MGT499- W1 Post and Response

Roth4_SM_Lecture_PPT_C01_Final.pptx

Home >English homework help >MGT499- W1 Post and Response

CHAPTER 1

What Is Strategy?

©ISerg/iStock/Getty Images RF

©McGraw-Hill Education. 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 Education.

©McGraw-Hill Education.

Be sure to see the NEW Teacher’s Resource Manual located in the Connect Library under Instructor’s Resources.

The AFI Strategy Framework (1 of 4)

Jump to Description in Appendix 1.

©McGraw-Hill Education.

Exhibit 1.3

Learning Objectives

LO 1-1 Explain the role of strategy in a firm’s quest for competitive advantage.

LO 1-2 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity.

LO 1-3 Describe the roles of vision, mission and values in a firm’s strategy.

LO 1-4 Evaluate the strategic implications of product-oriented and customer-oriented vision statements.

LO 1-5 Justify why anchoring a firm in ethical core values is essential for long-term success.

LO 1-6 Explain the AFI strategy framework.

©McGraw-Hill Education.

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 Education.

Instructors:

The digital companion to this book McGraw-Hill Connect has an animated video exercise on this section of the textbook. It provides more background with the blending of military and business strategy discussed. (LO 1-1).

What Is a Good Strategy?

A diagnosis of the competitive challenge.

Analysis

A guiding policy to address the competitive challenge.

Formulation

A set of coherent actions to implement the firm’s guiding policy.

Implementation

©McGraw-Hill Education.

As highlighted in the Chapter Case, Tesla, a new entrant in the automotive industry, is competing with established U.S. companies such as GM, Ford, and Chrysler and also with foreign automakers Toyota, Honda, Mercedes, and BMW, among others, for customers. In any competitive situation, a good strategy enables a firm to achieve superior performance relative to its competitors.

Instructors:

The digital companion to this book McGraw-Hill Connect has a case exercise on this section of the textbook. It provides more background with a short case on Nvidia and builds student confidence on how strategy helps build competitive advantage. (LO 1-1).

Elements of a Good Strategy: Analysis

Diagnosis of the competitive challenge

Analysis of the firm’s internal and external environments

Example: Tesla

Vision: “accelerate the world’s transition to sustainable transport.”

Goal: zero-emission electric vehicles that are attractive and affordable

©McGraw-Hill Education.

A good strategy needs to start with a clear and critical diagnosis of the competitive challenge. Musk, Tesla’s co-founder and CEO, describes himself as an “engineer and entrepreneur who builds and operates companies to solve environmental, social, and economic challenges.”5 Tesla was founded with the vision to “accelerate the world’s transition to sustainable transport.”

To accomplish this mission, Tesla must build zero-emission electric vehicles that are attractive and affordable. Beyond achieving a competitive advantage for Tesla, Musk is working to set a new standard in automotive technology. He hopes that zero-emission electric vehicles will one day replace gasoline-powered cars.

Elements of a Good Strategy: Formulation

Effective guiding policy

Backed by strategic commitments

Investments

Changes

Example: Tesla

Cost-competitive mass-market vehicle

$5b investment in lithium-ion battery plant in Nevada

©McGraw-Hill Education.

To address the competitive challenge, Tesla’s current guiding policy is to build a cost-competitive mass-market vehicle such as the new Model 3 (this is also Step 3 in Tesla’s “Secret Strategy,” as discussed in the Chapter Case). Tesla’s formulated strategy is consistent with its mission and the competitive challenge identified. It also requires significant strategic commitments such as Tesla’s $5 billion investment in a new lithium-ion battery plant in Nevada, the so-called Gigafactory. Batteries are the most critical component for electric vehicles. To accomplish this major undertaking, Tesla has partnered with Panasonic of Japan, a world leader in battery technology.

Elements of a Good Strategy: Implementation

A set of coherent actions

Example: Tesla

Ramp-up of production volumes

Achieve economies of scale

Cutting edge robotics

Secure steady supply of batteries

Network of charging stations

Sharing of technology

©McGraw-Hill Education.

Tesla appears to implement its formulated strategy with actions consistent with its diagnosis of the competitive challenge. To accomplish building a cost-competitive mass-market vehicle, Tesla must benefit from economies of scale, which are decreases in cost per vehicle as output increases. To reap these critical cost reductions, Tesla must ramp up its production volume. This is a huge challenge: Tesla aims to increase its production output by some 20 times, from 50,000 cars built in 2015 to 1 million cars per year by 2020. Tesla’s retooling of its manufacturing facility in Fremont, California, to rely more heavily on cutting-edge robotics as well as its multibillion-dollar investment to secure an uninterrupted supply of lithium-ion batteries are examples of actions coherent with Tesla’s formulated strategy. At the same time, Tesla is further building out its network of charging stations across the United States and globally. To fund this initiative, it announced that using the company’s charging network will no longer be free for new Tesla owners.

Competitive Advantage

Superior performance relative to other competitors in the same industry or the industry average.

Assess competitive advantage:

Compare firm to competitors in the same industry.

Compare firm to industry average.

©McGraw-Hill Education.

In terms of stock market valuation, Tesla has appreciated much more in recent years than GM, Ford, or Chrysler, and thus appears to have a competitive advantage, at least on this dimension.

Instructors:

The digital companion to this book McGraw-Hill Connect has an animated video exercise on this section of the textbook. It provides more background with an analogy from track and field to further discuss competitive advantage. (LO 1-2).

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 Education.

Apple, for example, has enjoyed a sustainable competitive advantage over Samsung in the smartphone industry for over a decade since its introduction of the iPhone in 2007. Other phone makers such as Microsoft (which purchased Nokia) and BlackBerry have all but exited the smartphone market, while new entrants such as Xiaomi and Huawei of China are trying to gain traction.

Competitive Disadvantage & Competitive Parity

Competitive Disadvantage: A firm that underperforms its rivals or the industry average.

Example: Is 15% ROIC superior?

Depends on the industry

20% ROIC is expected in the consulting industry

Competitive Parity: two or more firms that perform at the same level.

©McGraw-Hill Education.

How to Gain a Competitive Advantage

Provide goods or services consumers value more highly than those of its competitors, or

Provide goods or services similar to the competitors’ at a lower price.

©McGraw-Hill Education.

Profitability and Market Share

The rewards of superior value creation and capture.

Examples:

Tesla: electric vehicles address global warming

Spanx: shapewear changes women’s lives

Walmart: lowest prices for customers

©McGraw-Hill Education.

Strategic Positioning

A unique position within an industry that allows the firm to provide value to customers, while controlling costs.

Value Creation – Costs = Economic Contribution

The greater, the better

Enhances the likelihood of a competitive advantage

©McGraw-Hill Education.

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 Education.

A Unique Strategic Position

The key to successful strategy

Requires combining activities

Competitive advantage has to come from:

Performing different activities or

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 Education.

Example: Walmart’s strategic activities strengthen its position as cost leader: big retail stores in rural locations, extremely high purchasing power, sophisticated IT systems, regional distribution centers, low corporate overhead, and low base wages and salaries combined with employee profit sharing reinforce each other, to maintain the company’s cost leadership.

What Strategy Is Not

Grandiose statements

Example: “We will be No. #1”

A failure to face a competitive challenge

Example: Blockbuster didn’t address Netflix, Redbox, Amazon Prime, and Hulu

Operational effectiveness, competitive benchmarking, or tactical tools

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

©McGraw-Hill Education.

Defining Vision, Mission and Values

The first step in gaining and sustaining a competitive advantage

Vision:

What do we want to accomplish ultimately?

Mission:

How do we accomplish our goals?

Values:

What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission?

©McGraw-Hill Education.

Strategic leaders need to begin with the end in mind. In fact, early on strategic success is created twice. Leaders create the vision in the abstract by formulating strategies that enhance the chances of gaining and sustaining competitive advantage, before any actions of strategy implementation are taken in a second round of strategy creation. This process is similar to building a house. The future owner must communicate her vision to the architect, who draws up a blueprint of the home for her review. The process is iterated a couple of times until all the homeowner’s ideas have been translated into the blueprint. Only then does the building of the house begin. The same holds for strategic success; it is first created through strategy formulation based on careful analysis before any actions are taken.

Vision

Captures an organization’s aspiration

Identifies the long-term objective

Should be forward-looking and inspiring

An effective vision:

Pervades the organization

Provides a sense of winning

Motivates employees to aim for the same target

©McGraw-Hill Education.

Example: Nordstrom’s vision: “provide outstanding service every day, one customer at a time”

Instructors:

The digital companion to this book McGraw-Hill Connect has an animated video exercise on this section of the textbook. It provides an example of the first people to climb Mount Everest as an example of the importance of vision, mission and values. (LO 1-3).

Vision: Strategic Intent

Outlines a firm’s stretch goal

Is based on a firm’s vision

Actions based on vision will:

Build necessary resources

Build capabilities

Ensure continuous organizational learning

Ensure learning from failure

©McGraw-Hill Education.

Strategy Highlight 1.1 shows how Wendy Kopp, the founder of Teach for America, uses an inspiring vision to effectively and clearly communicate what TFA ultimately wants to accomplish, while providing a stretch goal.

Mission

What an organization actually does

The products and services it will provide

The markets in which it will compete

Defines how the vision is accomplished

©McGraw-Hill Education.

Strategy Highlight 1.1 shows how we can recast Teach for America’s mission that it will achieve its vision by enlisting, developing, and mobilizing as many as possible of our nation’s most promising future leaders to grow and strengthen the movement for educational equity and excellence. (See Exhibit 1.1).

Mission: Strategic Commitments

Credible actions that back up vision and mission statements.

These commitments are often:

Costly

Long-term oriented

Difficult to reverse

©McGraw-Hill Education.

As mentioned in the Chapter Case, Tesla is investing billions of dollars to equip its car factory in California with cutting-edge robotics and to build the Gigafactory producing lithium-ion batteries in Nevada. These investments by Tesla are examples of strategic commitments because they are costly, long-term, and difficult to reverse. They are clearly supporting Tesla’s vision to accelerate the world’s transition to sustainable transport. Tesla hopes to translate this vision into reality by providing affordable zero-emission mass-market cars that are the best in class, which captures Tesla’s mission.

Customer vs. Product Oriented Vision Statements

Customer-oriented vision statements allow companies to adapt to changing environments.

Focus employees on problem solving for the customer

Product-oriented vision statements often constrain this ability.

Focus employees on improving existing products and services

©McGraw-Hill Education.

Clayton Christensen shares how a customer focus let him help a fast food chain increase sales of milkshakes. The company approached Christensen after it had made several changes to its shake offering based on extensive customer feedback but sales failed to improve. Rather than asking customers what kind of milkshake they wanted, he thought of the problem in a different way. He observed customer behavior and then asked customers, “What job were you trying to do that caused you to hire that milkshake?”

Product Oriented Vision Statements

Defines a business in terms of a good or service provided

Forces managers to take a more myopic view

Can hinder understanding of the competitive landscape

Example: U.S. Railroad Companies

They were focused on the railroad business

They should have focused on transportation and logistics

©McGraw-Hill Education.

Customer Oriented Vision Statements

Defines a business in terms of providing solutions to customer needs

Customer needs may change

The means of meeting those needs may change also

Example: Ford Motor Company

Entered the market in the early 1900’s

He didn’t build a better horse and buggy

Ford’s focus: personal mobility

©McGraw-Hill Education.

Customer-Oriented Vision Statement Examples

VISION STATEMENTS

Amazon: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.

Alibaba: To make it easy to do business anywhere.

Better World Books: To harness the power of capitalism to bring literacy and opportunity to people around the world.

Facebook: To make the world more open and connected.

GE: To move, cure, build and power the world.

Google: To organize the world’s information and make it universally accessible and useful.

Nike: To bring inspiration and innovation to every athlete in the world.

Tesla: To accelerate the world’s transition to sustainable energy.

SpaceX: To make human life multi planetary.

Walmart: To be the best retailer in the hearts and minds of consumers and employees.

Exhibit 1.2

Vision and Competitive Advantage

Research shows that vision statements and firm performance are related.

This relationship is strongest when:

The vision is customer-oriented.

Internal stakeholders help define the vision.

Organizational structures align to the vision.

Example: Compensation

Instructors:

The digital companion to this book McGraw-Hill Connect has a video exercise on this section of the textbook. It provides an interview with the president of a human society and discusses the importance of their vision in the success of the non-profit. (LO 1-3).

Values

Helps employees

Understand the company culture

Deal with complexity

Resolve conflict

Organizational core values

Ethical standards and norms

Govern the behavior of individuals

Provide stability to the strategy

Serve as guardrails to keep the company on track

Consider that much of unethical behavior, while repugnant, may not be illegal. Often we read the defensive comment from a company under investigation or fighting a civil suit that “we have broken no laws.” However, any firm that fails to establish extra-legal, ethical standards will be more prone to behaviors that can threaten its very existence. A company whose culture is silent on moral lapses breeds further moral lapses. Over time such a culture could result in a preponderance of behaviors that cause the company to ruin its reputation, at the least, or slide into outright legal violations with resultant penalties and punishment, at the worst.

The AFI Strategy Framework

Helps managers craft and execute a strategy.

Enhances chances of achieving superior performance.

Includes three broad tasks:

Analyze (A)

Formulate (F)

Implement (I)

The AFI Strategy Framework (1 of 2)

Jump to Appendix 2 for long image description

Exhibit 1.3

The AFI Strategy Framework (2 of 2)

Consists of interdependent relationships

This framework:

Explains and predicts differences in firm performance

Helps managers formulate and implement a strategy

In each section, managers focus on specific questions

These are addressed in each chapter.

Strategy Analysis (A) Topics and Questions (1 of 2)

Chapter 2: Strategic leadership and the strategy process

What roles do strategic leaders play?

What is the firm’s process for creating strategy and how does strategy come about?

What is the relationship between stakeholder strategy and competitive advantage?

Chapter 3: External analysis

What effects do forces in the external environment have on the firm’s potential to gain and sustain a competitive advantage?

How should the firm deal with them?

Strategy Analysis (A) Topics and Questions (2 of 2)

Chapter 4: Internal analysis

What effects do internal resources, capabilities, and core competencies have on the firm’s potential to gain and sustain a competitive advantage?

How should the firm leverage them for competitive advantage?

Chapter 5: Competitive advantage, firm performance, and business models

How does the firm make money?

How can one assess and measure competitive advantage?

What is the relationship between competitive advantage and firm performance?

Strategy Formulation (F) Topics and Questions

Chapters 6 and 7: Business strategy

How should the firm compete: cost leadership, differentiation, or value innovation?

Chapters 8 and 9: Corporate strategy

Where should the firm compete: industry, markets, and geography?

Chapter 10: Global strategy

How and where should the firm compete: local, regional, national, or international?

Strategy Implementation (I) Topics and Questions

Chapter 11: Organizational design

How should the firm organize to turn the formulated strategy into action?

Chapter 12: Corporate governance and business ethics

What type of corporate governance is most effective?

How does the firm anchor strategic decisions in business ethics?

Appendices Descriptions of Visual Graphics to Support Student Accessibility Needs

Appendix 1 The AFI Strategy Framework

This image shows several circles, representing the main themes from the textbook, as well as how the chapters map into each theme. The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation.

Each of these outer five circles have a brief description beside them to explain what the circle means:

Under the first outer circle titled "Getting Started," it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)."

Under the second outer circle titled "External and Internal Analysis," it says: Part 1, Strategy Analysis, "External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)," "Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4)," and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)."

Under the third outer circle titled "Formulation: Business Strategy," it says: Part 2, Strategy Formulation, "Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter 7)."

Under the fourth outer circle titled "Formulation: Corporate Strategy," it says: Part 2, Strategy Formulation, "Corporate Strategy: Vertical Integration and Diversification (Chapter 8)," "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9)," and "Global Strategy: Competing Around the World (Chapter 10)."

Under the fifth outer circle titled "Implementation," it says: Part 3, Strategy Implementation, "Organizational Design: Structure, Culture and Control (Chapter 11)," and "Corporate Governance and Business Ethics (Chapter 12)."

Return to slide

Appendix 2 The AFI Strategy Framework

Each of these outer five circles have a brief description beside them to explain what the circle means:

Under the first outer circle titled "Getting Started," it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)."

Return to slide