McGraw-Hill/Irwin

CHAPTER

1

What Is Strategy and Why Is It Important?

Instructor: Dr.Gehan Shanmuganathan Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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 Microsoft

• Google founded in 1998  Two graduate students at Stanford  PageRank algorithm a clear improvement  Today, it is world’s leading online search/advertising firm • Microsoft bought LinkExchange in 1998  Keywords product for search engines was shut down • Microsoft considered buying Overture Services in 2003  Gates and Ballmer passed on the deal  Yahoo buys Overture for its own search product • Microsoft launches its own search in 2009  Bing now partnered with Yahoo 1-4

WHAT STRATEGY IS: GAINING AND SUSTAINING COMPETITIVE ADVANTAGE

•

What Is Competitive Advantage?

 Superior performance relative to competitors  Examples: Google, Duke Basketball, Pfizer’s Lipitor •

What Is Strategy?

 Goal-directed actions to gain and sustain competitive advantage  NOT a zero-sum game  Win – win scenarios – co-opetition  Requires trade-offs for strategic positioning  JCPenney vs. Neiman Marcus  Southwest Airlines vs. Delta Song 1-5

What Strategy Is NOT….

• Raking in every penny the firm can get  Profit is a consequence of good strategy, it is NOT the main goal! • Operational effectiveness  Enterprise Resource Planning (ERP)  Benchmarking  Six Sigma  “Necessary but not sufficient” such as Lean Manufacture 1-6

Strategy Across the Levels

• Where to Compete?

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

• How to Compete?  Should GE jet engines have better fuel efficiency than Rolls Royce? • How to Implement?  Should GE human resources recruit more science graduates?

• CORPORATE STRATEGY • BUSINESS STRATEGY • FUNCTIONAL STRATEGY 1-7

BUSINESS MODELS:

•

PUTTING STRATEGY INTO ACTION

 Razor-blade model  Subscription model • How is the firm going to make money to continue operations? • What’s happening now between Microsoft & Google?  Business models in opposite directions 1-8

STRATEGY IN THE 21ST CENTURY

• Accelerating Technological Change  84 years for half of U.S. families to own a car  28 years for half to own a TV  6 years for an MP3 player 1-9

EXHIBIT 1.5

Accelerating Speed of Technological Change 1-10

STRATEGY IN THE 21ST CENTURY

•

Future Industries



HEALTH CARE

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

GREEN ECONOMY

 Potentially large growth in energy efficiency and technologies 

WEB 2.0

 Interactivity and using collective intelligence on the Internet 1-11

STRATEGY HIGHLIGHT 1.1

Threadless: Leveraging Crowdsourcing to Design Cool T-Shirts

• Online apparel company  Started in 2000 by 2 students with $1,000  “Prosumers” – a hybrid supplier/customer  Shirt designs are submitted by the community  Designs are voted on by the online community – Only winning designs are produced & sold Threadless Interview

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STAKEHOLDERS

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Successful business generates societal value

•

Stakeholders – are affected by firm’s actions



Internal



External

•

Vary by industry



Autos



Investment banking

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THE AFI STRATEGY FRAMEWORK

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Analyze (A)



Getting Started; External & Internal Analysis



Chapters 1 thru 5

•

Formulate (F)



Business and Corporate Strategy



Chapters 6 thru 10

•

Implement (I)

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Organizational Design & Corporate Governance



Chapters 11 thru 12

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CHAPTERCASE 1

Consider This…

• Microsoft has a new partner in the competition for a search engine with Google… FACEBOOK • In fall 2010, Mark Zuckerberg announced their surprising decision to partner with the “really scrappy…underdog”

…Bing !!

• The partners are aiming to make “search more social” • “Our approach is about the speed of getting things done…not the speed of high volume of results” 1-15