"What is Strategy?" provides an overview of strategy, introducing important concepts such as strategic positioning, strategic fit, and competitive advantage.

1. What is Strategy?
MBA:
Strategy and Business Policy
Dr. Tim R. Holcomb

2. • Strategy and strategic positioning
– What is strategy?
– Elements of the business strategy diamond
– Mapping a strategic position
• Importance of tradeoffs in achieving strategic fit
– Deciding what to do and what not to do
• Sources of competitive advantage
– An economic view of value creation
– Sustaining competitive advantage over time
1–2
Topic Objectives

3. 1–3
Three Overarching Themes
Implementing a good
strategy is at least as
important as creating
good one…yet many
managers give too
little thought to
implementation
Strategic leadership
is responsible for:
 making substantive
resource allocation
decisions and
 developing key-stakeholder
 
Firms and
industries are
dynamic in
support of the
strategy
nature
To succeed,
the formulation
of a good strategy
and its implementa-tion
should be
inextricably
connected

Strategic leader-ship
is essential if a
firm is able to both
formulate and imple-ment
strategies that
create value
We need to see a firm’s competitive position, not as a
snapshot, but as an ongoing movie …

4. Key Elements of Strategy
Staging & pacing: What will be our speed
and sequence of moves?
• Speed of entry/expansion?
• Sequence of initiatives?
• Level of investment?
• Pace?
Staging
&
Pacing
Arenas
Differentiators
Arenas: Where will we be active (and with
how much emphasis)?
• Which product categories?
• Which channels?
• Which market segments?
• Which geographic areas?
• Which core technologies?
Vehicles: How will we get there?
• Alliances/Joint Ventures?
• Mergers and Acquisitions?
• Franchising?
• Exporting? Licensing?
• Internal development?
Differentiators: How will we win?
• Price?
• Styling?
• Image?
• Product reliability?
• Customization?
• Speed to market?
Economic logic: How will
returns be obtained?
• Lowest costs through scale advantages?
• Lowest costs through scope and replication
advantages?
• Premium prices due to unmatchable service?
• Premium prices due to proprietary product features?
Vehicles
Economic
Logic
The Business Strategy
Diamond

5. 1–5
Example: Jet Blue Strategy

6. What is Strategy?
Chipmunk's Plan For Future Better Crafted Than That Of 8 Out
• “Competitive strategy is about being different. It
means deliberately choosing to perform activities
differently or to perform different activities than rivals
to deliver a unique mix of value.”
– Michael Porter
• “The essence of strategy lies in creating tomorrow’s
competitive advantages faster than competitors can
mimic the ones you possess today.”
– Gary Hamel & C. K. Prahalad
• “Successful business strategy is about actively
shaping the game you play, not just playing the game
you find.”
– Adam Brandenburger & Barry Nalebuff
Of 10 Americans | The Onion

7. What is Strategy? (cont.)
• Strategy is the creation of unique and valuable
positions
– involves combining sets of activities and resources
that differ in meaningful ways and creating fit among
those activities and resources
• What is the significance of a strategic position?

8. Developing a Unique and Valuable Position
Compare and contrast the
strategic positions of these
companies in the market
with
with
with
with

9. • Strategy involves creating fit among a company’s
activities
– Drives competitive advantage and sustainability
– Requires choice that purposefully limits what firm can do
– Occurs most often when:
• different positions create inconsistencies in firm’s brand
• different positions require different resources and/or activity sets
• Establishing a sustainable strategic position requires
trade-offs
• “The essence of strategy is choosing what not to do.”
~ Dr. Michael Porter
• What is the significance of trading-off one position
with another?
1–9
What is Strategy? (cont.)

10. Minyanville Starbucks: Venti, Vidi, Vici! | MSNBC
1–10
Achieving Strategic Fit/Trade-offs
What are some of the trade-offs these firms made?
Swoosh! Inside Nike | NBC Today

11. 1–11
Levels of Strategy
Corporate-level strategy addresses:
• In which markets do we compete
today?
• In which markets should we
compete tomorrow?
• Does/How does our
ownership of a business
ensure its competitiveness
today and in the future?
What questions
does each type of
strategy address?
Business-level strategy addresses:
• How do we compete in this market
today?
• How should we compete in this
market in the future?

12. What is Competitive Advantage?
• Competitive advantage comes from the way
activities fit and reinforce one another
– Strategic fit = competitive advantage + superior
profitability
• Is achieved when firms implement a strategy that
competitors are unable to duplicate or find too
costly to imitate
– “Competitive advantage grows fundamentally out of
value a firm is able to create for its buyers [consumers]
that exceeds the firm’s cost of creating it.” – Porter

13. What is Competitive Advantage? (cont.)
• Is sustained by driving a wedge between buyer
willingness to pay and value added by the firm
– Added value is marginal value created by the firm
(value that would be lost by its absence)
– The larger the added value, the larger the potential
profit for the seller
• Thus, strategies must evolve as circumstances
change

14. • A firm's relative position within its industry
determines whether a firm's profitability is above
or below the industry average
– Achieved when firms implement a strategy that
competitors are unable to duplicate or find too costly
to imitate
• The fundamental basis of above average
profitability in the long run is sustainable
competitive advantage
– Strategies must create and capture value
1–14
What is Competitive Advantage? (cont.)

15. Competitive Advantage and Value Creation:
Conceptual Foundation
An economic view of value creation
“…the concept of value creation lies at the heart of
competitive advantage.”
VALUE
Product A
Total value created includes the real economic
value realized by market actors and the
subjective benefits realized by the customer
PRICE
Total price includes the economic
considerations for the customer as well
as for the company
COST
Total cost includes economic
costs and other resources used
in producing and delivering the
product/service

16. Competitive Advantage and Value Creation:
Conceptual Foundation (cont.)
Value-created = Consumer Surplus + Producer Surplus
Assume the P of a unit is $55, then:
Firm’s
Cost
$30
C
Consumer’s
Maximum
Willingness
to pay
$100
B
Firm’s
Cost
$30
C
Consumer
Surplus
$45
B-P
Producer
Surplus
$25
P-C
Value
Created
$70
B-C
Maximum-willingness-
to-pay
(price at which the
consumer is
indifferent between
buying the product
or going without it)
Price
Firm’s
Cost to Produce
How value is created

17. What is Competitive Advantage? (cont.)
• In financial terms, a competitive advantage is
assumed when a firm earns a higher rate of
economic profit than the average rate of
economic profit of other firms in the same market
• That said, a firm’s economic profitability within a
particular industry depends on (1) the economic
attractiveness or unattractiveness of the market
in which it competes and (2) its competitive
position in that market
– So, what’s more important … the competitive forces at
work in a market? or the strategic chooses it makes to
compete in the market?
• Can a firm ‘lose’ its competitive advantage?

18. What is Competitive Advantage? (cont.)
External Sources
• Underlying assumptions of the
industrial organizational (I/O)
model of above-average
returns
– Macro environmental forces
impose constraints that determine
firm strategies
– Firms in the same market
segment likely control similar
strategically relevant resources
and therefore pursue similar
strategies
– Resources for implementing
strategies are highly mobile
across firms; therefore resource
advantages are short-lived
– Organizational decision makers
(i.e., top managers) are rational
and always committed to acting in
the firm's best interests
Internal Sources
• Underlying assumptions of the
resource-based model of
above-average returns
– Resources are the basis for
competitive advantage:
• Each firm’s performance across
time is function of the attributes of
resources it controls
• A source of advantage when they
are valuable, rare, costly to imitate
and nonsubstitutable
– Combined uniqueness of firm
resources determine the strategic
actions it can/should take
1–18
Potential Sources of Competitive Advantage

19. • Competitive advantage is achieved by driving a
wedge between buyer willingness to pay and
value added by the firm
– Value = difference between buyer’s willingness to pay
and seller’s opportunity cost
– Added value = marginal value created by the firm
(value that would be lost by its absence)
– The larger the added value, the larger the potential
profit for the seller
• Industry structure matters, but success does not
come just from industry attractiveness
• Strategies must evolve as circumstances
change
1–19
Creating Competitive Advantage: A Summary

20. Planning for Success
• Understand the
external environment:
– markets, technology,
regulation, economic
conditions
• Understand resources
and capabilities:
– physical, human, and
organizational capital
• Combine environmental and internal analyses to
identify potential strategic positions
• Develop strategy and organizational
architecture

21. On the one hand …
“The essence of strategic planning is the systematic identification
of opportunities and threats that like in the future [to] provide a
basis for making better current decisions.”
– George Steiner
“There are significant benefits to gain through an explicit process
of formulating strategy to insure that at least the policies (if not
the actions of functional departments) are coordinated and
directed at some common set of goals.”
– Michael Porter
On the other …
“Planning is the substitution of error for chaos.”
– Anonymous
“Most corporate planning is like a ritual rain dance: It has no
effect on the weather that follows, but it makes those who engage
in it feel they are in control.”
– Russell Ackoff
1–21
Differing Perspectives on Strategic Planning

22. Learn to Think “Outside the Box”
The greatest
difficulty in the world
is not for people to
accept new ideas,
but to make them
forget about old
ones.
~ John Maynard Keynes, Economist

23. Characteristics of a “Good” Strategy
• It is focused
– It is not diffused across all potential aspects of the
market
• The shape of the value curve diverges from any
potential competitors
• It has a compelling tagline

24. 1–24
Strategy Implementation: What’s the big deal?

25. 1–25
Framework for Strategy Implementation
Intended
Strategy
Realized
and
Emergent
Strategies
Key Factors of Strategy Implementation
Implementation levers
– Organizational structure
– Systems and processes
– People and rewards
Strategic leadership
– Resource-allocation decisions
– Decision support among stakeholders
The right of any corporation to exist is not perpetual but
has to be continuously earned.
– Robert Simmons