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Summary Strategy & Entrepreneurship
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Chapter 1: Definition and importance of strategyCore concept
- Strategy is about competing differently from rivals - doing what competitors do not do or, even better,
doing what they cannot do!
- A company’s strategy is the set of actions that its managers take to outperform the company’s
competitors and achieve superior profitability.
- How well a company performs is directly attributable to the calibre of its strategy and the proficiency
with which the strategy is executed.
Context Content Process
WHAT is our present situation? WHERE do we want to go? HOW are we going to get
there?
- Business environment and Creating a vision for the firm’s Crafting an action plan for
industry conditions. future direction. heading the firm in the
- Firm’s financial and intended direction, staking out
competitive capabilities. a market position, attracting
customers, achieving the
targeted financial and market
performance, and getting the
firm where it wants to go is its
strategy.
Strategy is all about how…
- How to attract and please customers.
- How to compete against rivals.
- How to position the firm in the marketplace to capitalize on attractive opportunities for growth.
- How to respond to changing economic and market conditions.
- How to manage each functional piece of the business.
- How to achieve the firm’s performance targets.
What is strategy is NOT about…
- Strategy ≠ being the best, the biggest or the first (is volatile, can be copied and is unclear) →
companies resemble each other + danger of strategy illusion.
- Growth strategy: growing because of growth + increase prestige and personal wealth of CEO’s, even
when growth destroys value → it is part of it but again, it is not about being the biggest.
- Too much in marketing sphere → Marketing starts from strategy.
Strategy and competitors
Strategy is about competing differently from rivals (main element of strategy):
- Doing what they do not do or doing it better.
- Doing what they cannot do.
- Doing things in ways that attract customers and set a firm apart from its rivals.
- Doing things in a manner calculated to produce a competitive edge over rivals.
- Knowing what the firm must do and also what it must not do.
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, Be different!
Snip-its: hairdresser for kids. Founded by a mom who went to the hairdresser with her child, and it was
not a pleasant journey for the kids. The kids did not like the atmosphere and started crying. In responds
to this, she created her own hair salon with a cartoon theme (unique element).
➔ With a slogan: “Getting your kid’s hair cut should not make you want to pull out yours.”
ShakeShack: This is a fast-food restaurant. He wanted to bring a special kind of element to the market
as fast-food restaurants are already so integrated into the American market. Therefore, he decided to
build shakeshack and integrate it into the park. This is one element he brought to his restaurant, but
he also added special ingredients into his sauce, special types of hamburgers, …
Micheal Porter Steve Jobs
- The essence of strategy is choosing what not “It comes from saying no to 1,000 things to make
to do”. sure we don’t get on the wrong track or try to do
- “If all you’re trying to do is essentially the same too much.”
thing as your rivals, then it’s unlikely that you’ll
be very successful”.
Identifying a firm’s strategy - pattern
If you ask a business and they say they “do not really do
strategy”, you can recognize patterns of actions and business
approaches that define a company’s strategy (they are pieces
of a puzzle). Examples can be found in the figure on the right.
Example: Key elements of Starbucks’s strategy
- Train “baristas” to serve a wide variety of specialty coffee
drinks that allow customers to satisfy their individual
preferences in a customized way.
- Emphasize store ambience and elevation of the customer experience at Starbucks stores.
- Purchase and roast only top-quality coffee beans.
- Foster commitment to corporate responsibility.
- Expand the number of Starbucks stores domestically and internationally.
- Broaden and periodically refresh in-store product offerings.
- Fully exploit the growing power of the Starbucks name and brand image with out-of-store sales.
- Products in the supermarket as of now so you can make your own starbucks.
The quest for competitive advantage
Competitive Advantage Sustainable Competitive Advantage
- A firm achieves a competitive advantage when - The firm achieves a sustainable competitive
it provides buyers with superior value advantage if its advantage persists despite the
compared to rival sellers or offers the same best efforts of competitors to match or surpass
value at a lower cost to the firm. its advantage.
- Requires meeting customer needs either more - Requires giving buyers lasting reasons to
effectively (with products or services that prefer a firm’s products or services over those
customers value more highly) or more of its competitors.
efficiently (by providing products or services at
lower cost). (Important choice to make!)
2
, Competitive advantage: Efficiency vs effectiveness
Difference between operational excellence and strategy:
- Both are essential, but the agendas are different. The operational agenda means continuous
improvement and efforts; flexibility; there are no tradeoffs. The strategic agenda is the right place to
define a unique position, where tradeoffs need to be made.
- Difference between efficiency (doing things right) and effectiveness (doing the right things) (Peter
Drucker). Example: Efficiency, studying a course that can be studied in 4 days and not 10 days.
Effectiveness, studying the right course: studying strategy while having an accounting exam.
- Efficiency is not really about making choices. Example: If you want to rent a place, they say they will
do it as fast as possible and at the lowest price (most efficient way). But this is what we expect, not
really a choice for them.
- Effectiveness is about making choices. What is the right thing? What is not the right thing?
➔ Ed Welburn of General Motors: “Half of our people were spending all of their time preparing
presentations, instead of designing great cars”.
Why an organization’s strategy evolves over time?
Strategy is not a fixed thing but a thing that is continuously changing. Managers modify strategy in
response to:
- Changing market conditions
- Advancing technology
- Fresh moves of competitors
- Shifting buyer needs
- Emerging market opportunities
- New ideas for improving the strategy.
Is competitive advantage sustainable in the 21st century?
D’Aveni’s theory of hypercompetition suggests that sustainable advantage is no longer possible in
many industries. Changes in technology, globalised markets and deregulation have all led to more
frequent disruption and changes in markets.
➔ This can mean it is difficult or impossible to achieve a unique position which is long lasting.
Other experts, such as Michael Porter, disagree and state that managers’ behaviour can cause
hypercompetition if they abandon the quest to seek long-term advantage. A variety of studies both
support and challenge D’Aveni’s theory.
Strategic management principle
- Changing circumstances and ongoing management efforts to improve the strategy cause a company’s
strategy to evolve over time—a condition that makes the task of crafting strategy a work in progress,
not a one-time event.
- A company’s strategy is shaped partly by management analysis and choice and partly by the necessity
of adapting and learning by doing.
The evolving nature of an organization’s strategy
Realized (current) strategy is a blend of:
- Proactive (deliberate) strategy elements that include both continued and new initiatives.
- Reactive (emergent) strategy elements that are required due to unanticipated competitive
developments and fresh market conditions (You have to adapt/change because of certain changes in
the market.).
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, Proactive and reactive elements
Strategy is about both of the reactions
(proactive/reactive). Proactive: it is deliberate strategy,
there are proactive strategy elements that are chosen for
the strategy. (Here, you cannot change but only let go if
they are not relevant in the market.). Emergent: it is a
emergent strategy, there are reactive strategy elements.
The relationship between an organization’s
strategy and its business model
It is not because you have a valid strategy with
competitive intiatives and business approaches,
that you will be able to build a valid business.
Therefore, you need the business model which
consists out of value proposition and profit
formula.
Core concept: Business Model
A company’s business model sets forth the logic for how its strategy will create value for customers,
while at the same time generate revenues sufficient to cover costs and realize a profit.
A company’s business model
How the business will make money:
- By providing customers with value → The firm’s customer value proposition
- By generating revenues sufficient to cover costs and produce attractive profits → The firm’s profit
formula.
➔ It takes a proven business model—one that yields appealing profitability—to demonstrate viability
of a firm’s strategy.
Elements
Customer Value Proposition Profit Formula
- Satisfying buyer wants and needs at a price Creating a cost structure that allows for
customer will consider a good value. acceptable profits, given that pricing is tied to
- The greater the value provided (V) and the the customer value proposition.
lower the price (P), the more attractive the - V—the value provided to customers.
value proposition is to customers. - P—the price charged to customers.
- C—the firm’s costs.
The lower the costs (C) for a given customer
value proposition (V–P), the greater the ability of
the business model to be a moneymaker.
The Business Model and Value-Price-Cost Framework
The customers get a certain value which they pay a certain price
for. The gap between those two should be as big as possible as
this brings a high customer value proposition.
As for the producer view, we offer it at a certain price. For this
product, we have a per-unit cost to produce this product. For the
producers, the gap between those two should be as big as
possible for the profit.
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