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What Is Strategy and What Is Strategy and Why Is It Important?Why Is It Important?

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Instructor:Dr.Gehan Shanmuganathan

Part 1 Strategy Analysis

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LO 1-1 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity.

LO 1-2 Define strategy and explain its role in a firm’s quest for competitive advantage.

LO 1-3 Explain the role of firm effects and industry effects in determining firm performance.

LO 1-4 Describe the role of corporate, business, and functional managers in strategy formulation and implementation.

LO 1-5 Outline how business models put strategy into action.

LO 1-6 Describe and assess the opportunities and challenges managers face in the 21st century.

LO 1-7 Critically evaluate the role that different stakeholders play in the firm’s quest for competitive advantage.

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ChapterCase 1 The Premature Death of a Google Forerunner at MicrosoftThe Premature Death of a Google Forerunner at Microsoft

• Google founded in 1998Google founded in 1998 Two graduate students at StanfordTwo graduate students at Stanford

PageRank algorithm a clear improvementPageRank algorithm a clear improvement Today, it is world’s leading online search/advertising firmToday, it is world’s leading online search/advertising firm

• Microsoft bought LinkExchange in 1998Microsoft bought LinkExchange in 1998 Keywords product for search engines was shut downKeywords product for search engines was shut down

• Microsoft considered buying Overture Services Microsoft considered buying Overture Services in 2003in 2003 Gates and Ballmer passed on the deal Gates and Ballmer passed on the deal

Yahoo buys Overture for its own search product Yahoo buys Overture for its own search product

• Microsoft launches its own search in 2009Microsoft launches its own search in 2009 Bing now partnered with YahooBing now partnered with Yahoo

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WHAT STRATEGY IS: GAINING AND SUSTAININGWHAT STRATEGY IS: GAINING AND SUSTAININGCOMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE

• What Is Competitive Advantage? What Is Competitive Advantage? Superior performance relative to competitorsSuperior performance relative to competitors

Examples: Google, Duke Basketball, Pfizer’s LipitorExamples: Google, Duke Basketball, Pfizer’s Lipitor

• What Is Strategy? What Is Strategy? Goal-directed actions to gain and sustain competitive Goal-directed actions to gain and sustain competitive

advantageadvantage NOT a zero-sum gameNOT a zero-sum game

Win – win scenarios – co-opetition Win – win scenarios – co-opetition Requires trade-offs for strategic positioning Requires trade-offs for strategic positioning

JCPenney vs. Neiman Marcus JCPenney vs. Neiman Marcus Southwest Airlines vs. Delta SongSouthwest Airlines vs. Delta Song

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What Strategy Is NOT….What Strategy Is NOT….• Raking in every penny Raking in every penny

the firm can getthe firm can get Profit is a consequence Profit is a consequence

of good strategy, it is of good strategy, it is NOT the main goal! NOT the main goal!

• Operational Operational effectivenesseffectiveness Enterprise Resource Enterprise Resource

Planning (ERP)Planning (ERP) BenchmarkingBenchmarking Six SigmaSix Sigma ““Necessary but not Necessary but not

sufficient” such as sufficient” such as Lean ManufactureLean Manufacture

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Strategy Across the LevelsStrategy Across the Levels• WhereWhere to Compete? to Compete?

Should GE move more Should GE move more aggressively into the aggressively into the health care industry?health care industry?

• HowHow to Compete? to Compete? Should GE jet engines Should GE jet engines

have better fuel efficiency have better fuel efficiency than Rolls Royce? than Rolls Royce?

• HowHow to Implement? to Implement? Should GE human Should GE human

resources recruit more resources recruit more science graduates?science graduates?

• CORPORATE CORPORATE STRATEGYSTRATEGY

• BUSINESS BUSINESS STRATEGYSTRATEGY

• FUNCTIONAL FUNCTIONAL STRATEGYSTRATEGY

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BUSINESS MODELS:BUSINESS MODELS:• PUTTING STRATEGY INTO PUTTING STRATEGY INTO ACTIONACTION

Razor-blade modelRazor-blade model Subscription modelSubscription model

• How is the firm going to make money to How is the firm going to make money to continue operations? continue operations?

• What’s happening now between Microsoft & What’s happening now between Microsoft & Google? Google? Business models in opposite directions Business models in opposite directions

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STRATEGY IN THE 21ST CENTURYSTRATEGY IN THE 21ST CENTURY

• Accelerating Technological ChangeAccelerating Technological Change

84 years for half of U.S. families to own a car84 years for half of U.S. families to own a car

28 years for half to own a TV28 years for half to own a TV

6 years for an MP3 player6 years for an MP3 player

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EXHIBIT 1.5 Accelerating Speed of Technological Change

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STRATEGY IN THE 21ST CENTURYSTRATEGY IN THE 21ST CENTURY

• Future IndustriesFuture Industries

HEALTH CAREHEALTH CARE

In the U.S., over 16% of GDP and still growingIn the U.S., over 16% of GDP and still growing

GREEN ECONOMYGREEN ECONOMY

Potentially large growth in energy efficiency and technologies

WEB 2.0WEB 2.0

Interactivity and using collective intelligence on the Internet

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STRATEGY HIGHLIGHT 1.1 Threadless: Leveraging Crowdsourcing to Design Cool T-Shirts

• Online apparel companyOnline apparel company

Started in 2000 by 2 students with $1,000Started in 2000 by 2 students with $1,000

““Prosumers” – Prosumers” – a hybrid supplier/customera hybrid supplier/customer Shirt designs are submitted by the communityShirt designs are submitted by the community

Designs are voted on by the online communityDesigns are voted on by the online community

– Only winning designs are produced & soldOnly winning designs are produced & sold

Threadless Interview1-12

STAKEHOLDERSSTAKEHOLDERS

• Successful business generates societal valueSuccessful business generates societal value

• Stakeholders – are affected by firm’s actionsStakeholders – are affected by firm’s actions InternalInternal

External External

• Vary by industryVary by industry AutosAutos

Investment bankingInvestment banking

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THE AFI STRATEGY FRAMEWORKTHE AFI STRATEGY FRAMEWORK• Analyze (A)Analyze (A)

Getting Started; External & Internal Analysis Getting Started; External & Internal Analysis Chapters 1 thru 5Chapters 1 thru 5

• Formulate (F)Formulate (F) Business and Corporate StrategyBusiness and Corporate Strategy

Chapters 6 thru 10Chapters 6 thru 10

• Implement (I)Implement (I) Organizational Design & Corporate GovernanceOrganizational Design & Corporate Governance

Chapters 11 thru 12Chapters 11 thru 12

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CHAPTERCASE 1 CHAPTERCASE 1 Consider This…Consider This…• Microsoft has a new partner in the competition Microsoft has a new partner in the competition

for a search engine with Google… FACEBOOKfor a search engine with Google… FACEBOOK• In fall 2010, Mark Zuckerberg announced their In fall 2010, Mark Zuckerberg announced their

surprising decision to partner with the “really surprising decision to partner with the “really scrappy…underdog”scrappy…underdog”

• The partners are aiming to make “search more The partners are aiming to make “search more social” social”

• ““Our approach is about the speed of getting Our approach is about the speed of getting things done…not the speed of high volume of things done…not the speed of high volume of results”results”

……Bing !! Bing !!

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