Discussion

Because learning changes everything. ®

Chapter 1

What Is Strategy?

© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.

No reproduction or further distribution permitted without the prior written consent of McGraw Hill.

© McGraw Hill

LEARNING OBJECTIVES

1. Explain the role of strategy in a firm’s quest for

competitive advantage.

2. Define competitive advantage, sustainable

competitive advantage, competitive

disadvantage, and competitive parity.

3. Assess the relationship between stakeholder

strategy and sustainable competitive advantage.

4. Conduct a stakeholder impact analysis.

5. Explain the Analysis, Formulation,

Implementation (AFI) Strategy Framework.

© McGraw Hill

Strategic Management

An integrative management field.

Combines analysis, formulation, and implementation

in the quest for competitive advantage.

Mastery of strategic management enables you to:

• View a firm in its entirety.

• Think like a general manager.

• Position your organization for superior performance.

© McGraw Hill

Strategy

A set of goal-directed actions a firm takes to gain

and sustain superior performance relative to

competitors.

To achieve superior performance, companies

compete for resources:

• New ventures: financial and human capital.

• Existing companies: profitable growth.

• Charities: donations.

• Universities: the best students and professors.

• Sports teams: championships.

• Celebrities: media attention.

© McGraw Hill

A Good Strategy Is Based on Three Elements

A diagnosis of the competitive challenge.

• Analysis of the firm’s internal and external environments.

A guiding policy to address the competitive

challenge.

• Formulation.

• Results in corporate, business and functional strategy.

A set of coherent actions to implement the firm’s

guiding policy.

• Implementation.

© McGraw Hill

Crafting a Good Strategy at Tesla

The Competitive Challenge:

• Tesla must manufacture attractive and affordable vehicles using its

new technology.

• It also needs the required infrastructure for electric vehicles.

A Guiding Policy:

• Tesla is building cost-competitive mass-market vehicles.

• They have made significant investments in lithium-ion battery

production.

• They have just broken ground for another factory in Shanghai,

China.

Coherent Actions:

• Tesla is attempting to ramp up production volumes to achieve

economies of scale.

© McGraw Hill

Competitive Advantage

Superior performance relative to other competitors

in the same industry or the industry average.

• Competitive advantage is relative, not absolute.

To assess competitive advantage, benchmark:

• Compare the firm to competitors in the same industry.

• Compare the firm to the industry average.

© McGraw Hill

Sustainable Competitive Advantage

A firm that is able to outperform its competitors or

the industry average over a prolonged period.

Example: Apple (smartphone industry):

• Sustainable competitive advantage over Samsung.

• Has lasted over a decade.

© McGraw Hill

Competitive Disadvantage & Competitive Parity

Competitive Disadvantage: a firm that

underperforms:

• Its rivals.

• The industry average.

For example, is 15% ROIC superior?

• It depends on the industry.

Competitive Parity: two or more firms that perform at

the same level.

© McGraw Hill

How to Gain a Competitive Advantage

Provide goods or services that:

• Consumers value more highly than those of its

competitors, or

• Are similar to the competitors’ at a lower price.

The rewards of superior value creation:

• Profitability.

• Market share.

© McGraw Hill

Strategic Positioning

A unique position within an industry that allows the

firm to provide value to customers, while controlling

costs.

Value creation minus costs equal economic

contribution.

• The greater, the better.

• Enhances the likelihood of competitive advantage.

© McGraw Hill

Strategic Positioning Requires Trade-Offs

Managers must make conscious trade-offs.

• How to allocate resources?

• Which activities to pursue?

Example: the retail industry:

• Walmart: cost leader – big box outlet, low prices.

• Nordstrom: differentiator – professional salespeople,

luxury setting.

© McGraw Hill

A Unique Strategic Position

A successful combination of strategic activities.

Competitive advantage has to come from:

• Performing different activities.

• Performing the same activities differently than rivals.

Example: Walmart:

• Strategic activities strengthen its position as cost leader.

• Big stores, low overhead, low wages.

© McGraw Hill

What Strategy Is Not

1. Grandiose statements:

• “We will be number 1.”

• “We will win.”

2. A failure to face a competitive challenge:

• Blockbuster didn’t address Netflix, Redbox, Amazon

Prime, and Hulu.

3. Operational effectiveness, competitive

benchmarking, or tactical tools:

• Examples: “pricing strategy,” “operations strategy,” “brand

strategy.”

• These are good policies or initiatives, but not a strategy.

© McGraw Hill

Value Creation

Companies with a good strategy are able to provide

products or services to consumers:

• At a price point that they can afford.

• That enables the company to make a profit.

Value creation lays the foundation for a successful

economy:

• Education.

• Infrastructure.

• Public safety.

• Healthcare.

• Clean water and air.

© McGraw Hill

Stakeholders

Organizations, groups, and individuals:

• Can affect or can be affected by a firm’s actions.

• Have an interest in the performance or survival of the

firm.

Stockholders, employees (including executives,

managers, and workers), and board members.

Customers suppliers, alliance partners, creditors,

unions, communities, media, and governments.

© McGraw Hill

Internal and External Stakeholders in an Exchange Relationship with the Firm

Exhibit 1.1

Access the text alternative for slide image.

© McGraw Hill

Stakeholder Strategy

An integrative approach to managing a diverse set

of stakeholders to gain and sustain competitive

advantage.

Stakeholder management benefits firm

performance:

• Cooperative stakeholders reveal important information.

• Increased trust lowers business transaction cost.

• Can lead to greater adaptability and flexibility.

• More predictable and stable returns.

• Stronger reputation.

© McGraw Hill

A Decision Tool for Stakeholder Strategy

Stakeholder Impact Analysis helps to recognize,

prioritize and address stakeholder needs.

Three important stakeholder attributes: power,

legitimacy, and urgency:

• Power: when the stakeholder can get the company to do

something that it would not otherwise do.

• Legitimate claims: perceived to be legally valid or

otherwise appropriate.

• Urgent claims: require a company’s immediate attention

and response.

© McGraw Hill

Stakeholder Impact Analysis

Exhibit 1.2

Access the text alternative for slide image.

© McGraw Hill

The Pyramid of Corporate Social Responsibility

Exhibit 1.3

Adapted from Carroll, A. B.

(1991, July—August), “The

pyramid of corporate social

responsibility: Toward the

moral management of

organizational stakeholders,”

Business Horizons:

42.Business Horizons: 42.

Access the text alternative for slide image.

© McGraw Hill

AFI Framework

Effectively managing the strategy process is the

result of:

• Analysis (A).

• Formulation (F).

• Implementation (I).

This framework:

• Explains and predicts differences in firm performance.

• Helps leaders formulate and implement a strategy that can

result in superior performance.

© McGraw Hill

The AFI Strategy Framework

Exhibit 1.4

Access the text alternative for slide image.

Because learning changes everything.®

www.mheducation.com

© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.

No reproduction or further distribution permitted without the prior written consent of McGraw Hill.