategic leadership are whether the firm has a good strategy and business model,
whether its strategy is competently executed, and whether the firm is achieving its
performance targets.
GOODNESS OF FIT TEST
How is your strategy well-matched to their resource strengths, competencies, and competitive
advantages?

COMPETITIVE ADVANTAGE TEST

How does your strategy lead to sustainable competitive advantage?

PERFORMANCE TEST
How does your strategy boost firm performance?

Profit and Purpose

Companies and
individuals who are
most focused on
profitability and the
creation of wealth are
often remarkably
unsuccessful
Successful companies
and people tend to be
motivated by
something other than
profit.

Robert Kearns invented the intermittent windshield wiper systems used on

most automobiles from 1969 to the present. Ford and Chrysler had to pay him
$30 million for patent infringement

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

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.