Chapter 1 What is Strategy and Why is it important?
A company’s strategy and its business model
At the core of every sound strategy is the company’s business model -> a management’s blueprint
for How its strategy will create value for customers and at the same time generate revenues sufficient
to cover costs and realize a profit.
What makes a strategy a winner?
3 Tests can be applied to determine whether a strategy is a winning strategy:
1. The Fit Test: How well does the strategy fit the company’s situation? Strategy match business
environment. It has to exhibit good external fit and be in sync with prevailing market
conditions. At the same time, it has to be tailored to the company’s resources and competitive
capabilities: it must exhibit internal fit. Winning strategies also exhibit dynamic fit in the sense
that they evolve over time in a manner that maintains close and effective alignment with the
company’s situation even as external and internal conditions change.
2. The Competitive Advantage Test: Is the strategy helping the company achieve a sustainable
competitive advantage? The bigger and more durable, the more powerful it is.
3. The Performance Test: Is the strategy producing good company performance? The mark of a
winning strategy is strong company performance. Two kinds of performance indicators tell the
most about the caliber of a company’s strategy: (1) competitive strength and market standing
and (2) profitability and financial strength.
Chapter 2 Charting a Company’s Direction
Stage 1: Developing a strategic vision, mission statement, and set of
core values
Developing a Strategic Vision
Strategic vision -> “where we are going” – management
aspirations for the company and the course and direction charted
to achieve them, aim.
- Disneyland: to be the happiest place on earth. Google: to organize the
world’s information and make it universally available.
- A clearly articulated strategic vision communicates management’s aspirations to stakeholders
(customers, employees, stockholders, suppliers, etc.).
- Well-conceived visions are distinctive and specific to a particular organization; they avoid generic,
feel-good statements like “We will become a global leader and the first choice of customers in
every market we serve” or “to be most innovative”.
- Communicating: should be effectively communicated down the line so everyone is familiar and
can observe management’s commitment to the vision -> can help using a catchy or easily
remembered slogan to capture the vision -> reminder of “where we are headed”. E.g. “to halt
environmental abuse and promote environmental solutions.”
Developing a Company Mission Statement
A strategic vision portrays a company’s aspirations for its future (“where we are going”), whereas a
company’s mission describes the scope and purpose of its present business (“who we are, what we
do, and why we are here”) -> identity.
,- Ideally, a company mission statement (1) identifies the company’s products and/or services, (2)
specifies the buyer needs that the company seeks to satisfy and the customer groups or markets
that it serves, and (3) gives the company its own identity.
- “to assure the safety and health of America’s workers by setting and enforcing standards;
providing training, outreach, and education; establishing partnerships; and encouraging continual
improvement in workplace safety and health.”
- Often parts are missing in company’s mission.
- Occasionally, companies couch their mission in terms of making a profit. This, too, is flawed.
Profit is more correctly an objective and a result of what a company does. Moreover, earning a
profit is the obvious intent of every commercial enterprise.
Linking the Vision and Mission with Company Values
Values (or core values) -> designated beliefs, traits, and behavioral norms that management has
determined that personnel are expected to display in conducting the company’s business and
pursuing its strategic vision and mission.
Stage 2: Setting Objectives
Objectives -> organization’s performance targets – the specific results
management wants to achieve.
The Imperative of Setting Stretch Objectives
A company exhibits strategic intent when it relentlessly pursues an
ambitious strategic objective, concentrating the full force of its
resources and competitive actions on achieving that objective.
What Kinds of Objectives to Set
Consequently, it is important to use a performance measurement system that strikes a balance
between financial objectives and strategic objectives. The most widely used framework of this sort is
known as the Balanced Scorecard. This is a method for linking financial performance objectives to
specific strategic objectives. It provides a company’s employees with clear guidelines about how their
jobs are linked to the overall objectives of the organization, so they can contribute most productively
and collaboratively to the achievement of these goals.
Company objectives need to be broken down into performance targets for each of the organization’s
separate businesses, product lines, functional departments, and individual work units. Objective
setting is thus a top-down process that must extend to the lowest organizational levels for being
optimally functional.
Stage 3: Crafting a strategy
A Strategic Vision + Mission + Objectives + Strategy = A
Strategic Plan
A company’s strategic plan lays out its future direction, business purpose,
performance targets, and strategy. Together, these elements constitute a
strategic plan for coping with industry conditions, outcompeting rivals,
meeting objectives, and making progress toward aspirational goals.
,Building Your Company’s Vision
Core Ideology
Core ideology -> defines the enduring character of an organization – a consistent identity that
transcends product and individual leaders. Core ideology provides the glue that holds and
organization together through time, as it grows, decentralizes, expands, etc.
- It is more important to know who you are than where you are going, for where you are going will
change as the world around you changes. Leaders die, product become obsolete, markets change
but core ideology in a great company endures as a source of guidance and inspiration.
- Any effective vision must embody the core ideology of the organization, which in turn consists of
two distinct parts: core values, a system of guiding principles and tenets; a core purpose, the
organization’s most fundamental reason for existence.
Core values -> the essential and enduring tenets of an organization. A small set
of timeless guiding principles.
- Remember, the values must stand the test of time. If the circumstances
changed and penalized us for holding this core value, would we still keep
it? If you can’t honestly answer yes, then it is no core value.
Core purpose -> the organization’s reason for being. An effective purpose reflects people’s idealistic
motivations for doing the company’s work. It doesn’t just describe the organization’s output or target
customers; it captures the soul of the organization.
- McKinsey’s purpose is not to do management consulting but to help corporations and
governments be more successful: in 100 years, it might involve methods other than consulting.
Envisioned Future
Envisioned future consists of two parts: a 10-to-30-year audacious goal plus vivid descriptions of
what it will be like to achieve the goal.
Vision-level BHAG -> Big, Hairy, Audacious Goals – as a powerful way to stimulate progress. A true
BHAG is clear and compelling, serves as a unifying focal point of effort, and acts as a catalyst for team
spirit. It has a clear finish line, so the organization can know when it has achieved the goal, people
like to shoot for finish lines. A BHAG engages people.
- Think in terms of four broad categories:
o Target BHAGs (quantitative or qualitative); e.g. become the most known… become
dominant player…, become a … billion company by..
o Common-enemy BHAGs: Crush Adidas, we will destroy.. knock off..
o Role-model BHAGs: Become the Nike of…, become as respected as…
o Internal-transformation BHAGs (large established organizations): transform from .. internal
to … external. Become number two in every market we serve; from defence to..
Vivid Description. In addition to vision-level BHAGs, an envisioned future needs what we call vivid
description – a vibrant, engaging, and specific description of what it will be like to achieve the BHAG.
Painting a picture with your words (tangible in mind).
, Competitor analysis
Studying competitors’ past behavior and preferences provides a valuable assist in anticipating what
moves rivals are likely to make next and outmaneuvering them in the marketplace. You can also
respond to missteps they might take.
Key success Factors
Key success factors are the strategy elements, product and service attributes, operational
approaches, resources, and competitive capabilities that are essential for competitive success by any
and all firms in an industry.
- How well the elements of a company’s strategy measure up against an industry’s KSFs
determines whether the company can meet the basic criteria for surviving and thriving in the
industry.
o Identifying the KSFs is therefore always a top priority.
Chapter 4 Evaluating a Company’s Resources,
Capabilities, and Competitiveness
Question 2: What are the company’s most important resources and
capabilities, and will they give the company a lasting competitive
advantage over rival companies?
Resource and capability analysis is a powerful tool for sizing up a company’s competitive assets and
determining whether the assets can support a sustainable competitive advantage over market rivals.
—> A resource is a competitive asset that is owned or controlled by a company; a capability or
competence is the capacity of a firm to perform some internal activity competently. Capabilities are
developed and enabled through the deployment of a company’s resources.
There are, however, two approaches that can make the process of uncovering and identifying a firm’s
capabilities more systematic.
1. The first method takes the completed listing of a firm’s resources as its starting point.
2. The second method of identifying a firm’s capabilities takes a functional approach.
- A problem is that many of the most important capabilities of firms are inherently cross-
functional (draw on a number of different kinds of resources and are multidimensional in
nature, spring from collaboration among people with different expertise and working in
different organizational units).
o A resource bundle is a linked and closely integrated set of competitive assets centered
around one or more cross-functional capabilities. Resource bundles can sometimes pass
the four tests of a resource’s competitive power even when the individual components of
the resource bundle cannot
Assessing the Competitive Power of a Company’s Resources and
Capabilities
When a company has competitive assets that are central
to its strategy and superior to those of rival firms, they can
support a competitive advantage,
- If this advantage proves durable despite the best
efforts of competitors to overcome it, then the
company is said to have a sustainable competitive
advantage.
