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Competitiveness and Globalization Chapter 1 Strategic Management

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Module 1 In this module, you will develop definitions for strategy, strategic competitiveness, competitive advantage, and above average returns an appreciation for the importance of strategy an ability to recognize strategy an awareness of the strategic intent of familiar firms appreciate the importance of strategy to the success of the firm recognize a strategy

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Understanding Strategy Define Strategy

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Understanding Strategy From the Greek word strategia meaning generalship Merriam-Webster The science and art of employing the political, economic, psychological, and military forces of a nation or group of nations to afford the maximum support to adopted policies in peace or war. Terms used in regard to strategy Objectives; Mission; Strengths; Weaknesses Military strategy assumes conflict

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Sun Tsu (544 496 BC) Link between military & strategy The Art of War So it is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle.

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Business Strategy If military strategy assumes conflict, what does business strategy assume?

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Business Strategy If military strategy assumes conflict, what does business strategy assume? Competition Winning Market Dominance Number 1 Define business strategy

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Strategy Defined Glueck (1980) defined strategy as: a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved. Quinn (1980) defined strategy as: the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole. Barney (1997) defined strategy as: a pattern of resource allocation that enables firms to maintain or improve their performance.

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Strategy Defined What do these definitions have in common?

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Dr. Henry Mintzberg McGill University Leading world authority on strategy Framework for understanding strategy What is the framework?

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Dr. Henry Mintzberg (1987) strategy is a plan, that is, a consciously intended course of action strategy is a ploy, that is, a specific maneuver intended to outwit an opponent or competitor strategy is a pattern, that is, a consistent set of behaviours strategy is a position, that is, the mediating force between the internal and external environment strategy is a perspective, that is, an ingrained way of perceiving the world

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Apply the framework Applying Mintzberg's strategy framework to Starbucks: Plan: open 1800 new stores in 2006 Pattern: predominantly company operated stores Position: high-traffic, high-visibility locations around the world (37 countries) Perspective: commitment to coffee producers and the environment Ploy: third meeting place between home and work

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Goal of strategy is to Create a sustainable competitive advantage that leads to above average returns Sustainable competitive advantage means: satisfying your customers in ways that cannot be readily duplicated by your competitors How does RIM satisfy its customers in ways that cannot be readily duplicated by competitors?

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Above average returns means: Outperforming your competitors by generating returns that exceed the returns that investors expect to earn from other investments with similar levels of risk. When interest rates are high, why is it more difficult to persuade investors to invest in the stock market than when interest rates are low?

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Above average returns Is it reasonable to assume that a company can generate above average returns in the long run? Can a thriving business sustain the intensity to deliver like this? Shareholder is king Why did Eaton's fail as a business? What important change in retailing did the Company miss?

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Strategy Important? Is strategy important? What does strategy do for a firm?

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Strategy Important? What does strategy do for a firm? Strategy sets the direction for the firm. Strategy focuses the effort's of employees and promotes coordination. Strategy defines the organization and provides a convenient way to explain what the firm does. Strategy provides consistency and reduces ambiguity.

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Disadvantages? Is it always a good thing?

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Disadvantages? Locked in Example of BCG we decided this would be our strategy when we started25 years ago (Unable to move forward because the company is tied to the past) Strategy must be flexible Strategy thats like a Jelly-fish is undefined and too flimsy Strategy thats like a brick wall is too structured and not movable without breaking down the organizational structure Ideal strategy is more like a Backbone flexible yet entirely stable and can support the organizational framework

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Hambrick and Frederickson (2005) In spite of 30 years of "hard thinking about strategy" little is known about what actually constitutes a strategy. Their framework is: Arenas (where to operate) Vehicles (how to get there) Differentiators (about winning) Staging Activities (speed and sequence) Economic Logic (anticipated returns)

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Red Bull Apply the Hambrick & Frederickson (2005) model to Red Bull Arenas (where does Red Bull operate? Where did they start? Where do they operate now?) Vehicles (how did they get there?) Differentiators (What is it about Red Bull that helps them win in their market? What sets them apart?) Staging Activities (Speed and sequence of how they rolled out their product in the marketplace.) Economic Logic (What are their past returns and future anticipated returns?)

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Red Bull Arena Europe 1987 Vehicle licensed a local firm (TC Pharmaceuticals) to produce the product Differentiators Red Bull gives you wings Staging Activities Austria, Germany, rolled out across Europe, into North America, South America, and Australia Asia is next Economic Logic 1 yr sales growth of 22% (2003 to 2004)

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What is NOT strategy Michael Porter on Strategy http://www.youtube.com/watch?v=ibrxIP0H84M

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What is NOT strategy Productivity or quality improvements to a business Cost reductions within the business The introduction of new technology E-commerce sales Supply Chain Management These are tactics, the ways you implement a strategy, but they are not strategy in themselves.

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Porter (1996) Article entitled, What is Strategy Differentiates between operational effectiveness and strategy Firms thrive when they have something that sets them apart A difference they can preserve Take a look at one of those firms

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Ikea Inexpensive, contemporary furniture that is sold worldwide Organic expansion (wholly owned stores) Reliable quality, low price, positive shopping experience One store in each targeted country followed by additional stores at a later date Economies of scale and efficiencies from replication

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What is their competitive advantage?

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Whats luck got to do with it? How much does luck have to do with strategy? Why is strategy often described as being an art and a science?

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Gildan Activewear and FOTL Issues: growth and market share quality control and manufacturing knock-off brand strategy How did Gildan get into the market? What role did Gildan play in the fate of Fruit of the Loom? What happened to FOTL?

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Vision & Mission Define Vision & Mission What do they have to do with Strategy? What role does a corporate vision play in a companys success? What role does a corporate mission play in a companys success

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Stakeholders Who are a firms stakeholders? What roles do stakeholders play?

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Stakeholders Stakeholders are those who can affect, and are affected by, a firms strategic outcomes. How are stakeholders impacted by a firm earning below average returns?

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Strategic Leaders Do you have to be a CEO to have the role of strategic leader? What work does a strategic leader engage in?

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Community & Ethics Ethics & Leadership What is the measurement of worthwhile leadership? Ethics & financial returns (in the wake of Enron) Corporate Social Responsibility & Strategy Heather Reisman Corporate social responsibility comes from her personal dedication to solving environmental and social issues Chapters has changed the industry: First major book retailer to announce they would not sell books without a certain percentage of recycled paper used in manufacturing Entire industry had to restructure to accommodate her demand

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Self-Study Review Questions 1. Why is it so difficult to define strategy? 2. Is strategy all about winning? 3. Is Sun Tzus The Art of War still relevant? 4. Could a firm survive without a strategy? 5. Why is it not enough to simply obtain a competitive advantage? 6. If benchmarking is unlikely to provide a sustainable competitive advantage why do firms continue to do it? 7. How much does luck have to do with strategy? 8. Does every firm need a business strategy?