Basic ConceptA company's strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve organizational objectives. Basic ConceptA company's business model deals with whether the revenue-cost-profit economics of its strategy demonstrate the viability of the enterprise as a whole. Excellent execution of an excellent strategy is the best test of managerial excellence-and the most reliable recipe for organizational success.Basic ConceptThe term strategic management refers to the managerial process of forming a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and then over time initiating whatever corrective adjustments in the vision, objectives, strategy, and execution are deemed appropriate.Basic ConceptA strategic vision is a roadmap of a company's future-providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create. Basic Concept A company's mission statement is typically focused on its present business scope-"who we are and what we do"; mission statements broadly describe an organization's present capabilities, customer focus, activities, and business makeup. Basic ConceptObjectives are an organization's performance targets-the results and outcomes it wants to achieve. They function as yardsticks for tracking an organization's performance and progress.Basic ConceptStrategic objectives relate to outcomes that strengthen an organization's overall business position and competitive vitality; Financial objectives relate to the financial performance targets management has established for the organization to achieve. Basic ConceptA company's strategy consists of the competitive efforts and business approaches that managers employ to please customers, compete successfully, and achieve organizational objectives.Strategy is both proactive (intended and deliberate) and reactive (adaptive).Company strategies are partly visible and partly hidden to outside view.Strategy making is fundamentally a market-driven and customer-driven entrepreneurial activity-the essential qualities are a talent for capitalizing on emerging market opportunities and evolving customer needs, a bias for innovation and creativity, an appetite for prudent risk taking, and a strong sense of what needs to be done to grow and strengthen the business. Basic ConceptThe march of external and internal developments dictate that a company's strategy change and evolve over time-a condition that makes strategy making an ongoing process, not a one-time event.Basic ConceptA strategic plan consists of an organization's mission and future direction, near-term and long-term performance targets, and strategy.The faster a company's external and internal environment changes, the more frequently that its short-run and long-run strategic plans have to be revised and updated-annual changes may not be adequate. In today's world strategy life cycles are growing shorter, not longer.Basic ConceptStrategy implementation concerns the managerial exercise of putting a freshly chosen strategy into place. Strategy execution deals with the managerial exercise of supervising the ongoing pursuit of strategy, making it work, improving the competence with which it is executed, and showing measurable progress in achieving the targeted results.Strategy execution is fundamentally an action-oriented, make-it-happen process-the key tasks are developing competencies and capabilities, budgeting, policy making, motivating, culture-building, and leadership.A company's vision, objectives, strategy, and approach to implementation are never final; evaluating performance, reviewing changes in the surrounding environment, and making adjustments are normal and necessary parts of the strategic management process.Strategic management is a tightly-knit process; the boundaries between the five tasks are conceptual, not fences that prevent some or all of them being done together.Every company manager has a strategy-making/strategy-implementing role-it is flawed thinking to view strategic management as solely the province of senior executives.Broad participation in a company's strategy-creating exercises is usually a strong plus.Corporate intrapreneuring relies upon middle and lower-level managers and teams to spot new business opportunities, develop strategic plans to pursue them, and create new businesses.Each of the four basic strategy-making approaches has strengths and weaknesses, and each is workable in the "right" situation. Strategic Management PrincipleThe central role of the board of directors in the strategic management process is (1) to critically appraise and ultimately approve strategic action plans and (2) to evaluate the strategic leadership skills of the CEO and others in line to succeed the incumbent CEO.
Managers are not prepared to decide on a long-term direction or a strategy until they have a keen understanding of the company's strategic situation-the exact nature of the industry and competitive conditions it faces and how these conditions match up with its resources and capabilities.An industry's economic features help frame the window of strategic approaches a company can pursue.When strong economies of learning and experience result in declining unit costs as cumulative production volume builds, a strategy to become the largest-volume manufacturer can yield the competitive advantage of being the industry's lowest-cost producer.Principle of Competitive MarketsCompetitive jockeying among rival firms is a dynamic, ever-changing process as new offensive and defensive moves are initiated and emphasis swings from one blend of competitive weapons and tactics to another.Principle of Competitive MarketsThe threat of entry is stronger when entry barriers are low, when there's a sizable pool of entry candidates, when incumbent firms are unable or unwilling to vigorously contest a newcomer's efforts to gain a market foothold, and when a newcomer can expect to earn attractive profits. Principle of Competitive MarketsThe competitive threat posed by substitute products is strong when substitutes are readily available and attractively priced, buyers believe substitutes have comparable or better features, and buyers' switching costs are low.Principle of Competitive MarketsThe suppliers to a group of rival firms are a strong competitive force whenever they have sufficient bargaining power to put certain rivals at a competitive disadvantage based on the prices they can command, the quality and performance of the items they supply, or the reliability of their deliveries.Principle of Competitive MarketsBuyers are a strong competitive force when they are able to exercise bargaining leverage over price, quality, service, or other terms of sale.High switching costs create buyer lock-in and weaken a buyer's bargaining power.A company's competitive strategy is increasingly effective the more it provides good defenses against the five competitive forces, shifts competitive pressures in ways that favor the company, and helps create sustainable competitive advantage.Basic ConceptIndustry conditions change because important forces are driving industry participants (competitors, customers, or suppliers) to alter their actions; the driving forces in an industry are the major underlying causes of changing industry and competitive conditions.The task of driving-forces analysis is to separate the major causes of industry change from the minor ones; usually no more than three or four factors qualify as driving forces.Managers can use environmental scanning to spot budding trends and clues of change that could develop into new driving forces.Basic ConceptStrategic group mapping is a technique for displaying the different competitive positions that rival firms occupy in the industry.Dividing industry members into strategic groups allows industry analysts to better understand the pattern of competition in complex industries and to pinpoint a firm's closest competitors.Some strategic groups are usually more favorably positioned than other strategic groups because driving forces and competitive pressures do not affect each group evenly and because profit prospects vary among groups based on the relative attractiveness of their market positions.Successful strategists take great pains in gathering competitive intelligence about competitors' strategies, monitoring their actions, sizing up their strengths and weaknesses, and using what they have learned to anticipate what moves rivals are likely to make next.It is advantageous to know more about your competitors than they know about you.The company that consistently has more and better information about its competitors is better positioned to prevail, other things being equal.Managers who fail to study competitors closely risk being blindsided by surprise actions on the part of rivals.Basic ConceptKey success factors concern the product attributes, competencies, competitive capabilities, and market achievements with the greatest direct bearing on company profitability.Strategic Management PrincipleA sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor.A company that is uniquely well-situated in an otherwise unattractive industry can, under certain circumstances, still earn unusually good profits.
Key ConceptsThe stronger a company's financial performance and market position, the more likely it has a well-conceived, well-executed strategy.Basic ConceptA company is positioned to succeed if it has a competitively valuable complement of resources at its command.Basic ConceptA company's resource strengths represent competitive assets; its resource weaknesses represent competitive liabilities.Basic ConceptA company competence is the product of learning and experience and represents real proficiency in performing an internal activity.Basic ConceptA core competence is something that a company does well relative to other internal activities; a distinctive competence is something a company does well relative to competitors.Strategic Management PrincipleA distinctive competence empowers a company to build competitive advantage.Strategic Management PrincipleSuccessful strategists seek to capitalize on what a company does best-its expertise, resource strengths, and strongest competitive capabilities.Strategic Management PrincipleSuccessful strategists aim at capturing a company's best growth opportunities and creating defenses against external threats to its competitive position and future performance.Simply listing a company's strengths, weaknesses, opportunities, and threats is not enough; the payoff of SWOT analysis comes from the evaluations and conclusions that flow from the four lists.Assessing whether a company's costs are competitive with those of its close rivals is a necessary part of company situation analysis.Principle of Competitive MarketsThe higher a company's costs are above those of close rivals, the more competitively vulnerable it becomes.Basic ConceptStrategic cost analysis involves comparing how a company's unit costs stack up against the unit costs of key competitors activity by activity, thereby pinpointing which internal activities are a source of cost advantage or disadvantage.Basic ConceptA company's value chain identifies the primary activities that create value for customers and the related support activities.A company's cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chains of suppliers and forward channel allies.Benchmarking the costs of company activities against rivals provides hard evidence of a company's cost competitiveness.Basic ConceptBenchmarking has proven to be a potent tool for learning which companies are best at performing particular activities and then utilizing their techniques (or "best practices") to improve the cost and effectiveness of a company's own internal activities.Strategic actions to eliminate a cost disadvantage need to be linked to the location in the value chain where the cost differences originate.Strategic Management PrinciplePerforming value chain activities in ways that give a company the capabilities to outmatch rivals is a source of competitive advantage.High competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage.A weighted competitive strength analysis is conceptually stronger than an unweighted analysis because of the inherent weakness in assuming that all the strength measures are equally important.High competitive strength ratings vis-à-vis competitors signal opportunity for a company to improve its long-term market position.Good strategy entails looking for opportunities to leverage company strengths into competitive advantage, often by using company strengths to attack the competitive weaknesses of rivals.Identifying the strategic issues a company faces is a prerequisite to effective strategy making. It involves developing a "worry list" of strategic challenges concerning "how to . . .", whether to . . .", and "what to do about . . ."Strategic Management PrincipleA good strategy must contain ways to deal with all the strategic issues that stand in the way of the company's financial and competitive success in the years ahead.
Key Concepts Investing aggressively in creating sustainable competitive advantage is a company's single most dependable contributor to above-average profitability.The objective of competitive strategy is to knock the socks off rival companies by doing a significantly better job of providing what buyers are looking for.A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their businesses.Outperforming rivals in controlling the factors that drive costs is a very demanding managerial exercise.Success in achieving cost advantages over rivals comes from exploring all avenues for reducing costs and pressing for continuous cost reductions across all aspects of the company's operations year after year after year.In markets where rivals compete mainly on price, low cost relative to competitors is the only competitive advantage that matters.A low-cost leader is in the strongest position to win the business of price-sensitive buyers, set the floor on market price, and still earn a profit.A low-cost provider's product offering must always contain enough attributes to be attractive to prospective buyers-low price, by itself, is not always appealing to buyers.The essence of a differentiation strategy is to be unique in ways that are valuable to customers and that can be sustained.Easy-to-copy differentiating features cannot produce sustainable competitive advantage.A differentiator's basis for competitive advantage is either a product/service offering whose attributes differ significantly from the offerings of rivals or a set of capabilities for delivering customer value that rivals don't have or can't quite match.A firm whose differentiation strategy delivers only modest extra value but clearly signals that extra value may command a higher price than a firm that actually delivers higher value but signals it poorly.Any differentiating element that works well tends to draw imitators. The most successful best-cost producers have competencies and capabilities to simultaneously manage unit costs down and product caliber up. The most powerful competitive strategy of all is relentlessly striving to become a lower-and-lower-cost provider of a higher-and-higher-caliber product. The closer a firm can get to the ultimate of being the industry's absolute lowest-cost provider and, simultaneously, the provider of the industry's overall best product, the less vulnerable it becomes to rivals' actions. Even though a focuser may be small, it still may have substantial competitve strength because of the attractiveness of its product offering and its strong expertise and capabilities in meeting the needs and expectations of niche members.Alliances and partnerships are a necessity in racing against rivals to build a strong global presence and/or to stake out a position in the industries of the future. Alliances and cooperative arrangements, whether they bring together companies from different parts of the industry value chain or different parts of the world, are a fact of life in business today. Growing use of alliances is shifting the basis of competition to groups of companies against groups of companies.The competitive attraction of alliances is to bundle competences and resources that are more valuable in a joint effort than when kept separate.Alliances are highly beneficial in racing against rivals for global market leadership.Alliances are also highly beneficial in racing against rivals to build the expertise and market position needed to win a strong position in the industries of the future.While a few firms can pursue their strategies alone, it is becoming increasingly common for companies to pursue their strategies in collaboration with suppliers, distributors, makers of complementary products, and sometimes even select competitors.Many alliances fail and break apart, never reaching their intended potential, because of frictions and conflicts among the allies.No company can afford to ignore the strategic and competitive benefits of acquiring or merging with another company to strenghten its market position and open up avenues of new opportunity.A vertical integration strategy has appeal only if it significantly strengthens a firm's competitive position.The big disadvantage of vertical integration is that it locks a firm deeper into the industry; unless operating across more stages in the industry's value chain builds competitive advantage, it is a questionable strategic move.Outsourcing makes good strategic sense in a number of instances.Using outsourcing to narrow a company's business boundaries offers significant advantages.Competitive advantage is usually acquired by employing a creative offensive strategy that isn't easily thwarted by rivals.Competent, resourceful rivals will exert strong efforts to overcome any competitive disadvantage they face-they won't be out- competed without a fight.One of the most powerful offensive strategies is to challenge rivals with an equally good or better product at a lower price.Challenging larger, entrenched competitors with aggressive price cutting is foolhardy unless the aggressor has either a cost advantage or greater financial strength.A successful end-run offensive allows a company to gain a significant first-mover advantage in a new arena and force competitors to play catch-up.Guerrillas are a thorn in the side of larger competitors, quick to take advantage of whatever opportunities come their way yet careful not to provoke concerted competitive retaliation.Successful preemptive strikes relegate rivals to competing for second-best positions.At the very least, an offensive must be tied to a firm's resource strengths; more optimally, it is grounded in competitive advantage.The foremost purpose of defensive strategy is to protect competitive advantage and fortify the firm's competitive position.There are many ways to throw obstacles in the path of would-be challengers.Because of first-mover advantages and disadvantages, competitive advantage is often attached to when a move is made as well as to what move is made.
Key Concepts When to diversify depends partly on a company's growth opportunities in its present industry and partly on the opportunities to utilize its resources, expertise, and capabilities in other market arenas.Diversification doesn't need to become a strategic priority until a company begins to run out of attractive growth opportunities in its main business.There are important organizational, managerial, and strategic advantages to concentrating on just one business.To create shareholder value, a diversifying company must get into businesses that can perform better under common management than they could perform as stand-alone enterprises.Strategic fits among related businesses offer the competitive advantage potential of (a) efficient transfer of key skills, technological expertise, or managerial know-how from one business to another, (b) lower costs, (c) ability to share a common brand name, or (d) creation of competitively valuable resource strengths and capabilities.