Strategy Chapter 1: What is Strategy?

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Questions and Answers

What is the primary focus of knowledge intensity within a business context?

Increase in raw material usage

Expansion of physical assets

Reduction of employee training programs

Shift from raw materials to intellectual capital (correct)

Which of the following best defines competitive advantage?

Lower prices than all competitors

Having more employees than competitors

Achieving profitability that exceeds the industry average (correct)

Offering a wider variety of products than competitors

What characteristic does NOT describe resources for sustainable competitive advantage?

Costly to imitate

Easy to replace (correct)

Rare

Nonsubstitutable

In strategic planning, what does a SWOT analysis help determine?

Current internal and external situational factors Signup and view all the answers

What does the acronym BHAG stand for in the context of a company's vision?

Big Hairy Audacious Goals Signup and view all the answers

Which of the following is NOT one of the strategic questions to consider in a basic model of strategic planning?

What is the brand reputation? Signup and view all the answers

Which of the following attributes is essential for resources to provide a core competency?

Valuable and unique to the firm Signup and view all the answers

What is a characteristic of intended strategy?

Formal and planned by top management Signup and view all the answers

What is a key reason strategy is important for organizations?

It allocates resources efficiently. Signup and view all the answers

Which of the following is a factor contributing to the success of firms like Google?

Clear strategy. Signup and view all the answers

What characteristic is NOT typically associated with effective strategy?

Eliminates all risks. Signup and view all the answers

Why did Kodak experience significant failure in the market?

Late transition to digital photography. Signup and view all the answers

What factor played a significant role in GM's bankruptcy?

High fixed costs and pension liabilities. Signup and view all the answers

What aspect of strategy is becoming increasingly challenging due to globalization?

Understanding local market nuances. Signup and view all the answers

How does Google's culture of data-driven decisions impact its competitive advantage?

Utilizes evidence-based strategies. Signup and view all the answers

What do trade-offs in strategy typically involve?

Balancing between innovation and cost-saving. Signup and view all the answers

Study Notes

Chapter 1 - What is Strategy?

Strategy's Importance: Directs organizations, creates competitive advantages (superior customer value), allocates resources efficiently, and mitigates risks proactively.
Factors of Successful Firms: Clear strategy (creating unique positions, coordinated activities), innovation (continuous improvement, tech advancements), customer value creation (meeting/exceeding expectations), and execution excellence (efficient operations, organizational alignment).

Why Some Firms Fail

Lack of Strategic Vision: Inability to adapt to change (e.g., Kodak and digital photography).
Failure to Innovate: Using outdated products/high costs (e.g., General Motors).
Poor Resource Management: Misallocation/under-investment in critical areas.
External Factors: Market shifts, changes in competition or regulations.

Why Google Outperforms Competitors

Focused Innovation: Investment in AI, search algorithms, and cloud computing.
Ad Revenue Model: Dominance in digital advertising.
Ecosystem Approach: Integration of services (Gmail, YouTube, Android).
Data-Driven Decisions: Use of evidence-based strategies.

Why GM and Kodak Went Bankrupt

GM: High fixed costs, pension liabilities, lack of adaptability to fuel-efficient cars, 2008 financial crisis bankruptcy.
Kodak: Late transition to digital photography, despite pioneering it, over-reliance on film sales, poor strategic focus.

What is Strategy?

Definition: Creating a unique and valuable position using coordinated organizational actions.
Porter's View: Involves trade-offs and activities working together to create a competitive advantage.
Characteristics: More than slogans, lead to actionable steps, concerned with positioning against competitors, includes trade-offs, and is a coordinated set of integrated activities.

Why Strategy is More Important (and Difficult)

Globalization: Increased competition and broader market reach.
Technological Advancements: Faster changes and innovation cycles.
Knowledge Intensity: Shift from raw materials to intellectual capital.
Hypercompetition: Constant pressure to innovate and differentiate.

Competitive Advantage and Value Creation

Competitive Advantage: Achieved when a firm's profitability exceeds the industry average.
Value Creation: Process of creating products/services customers value, resulting in increased sales, profitability, and share prices.
ROIC Formula: ROIC = (Net Profit / Capital Invested)
ROIC: Return on Invested Capital*

I/O Model of Strategy

Focuses on external environment to gain above-average returns in an attractive industry

Resource-Based Model of Strategy

Four attributes of resources and capabilities for sustainable competitive advantage: Valuable, Rare, Costly to Imitate, and Nonsubstitutable
Core Competencies are the result of above attributes

Basic Model of Strategic Planning

Defining mission and setting top-level goals
Analyzing opportunities and threats (external)
Analyzing strengths and weaknesses (internal)
Selecting appropriate strategies
Implementing chosen strategies

Strength of Planned Approach

Providing clear direction
Aligning resources

Weakness of Planned Approach

Can be rigid
Could fail in dynamic environments

Strategic Questions

Where are we now? (SWOT analysis)
Where do we want to go? (Vision/Mission, financial and strategic goals)
How will we get there? (Business and corporate strategies)
What comprises a company's vision? Core values (e.g., honesty, equality, creativity), independent of market conditions. Core purpose (statement of company existence and societal contribution).

Long-term objective/envisioned future (BHAG)

Organizations' long-term target for 10-30 years from now.

Corporate Strategy

Multi-business firms
Horizontal diversification
Vertical integration
Geographical expansion/diversification

Business Strategy

Strategy for single businesses
Response to changing conditions

Broad Sources of Data

Public Sector: Intergovernmental organizations (IGOs), monetary authorities, government departments.
Private Sector: Databases, financial statements, industry codes (NAICS).
Quality Business Media: e.g., Wall Street Journal, Financial Times, Reuters.

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Description

Explore the essential concepts of strategy, its importance in directing organizations, and how it creates competitive advantages. This quiz also examines why some firms fail due to a lack of strategic vision or poor resource management, contrasted with the success of companies like Google through focused innovation.