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Strategy Levels

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Corporate Strategy, Business (Unit) Strategy, & Functional Strategy

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Strategy

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A theory of how a firm will compete. A framework within which action can be taken. A collection of goal-directed actions that aim to gain, sustain, and leverage a competitive advantage.

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Corporate Strategy

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Involves decisions made at the highest level of the firm about where to compete.

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Corporate executives

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need to decide in which industries, markets, and geographies their company should compete, as well as how they can create synergies across business units that may be quite different.

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strategic business units

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Corporate strategy is formulated at headquarters, and the business strategy occurs within ______ _____ _____.

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Strategic Business Units (SBU)

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a division of a larger conglomerate, with its own profit-and-loss responsibility.

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General managers

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_______ ______ in strategic business units must answer the strategic question how to compete in order to achieve superior performance within the business unit.

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functions

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Within each SBU are various business ______ such as accounting, finance, human resources, information technology, product development, operations, marketing, and customer service.

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functional manager

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Each _____ _____ is responsible for decisions and actions within aid in a single functional area that aid in the implementation of the business-level strategy. They are closer to final products, services, and customers.

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Functional Strategy

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how to implement business strategy.

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Business Strategy

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how to compete.

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Strategic Action

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Making complex and challenging decisions that differentiate yourself from rivals, creating value while containing cost. Aims to travel a path to superior performance in accordance with the firm's business model.

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AFI

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Analyze, Formulate & Implement

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AFI strategy framework

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a model that links three interdependent strategic management tasks -- analyse, formulate, and implement -- that together, help firms conceive of and implement a strategy that can improve performance and result in competitive advantage.

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Strategy analysis (A)

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- The strategic management process - External analysis - Internal analysis - Firm performance

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Strategy formulation (F)

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- Business strategy - Corporate strategy - Global strategy

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Strategy implementation (I)

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- Organizational design - Corporate governance, business ethics, and strategic leadership

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Measures of firm performance

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Economic value, accounting profitability, & shareholder value.

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Value (V)

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denotes the dollar amount a consumer would attach to a good or service.

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Economic value created

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difference between value (v) and cost (C); sometimes called economic contribution.

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Drawbacks of EVC

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Can be difficult and/or expensive to determine in a reliable way. Value may fluctuate due to extraneous factors. Comparisons are not always simple and straight forward.

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Accounting profitability

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relies on standard, in many cases, publicly available information. Allows for direct performance comparisons. Procedure for reporting are heavily regulated.

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Drawbacks of AP

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performance is assessed using like-for-like historical data; inherently backward-looking. Does a poor job of capturing the value of intangible assets, strictly confined to financial statement measures.

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Shareholder Value Creation

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Adheres to the "Efficient Market Hypothesis". Inherently forward-looking.

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Shareholder returns

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return on risk capital + dividends

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Stock price

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based on expectations of performace

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Drawbacks of SVC

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Macroeconomic factors have impact on stock price. Cane be volatile making it difficult to assess short-term performance. Often reflect the sometimes irrational thoughts of investors (the mob is fickle)

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Triple Bottom Line (TBL or 3BL)

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Economic, Social & Environmental

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Corporate Social Responsibility

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refers to organizational consideration of their impact on society concerns.

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Competitive advantage

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is any dimension along which a firm's capability exceeds that of a competitor and provides a basis for superior performance (relative concept).

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Firm performance

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industry structure + firm conduct

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Industry Attractiveness

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Supplier power, entry barriers, available complement, buyer power, exit barriers, & threat of substitutes.

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Organizational Vision

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Refers to a future state of existence that the organization aspires to realize, or endeavors to ultimately accomplish. Should be bold, forward-looking and inspiration to organization members.

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SMART

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Specific, Measurable, Achievable, Relevant, Time-specific

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Organizational Mission

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refers to the role that an organization sees itself as fulfilling in the present. What the organization is all about.

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Customer-oriented missions

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define the organization in terms of the solution it provides customers.

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Product-oriented missions

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define the organization in terms of its products or services.

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Organizational Values

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Refers to the way in which an organization will conduct itself as it pursues its goals and objective. The ethical standard and norms that govern organization behavior.

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Strategic Planning Process

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traditional view of strategy formulation & implementation. Idea that past predict the future. Works well in stable environments. Follows top-down rational planning approach.

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Rational planning approach

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1. Define vision, mission, goals & objectives 2. External & Internal analysis of SWOT 3. Craft strategic fit & formulate strategy 4. Implement strategy 5. Monitor performance & modify when necessary

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Scenario Planning Process

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relies on premise that the future may not always be predicted by the past & cannot be know with absolute certainty. Requires unorthodox thinking to construct action plans. (complement to traditional approach)

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Scenario planning approach

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1. Envision "what if" scenarios 2. Build & maintain portfolio of plans for each scenario 3. Rank order plans 4. Orient toward most probable scenario option 5. Implement dominant plan & monitor performance

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Strategic groups

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are defined as a group of companies that pursue similar strategy within a particular industry. One way to explain firm performance differences within the same industry.

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Strategic fit

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Internal strengths change with external environment

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External Analysis

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Political, Economic, Sociocultural, Technological, Ecological & Legal. (PESTEL)

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Porter's 5 Forces

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the threat of entry of new competitors, the bargaining power of suppliers, the bargaining power of customers, the threat of substitute products or services, and the rivalry among existing firms in the industry

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Core Competence

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Refers to a unique strength that allows a firm to differentiate its product & services. Should be focus of firm's activities. When leveraged correctly, can lead to competitive advantages & superior performance.

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Internal Analysis

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framework can be used to assess the competitive implication of a firms resources and capabilities.

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VRIO

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Valuable, Rare, Costly to imitate, & Organized to capture value. Leads to sustained competitive advantage. (Internal analysis)

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Value Chain Analysis

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Depicts how competitive advantage can flow from system of activities.

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Primary activities (Value Chain)

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Raw materials -> Intermediate goods/components -> Final assembly/manufacturing -> marketing & sales -> customer service

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Support activities

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Research & Development, Information Systems, Operations Management, HR Finance, Accounting & General Management.

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Strategic positioning

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can be thought of as the space in which managers situate the company relative to its rivals along important competitive dimensions.Often done in an attempt to mitigate the impact of rivalry & create opportunities for greater profitability.

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Paths to Increased Profitability

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Increase Perceived Value & Decrease Cost

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Cost Drivers

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Input factors, economies of scale, learning curves, experience curve ..

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Value Drivers

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Product features, customer service, customization, complements ...

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Generic Business Strategies

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Competitive Scope (y-axis): narrow - broad Strategic Position (x-axis): cost - differentiation

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