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Week 3 Assignment 1

Student Full Name

Strayer University

BUS499 Business Administration Capstone

Dr. Grizzell

Dr. Gardner

Date

Everything in Blue should be deleted

Due Week 3 and worth 115 points

Choose one (1) public corporation in an industry with which you are familiar. For a list of companies you can choose from, go to https://www.forbes.com/top-public-companies/list/5/#tab:overall . Research the company on its own website, the public filings on the Securities and Exchange Commission EDGAR database (http://www.sec.gov/edgar.shtml), in the University's online databases, and any other credible sources you can find. The annual report will often provide insights that can help address some of these questions.

Read chapters 1 -3 in the course textbook and complete the LEARN E-Activities for Weeks 1-3 as they set the foundation to this assignment. Be sure to cite your sources!

Begin your paper on Page 2 below and write a minimum of four (4) pages. The minimum page count does not include the Title or Source pages.

Week 3 Assignment 1

Write your introduction here. Include one (1) paragraph (not more than 6 lines of text) that explains what your paper will discuss. Much of your introduction may be taken from the assignment instructions (in your own words). Read all assignment resources to understand what should be included in your paper. Be sure to review the assignment instructions in Blackboard, the grading rubric, and the recorded writing workshop to understand the requirements. Do not exceed 6 lines of text in this introduction. There should be no direct quotes in this introduction.

Globalization

Thoroughly assess how globalization has impacted the corporation you researched. Provide a thoughtful and well researched response. Consider for example, how your chosen company has been involved in expanding globally, how it has been impacted by global competition, and the global economy. Do not simply define the term globalization. You will need to conduct an assessment (i.e. an evaluation) of the impact globalization has had on your selected corporation.

Your assessment/evaluation should demonstrate that you have read, understand, and can apply the globalization concepts covered in the textbook and course resources. Do not write about globalization in general terms. Your assessment should be directly related to your selected corporation. If your company has locations in other countries, do not simply list the various countries in which the company does business. Your writing here should thoroughly assess how globalization has impacted your chosen corporation. Do not Google “globalization” or simply provide a definition. You must display an understanding based on what is studied in this course and an ability to apply the concepts in a real-world evaluation of a corporation.

Your textbook must be a source along with other credible sources that support the globalization concepts covered in this course. Read Chapters 1-3 in the course text book as each chapter provides a solid background and clues on Globalization that apply to this section . Review the Week 1 & 2 Learn video Lectures for supporting content . Cite your sources and avoid or limit the use of direct quotes.

Technology

Thoroughly assess how technological changes have impacted the corporation you researched. Provide a thoughtful and well researched response. Consider for example, how the company has been impacted by cloud computing, social media, crowdfunding, program apps, email, texting, websites, mobile, automation, robotics, IOT (Internet of Things), AI (Artificial Intelligence), e-commerce, data and analytics, etc. Research how the company may have been impacted by diffusion and disruptive technologies as explained in the textbook. Do not simply define the term technology. You will need to conduct an assessment (i.e. an evaluation) of the impact changes in technology have had on your selected corporation.

Your assessment/evaluation should demonstrate that you have read, understand, and can apply the concept of technology covered in the textbook and course resources. Do not write about technology in general terms. Your assessment should be directly related to your selected corporation. If your company is technologically advanced, do not simply list the various technologies they possess but rather evaluate how changes in technology have impacted the corporation. You must display an understanding based on what is studied in this course and an ability to apply the concepts in a real-world evaluation of a corporation. Do not Google “technology” or simply provide a definition. Your writing here should thoroughly assess how changes in technology have impacted your chosen corporation.

Your textbook must be a source along with other credible sources that support the technology concepts covered in this course. You must display an understanding based on what is studied in this course. Read Chapters 1-3 in the course text book as each chapter provides a solid background and clues on Technology that apply to this section. Review the Week 1 & 2 Learn video Lectures for supporting content . Cite your sources and avoid or limit the use of direct quotes.

Industrial Organization Model

Thoroughly apply the industrial organization model to determine how your corporation could earn above-average returns (i.e. revenue). This model is based upon the corporation’s external environment which is anything outside of the corporation that can influence or impact its business (macro)/operations (micro). Your application should walk through what the model suggests is needed to earn above average returns (hint: see figure 1.2 in the textbook). Do not Google “Industrial Organization Model” or simply provide a definition or write in general terms. Your writing here should apply the model to your specific corporation, demonstrate your understanding of the concepts, as described in this course, and your ability to apply those concepts to a real-world corporation. Read Chapter 1 in the course text book as it provides a solid background and clues on this model that apply to this section. Review the Week 1 Learn video Lecture for supporting content . Cite your sources and avoid the use of direct quotes.

Resource-Based Model

Thoroughly apply the resource-based model to determine how your corporation could earn above-average returns (i.e. revenue). Consider the corporation’s unique resources (corporate culture, land, location, equipment, brand, reputation, trademarks, patents, etc.) and capabilities (skills, experience, capabilities, etc. that set it apart from its competition). Your application should walk through what the model suggests is needed to earn superior returns (hint: see figure 1.3 in the textbook). Do not Google “Resource-Based Model” or simply provide a definition or write in general terms. Your writing here should apply the model to your specific corporation, demonstrate your understanding of the concepts, as described in this course, and your ability to apply those concepts to a real-world corporation. Read Chapter 1 in the course text book as it provides a solid background and clues on this model that apply to this section. Review the Week 1 Learn video Lecture for supporting content. Cite your sources and avoid the use of direct quotes.

Vision

Thoroughly assess how the vision statement of the corporation influences its overall success. Include the actual vision statement for your chosen company (be sure to quote and cite per SWS or APA). Consider the key concepts discussed in chapter 1 regarding vision in your assessment of your selected corporation’s vision statement. Do not simply provide a definition of vision or general statements. In addition to the actual vision statement for your corporation, your writing must demonstrate that you understand the concept of vision, as discussed in this course, and can assess the impact your corporation’s vision statement has on its overall success. Read Chapter 1 in the course text book as it provides a solid background and clues on vision that apply to this section. Review the Week 1 Learn video Lecture for supporting content . Cite your sources.

Mission

Thoroughly assess how the mission statement of the corporation influences its overall success. Include the actual mission statement for your chosen company (be sure to quote and cite per SWS or APA). Consider the key concepts discussed in chapter 1 regarding mission in your assessment of your selected corporation’s mission statement. Do not simply provide a definition of mission or general statements. In addition to the mission statement of your selected corporation, your writing must demonstrate that you understand the concept of mission, as discussed in this course, and can assess the impact your corporation’s mission statement has on its overall success. Read Chapter 1 in the course text book as it provides a solid background and clues on mission that apply to this section. Review the Week 1 Learn video Lecture for supporting content. Cite your sources.

Stakeholders

Thoroughly evaluate how each category of stakeholder impacts the overall success of your selected corporation. Do not Google “stakeholders” and simply provide a definition or list. You must provide an evaluation that demonstrates your understanding of each classification of stakeholders, as described in this course. Do not write in general terms about stakeholders. Your evaluation must describe how each classification of stakeholders impacts your selected corporation’s success. Study Chapter 1 for additional background on Stakeholders as it provides a solid background on stakeholders that apply to this section. Review the Week 1 Learn video Lecture for supporting content. Cite your sources and avoid the use of direct quotes.

Sources

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management: Concepts and cases: Competiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning.

List your sources on this page and remember to delete the instructions, which are in blue font.

Use at least three (3) quality sources, one of which must be the course text book to support your ideas/work. Note: Wikipedia and college essay sites do not qualify as academic resources.

Cite your sources throughout your work when you borrow someone else’s words or ideas.

The source page must include all sources used. All sources listed here must be cited in your paper.

Look for a permalink tool for a webpage when possible (especially when an electronic

source requires logging in.

When using SWS remember to organize sources in a numbered list and in order of use throughout the paper; use the original number when citing a source multiple times; and follow this format for all sources:

Author. Publication Date. Title. Page # (written as p. #). How to Find (e.g. web address)

The APA format may also be used for a Reference page.

Questions to ask yourself before submitting your paper.

· Did I read the required course material and complete the required activities?

· Have I deleted the blue font instructions in this template?

· Did I leave the provided section headings in place, as provided in this template?

· After deleting the blue fonts in this template, have I changed all font to black?

Additional things to keep in mind.

· You will be graded on the quality of your answers, the logic/organization of the report, your language skills, and your writing skills using the grading rubric.

· Strayer uses SafeAssign – an automated plagiarism checker. It is advised that you do your own writing and use external resources to support what you have written in your own words.

Crafting and Executing Strategy

Arthur A. Thompson, Margaret A. Peteraf

John E. Gamble, Dr. A.J. Strickland

The Quest for Competitive Advantage

What is Strategy and Why is It Important?

Chapter 1

Chapter 1

Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different … Michael Porter – Professor and Consultant

If your firm’s strategy can be applied to any other firm, you don’t have a very good one … David J. Collis and Michael G. Rukstad -- Consultants and professors

If you don’t have a competitive advantage, don’t compete … Jack Welch – former CEO of General Electric

LEARNING OBJECTIVES

What is meant by a company’s strategy

Concept of a sustainable competitive advantage

The 5 most basic strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage

A company’s strategy tends to evolve because of changing circumstances and ongoing efforts by management to improve the strategy

Why it is important for a company to have a viable business model that outlines the company’s customer value proposition and its profit formula

The 3 tests of a winning strategy

Chapter 1

How to please customers

How to respond to changing market conditions

How to outcompete rivals

How to grow the business

How to manage each functional piece of the business and develop needed organizational capabilities

How to achieve strategic and financial objectives

Management commitment to a coherent array of well consider choices about how to compete

Chapter 1

A company strategy is the set of actions that the managers take to outperform the company’s competitors and achieve superior profitability

Strategy is about competing differently from rivals – doing what competitors don’t do or even better doing what they can’t do

The pattern of actions and business approaches that define a company’s strategy

Actions to gain sales and market share via more performance features, more appealing-design, better quality or customer service, wider product selection, or other such actions

Actions to gain sales and market shear with lower prices based o lower costs

Actions enter new product or geographic markets or to exit existing ones

Actions to capture emerging market opportunities and defend against external threats to the company’s business prospects

Actions to strengthen market standing and competitiveness by acquiring or merging with other companies

Actions to strengthen competitiveness via strategic alliances and collaborative partnerships

Actions and approaches used in managing R&D, production, sales and marketing, finance, and other key activities

Actions to upgrade, build, or acquire competitively important resources and capabilities

Actions to strengthen the firm’s bargaining position with suppliers, distributors, and others

Identifying a Company’s Strategy – WHAT to LOOK FOR

Sustainable Competitive Advantage

5 Basic

Strategic Approaches

Chapter 1

The 5

The first 2 are standard approaches

1. Low cost provider strategy

Achieving cost-based advantage over rivals – when rivals find it hard to match the low-cost leader’s approach to driving costs off the business

e.g. Southwest Airlines and Walmart

2. A broad differentiation strategy

Seeking to differentiate the company’s products or services of rivals in ways that will appeal to a broad spectrum of buyers (one way is through innovation)

e.g. BMW (engineering design and performance), LVMH (luxury and prestige), John & Johnson baby products (reliability)

Chapter 1

The 5

The next 2 begin to narrow the standard approaches

3. A Focused Low cost strategy

Focus on a market niche buyer and outcompeting rivals by having lower costs

e.g. private label manufacturers of food, health and beauty products, and nutritional supplements use their low-cost advantage to compete against brand names

4. A broad differentiation strategy

concentrate on a narrow buyer segment by offering buyers customized attributes that meet their specialized need and tastes better than rivals’ products

e.g. Jiffy Lube International in quick oil change, The Weather Chanel

Chapter 1

The 5

The last strategy is a HYBRID

5. A best-cost provider strategy

A hybrid strategy blends elements of low-cost prover and differentiation strategies --- the aim is to have lower cost than rivals while simultaneously offering bitter differentiation attributes

Giving customers more value for the money by satisfying their EXPECTATIONS ON KEY QUALITY FEATURES, PERFORMANCE, AND/OR SERVICE ATTRIUTES WHILE BEATING THEIR PRICE EXPECTATIONS

e.g. Target is know for its hip product design ( a reputation built by cheap-chic designers as Isaac Mizrahi) and more appealing shopping ambience for discount store shoppers

Chapter 1

ProActive AND ReActive Strategy

External Factors

Industry and competitive conditions

Buyers Preferences

Societal, political, economic, regulatory, technological, and environmental considerations

Internal Factors

Resource strengths and weaknesses

Competitive capabilities

Chapter 1

Abandoned

strategy elements

New planned initiatives plus ongoing strategy elements continued from prior periods

New strategy elements that emerge as managers react adaptively to changing circumstances

A company’s Current (or Realized) Strategy

Emergent Strategy

(reactive, Adaptive Elements)

Deliberate Strategy

(Proactive Strategy Elements)

What Makes a Strategy a WINNER?

A winning strategy must pass three tests:

The FIT TEST

How well does strategy fit the firm’s situation?

The COMPETITIVE ADVANTAGE TEST

Is the strategy helping the company achieve a sustainable competitive advantage?

The PERFORMANCE TEST

Is the strategy producing good company performance?

Chapter 1

The Fit Test … no strategy can work well unless it exhibits good external fit and is in sync with prevailing market conditions … a wining strategy must be tailored to the company’s resources and competitive capabilities and be supported by a complementary set of functional activities.

It must also exhibit internal fit and the capability with company’s ability to execute the strategy in a competent manner

Unless a strategy exhibits a good fit both external and internal aspects it is likely to under perform

Winning strategies also exhibit a dynamic fit in the sense it is evolving over time

The Competitive Advantage test … the bigger and more durable the competitive advantage the more powerful it is

The Performance test … 2 kinds of performance indicator (1) competitive strength and market standing and (2) profitability and financial strength

Above-average financial performance or gains in the market share, competitive position or profitability are signs of a winning strategy

Good Strategy + Good Strategy Execution = Good Management

Strategy Link to Ethics

Ethical strategies must entail actions and behaviour that can pass the test of moral scrutiny in the sense of NOT BEING deceitful, unfair or harm to others, disrespectable, or unreasonably damaging to the environment

Core Management Functions

Good strategy and good strategy execution are the most telling and trustworthy signs of good management

Management team charts the company’s direction

Develops competitive effective strategic moves

And pursues what needs to be done internally to produce day-in and day-out strategy execution and operation excellence

Chapter 1

LEARNING OBJECTIVES

What is meant by a company’s strategy

Concept of a sustainable competitive advantage

The 5 most basic strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage

A company’s strategy tends to evolve because of changing circumstances and ongoing efforts by management to improve the strategy

Why it is important for a company to have a viable business model that outlines the company’s customer value proposition and its profit formula

The 3 tests of a winning strategy

Chapter 1

Assignment

Read Chapters 1 & 2

The chapters begin with Learning Objectives (L.O.) by the authors

Select two L.O.s from each chapter and discuss how the author succeeded with you – i.e. explain the learnings from your perspective (minimum 100 words per L.O.).

Suggest applying the concepts toward your final paper.

Submit all responses in the appropriate Blackboard Discussions module

Chapter 1

Crafting and Executing Strategy

The Quest for Competitive Advantage

Arthur A. Thompson, Margaret A. Peteraf

John E. Gamble, Dr. A.J. Strickland

Charting a Company’s Direction

Chapter 2

Learning Objectives.

LO 2-1 Explain why it is critical for managers to have a clear strategic vision of where the company needs to head
LO 2-2 Explain the importance of setting both strategic and financial objectives
LO 2-3 Explain why the strategic initiatives taken at various organizational levels must be tightly coordinated
LO 2-4 Identify what a company must do to achieve operating excellence and to execute it strategy proficiently
LO 2-5 Explain the role and responsibility of a company’s board of directors in overseeing the strategic management process

Stage 1 : Developing a Strategic Vision, Mission Statement and Set of Core Values

https://images.search.yahoo.com

Stage 1: Developing

Develop a strategic vision

The views and conclusions about the company’s long term direction

Decide what product-market-customer business mix seems optimal

Tells the stakeholders what direction the company is headed

Be distinct, specific, and avoid broad statements

Should be able to direct lower-level managers on decisions in line with the company’s values

Developing a Strategic Vision

A strategic vision describes management’s aspirations for the company’s future and the course and direction charted to achieve them

An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to action tat moves the company in the intended long-term direction

The real purpose of a vision statement is to serve as a management tool for giving the organization a sense of direction

For a strategic vision to function as a valuable management tool, it must convey what top executives want the business to look like and provide managers at all organizational levels with a reference point in making strategic decisions and preparing the company for the future

Wording of Vision Statement … the Dos and Don’ts

The Dos The Don’ts
Be graphic … paint a clear picture Don’t be vague or incomplete … identify specifics
Be forward-looking and directional– what are the future plans Don’t dwell on the present … where are we going
Keep it focused … in making decisions and allocating resources Don’t use overly broad language
Have some wiggle room … allow language with flexibility to adjust to changes in the market, customers, technology Don’t state the vision in bland or uninspiring terms
Be sure the journey is feasible … what the company can accomplish overtime Don’t be generic
Indicate why the directional path makes good business sense … what are long term interests of stakeholders Don’t rely on superlatives
Make it memorable … a vision statement should be short, easy to communicate and memorable Don’t run on and on … get to the point

Developing a Mission Statement

The distinction between a strategic vision and mission statement is

A strategic vision portrays a company’s aspirations for it future … where we are going

A mission statement describes the scope and purpose of the present business… who we are, what we do, and why we are here

A well worded mission statement must employ language specific enough to distinguish its business makeup and purpose from those of other enterprises and give the company its own identity

Mission Statement describes the scope and purpose of the present business

Who we are

What we do

Why we are here

Mission Statement

Mission Statement- the enterprise’s present business and purpose

Who we are, what we do, and why we are here

Developing the mission statement

Identifies the company’s products and/or services

Specify the buyer needs that the company wants to satisfy and the customer group to satisfy

Gives the company its own identity

Youtube mission statement- “To provide fast and easy video access and the ability to share videos frequently”

The vision and mission statement are linked to the core values of the company

Linking vision and Mission with Company Values

Company Core Values .. Determined as a guide to pursuit of its vision and mission

Certain designated beliefs and traits

Behavioral norms

Zappos 10 core values

1. Deliver WOW through service

2. Embrace and Drive change

3. Create Fun and a Little Weirdness

4. Be Adventurous, Creative, and Open-Minded

5. Pursue Growth and Learning

6. Build Open and Hones Relationships with Communication

7. Build a Positive Team and Family Spirit

8. Do More with Less

9. Be Passionate and Determined

10. Be Humble

Values relate to such things as fair treatment, honor and integrity, ethical behavior, innovativeness, teamwork, a passion for top-notch quality or superior customer service, social responsibility, and community citizenship

Stage 2 Setting Objectives

Objectives

Objectives are an organization’s performance targets – which are

Specific

Measurable

Time limited

Challenging

Achievable

Objectives

Purpose: Convert the vision and mission into specific performance targets
Objectives should be: Measurable, quantifiable, and should contain deadlines
Why measurable? Focus efforts and align actions throughout organization Serve as “yardsticks” for tracking a company’s performance and progress Motivate to reach for higher goals and extend greater effort

Using OBJECTIVES

Stretch OBJECTIVES Types of Objective to Set
Best way to promote outstanding company performance is through setting targets high enough to stretch an organization to perform at it’s full potential and deliver the best possible results. Financial Objectives: financial performance target Strategic Objectives: strengthening market standing, competitive position, future business prospects
Helps promote: Urgency in improving financial performance and business position More intentional actions Both should have both short-term (quarterly) and long-term(3 to 5 years)targets.
Strategic intent: using all of the company’s resources and competitive actions on reaching these objectives Short term should focus on delivering performance improvements in the current period to satisfy shareholder expectations for near-term progress
Long-term focus on what company position they should focusing on now to improve performance for later Long-term>Short-term

Balanced Approach to Objective Setting

Don’t solely focus on financial indicators to predict a company’s future prospects
The most reliable leading indicators of a company’s future financial performance is its strategic outcomes to determine its market position and whether it’s weakening or strengthening
Balanced Scorecard-method for measuring strategic and financial objectives Provides employees clear guidelines about how their jobs are linked to overall objectives 50% of Global Companies adopt this approach to setting objectives Ex. UPS, Hilton Hotels, etc.

Setting Objectives for Every Organizational Level

Top-down process
Break down objectives for each separate business department, product lines, functional departments, etc.
Narrow objectives guide employees to better reach these goals Team effort approach and consistently knowing strategic roles will produce desired results

Stage 3 : Crafting Strategies .

Putting a strategy together entails addressing the “Hows”

How to attract customers

How to compete against rivals

How to respond to market change

How to capitalize on opportunities

How to achieve strategic and financial objectives

Good strategy makers can foresee a shift in the market before it happens and plan his/her strategy accordingly

Top Level and Lower Level Strategies

Top level management strategies

The CEO is ultimately responsible for leading of strategy implementation and execution.

Takes full credit/responsibility for the strategies successes and/or failures

Board Members and key subordinates are often sought after for advice/approval.

In most cases the CFO, VP of marketing, VP of production, vp of HR, etc help influence and fashion specific component of the chief strategy.

Lower level management strategies

Usually the bigger and more complex a company becomes the more important it is to delegate strategy crafting and implementation

Managers of specific operating units can often have a bigger advantage over top level managers when it comes to making in the field strategic decisions

In most companies today every manager have a role to play in the strategy making process

Strategy Making Hierarchy

Corporate strategy (set of businesses as a whole)

Orchestrated by the CEO and other senior executives

How to gain advantage from managing a set of businesses

Business strategy (one for each diversified business)

Orchestrated by general managers of companies different lines of business (with input from executive heads)

How to gain and sustain a competitive advantage for a single line of business

Functional area strategies (within each business)

Orchestrated by the heads of major functional activities within a particular business

How to manage a particular activity within a business in ways that support the strategy.

Operating strategies (within each functional area)

Orchestrated by managers of strategicaly important activities

How to manage activities of strategic value within each functional area

Corporate strategy (set of business as a whole

Business strategy … one for each diversified business

Functional area strategies … within each business

Operating strategies .. Within each functional area

Uniting the strategy making hierarchy

All pieces of the company's strategy making hierarchy but fit together

If not the overall company strategy could be compromised and impair company performance

CEO and top executives are responsible for achieving unity

Standard approach: Strategy-making must start at the top of the organization and work its way down

Stage 4 Executing Strategies

Most demanding part of strategy development

Takes the most time

Tests manager's ability

Direct change

Motivate employees

Meet goals

Management action plan

“What needs to be done?”

“What do I need to do to accomplish the plan?”

Diligent pursuit of operating excellence

Success hinges on skills and cooperation

Principle Aspects of Managing Execution

Creating a strategy-supporting structure

Staffing

Developing strategy-supporting structure

Allocating ample resources

Ensure policies facilitate execution

Organizing “Best Practices”

Installing systems to enable activities

Motivating people

Creating a company culture

Lead others

Stage 5: Evaluating Performance and Initiating Corrective Adjustments

Evaluating Performance and Initiating Corrective Adjustments

Managers must Determine

Is current strategy a Good Fit?

Do they have a competitive Advantage?

Strong Performance?

Maintain Course?

Establish New Plan?

Corporate Governance: The Role of the Board of Directors in Strategy-Crafting, Strategy-Executing Process

Oversee company's financial accounting and financial reporting

Ensure Financials Meet GAAP

Create and Manage Audit Committee

Oversee CEO and top executives

Responsible for accuracy of Financial Statements

Appraise company’s

Direction

Strategy

Business Approaches

The board makes independent judgments about the validity and wisdom of management’s proposed strategic actions.

The Role of the Board of Directors

3. Evaluate Senior Executives

Create metrics to measure executives performance.

Evaluates current CEO

Is current strategy on track?

How well strategy is executed?

How well issues are problem solved by other managers?

C. Exercise due diligence in evaluating leadership skills of other senior executives in line to succeed the CEO.

4. Institutes Compensation Plan

Determines Top Executives Pay

Determines Bonus Structure

Establish metrics for bonuses

Learning Objectives.

LO 2-1 Explain why it is critical for managers to have a clear strategic vision of where the company needs to head
LO 2-2 Explain the importance of setting both strategic and financial objectives
LO 2-3 Explain why the strategic initiatives taken at various organizational levels must be tightly coordinated
LO 2-4 Identify what a company must do to achieve operating excellence and to execute it strategy proficiently
LO 2-5 Explain the role and responsibility of a company’s board of directors in overseeing the strategic management process

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CHAPTER 1 What Is Strategy and Why Is It Important?

Copyright © McGraw-Hill Education. Permission required for reproduction or display.

LEARNING OBJECTIVES

THIS CHAPTER WILL HELP YOU UNDERSTAND:

What we mean by a company’s strategy

The concept of a sustainable competitive advantage

The five most basic strategic approaches for setting a firm apart from rivals and winning a sustainable competitive advantage

That a firm’s strategy tends to evolve because of changing circumstances and ongoing efforts by management to improve the strategy

Why it is important for a firm to have a viable business model that outlines the firm’s customer value proposition and its profit formula

The three tests of a winning strategy

© McGraw-Hill Education.

CORE CONCEPT (1 of 4)

A company’s strategy is the set of actions that its managers take to outperform the company’s competitors and achieve superior profitability.

© McGraw-Hill Education.

WHAT DO WE MEAN BY STRATEGY?

What is our present situation?

Business environment and industry conditions

Firm’s financial and competitive capabilities

Where do we want to go from here?

Creating a vision for the firm’s future direction

How are we going to get there?

By crafting an action plan that heads the firm in the direction of its intended market position, attracts customers, achieves financial and market performance targets, and gets it where it wants to go—that is, its strategy

© McGraw-Hill Education.

WHAT IS STRATEGY ABOUT?

Strategy is all about How:

How to position the firm in the marketplace

How to attract customers

How to compete against rivals

How to achieve the firm’s performance targets

How to capitalize on opportunities to grow the business

How to respond to changing economic and market conditions

© McGraw-Hill Education.

STRATEGIC MANAGEMENT PRINCIPLE (1 of 3)

Strategy as a choice

Is about deciding to compete differently from rivals—doing what competitors do not do or, even better, doing what they cannot do!

Is likely to be successful when its actions, business approaches, and competitive moves appeal to buyers in ways that

Set a company apart from its rivals

Stake out a market position that is not crowded with strong competitors

© McGraw-Hill Education.

STRATEGY AND COMPETITORS

Strategy is about competing differently from rivals.

Doing what they do not do or doing it better

Doing what they cannot do

Doing things that attract customers and set a firm apart from its rivals

Doing things calculated to produce a competitive edge over rivals

Doing what the firm must do and also knowing what it must not do

© McGraw-Hill Education.

WHY BOTHER WITH STRATEGY?

A firm needs a strategy to specify what actions will be taken.

To improve its financial performance

To strengthen its competitive position

To gain a sustainable competitive advantage over its market rivals

A creative, distinctive strategy

Helps produce above-average profits

Increases competitive pressures on rivals

© McGraw-Hill Education.

FIGURE 1.1 Identifying a Company’s Strategy–What To Look For

© McGraw-Hill Education.

Starbucks’s Strategy in the Coffeehouse Market

Key elements of Starbucks’ strategy:

Train baristas to serve a wide variety of specialty coffee drinks that satisfy individual customer preferences in a customized way

Emphasize store ambience and elevation of the customer experience at Starbucks stores

Purchase and roast only top-quality coffee beans

Foster commitment to corporate responsibility

Expand the number of Starbucks stores domestically and internationally

Broaden and periodically refresh in-store product offerings

Fully exploit the growing power of the Starbucks name and brand image with out-of-store sales

© McGraw-Hill Education.

STRATEGY AND THE QUEST FOR COMPETITIVE ADVANTAGE

Competitive advantage

Requires meeting customer needs either more effectively (with products or services that customers value more highly) or more efficiently (by providing products or services at a lower cost to customers)

Sustainable competitive advantage

Requires giving buyers lasting reasons to prefer a firm’s products or services over those of its competitors

© McGraw-Hill Education.

BASIC STRATEGIC APPROACHES

Jump to Appendix 2 long image description

Low-cost provider

Broad differentiation

Focused differentiation

Best-cost provider

Strategies for Building Competitive Advantage

Focused low-cost

© McGraw-Hill Education.

STRATEGIC APPROACHES

Building a competitive advantage by:

Striving to become the industry’s low-cost provider

Efficiency in controlling provider costs

Outcompeting rivals on differentiating features

Effectiveness in delivering value to customers

Offering customers the lowest prices for differentiated goods

Best-cost provider

Focusing on better serving a niche market’s needs

Efficiency and effectiveness

© McGraw-Hill Education.

CORE CONCEPT (2 of 4)

A firm achieves a competitive advantage when it provides buyers with superior value compared to rival sellers or offers buyers the same value as its rivals but at a lower cost to the firm.

The firm achieves a sustainable competitive advantage if the basis for its advantage persists despite the best efforts of competitors to match or surpass its advantage.

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GAINING SUSTAINABLE COMPETITIVE ADVANTAGE

How to create a sustainable competitive advantage:

Develop valuable expertise and competitive capabilities over the long-term that rivals cannot readily copy, match, or best

Put the constant quest for sustainable competitive advantage at center stage in crafting your strategy

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WHY A COMPANY’S STRATEGY EVOLVES OVER TIME

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

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STRATEGIC MANAGEMENT PRINCIPLE (2 of 3)

Changing circumstances and ongoing management efforts to improve the strategy cause a firm’s strategy to evolve over time—a condition that makes the task of crafting strategy a work in progress, not a one-time event.

A firm’s strategy is shaped partly by management analysis and choice and partly by the necessity of adapting and of learning by doing.

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THE EVOLVING NATURE OF A FIRM’S STRATEGY

Realized (current) strategy is a blend of:

Proactive (deliberate) strategy elements that include planned initiatives to improve the company’s financial performance and secure a competitive edge

Reactive (emergent) strategy elements developed on the fly in response to unanticipated developments and fresh market conditions

Abandoned and superseded strategy elements that no longer fit with the firm’s ongoing strategy

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CORE CONCEPT (3 of 4)

A firm’s deliberate strategy consists of proactive strategy elements that are both planned and realized as planned.

Its emergent strategy consists of reactive strategy elements that emerge as changing conditions warrant.

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FIGURE 1.2 A Company’s Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments

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THINKING STRATEGICALLY (1 of 2)

Just for Fun

Using the terms shown in Figure 1.2, explain why U.S. football teams get four downs to make a first down.

How does risk affect play selection (reactive strategy) as a team fails to advance on each of its four downs?

What rules of play in other sports affect how the basic principles of strategy are applied to game play?

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A FIRM’S STRATEGY AND ITS BUSINESS MODEL

How the firm will make money:

By providing customers with value

The firm’s customer value proposition

By generating revenues sufficient to cover costs and produce attractive profits

The firm’s profit formula

It takes a proven business model—one that yields appealing profitability—to demonstrate viability of a firm’s strategy.

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THE RELATIONSHIP BETWEEN A FIRM’S STRATEGY AND ITS BUSINESS MODEL

Realized Strategy

Competitive Initiatives

Business Approaches

Business Model

Value Proposition

Profit Formula

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CORE CONCEPT (4 of 4)

A firm’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.

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BUSINESS MODEL ELEMENTS: The Customer Value Proposition

The customer value proposition

Satisfying buyer wants and needs at a price customers will consider a good value

The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to customers

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BUSINESS MODEL ELEMENTS: The Profit Formula

The 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.

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THINKING STRATEGICALLY (2 of 2)

Amazon has begun to acquire its own fleet of cargo planes to deliver packages to customers.

What internal and external factors are contributing to this change in its strategy?

How could the move be explained in terms of changes in the value, price, and cost factors associated with Amazon's business model?

How does the forward integration entry of Amazon into the freight delivery markets in which FedEx and United Parcel Service compete affect the sustainability of their business models over the long term?

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Pam (P) - Not sure to what "their" refers.

FIGURE 1.3 The Business Model and the Value-Price-Cost Framework

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IS OUR STRATEGY A WINNER?

Three Tests of a Winning Strategy

The Fit Test

The Competitive Advantage Test

The Performance Test

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WHAT MAKES A STRATEGY A WINNER?

A winning strategy must pass three tests:

The fit test

Does it exhibit fit with the external and internal aspects of the firm’s dynamic situation?

The competitive advantage test

Does it help the firm achieve a sustainable competitive advantage?

The performance test

Will it produce superior performance as indicated by the firm’s profitability, financial and competitive strengths, and market share?

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Pandora, Sirius XM, and Broadcast Radio: Three Contrasting Business Models

Who listens to the radio anymore?

How sustainable are the business models of Pandora, Sirius XM and over-the-air broadcasters over the long term?

Given the changes in user listening habits, which competitor’s present strategy best passes the three tests of a winning strategy?

What internal and external factors will create particular difficulties for each competitor in changing its strategy or business model?

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WHY CRAFTING AND EXECUTING STRATEGY ARE IMPORTANT TASKS

Strategy provides:

A prescription for doing business

A road map to competitive advantage

A game plan for pleasing customers

A formula for attaining long-term standout marketplace performance

Good Strategy + Good Strategy Execution = Good Management

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STRATEGIC MANAGEMENT PRINCIPLE (3 of 3)

How well a company performs is directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed.

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THINKING STRATEGICALLY (3 of 3)

Google’s browser-based Chrome operating system and its online applications suite are now challenging Microsoft’s long-term dominance of those marketplace sectors.

What should be Microsoft’s near-term response to this competitive challenge?

How will Microsoft’s long-term response to this competitor’s actions affect its business model?

Which competitor’s strategy will likely be the eventual winner in the marketplace? Why?

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THE ROAD AHEAD

Strategy is about asking the right questions.

What must managers do, and do well, to make a firm a winner in the marketplace?

Strategy requires getting the right answers.

Good strategic thinking and good management of the strategy-making, strategy-executing process

First-rate capabilities and skills in crafting and executing strategy are essential to managing successfully

Welcome and best wishes for your success!

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Appendix 1 Figure 1.1 Identifying a Firm’s Strategy–What to Look For

The actions to look for would be:

Strengthening of its bargaining position with suppliers, distributors, and others

Gaining sales and market share via more performance features, more appealing design, better quality or customer service, wider product selection, or other such actions

Gains in sales and market share with lower prices based on lower costs

Entering into or exiting from new or existing product lines or geographic markets

Using new approaches in managing R&D, production, sales and marketing, finance, and other key activities

Upgrading, building, or acquiring competitively important resources and capabilities

Capturing emerging market opportunities and defending against external threats to the firm’s business prospects

Strengthening market standing and competitiveness by acquiring or merging with other firms

Strengthening competitiveness via strategic alliances and collaborative partnerships

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Appendix 2 Basic Strategic Approaches

Strategies for building competitive advantage include:

Low-cost provider

Focused low-cost

Best-cost provider

Focused differentiation

Broad differentiation

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Appendix 3 Figure 1.2 A Company’s Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments

Deliberative strategy (or proactive strategy elements) includes new planned initiatives plus ongoing strategy elements continued from prior periods.

Emergent strategy (or reactive strategy elements) includes new strategy elements that emerge as managers react adaptively to changing circumstances.

Both of these result in a firm's current (or realized) strategy.

Prior strategy elements may also be abandoned.

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Appendix 4 Figure 1.3 The Business Model and the Value-Price-Cost Framework

Customer value (V) is the customer's share (customer value proposition). This value may affect or be affected by product price (P) which is the firm's share (profit formula). These values in turn affect and are affected by the per-unit cost (C).

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