Chapter 1: Strategy and why is it important?

Three strategic questions:

 What’s the firm’s present situation?
 What direction are we headed and which performance targets to set?
 How to run the firm and produce good results?

Strategy is determined by the market positioning, competitive moves, business approaches

etc.
 How to run the company
 Every company needs a clear, specific action plan!!

Create a competitive advantage, this is crucial in a firm’s strategy.

 Sustainable and durable is far superior than a temporary competitive advantage
 Low-cost provider and thus achieving greater cost efficiencies
 Differentiation
 Niche market and serving unique needs of the customers
BUT strategies change over time because of changing market conditions, advancing
technology etc.
 Strategy is a work in progress

Firm’s strategy  Firm’s business model

A firm’s business model is about the revenues and the costs and whether the company will
be going to be profitable. 2 crucial elements:
 Customer Value Proposition
How will the firm satisfy customer needs and requirements etc
 Profit Proposition
How will the firm create and deliver CV in a cost-efficient manner => revenues
should increase costs?

What is a winning strategy?

1. Does the strategy fit internal and external aspects?
2. Is it helping to create a durable competitive advantage?
3. Is it producing good company performance? => improving its performances/revenues
etc

Good management = good strategy + good strategy execution

Chapter 2: A company’s Long-Term Direction: Vision, Mission,
Objectives and Strategy
TASK 1: developing a strategic vision, mission and core values

 Strategic vision
A strategic vision describes the route a firm intends to take, its future business
makeup. “where it is going”. It should be a clear statement, not obscure.
 Clear view of the senior executives’ long-term view
 Reduces rudderless decision making
 Supports changes that propel the firm along its chosen strategic path
 Guides personnel

 Mission Statement
Briefly describe the firms present business and purpose. “who are we, what
do we do and why are we here?”
It is not about making money, making money is the result of de firm’s
business.

 Core Values
A Firms core values are the beliefs, traits and behavioural norms that the
personnel are expected to display. Setting core values guides the action and
behaviour of personnel. They become part of a firm’s DNA.

TASK 2: Setting objectives

Objectives are a managerial commitment to achieving particular results and outcomes.
o Objectives must be SMART
Objectives must be set high to promote high performance. Stretch objectives

Achieving strategic objectives improves the likelihood of achieving better financial

performances.

Balanced Scorecard: setting both financial and strategic objectives as well as short- and long-
term objectives. Objectives are needed at all organizational levels.

“strategic intent” = when a firm relentlessly pursues an ambitious strategic objective using
its full force of resources.
o These firms are more formidable competitors

TASK 3: Crafting a Strategy

Good strategies involve doing things differently form the competitors, reacting proactively,
adapting faster etc.

Strategy-Making hierarchy
1. Corporate Strategy = overall companywide game plan
 Set by the CEO and other senior executives
 2. Business Strategy = set by general managers of the different businesses in the
company aimed at these businesses
3. Functional Area Strategies (within each business) = set by heads of particular
activities
4. Operating Strategies (within each business) = set by brand managers

!! all the pieces of a strategy must be mutually supportive to succeed !!

Strategic Plan:
 Strategic vision, mission, core values
 Strategic and financial objectives
 Chosen strategy

TASK 4: Implementing and executing the strategy

TASK 5: Evaluating performance and corrective adjustments

Do we continue or do we (slightly) change the firm’s vision?

A company’s vision, objectives, strategy and strategy execution are never final and are an
ongoing process.

Board of Directors:
 Critique the firm’s direction, strategy etc
 Evaluate the senior executives and their choices
 Institute a compensation plan for top executives
 Oversee the firm’s financial reporting practices
Chapter 3: Evaluating a company’s external environment
Every decision to steer the firm in a different direction or alter its strategy must be based on
a deep understanding of both the industry and the competitive environment of the firm as
well as the firm’s own market position and competitiveness.

1. Company’s Macro environment

 Question 1: What are the competitive forces in the industry?

 Rival sellers
 Try to achieve a competitive advantage!
It is usually the strongest of the 5 forces, the rivalry can increase or
decrease throughout the time, depending on many factors.
 New entrants
 Entry barriers?
high capital requirements; cost advantages based on scale economies,
learning costs, cost savings, etc; tariffs; …
 How attractive is the industry’s growth?
 etc
 Substitute products in other industries
There are 3 signs that substitute products are a strong competitive
force:
 Sales of substitutes are growing faster than overall sales of the
industry
 Producers of substitutes are expanding
 Profits of these producers are rising
 Supplier bargaining power
Depends on their power to influence the terms and conditions of
supply in their favour.
 Buyer bargaining power

These 5 competitive forces determine whether the industry allows good

profitability. Therefore, it is important to match a firms strategy to the
competitive conditions.

 Question 2: What forces are driving industry change and what impact will they
have.

Industry conditions change because important forces are driving firms to alter
their actions. These driving forces have the biggest impact on how the industry
landscape will be altered.

Analysing in 3 steps:
1. Identifying driving forces
2. Assessing whether these forces will make the industry more or less attractive
a) Will they increase/decrease future demand?
 b) Will they make competition more or less intense?
c) Will it lead to higher or lower profitability?
3. How do we prepare for these changes?

 Question 3: What Market positions do Rivals occupy?

Determine the different ‘strategic groups’, clusters of rivals that employ similar
competitive approaches.
 Firms in the same group are the closest rivals.
 Not all positions on the strategic group map are equally attractive

 Question 4: What strategic moves are rivals likely to make next?

Closely monitoring competitors and preparing a defens agains their expected

next moves reduces risk.

 Question 5: what are the key factors for future competitive success?

Key Success Factors (KSF)

= competitive factors that most affect industry members’ ability to compete
successfully and profitably. KSF are thus strategy elements, competitive
capabilities, etc.

Using the industry’s KSF as a cornerstone for the firm’s strategy and trying to
gain sustainable competitive advantage by excelling at one particular KSF is a
fruitful competitive strategy approach.

 Question 6: Is the industry outlook conducive to good profitability?

the anticipated industry environment is fundamentally attractive if it presents a

firm good opportunity for above-average profitability.
Chapter 3: Evaluating a company’s resources and abilty to compete
successfully
 Question 1: How well is a firm’s present strategy working?
Understanding the firm’s strategy!

Key indicators:
 Are the financial and strategic targets met/beaten?
 Is the firm performing above-average industry?
 Is the firm gaining customers and thus outperforming its rivals?

Evaluating a company’s financial performance => requires some number crunching

 Question 2: Are the firm’s resources and capabilities attractive and well-matched to its
opportunities and external threats?
SWOT-analysis
o A powerful analytic tool for evaluating a firm’s overall situation. Aids managers in
crafting a strategy.
 Strengths
= a unique asset, something a firm does well and enhances its competitiveness.
Its competitive assets.
 A firm has a competence in performing an activity when it gains experience
and know-how to perform an activity consistently well.
 Core competence when this activity is central to the strategy and
competitiveness.
 Distinctive competence when it performs better than its rivals. This adds real
power to a firm’s strategy.
 Weaknesses
= something a firm lacks, or does poorly. Competitive liabilities!
 Opportunities
 Threats

 Question 3: Are the firm’s prices and costs competitive?

2 analytical tools to determine:
1. Value chain analysis
Concerns all the functions, task, … that a firm performs internally to create
value for customers.
 Primary activities: creating and delivering value to customers
 Support activities: support the primary activities

Value chains of rivals are often different due to different strategies, operating
practices, technologies, etc.
 The greater the value a firm can profitably deliver to its customers relative to
the value delivered by rivals, the less competitively vulnerable it becomes.
 A company’s cost competitiveness depends not only on the internal
costs but also on the costs in the value chains of its suppliers.

2. Benchmarking
Comparing how well different firms perform key value chain activities.

Competitive advantage can be achieved by out-managing rivals in two ways:

 By performing value chain activities more efficiently and cost effectively, thus
gaining a low-cost advantage
 differentiating

 Question 4: Is the firm competitively stonger or weaker than its rivals?

Depends on:
 The firm’s rank on each important factor that determines market success
compared to rivals
 The firm’s net competitive advantage or disadvantage

 Question 5: What strategic issues and problems merit managerial attention?

Compiling a ‘worry list’ based on the assessment of the external environment and
evaluations of the firm’s resources and abilities.
o Pinpoint strategic and competitive challenges, shortcomings and other issues. It
does no provide any answers to what specific actions should be taken!

LESSONS:
 An analysis of the firm’s external situation must always come before crafting a
company’s strategy.
 An analysis of the firm’s internal situation must always come before crafting a
company’s strategy.
 Accurate diagnosis of the firm’s internal and external circumstances and an accurate
list of front-burner issues are necessary to craft a good strategy.
Chapter 5: The five generic competitive strategy options
Low-cost provider strategy:
 Target lower overall costs than rivals, but not necessarily the lowest possible cost.
Key to success:
o Having good cost-reduction skills and capabilities.
o Pursuing long-term cost-saving approaches that are difficult for rivals to copy or
match.

Low-cost providers can translate into better profitability than rivals.

a) Use the lower-cost edge to underprice competitors and increase market share.
b) Charge a comparable price and rely upon the lower-cost edge to earn bigger profit
margin per unit sold.

2 approaches:
 Manage value chain activities very cost efficient
 Reducing and eliminating cost drivers.
 Revamping the value chain
= reenigeer the chain to eliminate costly work steps and bypass cost-producing chain
activities.

Beware of not spending aggressively on technologies and resource capabilities that

promise to drive down costs!

Broad differentiation strategy

 Offer unique product attributes that a wide range of buyers find appealing and worth
paying for. This can allow you to do one or more of the following:
o Ask a premium price
o Increase unit sales
o Gain buyer loyalty
Successful pursuit of differentiation strategy requires managerial focus on the uniqueness
drivers!

Three principles to keep in mind:

1 A differentiating feature works well is a magnet for imitators
2 Over-differentiating and overcharging are fatal strategies
3 A good differentiating strategy must result in eye-catching changes/features that
win approval and loyalty of buyers

Focused (or Market Niche) strategies

 Concentrate attention on a narrow piece of the total market. It can be defined by:
o Geographic uniqueness
o Specialized requirements
o Special product attributes
Best-cost provider strategies
 Aimed at value-conscious buyers looking for good-to-very-good product or servie at an
economical price.
 Giving customers more value for the money

Eventually most firms will want to attain the best-cost provider in the long-term. It is the
natural course.
Chapter 6: Supplementing the chosen competitive strategy
Improve a firm’s market position?
 Going on the offensive
Successful offensive strategies are needed to secure competitive advantage or narrow the
advantage held by a rival.
!! 4 important principles:
 Focusing relentlessly on building competitive advantage
 Employing the element of surprise
 Using the firm’s most potent resources and attack the rival’s weaknesses!
 Displaying a bias for swift and decisive actions to overwhelm rivals

Blue Ocean Strategy:

Seeks to gain a dramatic, durable competitive advantage by abandoning efforts to
defeat rivals in current markets and inventing new markets. This allows a company to
create and capture new demand.

Protecting market position?

 Defensive strategies
Helps defend competitive advantage but rarely creates it.

Website Strategies:
 Product information-only strategy
Attractive option for manufacturers that have invested heavily in building a broad
dealer network. This way, they avoid channel conflict
 Website e-store as minor distribution channel
This can be used to conduct marketing research or to gain some online sales
experience. Often used as online margins are bigger. It also allows the firm to make
greater use of build-to-order manufacturing and begin streamlining its value chain.

Brick-and-click strategy: selling through retailers as well as directly to customers through

their site.

Vertical integration strategies

 Extends a firm’s competitive and operating scope within the same industry.
 Backward integration into sources of supply/input
+: reduces supplier risk, facilitate adding features, differentiation, etc
-: increases business risk, locks a firm into relying on its own in-house activities,
different skills needed, etc.
 Forward integration toward end-users of the final product
+: lower distribution costs, gain better access to customers, reduce dependence,
etc.
-: confra backward integration
Vertical integration can be used to strengthen the firm’s competitive position and to
boost profitability. But is only pays off If it produces sufficient cost savings or profit
increases and/or helps differentiate the company’s product offering.
Strategic alliances and partnerships
= formal agreement between 2 or more firms to achieve mutually beneficial outcomes.

Merger and Acquisition Strategies

 Creating a more cost-efficient operation
 Expanding a firm’s geographic coverage
 Extending a firm’s business into new product categories
 Gaining quick access to new technologies and other resources

Timing a company’s strategic moves are especially important when there are significant first-
mover (dis)advantages.
To sustain any advantage the first-mover advantage must be a fast learner and continue to
move aggressively to capitalize on any initial pioneering advantage.
Chapter 7: Strategies for competing internationally or globally
International  global competitors
International competitor competes in several, but relative few, countries whereas a global
one has operations is several continents.

Expand into foreign markets?

 Gain access to new customers
 Obtain access to valuable natural resources
 Further capitalize on resource strengths and capabilities
 Spread business risk
 Achieve lower costs

BUT it complicates the competition

 Important cross-country differences in the customer preferences
 One of the biggest strategic issues is the fact that companies must choose
between lowering costs by offering a standardized product or customize their
product depending on the market.
 Cross-country differences in operating costs and profitability
 Will often significantly impact the location of facilities. Thus enabling firms to
gain certain cost advantages.
 Governmental policies, regulations, etc.
 Can create (un)favourable business climates. Pro-  anti-business governments
 Political risks, economic risks, etc.
 Risk of adverse shifts in currency exchange rates.

Multicountry  global competition

Multicountry competition exist when the competition in different countries are not
closely connected, there is just a collection of self-contained country markets. This is not
the case in global competition where these markets are strongly linked.
Thus, in multicountry comp. winning in one market does not necessarily mean winning in
the other market, whereas in the global comp. they vie for worldwide leadership.

Five options for establishing a presence in foreign markets:

 Export strategies
Using a domestic plant for exporting goods.
 Licensing strategies
Let foreign firms use your technology or produce and distribute your product.
 Franchising strategies
Well suited for global expansion efforts of service and retailing enterprises. The
main advantage is guaranteeing cross-country quality.
 Acquisition and internal startup strategies
 Collaborative strategies

The 3 competitive strategy approaches?

 Whether to vary a firm’s strategy and competitive approach to fit a specif market or
whether to employ the same strategy globally.
 Localized multi-country strategy – “think local, act local”
 Global strategy – “think global, act global”
 Hybrid – “think global, act local”

Cross market subsidization

= supporting competitive offensive in one market with resources and profits gained in
another market.

Concentrated  dispersed activities

Activities should be concentrated if they allow significant cost-reductions, scale
economies or if the location provides certain superior resources etc. High transportation
costs, hedging against exchange rate may however push towards dispersed activities.

Profit sanctuaries
= markets where a firm’s earns substantial profits because of its strong or protected market
position.
Chapter 8: Diversification strategy
A firm is diversified when in operates in two or more lines of business that are in different
industries. This will of course complicate the strategy-making task.
BUT creating added long-term value for shareholders via diversification requires synergy
effects (1 + 1 = 3)!

Moving into a new business? => 3 tests:

 Industry attractiveness test
 Cost-of-entry test
 Better-off test
 Does diversifying indeed offer a potential increase profit?

Related  Unrelated businesses

Related businesses possess competitively valuable cross-business value chain matchups
or strategic fits. This is not the case in unrelated businesses.
 Related Diversification
Strategic fit exists when the diversification results in lower costs, better
performance, etc.
Related diversification will often result in economies of scope (Economies of scope
 economies of scale!!). These are achieved by capturing cost-saving strategic fits
along the value chains of related businesses. These economies of scope often lead
to cost-reductions and therefore to competitive advantage over competitors.
 Unrelated Diversification
Any firm or business that can be acquired on good financial terms and has good
growth and earnings potential is considered a good business opportunity.
Unrelated diversification will also reduce business risk and can achieve results
above and beyond what individual businesses could achieve. The main drawbacks
are that this requires demanding managerial requirements as well as no
competitive advantage beyond corporate parenting.

 Combined Related-Unrelated Diversification strategies

Relative market share is the ratio of its market share to its largest rival’s market share,
measured in unit volume.
 A very telling measure of a firm’s competitive strength.

Resource fit concerns whether each company business has adequate access to the resources
needed to be competitively successful and whether the corporate parent has enough
capabilities to support its entire group of businesses.
 Financial resource fit
To remain finically healthy a company must generate internal cash flows.
Cash hogs: generates cash flows that are too small to fully fund its operations
and growth => a cash hog requires cash infusions.
Cash cow: generates cash flows over and above its internal requirements, thus
providing the corporate parent with funds.
 Non-financial resource fit
 e.g. managerial, administrative and resource capabilities.

A strategy of multinational diversification into related businesses has more built-in potential
for competitive advantage than any other diversification strategy, namely:
 Increased economies of scale
 Increased economies of scope
 Cross-business and cross-country resource transfer
 Exploitation of a competitively powerful brand name
 Cross-business collaboration to develop/leverage valuable resource capabilities
Chapter 9: Strategy, ethics and social responsibility
Business ethics:
The application of general ethical principles and standards.
 The actions of businesses are judged by society’s standards of what is ethically right
and wrong.

 The school of Ethical Universalism

The most important concepts of what is right and wrong are universal and
transcend most cultures, societies and religions. Thus, this applies to all
companies, all societies and all businesspeople
 Particularly beneficial to multinational firms

 The School of Ethical Relativism

Different religious beliefs, historic traditions and customs across cultures and
countries give rise to multiple sets of standards concerning what is ethically
right or wrong.

 Integrative Social Contracts Theory

 Takes a middle position!
First of all, it maintains ethical standards by a limited number of universal
ethical principles widely recognized in all situations. Secondly by circumstances
of local cultures and shared values.
BUT in event of conflict, universal ethical standards must always take
precedence over locally acceptable ethical behaviours.

Managers can be:

 Moral
Dedicated to high standards of ethical behaviour. Ethics and low are in high
regard.
 Immoral
Has no regard for ethical standards in business, is willing to do anything if it is
unlikely to be caught.
 Amoral
Manages a firm according to what is lawfully correct. If the law allows it, it can’t
be unethical.
Evidence states that most managers are amoral or immoral!

Drivers of Unethical strategies and business behaviour:

o Overzealous pursuit of wealth and other selfish interests
o Heavy pressure on company managers to beat performance targets
o A company culture that puts profitability ahead of ethical behaviour
An ethical strategy is good business and in the best interest of the shareholders. Unethical
business may lead to excessive costs!
 Visible costs
Government fines, civil penalties due to lawsuits, etc
 Internal administrative costs
Legal and investigative costs, costs of taking corrective actions, etc
 Intangible or less visible costs
Customer defections, loss of reputation, higher employee turnover, higher
recruiting costs, etc

Social responsibility
A firm should balance strategic actions to benefit shareholders against the duty to be a
good corporate citizen. A firm has a duty to display a social conscience.

Environmental sustainability strategy is a part of social responsibility that has an

increasingly significant impact in the recent years.

Triple Bottom Line:

 Profit (bottom line)
 People (bottom line)
 Planet (environmental bottom line)

Four good business reasons for CSR

 Increased buyer patronage
 Reduce risk of reputation-damaging incidents and lawsuits
 Yield internal benefits and can improve operational efficiency
 Work to the advantage of shareholders
Chapter 10: Building an organization capable of good strategy
execution
Crafting the strategy  Executing the strategy
Whereas crafting is market-driven, executing the strategy is operations-driven!
Crafting the strategy is much easier than executing it. Executing the strategy involves
every part of the enterprise.

Good strategy execution requires:

- All managers have strategy-executing responsibility in their areas
- All employees are active participant

Three key actions to building this organization:

a) Staffing the organization
 A capable management team reduces the chances that the implementation-
execution process will be hampered.
b) Acquiring, developing and strengthening the resources, competences and capabilities
c) Structuring the organization and work effort

Two options for decision-making authorities:

 Centralize decision making at the top
 Reduce potential for conflicting actions and decisions in lower level decision-
making
BUT makes the organization sluggish in responding to changing conditions. And it
is difficult for high-level executives to have full understanding of the situation.
 Decentralize decision making
 Giving mid- and lower-level manager and employees considerable decision-making
power to make timed, informed and competent decisions.
BUT authority should be limited by high-level executives to coordinate the
decisions.
Chapter 11: Managing internal operations: actions that promote good
strategy execution
Good strategy execution always requires top management involvement, steering the proper
kinds and amount of resources to the enterprise’s various organization units and strategy-
critical value chain activities.

Best practice a means of performing an activity or process that yields consistently superior to
other approaches. Using best practice promotes operating excellence and good strategy
execution.
Other potent management tools are:
 Business process reengineering
= radically redesigning and streamlining how an activity is performed, with the
intent of improving in performance. It is a one-time improvement.
 Total quality management
= creating a total quality culture bent on continuously improving the performance.
Thus, it stresses incremental progress.
 Six sigma programs
SS programs uses advanced statistical methods to enable an activity to be
performed with almost a 100% accuracy. It is not really usable when the personnel
need to be creative etc.

State-of-the-art operating systems and real-time data are integral to competent strategy
execution and operating excellence.

A well-designed reward structure is management’s single most powerful tool for mobilizing
organizational commitment to successful strategy commitment.
Chapter 12: Corporate culture and leadership – keys to good strategy
execution
Every company has a unique corporate culture. The corporate culture refers to the character
of a firm’s internal work climate as shaped by its core values, beliefs, business principles etc.
A firm’s corporate culture is often strongly influenced by its dedication to certain core value
and the bar its sets for ethical behaviour.

Strong-  weak-culture firm

A strong-cultured firm has deeply rooted, widely-shared values and behavioural norms. It
insists that its values and principles be reflected in the decisions and actions taken by
company personnel. This is not the case in a weak-cultured firm.

There are two types of cultures that are supportive of good strategy execution:
1. High-performance cultures
= “can do” spirit, no-excuses accountability, …
2. Adaptive cultures
= willingness to accept change, proactive approach to identifying issues, etc.

there are five types of cultures that impede good strategy execution:
1. Change-resistant cultures
= avoiding risks, following rather than being market leader, etc
2. Politicized cultures
= internal politics consume a great deal of organizational energy
3. Inwardly focused cultures
= underestimating the rivals and overestimating the firm’s progress
4. Unethical and greed-driven cultures
5. clashing subcultures
= lack of consensus among subcultures limit the success of executing the
firm’s overall strategy.

When a culture is unhealthy, the culture must be changed as rapidly as possible. The series
of actions initiated by top management must command attention, create lots of hallway talk,
leave no room for company personnel to doubt that fundamental culture change is
inevitable.

Management by walking around is a very effective technique to stay informed about how
well the strategy execution process is progressing.

Making correct actions successfully requires:

 accurate analysis of the situation
 good business judgement in deciding what actions to take
 good implementation of the corrective actions