Summary Strategic Management
MODULE 1: WHAT IS STRATEGY?
1. Definition of strategy
= The determination of long-run goals and objectives of an enterprise and
the adoption of courses of action and the allocation of resources
necessary for carrying out these goals
What to achieve?
What is the long-term goal of the organization?
Double sales by 2030
Achieve net-zero emissions
How to achieve it?
Which activities do we perform?
Produce low-cost designer furniture
Tailored financial advise to clients with capital > 500k
Which resources do we buy, develop or exploit?
Spacious buildings in the city centre
Highly trained machine learning scientists
2. Importance of strategy for firm performance
Strategic decisions are…
1. Fundamental for long term success
define the essence of the company
Studies
Large sample of companies in different industries looking how profitable they are
Trying to see what explains the profitability of these firms
Which is driven by the industry they compete in and which profit is driven by the
company themselves firm itself has more effect on the profitability then the
industry you have to have a strong competitive advantage (= key driver of the
profitability)
,2. Interdependent
need to fit with each other
need to be coordinated over time
Ryanair:
Low cost = strategy
Low opportunities for differentiation
High aircraft utilization plain as often as they can in the air they have only one
type of plain , easier to repair
Flying from one airport to another and back
As soon as the plain lands they will the plain back in 25 minutes in the air when
you are one the ground you have to pay
All their decisions are in line with each other
3. Hard to reverse
require financial commitments
E.g.: factory, planes, human capital
4. Difficult
uncertainty
competitive ‘games’
, 3. Elements of a good strategy
1. Clear and consistent long-term goals
2. Good understanding of the competitive environment
3. Building and using the resources and capabilities to achieve the goals, to develop
a competitive advantage
4. Effective implementation
5. Strategic fit between goals, environment, resources and capabilities, and
implementation
1) Clear and consistent long-term goals
Align stakeholders:
Owners, employees, broader society
Financial and non-financial goals
Sales growth, sales margin, capital turnover
What do we want to be?
General but not too general
2) Good understanding of the competitive environment
Determinants of industry profitability?
Positive and negative
Useful frameworks
PEST: “Macro-factors” that determine industry profitability (Political, Environmental, Social,
Technological)
Porter 5 Forces framework (below):
Elements that have strong effects on the profitability we need to know what they are to become
more profitable
Porter profitablilty of the industry is determined by these 5 elements
Threat of entry = can we enter the market easily or not do they need a lot of
investments? Do we need competitive advantages the easier it is for a new company to
enter, how less attractive the industry is
Supplier power = who are the suppliers? Do they have a lot of power, they are going to ask a
lot and yout costs will go up and you have to ask more
Buyer power = if they have a lot of power, you have to sell for low prices profit will be
lower
, Substitutes = another product in a different industry, but it satisfies the same needs more
price sensitive/elastic if their are a lot of substitutes
3) Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
Goal of strategy: Competitive advantage
How of strategy: Combine resources and capabilities differently to create advantage over
competitors:
Differentiation advantage
Cost advantage
Competitive advantage comes from resources and capabilities that are..
Unique/scarce Relevant/valuable Durable
Not transferable: you can’t just buy it
Not replicable
E.g.: Reputation, brands, technology, expertise, …
To create a highest WTP the average cost will raise also Only differentiation advantage if
the difference is higher than the cost
Cost advantage = producing lower than the average cost in the industry WTP decreases
difference between WTP and lower average cost has to be bigger
Custumors are WTP a lot of money and you are able to produce them at a low average cost
= ideal situation (difficult)
4) Effective implementation
How to implement the strategy?
Organization structure
Systems
Culture
Strategy needs to be adaptive
Understanding when to ‘pivot’
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