Business Strategy Overview Quiz

Introduction to Strategy

• Strategy is about deciding where to compete (industries/markets) and how to compete (firm's position/activities).
• Effective strategy aligns activities for consistent, sustainable financial returns.
• Misconceptions surround strategy—it's not just marketing, innovation, or cost-cutting; it's about competitive positioning.

Evolution of Competitive Strategy

• Strategy's roots are in military strategies, focusing on broad goals (not tactics).
• 19th-century businesses adopted strategic thinking.
• Key industrial advances (e.g., better access to capital, economies of scale) drove the development of business strategy.

Porter's Five Forces Framework

• A framework to analyze industry attractiveness, developed in 1979.
• It assesses industry profitability by evaluating five forces:
  • Threat of new entrants: Ease of entry; barriers (capital, brand loyalty).
  • Bargaining power of suppliers: Supplier concentration; buyer/supplier switching costs.
  • Bargaining power of buyers: Buyer concentration; substitutes available.
  • Threat of substitutes: Availability of alternatives.
  • Intensity of rivalry: Number of competitors; industry growth rate.

Complementary Forces

• Later addition by Brandenburger and Nalebuff complementing goods/services that enhance a product's value.
• Complements influence product value and switching costs.
• Examples of complementary forces include apps on app stores or tools and services that support construction firms.

Business Models

• A company's underlying logic, operations, and value capture.
• Components include:
  • Value propositions: Differentiation/low cost.
  • Target market: Broad/narrow.
• The goal is to maximize willingness-to-pay (WTP) minus costs.

Industry Analysis

• Analyses how profits are distributed among market participants and helps firms adapt.
• Helps identify threats, opportunities, and strategic actions.
• Key steps include: defining the industry; identifying players; analyzing their influence; testing and refining; developing strategies.
• The Five Forces Framework analyzes competitive forces shaping industry profitability.

Strategic Considerations

• Strategic positioning involves crafting a unique position in the market relative to competitors to fend off competitive threats.
• Diversify products and brands to mitigate rivalry and strengthen the market position.
• Key elements are profitability in tough industries; identifying new positions; recognizing and exploiting change; actively shaping industry structure to advantage; leveraging technology; expanding into new markets.

Creating Attractive Environments

• Businesses can reshape industry structures.
• Creating buyer loyalty and reducing seller reliance will decrease buyer power.
• A deeper understanding of the industry's forces allows companies to identify attractive positions and strategies.

Competitiveness and Advantage

• Competitiveness is measured by the difference between customer's willingness-to-pay and suppliers' costs.
• Strategies aim to increase the gap between these, leading to stronger advantage.
• Value creation means a firm's unique contribution to a transaction, making it more valuable to customers and suppliers. Strategies must align with value creation principles.

Network Effects

• Externalities arise when market participants affect others without compensation.
• Networks (digital & physical) become more valuable as more people join.
• Positive feedback cycles arise when added users increase value.
• Collective switching costs discourage users from switching.

Evolution Strategy vs. Revolution Strategy

• Evolution: maintains compatibility with existing technologies; smooths user migration.
• Revolution: emphasizes high performance even at the cost of incompatibility; attracts new users.