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Chapter No-01The tasks of crafting and executing company strategies are the heart and soul of managing a business

enterprise and winning in the marketplace. A company's strategy is the game plan management is using to

stake out a market position, conduct its operations, attract and please customers, compete successfully, and

achieve organizational objectives. The central thrust of a company's strategy is undertaking moves to build

and strengthen the company's long-term competitive position and financial performance and, ideally, gain a

competitive advantage over rivals that then becomes a company's ticket to above-average profitability. A

company's strategy typically evolves over time, emerging from a blend of (1) proactive and purposeful

actions on the part of company managers and (2) as-needed reactions to unanticipated developments and

fresh market conditions.

Closely related to the concept of strategy is the concept of a company's business model. A company's

business model is management's story line for how and why the company's product offerings and

competitive approaches will generate a revenue stream and have an associated cost structure that produces

attractive earnings and return on investmentin effect, a company's business model sets forth the economic

logic for making money in a particular business, given the company's current strategy.

A winning strategy fits the circumstances of a company's external situation and its internal resource

strengths and competitive capabilities, builds competitive advantage, and boosts company performance.

Crafting and executing strategy are core management functions. Whether a company wins or loses in the

marketplace is directly attributable to the caliber of that company's strategy and the proficiency with whichthe strategy is executed.

Chapter No-02The managerial process of crafting and executing a company's strategy consists of five interrelated and

integrated phases:

1. Developing a strategic vision of where the company needs to head and what its futureproduct/customer/market/technology focus should be. This managerial step provides long-term

direction, infuses the organization with a sense of purposeful action, and communicates to

stakeholders what management's aspirations for the company are.

2. Setting objectives and using the targeted results and outcomes as yardsticks for measuring thecompany's performance and progress. Objectives need to spell out how much of what kind of

performance by when, and they need to require a significant amount of organizational stretch.

Measuring company performance entails setting bothfinancial objectives andstrategic

objectives. A balanced scorecard approach tracks both types of objectives.

3. Crafting a strategy to achieve the objectives and move the company along the strategic course thatmanagement has charted. Crafting strategy is concerned principally with forming responses to

changes under way in the external environment, devising competitive moves and market approaches

aimed at producing sustainable competitive advantage, building competitively valuable competencies

and capabilities, and uniting the strategic actions initiated in various parts of the company. The more

that a company's operations cut across different products, industries, and geographical areas, the

more that strategy making becomes acollaborative effort involving managers and company personnel

at many organizational levels. The total strategy that emerges in such companies is really a collection

of strategic actions and business approaches initiated partly by senior company executives, partly by

the heads of major business divisions, partly by functional-area managers, and partly by operating

managers on the frontlines. The larger and more diverse the operations of an enterprise, the more

points of strategic initiative it has and the more managers and employees at more levels of

management that have a relevant strategy-making role. A single-business enterprise has three levels

of strategybusiness strategy for the company as a whole, functional-area strategies for each main

area within the business, and operating strategies undertaken by lower-echelon managers to flesh out

strategically significant aspects for the company's business and functional area strategies. Indiversified, multibusiness companies, the strategy-making task involves four distinct types or levels

of strategy: corporate strategy for the company as a whole, business strategy (one for each business

the company has diversified into), functional-area strategies within each business, and operating

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strategies. Typically, the strategy-making task is more top-down than bottom-up, with higher-level

strategies serving as the guide for developing lower-level strategies.

4. Implementing and executing the chosen strategy efficiently and effectively. Managing theimplementation and execution of strategy is an operations-oriented, make-things-happen activity

aimed at shaping the performance of core business activities in a strategy-supportive manner.

Management's handling of the strategy implementation process can be considered successful if

things go smoothly enough that the company meets or beats its strategic and financial performance

targets and shows good progress in achieving management's strategic vision.

5. Evaluating performance and initiating corrective adjustments in vision, long-term direction,objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and

new opportunities. This phase of the strategy management process is the trigger point for deciding

whether to continue or change the company's vision, objectives, strategy, and/or strategy execution

methods.

A company's strategic vision plus its objectives plus its strategy equals a strategic plan for coping with

industry and competitive conditions, outcompeting rivals, and addressing the challenges and issues that

stand as obstacles to the company's success.

Successful managers have to do several things in leading the drive for good strategy execution and operatingexcellence. First, they stay on top of things. They keep a finger on the organization's pulse by spending

considerable time outside their offices, listening and talking to organization members, coaching,

cheerleading, and picking up important information. Second, they are active and visible in putting

constructive pressure on the organization to achieve good results. Generally, this is best accomplished by

promoting an esprit de corps that mobilizes and energizes organizational members to execute strategy in a

competent fashion and deliver the targeted results. Third, they keep the organization focused on operating

excellence by championing innovative ideas for improvement and promoting the use of best practices to

ensure value creating activities are performed in a first-rate fashion. Fourth, they exert their clout in

developing competencies and competitive capabilities that enable better execution. Fifth, they serve as a role

model in displaying high ethical standards, and they insist that company personnel conduct the company's

business ethically and in a socially responsible manner. They demonstrate unequivocal and visiblecommitment to the ethics enforcement process. Sixth and finally, when a company's strategy execution

effort is not delivering good results and the organization is not making measured progress toward operating

excellence, it is the leader's responsibility to step forward and push corrective actions.

Boards of directors have a duty to shareholders to play a vigilant role in overseeing management's handling

of a company's strategy-making, strategy-executing process. A company's board is obligated to (1) critically

appraise and ultimately approve strategic action plans; (2) evaluate the strategic leadership skills of the CEO

and others in line to succeed the incumbent CEO; (3) institute a compensation plan for top executives that

rewards them for actions and results that serve stakeholder interests, most especially those of shareholders;

and (4) ensure that the company issues accurate financial reports and has adequate financial controls.

Chapter No-03Thinking strategically about a company's external situation involves probing for answers to the following

seven questions:

1. What are the industry's dominant economic features? Industries differ significantly on such factorsas market size and growth rate, the number and relative sizes of both buyers and sellers, the

geographic scope of competitive rivalry, the degree of product differentiation, the speed of product

innovation, demandsupply conditions, the extent of vertical integration, and the extent of scale

economies and experience/learning curve effects. In addition to setting the stage for the analysis to

come, identifying an industry's economic features also promotes understanding of the kinds of

strategic moves that industry members are likely to employ.

2. What kinds of competitive forces are industry members facing, and how strong is each force? Thestrength of competition is a composite of five forces: (1) competitive pressures stemming from the

competitive maneuvering among industry rivals, (2) competitive pressures associated with the

market inroads being made by the sellers of substitutes, (3) competitive pressures associated with the

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threat of new entrants into the market, (4) competitive pressures stemming from supplier bargaining

power and supplierseller collaboration, and (5) competitive pressures stemming from buyer

bargaining power and sellerbuyer collaboration. The nature and strength of the competitive

pressures associated with these five forces have to be examined force by force to identify the specific

competitive pressures they each comprise and to decide whether these pressures constitute a strong

or weak competitive force. The next step in competition analysis is to evaluate the collective strength

of the five forces and determine whether the state of competition is conducive to good profitability.

Working through the five-forces model step by step not only aids strategy makers in assessing

whether the intensity of competition allows good profitability but also promotes sound strategic

thinking about how to better match company strategy to the specific competitive character of the

marketplace. Effectively matching a company's strategy to the particular competitive pressures and

competitive conditions that exist has two aspects: (1) pursuing avenues that shield the firm from as

many of the prevailing competitive pressures as possible, and (2) initiating actions calculated to

produce sustainable competitive advantage, thereby shifting competition in the company's favor,

putting added competitive pressure on rivals, and perhaps even defining the business model for the

industry.

3. What forces are driving changes in the industry, and what impact will these changes have oncompetitive intensity and industry profitability? Industry and competitive conditions change becauseforces are in motion that create incentives or pressures for change. The first phase is to identify the

forces that are driving change in the industry; the most common driving forces include changes in the

long-term industry growth rate, globalization of competition in the industry, emerging Internet

capabilities and applications, changes in buyer composition, product innovation, technological

change and manufacturing process innovation, marketing innovation, entry or exit of major firms,

diffusion of technical know-how, changes in cost and efficiency, growing buyer preferences for

differentiated versus standardized products (or vice versa), reductions in uncertainty and business

risk, regulatory influences and government policy changes, and changing societal and lifestyle

factors. The second phase of driving-forces analysis is to determine whether the driving forces, taken

together, are acting to make the industry environment more or less attractive. Are the driving forces

causing demand for the industry's product to increase or decrease? Are the driving forces acting tomake competition more or less intense? Will the driving forces lead to higher or lower industry

profitability?

4. What market positions do industry rivals occupywho is strongly positioned and who isnot? Strategic group mapping is a valuable tool for understanding the similarities, differences,

strengths, and weaknesses inherent in the market positions of rival companies. Rivals in the same or

nearby strategic groups are close competitors, whereas companies in distant strategic groups usually

pose little or no immediate threat. The lesson of strategic group mapping is that some positions on

the map are more favorable than others. The profit potential of different strategic groups varies due

to strengths and weaknesses in each group's market position. Often, industry driving forces and

competitive pressures favor some strategic groups and hurt others.

5. What strategic moves are rivals likely to make next? This analytical step involves identifyingcompetitors' strategies, deciding which rivals are likely to be strong contenders and which are likely

to be weak, evaluating rivals' competitive options, and predicting their next moves. Scouting

competitors well enough to anticipate their actions can help a company prepare effective

countermoves (perhaps even beating a rival to the punch) and allows managers to take rivals'

probable actions into account in designing their own company's best course of action. Managers who

fail to study competitors risk being caught unprepared by the strategic moves of rivals.

6. What are the key factors for competitive success? An industry's key success factors (KSFs) are theparticular strategy elements, product attributes, competitive capabilities, and business outcomes thatspell the difference between being a strong competitor and a weak competitorand sometimes

between profit and loss. KSFs by their very nature are so important to competitive success that all

firms in the industry must pay close attention to them or risk becoming an industry also-ran.

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Correctly diagnosing an industry's KSFs raises a company's chances of crafting a sound strategy. The

goal of company strategists should be to design a strategy aimed at stacking up well on all of the

industry KSFs and trying to be distinctively better than rivals on one (or possibly two) of the KSFs.

Indeed, using the industry's KSFs as cornerstones for the company's strategy and trying to gain

sustainable competitive advantage by excelling at one particular KSF is a fruitful competitive

strategy approach.

7. Does the outlook for the industry present the company with sufficiently attractive prospects forprofitability? If an industry's overall profit prospects are above average, the industry environment is

basically attractive; if industry profit prospects are below average, conditions are unattractive.

Conclusions regarding industry attractive are a major driver of company strategy. When a company

decides an industry is fundamentally attractive, a strong case can be made that it should invest

aggressively to capture the opportunities it sees and to improve its long-term competitive position in

the business. When a strong competitor concludes an industry is relatively unattractive, it may elect

to simply protect its present position, investing cautiously if at all and looking for opportunities in

other industries. A competitively weak company in an unattractive industry may see its best option as

finding a buyer, perhaps a rival, to acquire its business. On occasion, an industry that is unattractive

overall is still very attractive to a favorably situated company with the skills and resources to take

business away from weaker rivals.A competently conducted industry and competitive analysis generally tells a clear, easily understood story

about the company's external environment. Different analysts can have different judgments about

competitive intensity, the impacts of driving forces, how industry conditions will evolve, how good the

outlook is for industry profitability, and the degree to which the industry environment offers the company an

attractive business opportunity. However, while no method can guarantee a single conclusive diagnosis

about the state of industry and competitive conditions and an industry's future outlook, this doesn't justify

shortcutting hard-nosed strategic analysis and relying instead on opinion and casual observation. Managers

become better strategists when they know what questions to pose and what tools to use. This is why this

chapter has concentrated on suggesting the right questions to ask, explaining concepts and analytical

approaches, and indicating the kinds of things to look for. There's no substitute for doing cutting-edge

strategic thinking about a company's external situation

anything less weakens managers' ability to craftstrategies that are well matched to industry and competitive conditions.

Chapter No-04There are five key questions to consider in analyzing a company's own particular competitive circumstances

and its competitive position vis--vis key rivals:

1. How well is the present strategy working? This involves evaluating the strategy from a qualitativestandpoint (completeness, internal consistency, rationale, and suitability to the situation) and also

from a quantitative standpoint (the strategic and financial results the strategy is producing). The

stronger a company's current overall performance, the less likely the need for radical strategy

changes. The weaker a company's performance and/or the faster the changes in its external situation

(which can be gleaned from industry and competitive analysis), the more its current strategy must bequestioned.

2. What are the company's resource strengths and weaknesses, and its external opportunities andthreats? A SWOT analysis provides an overview of a firm's situation and is an essential component

of crafting a strategy tightly matched to the company's situation. The two most important parts of

SWOT analysis are (1) drawing conclusions about what story the compilation of strengths,

weaknesses, opportunities, and threats tells about the company's overall situation, and (2) acting on

those conclusions to better match the company's strategy, to its resource strengths and market

opportunities, to correct the important weaknesses, and to defend against external threats. A

company's resource strengths, competencies, and competitive capabilities are strategically relevant

because they are the most logical and appealing building blocks for strategy; resource weaknesses

are important because they may represent vulnerabilities that need correction. External opportunities

and threats come into play because a good strategy necessarily aims at capturing a company's most

attractive opportunities and at defending against threats to its well-being.

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3. Are the company's prices and costs competitive? One telling sign of whether a company's situation isstrong or precarious is whether its prices and costs are competitive with those of industry rivals.

Value chain analysis and benchmarking are essential tools in determining whether the company is

performing particular functions and activities cost-effectively, learning whether its costs are in line

with competitors, and deciding which internal activities and business processes need to be

scrutinized for improvement. Value chain analysis teaches that how competently a company

manages its value chain activities relative to rivals is a key to building a competitive advantage based

on either better competencies and competitive capabilities or lower costs than rivals.

4. Is the company competitively stronger or weaker than key rivals? The key appraisals here involvehow the company matches up against key rivals on industry key success factors and other chief

determinants of competitive success and whether and why the company has a competitive advantage

or disadvantage. Quantitative competitive strength assessments, using the method presented in Table

4.4, indicate where a company is competitively strong and weak, and provide insight into the

company's ability to defend or enhance its market position. As a rule a company's competitive

strategy should be built around its competitive strengths and should aim at shoring up areas where it

is competitively vulnerable. When a company has important competitive strengths in areas where

one or more rivals are weak, it makes sense to consider offensive moves to exploit rivals' competitiveweaknesses. When a company has important competitive weaknesses in areas where one or more

rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability.

5. What strategic issues and problems merit front-burner managerial attention? This analytical stepzeros in on the strategic issues and problems that stand in the way of the company's success. It

involves using the results of both industry and competitive analysis and company situation analysis

to identify a "worry list" of issues to be resolved for the company to be financially and competitively

successful in the years ahead. The worry list always centers on such concerns as "how to . . . ," "what

to do about . . . ," and "whether to . . ."the purpose of the worry list is to identify the specific

issues/problems that management needs to address. Actual deciding on a strategy and what specific

actions to take is what comes after the list of strategic issues and problems that merit front-burnermanagement attention is developed.

Good company situation analysis, like good industry and competitive analysis, is a valuable precondition for

good strategy making. A competently done evaluation of a company's resource capabilities and competitive

strengths exposes strong and weak points in the present strategy and how attractive or unattractive the

company's competitive position is and why. Managers need such understanding to craft a strategy that is

well suited to the company's competitive circumstances.