Theme 1: What is Strategy and why it is
important?
The concept of strategy
1. What is the essence of strategic thinking & implementation?
Business strategy = solving a problem or a addressing a challenge with a certain
informed approach for the future direction of the organization.
- Strategy is about the future, it is not because you were once successful
that you will be in the future
- This thanks to changing environment
- Important to translate the future direction in financial results
CASE NETFLIX: Why is Netflix popular? BlockBuster was very successful at
renting videos. The reason for Hastings (founder of Netflix) to start his own
company, was because he was late in bringing back his rented movie and he
had to pay a fine = blockbuster earning model! Important to know that
business is about resolving challenges, it is providing a service or product that
people are willing to pay for. (Netflix started as a logistics company = crazy!)
- First problem solving: Netflix would not send fines if you were little late.
- Second problem solving: the decision/ strategy chosen by Netflix to
digitalize their movies during early 2000, was made possible thanks to
the availability of internet. So, when internet allowed it, they started
sending videos online. Blockbuster went bankrupt because they didn’t go
with the streaming trend.
- Third problem solving: Nowadays Netflix has a lot of competitors (thanks
to attractiveness of the market): HBO, Apple, amazon. To stay
competitive Netflix decided to make their own content. A risky but
successful move.
Why is it that Netflix is daring to invest in making movies/shows? In order to
finance the content, they have to use a lot of money. This money they get
from subscribers.
But there is an important synergy: when we watch, we leave traces and data,
which makes Netflix able to predict and read our preferred content: they know
exactly which kind of movie or show we like. This data is allowing Netflix to
predict that if they invest in some kind of movie, they are pretty sure that X
amount of people is going to like this movie. Strategy is about the future, but
the future is uncertain. But the more data these companies have, the easier
they can predict the future (=advantage)! => Importance of statistic’s and AI.
Common additional question is explaining the stock price of a company. What is
the stock price? = based on today’s cashflow and expected cashflow in future.
This also explains why Tesla is worth a lot, expectation -> investors think they
Tesla will have a huge market share in electric cars (first move advantage).
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, 1.1 Strategy and competitors
Strategy is about competing differently from 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
-> (EX) also applies to the labor market when looking for a job: it is better to be
a unique student than being the best of class since unique is harder to be copied!
Strategy is about what you should do to gain a competitive advantage. E.g Apple
is not interested in creating cheap smartphones. They want to focus on design
and that is their uniqueness = strategy -> The search to competitive advantage:
Competitive advantage Sustainable competitive advantage
Meeting customer needs more Giving buyers lasting reasons to prefer
effectively, with products or services a firm’s products or services over
that customers value more highly, or those of its competitors.
more efficiently, at lower cost. -> e.g: Amazon offers bundle of
-> e.g: because you were first-Netflix services for example amazon prime.
1.1.1 Strategic approach for competitive advantage
How can competitive advantage be reached? 4 strategic approach choices to
build competitive advantage:
- Low-cost provider, e.g: Colruyt, replica
- Differentiation on features, e.g: Apple
- Focus on differentiation market niche, e.g: Ferrari
- Focus on cost market niche, e.g: hairdresser
1.2 The evolving nature of an organizations strategy
The realized strategy is a blend of:
- Proactive (deliberate) strategy elements that include both continued and
new initiatives with a specific goal in mind.
- Reactive (emergent) strategy elements that are required due to
unanticipated competitive developments and fresh market conditions
Strategy changes over time: deliberateness
vs. emergence: you start with an intended
strategy (plan of action) which will be carried
out with the deliberate strategy. This
partially result in an unrealized strategy. A
new emergent strategy emerges which result
in the realized strategy (pattern of actions)
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, CASE HONDA: In 50s, Honda (Japanese brand) decided to bring their brand to
California. But big bikes were not successful. It’s a, and at the time they could
not provide the quality that other brands were providing (Harley Davidson).
The intended strategy wasn’t realized. Since the engines were leaking, they
could not compete with the quality of the competitors.
Thanks to trail and error, the emergent strategy came: the small Honda bikes
became a success, because a client (CEO of Seers) saw the Honda seller on a
small motorbike and he wanted that bike since he realized it was a motorbike
for everyone (men & women) for a reasonable price. Client wanted to sell it.
The different climate: advertising: it is for everyone, at a reasonable price =
adaptation of an emergent strategy that rolled into the realized strategy (very
different from intended strategy but adapted to capture market share).
2. Business = value creation
Think Value, not Profit: the target of an organisation needs to be increasing the
Willingness to Pay = WTP (Customers’ perspective) & decreasing the Willingness
to Sell = WTS (Employees’ and Suppliers’ perspective). Key principles of Value-
based Strategy:
- Companies that excel at creating value focus on value = WTP (enhance
the customer experience) and WTS (make it more attractive for suppliers/
vendors and employees to work with your company).
- Companies that outperform their peers increase WTP or decrease WTS in
ways that are difficult to imitate! => goal is to increase the pie!
Visualization -> creation of value = increase WTP + decrease WTS
Customer delight = Customer Value Proposition
- Satisfying the wants and needs at a price
customers will consider a good value.
- The higher the value provided (WTP) and the
lower the price (P), the more attractive the value
proposition is to customers.
Firm margin = value capturing by the company
- Companies create value by increasing WTP &
decreasing WTS -> These companies capture
value by setting prices and compensation.
-> this is important since cash is king!
The Supplier & Employee Value Proposition
- difference between WTS (e.g wanted salary) and
cost is the degree of satisfaction of the employee,
e.g good atmosphere, room for errors, flexible
- It is also a surplus that the suppliers earn.
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, Remarks with firm margin:
- Value capturing is the most vital part, this needs to serve the society as
well. But be careful it may not be generated by unethical practices e.g
pollution, child labor, Pfas since in LT this will make WTP and WTS vanish
- Importance of value creation, but a company should also be able to
capture a part of the value. Otherwise, you will not survive, cash is king.
- More value can be captured when owning the most part of the chain. E.g:
Apple work with their own software and Samsung are using android which
is owned by Google.
• brand advantages are present in all parts of the chain, e.g shopping
center gives Apple cheaper rental prices since an apple store will
lure extra customers. This results in lower cost & higher firm margin
3. Definition of strategy (an informed bet)
3.1 Intro
Strategy is about how you outcompete rivals, how you respond the economic and
the macro conditions both in the future
- When seeing future trends earlier and better than rivals you can be better
prepared which will result in higher value creation than your competitor.
- Here the key is again to be unique since this prevent competitors to copy
your preparations.
3.2 Successfulness of the strategy
A winning strategy must pass three test, (EX) what makes a good strategy:
- The fit test: does it exhibit dynamic fit with the external and internal
aspects of the firm’s overall situation?
• Whatever the product you are offering, it needs to fit in the portfolio
of what the organization stands for. Example: if your name is Ferrari
(premium brand), then it is very hard to sell a little city car.
- The competitive advantage test: can it help the firm achieve a significant
and sustainable competitive advantage?
• It is not good that you have a temporary advantage. You have to
have a sustainable competitive advantage: it needs to last a few
months.
- The performance test: can it produce good performance as measured by
the firm’s profitability, financial and competitive strengths, and market
standing? -> Most crucial one. Whatever you bring to the market, it needs
to be able to be translated into financial terms and lead to profit over a
certain time.
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