Transcript of Strategic Management

[Music] in thinking strategically about a company managers of all types of businesses must develop a clear understanding of what moves and approaches will be employed to gain advantage in the marketplace an organization strategy explains why the company matters by specifying an approach to creating superior value and determining how capabilities and resources will be utilized to deliver the desired value in effect crafting of a strategy represents a managerial commitment to pursuing an array of choices about how to compete these include choices about how to create products and services that attract and pleased customers how to position the company in the industry how to develop and deploy resources to build valuable competitive capabilities how each functional piece of the business will be operated and how to achieve the company's performance targets in most industries companies have considerable freedom in choosing the house of their strategy a company's business model sets forth how its strategy and operating approaches will create value for customers while at the same time generating ample resources to cover costs and realize a profit the two elements of a company's business model are first its customer value proposition and second its profit formula let's take a look the customer value proposition is established by the company's overall strategy and lays out the company's approach to satisfying buyer wants and needs at a price that customers will consider a good value the greater value provided at the lower price the more attractive the value proposition is to customers the profit formula describes the company's approach to determining a cost structure that will allow for acceptable profits given the pricing tied to its customer value proposition the lower the costs given the customer value proposition the greater the ability of the business model to be a moneymaker the nitty-gritty issue surrounding the company's business model is whether it can execute its customer value proposition profitably just because company managers have crafted a strategy for competing and running a business does not automatically mean the strategy will lead to profitability it may or may not competitive advantage is a condition or circumstance that puts a company in a favorable or superior business position there are five frequently used and dependable strategic approaches to setting a company apart from rivals and winning a sustainable competitive advantage let's take a look a low-cost provider strategy means achieving a cost-based advantage over rivals Walmart and Southwest Airlines have earned strong market positions because of low cost advantages they've achieved over their rivals low-cost provider strategies can produce a durable competitive edge when rivals find it hard to match the low cost leaders approach for driving costs out of business a broad differentiation strategy seeks to differentiate a company's product or service from rivals in ways that will appeal to a broad spectrum of buyers successful adopters of broad differentiation strategies include Johnson & Johnson in baby products which is all about product reliability and Apple with innovative products a focused low-cost strategy concentrates on a narrow buyer segment or market niche a focused differentiation strategy concentrates on a narrow buyer segment or market niche and out competing rivals by offering customized attributes that meet their tastes and requirements better than rivals products Louis Vuitton and Rolex have sustained their competitive advantage in the luxury goods industry through a focus on affluent customers demanding luxury and prestige a best cost provider strategy gives customers more value for the money by satisfying buyers expectations on key quality features performance and service attributes while beating their price expectations this approach is a hybrid strategy that blends elements of the low cost provider and differentiation strategies its aim is to have the best cost and prices among sellers offering products with comparable differentiating attributes targets best cost advantage allows it to give discount store shoppers more value for the money by offering an attractive product lineup and an appealing shopping ambience at low prices strategy leaders need to understand these five strategic approaches to setting an organization apart and winning competitive advantage a Company achieves sustainable competitive advantage when an attractively large number of buyers develop durable preference for its own products or services over the offerings of competitors despite the efforts of those competitors to overcome or erode its advantage the appeal of a strategy that yields a sustainable competitive advantage is that that offers the potential for an enduring edge over rivals however managers of every company must be willing to be ready to modify the strategy in response to unexpected moves of competitors shifting buyer needs and preferences emerging market opportunities new ideas for improving the strategy and mounting evidence that the strategy is not working well most of the time a company's strategy evolves incrementally as management fine-tunes various pieces of the strategy and adjust the strategy to respond to unfolding events however on occasion major strategy shifts are called for such as when strategy is clearly failing or when industry conditions change in dramatic ways regardless of whether a company's strategy changes gradually or swiftly the important point is that the task of creating strategy is not a one-time event but is always a work in progress winning companies create value by defining developing and deploying a set of strategic capabilities that provide a unique competitive advantage three questions can be used to distinguish a winning strategy from a so-so flawed strategy let's take a look first how well does the strategy fit the company's situation to qualify as a winner a strategy has to be well matched to the company's external and internal situations the strategy must competitive conditions in the industry and other aspects of the enterprise's external environment at the same time it should be tailored to the organization's collection of competitively important resources and capabilities next is the strategy helping the company achieve a sustainable competitive advantage strategies that fail to achieve a durable competitive advantage over rivals are unlikely to produce superior performance for more than a brief period of time winning strategies enable a company to achieve a competitive advantage over key rivals that is long lasting the bigger and more durable the competitive edge that the strategy helped build the more powerful it is and finally is the strategy producing good company performance the mark of a winning strategy is strong organizational performance two kinds of performance improvement tell the most about the caliber of a company strategy first gains and profitability and financial strength and second advances in the company's competitive strengths and market standing strategies that come up short on one or more of the above tests are plainly less appealing than strategies passing all three tests with flying colors managers should use these same questions when evaluating either proposed or existing strategies a winning strategy must fit the company's external and internal situation build sustainable competitive advantage and improve company performance companies don't get to the top of industry rankings or stay there with illogical strategies copycat strategies or timid attempts to try to do better among all the things managers do nothing affects ultimate success or failure more fundamentally than how well its management team charts the direction develops effective strategic moves and pursues what needs to be done indeed good strategy and good strategy execution are the most telling signs of good management the rationale for using the twin standards of good strategy making and good strategy execution to determine whether a company is well-managed is compelling the better conceived a company's strategy and the more competently it's executed the more likely the he will be a standout performer in the marketplace in stark contrast a company that lacks clear-cut direction has a flawed strategy or can't execute its strategy competently is a company whose financial performance is probably suffering businesses at long-term risk and whose management is sorely lacking how well a company performs is directly connected to the caliber of its strategy and the proficiency of which the strategy is executed [Music]