Includes clear definitions, concepts, and explanations for the 'Strategy' course taught by the economics and business department at Erasmus University College in 2020/21.
Strategy: The set of actions that a company’s managers take to outperform the company’s competitors and
achieve superior profitability.
Competitive Advantage: A company achieves a competitive advantage when it provides buyers with
superior value compared to rival sellers or offers the same value at a lower cost to firm.
Sustainable Competitive Advantage: Competitive advantage is sustainable if it persist despite best efforts
of competitors to match or surpass this advantage.
Strategies to win a competitive advantage:
1. Low-Cost Provider: Achieving a cost-based advantage over rivals (eg: Walmart and Southwest Airlines)
2. Broad Differentiation: Seeking to differentiate the company product or service from that of rivals in way
that will appear to a broad spectrum of buyers (eg: Apple and Google)
3. Focused Low-Cost: Concentrating on a narrow buyer segment (market niche) and outcompeting rivals
by having lower costs and thus being able to serve niche members at a lower price
4. Focused Differentiation: Concentrating on a narrow buyer segment and outcompeting rivals by offering
buyers customised attributes that meet their specialised needs and tastes better than the rivals’
products (eg: McAfee and The Weather Channel)
5. Best-Cost Provider: Giving customers more value for their money by satisfying their expectations on key
quality features, features and/or performance attributes while beating their price expectations. The aim
is to have lower costs than rivals while simultaneously offering better differentiating attributes. (This is a
hybrid strategy: low cost provider + differentiation)
Why a company’s strategy evolves over time?
1. Changing market conditions
2. Advancing technology
3. Unexpected moves by competitors
4. Shifting buyer needs
5. Emerging market opportunities
6. New ideas for improving the strategy
Parts of a company’s strategy:
1. Proactive: Planned initiatives to improve the company’s financial performance and secure a competitive
edge
2. Reactive: Responses to unanticipated developments and fresh market conditions
Deliberate Strategy: Consists of proactive strategy elements that are planned
Emergent Strategy: Consists of reactive strategy elements that emerge as changing conditions warrant
Realised Strategy: A combination of proactive and reactive elements, with certain strategy elements being
abandoned because they have become obsolete or redundant
Business Model: A company’s business model sets forth the logic for how its strategy will create value for
customers and at the same time generate revenues sufficient to cover costs and realise a profit
Two elements of a company’s business model:
1. Customer Value Proposition: Lays out the company’s approach to satisfying buyers wants and needs at
a price customers will consider a reasonable value
2. Profit Formula: The company’s approach to determining a cost structure that will allow for acceptable
profits, given the pricing tied to its customer value proposition
,Siddhant Soni ECB209 20/21
Value-Price-Cost Framework: (Company Business Model)
Customer Value (V) Product Price (P) Per-Unit Cost (C)
Customer’s Share Firm’s Share
(customer value proposition) (Profit Formula)
- Customer Value Proposition is represented as V-P
- The profit formula on a per unit basis is P-C
- Higher the V and lower the P = Attractive value proposition from a customer’s view
- Lower C, given the customer value proposition, greater the ability of the business model to be a
moneymaker
Tests for a winning strategy:
1. The Fit Test: How well does the strategy fits the company’s situation?
- The strategy must exhibit both external and internal fit
- External Fit: The strategy is in sync with the market conditions, well matched to the company’s
industry and competitive conditions
- Internal Fit: The strategy is tailored to the company’s profile and characteristics, and is compatible
with the company’s ability to execute the strategy in a competent manner
2. The Competitive Advantage Test: Is the strategy helping the company achieve a sustainable competitive
advantage?
- Winning strategies enable companies to achieve a durable competitive advantage over key rivals that
is long lasting
3. The Performance Test: Is the strategy producing good company performance?
- Two kinds of performance indicators tell the most about a strategy’s caliber:
- Competitive strength and market standing
- Profitability and financial strength
, Siddhant Soni ECB209 20/21
Strategy Notes
Chapter 2
Strategy making and execution process:
1. Developing a strategic vision, mission and core values
2. Setting objectives
3. Crafting a strategy to achieve the objectives and the company vision
4. Executing the strategy
5. Monitoring developments, evaluating performance and making corrective adjustments
Strategic Plan: It lays out a company’s future, direction, performance targets and strategy
Strategic Vision: Management’s aspirations for the company and the course and direction charted to
achieve them (describes ‘where we are going’)
- A strategic vision portrays a company aspirations for its future
- A company’s mission describes the scope and purpose of its present business
- Mission statement: Answer to ‘make a profit doing what and for whom’
Characteristics of a good mission statement:
1. Identifies the company’s products and services
2. Specifies the buyer needs that the company seeks to satisfy
3. Customer groups markets are evident
4. Gives the company its own identity
Values: Beliefs , traits and behavioural norms that company personnel are expected to display in conducting
the company’s business (usually 4-8 core values)
Stretch Objectives: These set performance targets high enough to stretch an organisation to perform at its
full potential and deliver the best possible results
Strategic Intent: 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
Financial Objectives: Relate to the financial performance targets management has established for the
organisation to achieve
Strategic Objectives: Relate to the target outcomes that indicate a company is strengthening its market
standing, competitive position and future business prospects
mind
Balanced Scorecard: A widely used method for combing the use of both strategic and financial objectives,
tracking their achievement and giving management a more complete view of how well is the organisation
performing
Strategic Plan: A company’s strategic plan lays out its future direction, business purpose, performance
targets and strategy
Company’s strategy making hierarchy:
1. Corporate Strategy: Establishes an overall game plan for managing a set of businesses in a diversified,
multi-business company
2. Business Strategy: Strategy at the single-business level concerning how to improve performance or gain
a competitive advantage in a particular line of business
3. Functional-Area Strategy: Approaches employed in managing particular functions within a business
(sales, marketing, logistics, etc)
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