Strategic management Theme 1: Strategy
Theme 1: What is strategy & why is it important?
- Strategy = how you outmaneuver the competition
- Business = solving a problem or addressing a challenge – usually for a customer
1. What is the essence of Strategic thinking & implementation?
1.1 EXAM: Netflix case
- How did Netflix start?
- Existing company was Blockbuster
- Business always about 1 issue at stake → you’re trying to resolve this issue
- Netflix = reaction to Blockbuster
- Blockbuster: you rent a video, forgot to bring it back & customer has to pay $40 fine
- Problem: upset with Blockbuster bcs of the money they charged for being too late
- Solution: Netflix: mailed the DVD to the customer which was serving the customer
o Not just logistics but also entertainment → Why? They’re providing content themselves
o When they started to make their own content, it became a real powerhouse
o Now: stock price went down, why? Probably bcs of the rising competition (Apple, Disney+,
Amazon Prime…)
o Tendency: corporation does well, people copy it & the profit will go down
- Strategy = about future
- Context is changing so your strategy changes
= Continuously prepare yourself for an uncertain future
= Informed bet about future directions of an organization
2. Strategy and competitors
Strategy is about competing differently from your rivals
- Doing what they don’t do or doing it better
- Doing what they can’t do
- Doing that which sets the firm apart and attracts customers
- Deciding what we should or should not do to produce a competitive edge
- Can be described as adopting a particular position
3. The quest for competitive advantage
- Competitive Advantage
= Meeting customers’ needs more effectively, with products or services that customers value more highly, or
more efficiently, at a lower cost
- Sustainable Competitive Advantage
= Giving buyers “lasting” reasons to prefer a firm’s products or services over those of its competitors
≠ ecological
→ If you don’t capture value for you as an organization, the organization won’t survive
4. Strategic approach choices
Building
Competitive
Advantage
Focus on
Differentiation on Focus on cost market
Low-cost provider differentiation
features niche
marketniche
- Low cost: Aldi, Colruyt
- Lamborghini etc. are different from replicas but depends on the perception you take => strategy
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,Strategic management Theme 1: Strategy
- ADDITIONAL EXAM: what’s true for organizations, is also true for yourself; What stands out when doing a job
interview:
- Is it better to be best in class or is it preferable to be unique? From strategic perspective, being the
best in class is hard so a good strategist usually goes for being unique, ex. Apple
- Crucial to be a CEO: probably your career path but also the chemistry between board members &
organization itself
- Success is dependent on: skill set (combo of talent & skills/practice (= related to efforts) + resilience
(= don’t give up immediately) + luck
- Summation of success: reduce errors & increase insights/innovations → together = resilience
5. 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
- You have an idea about how it works but it doesn’t work out the way you thought so you must -adapt
- Reactive (emergent) strategy elements that are required due to unanticipated competitive developments
and fresh market conditions
5.1 Deliberateness vs. Emergence
Deliberate and Emergent Strategy example: Honda case in USA in the 50s
5.1.1 EXAM: Explain the Honda case
- Honda decided to conquer the American market
- Deliberate strategy: sell Tokyo’s 500cc motorcycles in California
- Unsuccessful: salespeople drove around on smaller bikes and so other people wanted to buy that one instead
of the big motorcycles
- They adapt & the bike became a success story → they changed track, they left the deliberate strategy,
adapted & they advertised the small bike with: “this is the bike for everyone”
- Initial success was based on something that wasn’t foreseen at all
- Great idea & solution for a problem doesn’t necessarily mean success
- Is strategy always reactive? → no but you’ll have to proact as situations will make you react
5.2 Business = value creation
- Think value, not profit increasing the Willingness to Pay (customers’ perspective) & decreasing the
Willingness to Sell (employees’ and suppliers’ perspective)
- Business = profit AND value
- WTP: the more you can delight a customer, the more loyal the customer will
be => competitive advantage
- WTS: making work nice for potential employees or suppliers that want to
stick with you
- Key principles of Value-based Strategy
o Companies that excel at creating value focus mostly on value or WTP
(enhance the customer experience) and WTS (make it more
attractive for vendors and employees to work with the company).
o Companies that outperform their peers increase WTP or decrease
WTS in ways that are difficult to imitate
o Many of the most successful companies focus on their competitive
position inside an industry, as opposed to the average performance
of their segment of the economy
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,Strategic management Theme 1: Strategy
- Think value (WTP & WTS), not profit: sharing value with customers, employees and suppliers
- The Customer Value Proposition
o Satisfying buyers’ wants and needs at a price customers will
consider a good value
o The greater the value provided (V or WTP) and the lower the
price (P), the more attractive the value proposition is to
customers
- Value Capturing
o Companies create value by increasing WTP and decreasing WTS.
o These companies capture value by setting prices and
compensation
- The Supplier & Employee Value Proposition
o The share to the suppliers is the difference between how much
they get paid by the firm (i.e. the firm’s cost) and their Value or
WTS. Think of it as a surplus that the suppliers earn from the
transaction.
o A similar logic applies to the employee. The compensation –
WTS represents the satisfaction of the employee
- Enhance the Willingness to Pay and Decrease the Willingness to Sell: Apple benefitting from high WTP and
low WTS
- Value Creation by Apple
o The WTP for Apple devices tends to be high for customers who
adore sleek design and appreciate ease of use => Customer
delight
o Suppliers like shopping malls give Apple a special break: the
company pays no more than 2% of its sales per square foot in
rent, compared with 15% for a typical tenant: Why are mall
owners so generous to Apple? Because Apple increases foot
traffic by about 10% for all the other stores in the mall
o Creation of value = Increase WTP + Decrease WTS
o Difference between price & cost is bigger than for a regular
store
- ADDITIONAL EXAM: difference between price & WTP?
o Ex; smartphone: suppose Apple vs Samsung
o If you pay a price for a product but you feel it’s worth it & you
would pay more, this is WTP
- WTS:
o How do you attract employees?
o Often, people want to work for someone/a company who embraces the same values
o CF is blood flow of an organization
o Strategy = creating value for all the stakeholders & shareholders
o Profit = consequence of serving employees & customers
5.3 What is strategy about?
- Strategy is all about HOW:
- How to outcompete rivals
- How to respond to economic and market conditions and growth
opportunities
- How to manage functional pieces of the business
- How to improve the firm’s financial and market performance
- But more importantly: being unique (on your own terms) that allows you
to deliver value to customers who are willing to pay a proper price for your
value proposition.
- Best in class is about effectiveness but competitor will copy you
- Uniqueness will increase WTP
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- Competitive advantage test: Can it help the firm
Strategic fit achieve a significant and sustainable competitive
test advantage?
Competitive
Performance - Strategic fit test: Does it exhibit dynamic fit with the
advantage
tet external and internal aspects of the firm’s overall
test
situation?
successful - Can it produce good performance as measured by
strategy the firm’s profitability, financial and competitive
strengths, and market standing?
5.3.1 Strategic decisions
→ Decisions are strategic when at least one of the following three conditions is fulfilled:
- Irreversibility of the decision:
- Because of:
o Size of the investment required: Airbus 380
o Time windows: lock-ins and lockouts
- The decision is likely to provoke a reaction from the competitors or from other companies: Competitive
interaction
- Because of: small number of players: Airbus versus Boeing or Microsoft versus Google
- Coordination with other decisions is necessary to achieve coherence (cross section) and consistency (over
time):
- Because of: achieving results depends on several decisions that require coordination.
5.3.2 Definition of a strategy
(Geen vraag opzich maar als bijvraag bij bijna buizen)
Strategy = a set of rules that enables the company to make many decisions over a period of time. A strategy
explains how an organization, faced with uncertainty & competition, will achieve superior performance through
value creation within a certain business context and improve/sustain the value of the organization.
→ A strategy must have a direction, based on a proper diagnosis of the situation.
Absent a diagnosis, one cannot judge one’s own choice of an overall guiding policy, much less someone else’s
choice.
→ A strategy must also translate overall directive into coordinated action focused on key
points of leverage in the situation.
5.4 Basic framework: strategy as a link between a firm & its environment
3 questions:
- What’s going on? → referring to the industry = external analysis
- What could you do & could resource internally to your capabilities? → internal analysis
- What should you do? → referring to meaning/purpose of organization
- Strategy = about future but we don’t know it so it’s uncertain
- We do know the firm & the industry so that’s the starting point for developing a strategy
- Those who grab trends, think about AI, it’s able to predict the future → ex. Netflix: our preferences don’t
change overnight & the more we watch with all the customers, the more Netflix can predict what we’ll watch
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