MGT Chapter 1 Summary - book \"Crafting and Executing Strategy\" PDF

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Download MGT Chapter 1 Summary - book "Crafting and Executing Strategy" PDF

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Chapter 1: What is Strategy and Why is it important?  A company’s strategy is the set of actions that its managers take to outperform the company’s competitors and achieve superior profitability o Objective is lasting success that can support growth and secure company’s future over the long term o Its purpose is to achieve alignment of corporate actions, policies, and strategic priorities  How to attract and please customers  How to compete against rivals  How to position the firm in the marketplace to capitalize on attractive opportunities for growth  How to respond to changing economic and market conditions  How to manage each functional piece of the business  How to achieve the firm’s performance targets o What is our present situation?  Business environment and industry conditions  Firm’s financial and competitive capabilities o Where do we want to go from here?  Creating a vision for the firm’s future direction o How are we going to get there?  Crafting an action plan for heading the firm in the intended direction, staking out a market position, attracting customers, achieving the targeted financial and market performance, and getting the firm where it wants to go is its strategy  Strategy Maangement Prinicple: strategy is aabout copeting idffernly from rivals- doing what competitors don’t do or even better, doing what they cannot do o Strategy works when it is predicated on actions, business approaches and competitive moves aimed at appealing to buyers in ways that set a company apart from its rivals and staking out a market position that is not croweded with strong competitors  Strategy and the Quest for Competitve Advantage o Achieves competitive advantage whenever it has some type fo edge over rivals in attracting buyers and coping with competitive forces o Superior value can mean a good product at a lower price, a suspeior product that is wrkth paying more for or a best-value offereing o Requires perfomring value chain more efficiently o A firm needs a strategy to specify what actions are going to be taken:  To improve its financial performance  To strengthen its competitive position  To gain a sustainable competitive advantage over its market rivals o A creative, distinctive strategy:  Helps produce above-average profits  Increases competitive pressures on rivals o Strategy is about competing differently from rivals:  Doing what they do not do or doing it better!

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Doing what they cannot do! Doing things in ways that attract customers and set a firm apart from its rivals  Doing things in a manner calculated to produce a competitive edge over rivals  Knowing what the firm must do and also what it must not do o What makes a sustainable competitive advantate are the elemnts of the strategy that give buyers lasting reaons to prefer a company’s prpduct or services over those of competitors  Reasons that competitors are unable to nullify or overcome despite their best efforts  Five Strategies for Building Competitive Advantage o Low-cost: acheieving a cost-based advantage over rivals  Walmart and southwest have earned strong market positions because of the low-cost advantages they have ahceived over their rivals  Can produce a durable competitive edge when rivals find it hard to match the low-cost leader’s o Broad Differentiation: seeking to differentiate the copany’s prpduct or service form that of rivals in ways that will appeal to a broad spectrum  Apple, Johnson and Johsnon in baby products  Sufficiently innovative to thwart the efforts of clever rivals to copy or closely imitate the product offering o Focused low-cost: concetraing on a narrow buyer segement and outcpmpteing rivals by having lower costs thus being able to servie niche members at a lower price  Private labeled manaufactueres of food/beautiy use this o Focused idfferenttiaton: concentrainig on a narrow buyer segment and outcop,te rivals by offer buyers customizated attricuted to mee their specific needs  Ex: Lululemon o Best-cost provider: giving customers more value for the money by satisfying their expectations on key quality features, performance and/or service attribures while beating their price expectations  Bleds low cost and differentiation  Ex: Target  Why a Company’s strategy evolves over time o Managers modify strategy in response to:  Changing market conditions  Advancing technology  Fresh moves of competitors  Shifting buyer needs  Emerging market opportunities  New ideas for improving the strategy o Company’s strategy changes incrementally as management fine-tunes various pieces of the strategy and adjusts in response to unfolding events

 Proactive and Reactive Strategy o The evoling nature of company’s strategy means that the typical company strategy is a blend of  Proactive (deliberate) strategy elements that include both continued and new initiatives  Reactive (emergent) strategy elements that are required due to unanticipated competitive developments and fresh market conditions o Deliberate Strategy: consisting of proactive strategy elements that are both planned and realized as planned (Fig. 1.2) o Portion is always developed on the fly o A company’s deliberate strategy consist of proactive strategy elements that are planned; its emergent strategy consist of reactive strategy elements that emerge as changing conditions warrant A Company’s Strategy and Business Model  A company’s business model sets forth the logic for how its strategy will create value for customers, while at the same time generate revenues sufficient to cover costs and realize a profit o It’s the blueprint for delivering a valuable product or service to customers i  Two elements are of business model o Its customer value proposition  Lays out the company’s approach to satisfying the buyers needs and wants at aprice customers will consider a good value o Profit formula  Creating a cost structure that allows for acceptable profits, given that pricing is tied to the customer value proposition:  V—the value provided to customers  P—the price charged to customers  C—the firm’s costs  The lower the costs (C) for a given customer value proposition (V–P), the greater the ability of the business model to be a moneymaker  V-P: customers perception of how much value they are getting  P-C: profit per unit o Ex: Gillette’s business model in razor blades involves selling a master product at a low price and making money of repurchases What makes a Strategy a winner?  A winning strategy must pass three tests: o The Fit Test  Does it exhibit dynamic fit with the external and internal aspects of the firm’s overall situation?  Also dynamic fit in the sense that they evolve over time in a manner that maintains close and effective alignment with the company’s situation o The Competitive Advantage Test

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Can it help the firm achieve a significant and sustainable competitive advantage? o The Performance Test  Can it produce good performance as measured by the firm’s profitability, financial and competitive strengths, and market standing? Why Crafting and Executing Strategy are Important Tasks  Strategy provides: o A prescription for doing business o A road map to competitive advantage o A game plan for pleasing customers o A formula for attaining long-term standout marketplace performance  Good Strategy + Good Strategy Execution = Good Management  How well a company performs is directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed....