CHAPTER 1. What is strategy and why is it important.
Strategic management: analysis, formulation and implementation in the search for competitive advantage.
What strategy is : Gaining & Sustaining Competitive Advantage. There has always been a desire to outperform our competitors. In most of the situations, the winners are generally those with the better strategy in which strategy is formulated as the planned and realized set of actions a firm takes to achieve its goals. A firm that outperforms competitors has a competitive advantage compared to those competitors. If a firm can keep this comparative advantage up for a long time we name this a sustainable competitive advantage. For example Google, although keep in mind that todays successes will not guarantee future successes. Where competitive advantage means, outperforming your competitors, competitive disadvantage, means the opposite, underperforming its rivals or the industry average. To ‘get/earn’ competitive advantage a firm has to provide goods or services which a consumer values more highly than the products/services of one of the competitors. The essence of a strategy is being different from rivals and thus unique. If two firms approximately perform at the same ‘level’, they have a competitive parity. When a company is able to imitate easily the firm’s source of competitive advantage, the firm is short-lived. However, if the advantage is difficult to imitate/understand, the firm is able to sustain over time. For example, patents often protect products from direct imitation for a limited period of time. Medicine of Pfizer, which had patent for example.
Strategy describes the goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantage. A firm with competitive advantage possesses superior value to customers. If the difference between the superior value and the costs is larger, the greater the economic contribution the firm makes, and thus the greater the likelihood for comparative advantage. Although it might look like, it is not the case one company wins and the other(s) loses. For example when the new Cell microprocessor was made, IBM, Sony and Toshiba worked together, we call this co-opetition. Although these companies compete in the industry here they work together to achieve strategic objectives. Side note: Michael Porter “strategy is as much as about deciding what not to do, as it is about what to do”
Strategy as a theory of how to compete.
A firm’s strategy can be seen as its managers’ theory about how to gain and sustain competitive advantage. A theory answers the questions, what causes what and why? Strategy as a theory of how to compete provides managers with a road map to navigate the competitive territory. The more accurate the map, the better the strategic decisions managers can make. The process of strategic management, is a never ending cycle of analysis, formulating, implementation, and feedback. Apple, for example, brought the Apple Newton on the market for a price way too high, competitors and Apple learned from this and they could use this. Later when the iPhone was on the market it “sales exceeded expectations” this time they charged the right price for the right product at the right time.
Industry vs. Firm effects in determining performance
Firm effects are the results of the actions managers within the firm take to influence the firm’s performance. Industry effects the effects of the industry in which to compete. The industry a company is in determines 20% of the profitability and the strategy between 30% and 45%.
What is strategy not?
Strategy is the firm’s overall efforts to gain and sustain competitive advantage
*it is the managers’ theories about how to gain and sustain competitive advantage
* it is about being different from your rivals
* it is about creating value while containing cost
* it is about deciding what to do, and what not to do
* it combines a set of...
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