Strategic Management

An Introduction
Strategic Management and Strategic
Competitiveness
 Overview: Content areas
 Why Strategy?
 What is Strategy?
 Who creates Strategy?
 Strategy Levels/ Hierarchy
 Test of a winning strategy
 Strategy Process and Approaches
 I/O Model of Above-Average Returns
 Resource-Based Model of Above-Average Returns
 Stakeholders
 Strategic Leaders

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Why Strategy?

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[Link]
Why Strategy?
 Purpose of Strategy
 To create a competitive advantage that generates superior and
sustainable financial returns.
 Average Returns
 Returns equal to what investor expects in comparison to other investments
with similar risk.
 Risk
 Investor’s uncertainty about economic gains resulting from an investment.
 Above Average/ Superior Returns
 Returns in excess of what investor expects in comparison to other
investments with similar risk.
 Strategic Competitiveness/ Competitive Advantage (CA)
 A competitive advantage is an attribute that enables a company to outperform its
competitors. This allows a company to achieve superior margins compared to its
competition and generates value for the company and its shareholders.
 A competitive advantage must be difficult, if not impossible, to duplicate.

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What is Strategy?
 What are the first three words that come to mind when
you hear the word 'strategy’?

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What is Strategy?
 Corporate strategy literature boasts at least 10 separate
schools of thought and more than a dozen definitions that
focus on rather divergent perspectives:
 planning, resource allocation or satisfying stakeholders, stretching
unique competencies or adapting to the environment, programming
sophisticated management systems or muddling through emerging
ideas — even sticking to simple rules.
 Strategy is often confused with microeconomics (“Strategy is
building rent”), with finance (“Strategy is creating shareholder
value”), with marketing (“Strategy is finding optimal positioning
on the marketplace”) or with organizational design “Strategy is
enabling emergent processes”).

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What is Strategy?
 There are even some bizarre hybrids, such as “strategic
finance” or “strategic marketing,” as if strategy were only
defined vis- à-vis other disciplines.
 Strategic innovation often consists of importing concepts
and methods from other disciplines, sometimes as distant
as physics (chaos theory) or biology (organizational
ecology).
 Scholars, executives and consultants alike know that it is
problematic to explain to their students, employees or
clients, which decisions are strategic choices, and which are
just operational options.

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Strategic Safari- Schools of Thought
and Emergent Strategies
Henry Mintzberg
Strategy Revisited
 “We are the blind people and strategy formation is our elephant. Since no
one has the vision to see the entire beast, everyone has grabbed hold of
some part or other and railed on in utter ignorance about the rest.”
Henry Mintzberg, McGill University
in his book Strategy Safari
(written with Bruce Ahlstrand and Joseph Lampel)

 Environmental  Planning
 Cognitive  Learning
 Entrepreneurial  Design

 Power  Configuration
 Positioning
 Cultural

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Strategy Schools- Henry Mintzberg
10 Schools of Strategy Keywords
Thought Formation As:
Design Conception Fit, Think
Planning Formal Formalize, Program
Positioning Analytical Analyze, Calculate
Entrepreneurial Visionary Envision, Centralize
Cognitive Mental Frame, Worry, Imagine
Learning Emergent Learn, Play
Power Negotiation Grab, Hoard
Cultural Collective Coalesce, Perpetuate
Environmental Reactive Cope, Capitulate
Configuration Selective Integrate, Transform
Adapted from Strategy Safari (Mintzberg, Ahlstrand, Lampel)

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Strategy Defined as 5 P’s
 Plan: A direction, guide, course of action.
 Pattern: Consistency in behavior over time.
 Position: Locating specific products in specific markets.
 Perspective: Way of doing things.
 Ploy: Specific maneuver to outwit.
From Strategy Safari (Mintzberg, Ahlstrand, Lampel)

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Shift in Strategy
Prescriptive Descriptive

Top-Down Bottom-Up

Planned Emergent

Stable Adaptive

Centralized Distributed

 In today’s marketplace, it is the organizational capability to

adapt that is the only sustainable competitive advantage.
Willie Pietersen, Reinventing Strategy

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Strategy as ‘post hoc’ rationalisation of
success?
The paradigm “ready, aim, fire” no longer applies; it is now “ready,
fire, steer.”
Paul Saffo

10%
Strategic Planning Plans Executed Realized Strategy
Intended Strategy Deliberate Strategy

90% 90%

Unrealized Emergent
Strategy Strategy
Adapted from The Rise and Fall of Strategic Planning by Henry Mintzberg (1993)

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A Company’s Strategy is A Blend of Proactive
Initiatives and Reactive Adjustments

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 “Our plans miscarry
because they have no
aim. When a man
does not know what
harbor, he is making
for, no wind is the
right wind.”
Seneca, circa 65 AD

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Few Definitions
 Strategy is the determination of the basic long-term goals
and objectives of an enterprise and the adoption of courses
of action and the allocation of resources necessary to
achieve those goals …. ……
Chandler (1962)
 Strategy should be treated as the contested and
imperfect practice it really is ….which means that
strategy is elusive and abstract as it is a very long-term
development.
Whittington (2001)
 Strategy is supposed to lead an organisation through
changes and shifts to secure its future growth and
sustainable success-
Cleggs (2005)

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One More
 Corporate strategy is the pattern of decisions in a company that
determines and reveals its objectives, purposes, or goals, produces
the principal policies and plans for achieving those goals, and defines
the range of business the company is to pursue, the kind of
economic and human organization it is or intends to be, and the
nature of the economic and noneconomic contribution it intends to
make to its shareholders, employees, customers, and communities.
 In an organization of any size or diversity, "corporate strategy"
usually applies to the whole enterprise, while "business strategy: 'less
comprehensive, defines the choice of product or service and market
of individual businesses within the firm. Business strategy is the
determination of how a company will compete in a given business
and position itself among its competitors. (Andrews, 1987)
Kenneth R. Andrews, Harvard Business School Professor and
Father of Corporate Strategy

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The Origins of Strategy
“That general is skillful in attack
whose opponent does not know
what to defend;
and he is skillful in defense whose
opponent does not know what to
attack.”
circa 500 BC
Sun Tzu, The Art of War

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What is Strategy?
 The term “strategy” is derived indirectly from the Classic and Byzantine (330
A.D.) Greek “strategos,” which means “general.” While the term is credited to
the Greeks, no Greek ever used the word.
 One of the most famous Latin works in the area of military strategy is written
by Frontius and has the Greek title of Strategemata. Strategemata describes a
compilation of strategema, or “strategems,” which are literally “tricks of war.”
 The Roman historians also introduced the term “strategia” to refer to
territories under control of a strategus, a military commander in ancient
Athens and a member of the Council of War.
 The word strategy retained this narrow, geographic meaning until Count
Guibert, a French military thinker, introduced the term “La Strategique” in
1799, in the sense that is understood today.
 Consequently, neither the military community before Count Guibert nor the
business community before H. Igor Ansoff (Corporate Strategy, 1965), could
see the strategic element in their domains clearly enough to give it a name.

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What is Strategy?
 Perhaps the military figure with the most
impact on strategy is Carl von Clausewitz
(1780-1831)- a Prussian General.
 Clausewitz work entitled, ‘On War’, focused
on two questions: What is war, and what
purpose does it serve? The Prussian General
viewed war as a duel between two
independent minds.
 Clausewitz’ key to strategy was to always be
strong, first overall and then at the decisive
point.
 The business parallel is the need for
disciplined focus that comes from making
strategic trade-offs.

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 What is Strategy?

Michel Porter

[Link]
OE Does Not Equal Strategy
 In recent years, Management tools (benchmarking, best
practices, outsourcing) have taken the place of strategy.
 In many industries hyper-competition is a self-inflicted
wound, not the inevitable outcome of a changing
paradigm of competition.
 The root of the problem is the failure to distinguish
between operational effectiveness and strategy.

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The Basics
 Operational effectiveness (OE) – quest for productivity,
speed, quality.
 Strategy: the creation of a unique and valuable position
involving a unique set of activities; being different
 Activities: the basic units of competitive advantage
 Differentiation: created by the choice of activities and how
well are they performed
 Strategic Positioning: means performing different activities
from rivals’ or performing similar activities in different ways
 Competitive Advantage: grows out of the entire system of
activities; capacity to outperform rivals by establishing a
difference it can preserve over time
 Operational effectiveness and strategy are both
necessary for superior performance.

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Superior Profitability
 Delivering greater value allows a company to charge
higher average unit prices; greater efficiency results in
lower average unit costs
 Differences in operational effectiveness (OE) are
important differentiators in profitability among rivals as
OE directly affects relative cost positions and levels of
differentiation.

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Productivity Frontier

Imagine a productivity frontier

that constitutes the sum of all
existing best practices at any
given time.

Think of it as the maximum

value that a company delivering
a particular product or service
can create at a given cost, using
the best available technologies,
skills, management techniques,
and purchased inputs.

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Productivity Frontier
 As OE improves within a firm, it moves closer to the
productivity frontier.
 OE is necessary for superior profitability but not solely
sufficient. Rapid diffusion of best practices reduces long-
term impact of OE on profitability.

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Productivity Frontier - 2
 OE competition pushes the productivity frontier
outward
 OE competition produces absolute improvement in
firm performance yet no relative improvement
between surviving competitors.
 Leads to self-inflicted wounds - hyper-competition,
zero-sum competition, static or declining prices and
lower profitability.

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OE Programs
 TQM  Continuous
 Time-based Improvement
Competition  Virtual Organization
 Benchmarking Forms
 Learning Organization  Best Practices
 Outsourcing  SQC
 Empowerment  Change Management

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Competitive Convergence
 The more rivals copy and imitate OE ‘best practices’ the
more they begin to look the same.
 Leads to imitation (consultants as seed sowers) and
homogeneity.
 OE imitation leads to strategy convergence and
competition becomes mutually destructive leading to
wars of attrition (lose-lose).
 Leads to M&A activity as end-game.

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Competitive Strategy
 Being different in the marketplace from rivals
 Deliberately choosing a different set of activities to
deliver a unique mix of value
 The essence of strategy is in choosing to perform
activities differently, or to perform different activities (or
both), than rivals.

 Southwest Airlines
 IKEA
 Mahindra & Mahindra

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Strategic Positions - 2
 Variety-based: produces a subset of industry products/ services;
 based on the choice of product/service varieties rather than
customer segments;
 viable when a firm can best produce particular products/ services
using a distinct set of activities.
 Serves a wide array of customers but only a subset of their needs.
Ex. Jiffy Lube
 Needs-based: serves most or all of the needs of a particular group
of customers with a tailored set of activities;
 differences in needs will not translate into meaningful positions
unless the best set of activities to satisfy them also differs.
 understanding a customer and capturing its full value-chain through
tailored service and repeat business
 Ex. City Bank, IKEA

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Strategic Positions - 3
 Access-based: segmenting customers who are accessible in
different ways;
 access can be a function of customer scale or geography -
anything that requires a different set of activities to reach
customers in the best way.
 Ex. Rural Vs. Urban
 Less common and less well understood than the other two

 All positioning is a function of differences on the supply

(activity) side but not necessarily on the demand (customer)
side.
 Think of Nvidia, Pinterest, and Zoom.
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Strategy

 Strategy is the creation of unique and valuable

position, involving a different set of activities.

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Sustainable Competitive Advantage
 Unique position does not guarantee a sustainable
competitive advantage

 Valuable position attracts imitators based on:

 matching superior performance factors.
 straddling: match the benefits of a successful position while
maintaining its existing position;
 grafting new features, services, or technologies onto current activity
set.

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A Sustainable Position Requires Trade-offs
 Sustainability of position requires trade-offs
 Trade-offs occur when activities are incompatible; more
of one thing requires less of another
 Trade-offs create the need for choice and protect against
repositioners and straddlers.
 Trade-offs arise for 3 reasons:
 Inconsistencies in image or reputation (Credibility)
 Different positions require different activity sets
 Limits on internal coordination and control:
 Internal focus requires priority setting - can’t be all things to all
customers successfully

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Sustainable Competitive Advantage - 2
 Positioning trade-offs are essential in effective strategy:
 creates need to choose and purposefully limit what a company
offers
 deters straddling or repositioning of rivals as competitors that
engage in these activities undermine current strategies, degrade
value of existing activities, and spread resources too thin
(trying to be all things to all customers)

“The sign of a good strategy is that it makes some customers

unhappy.”
Michael Porter, Understanding Michael Porter

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Sustainable Competitive Advantage - 3
 The essence of strategy is choosing what not to do.
 Without trade-offs, a sustainable competitive advantage
cannot be achieved.
 Strategy is about combining activities whereas OE is
about excellence in individual activities or functions.

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Strategy & Systems Thinking
 Strategy involves a whole system of activities, not a
collection of parts.
 Competitive advantage comes from the way activities fit
and reinforce one another (think horizontal & process
management here!).
 Strategic fit among activity sets locks out rivals; synergy
creates competitive advantage & superior profitability.

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Strategic Fit
 Fit = seeing the company as a system not just a collection
of core competencies, critical resources, and key success
factors. (the whole matters more than any individual part)
 far more central component of competitive advantage than
most realize.
 3 types of strategic fit:
 Simple consistency between each activity (functional) and the
overall strategy
 Consistency ensures that the competitive advantages of activities
cumulate and do not erode or cancel themselves out.
 It makes the strategy easier to communicate to customers, employees,
and shareholders, and improves implementation through single-
mindedness in the corporation.
 Activities are reinforcing

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Strategic Fit
 3 types of strategic fit:
 Optimization of effort
 Coordination and information exchange across activities to eliminate
redundancy and minimize wasted effort are the most basic types of
effort optimization.
 But there are higher levels as well. Product design choices, for
example, can eliminate the need for after-sale service or make it
possible for customers to perform service activities themselves.
 Similarly, coordination with suppliers or distribution channels can
eliminate the need for some in-house activities, such as end-user
training.

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Fit & Sustainability
 Positions based on systems of activities are far more
sustainable than those built on individual activities.
 As fit becomes more complex (multiple
interrelationships), the more difficult imitation is.
 Strategic positioning sets the trade-off rules that define
how individual activities will be configured and integrated.
 Organizational structure, systems, and processes need to
be strategy specific.

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What is Strategy?

 Operational effectiveness is not strategy.

 Strategy rests on positioning based on unique activities.
 A sustainable strategic position requires trade-offs.
 Strategy is creating fit among a company’s activities.
 Fit derives both competitive advantage and sustainability.

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Role of Leadership
 Focus on creating distinctiveness
 Make tough decisions on trade-offs
 Define the company’s position
 Manage the entire system to create fit
 Focus on the long term
 Stewardship of corporate strategy

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Continuity of Strategic Direction
 Strategy is about making choices. The hardest thing for
many companies is sticking to those choices over time,
even in the face of intense competition and challenging
economic times.
 Deepening a strategic position involves making the
company’s activities more distinctive, strengthening fit, and
communicating the strategy better to those customers
who should value it—not chasing after “easy” growth
opportunities that dilute the company’s value proposition.

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Continuity of Strategic Direction
 This means:
 Understanding the strategy throughout the organization
 Building truly unique skills and assets related to the strategy
 Establishing a clear identity with customers, channels, and
vendors
 Does this mean a company should never change? The
answer is no. Innovation and growth ensure success.
However, the value proposition stays the same. The job of
management is to continuously improve how to realize it.

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Thinking Strategically
Competing to be the Best vs. Competing to be Unique

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Putting it Together
 Strategy are set of long-term choices to distinguish ourselves
from the competitor (Unique competitive position- Choosing
customer, needs and ways to serve)
 Strategy is different from Goals
 Strategy is holistic (set of steps not one step); involves all
functions
 Strategy occurs at multiple levels (Business and Corporate)
 Strategy is directed and guided by organizational purpose
 Strategy is not vague but very specific
 Strategy is creating superior economic performance on a
sustained basis not the Stock price (Outcome). In the short
term stock price is a lousy way to judging the success.
 Drivers of success are industry and the choices business takes
to compete (position) and the way they change over time

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 Are you a Strategist?
Business Model with Clear Purpose

Cynthia Montgomery
Leading strategy (Added Value)
 Leading strategy requires confronting four questions:
 What does my organization bring to the world?
 Does that difference matter?
 Is something about it scarce and difficult to imitate?
 Are we doing today what we need to do in order to
matter tomorrow?
 Being a strategist means living with these questions.

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Leading strategy (Added Value)
 For a leader, becoming a strategist starts with getting
clear on why, whether, and to whom your company
matters.
 While that may sound obvious at face value, it's
something that regularly stymies the veteran leaders.
 Nike or Apple, are praised for the authenticity of the
company and the clarity of its strategy.

 Do you have that clarity in your company?

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Importance of Clear Purpose
 Swedish home goods retailer IKEA, founded in 1943 by Ingvar
Kamprad-when he was 17 years old is appreciated by
strategists.
 From its early days IKEA set out to create "a better everyday
life for the many.
 The retailer did this by addressing an unmet market need,
offering customers an extensive range of practical, well-
designed furnishings at low prices. This driving purpose steered
IKEA to succeed not just on low prices but also with a singular
customer experience that no other retailer has yet managed
to duplicate.
 "IKEA has made very clear choices about who they will be and
to whom they will matter, and why,".

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Importance of Clear Purpose
 Clarity of purpose behooves corporations and nonprofits
alike.
 "Look at Doctors Without Borders. They have incredible
clarity about what they do and why they do it. They won
the Nobel Peace Prize in 1999, and they didn't get it for
being murky about who they are and why they matter."

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Importance of Clear Purpose
 A compelling purpose is just the beginning of a strategy.
"It gives you the right to play, and puts you in the game,".
But at the root it's only an idea.
 Strategists also must lead the charge in creating
organizations that can deliver on their intentions.
That means building business models with mutually
reinforcing parts.
 Rich in organizational detail, and anchored on purpose,
such systems of value creation "make strategy the
animating force in a company”.
 They're the crucial link between lofty ideas and action.

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Who Is A Strategist?
 Incorporating the role of the strategist into one's identity is
important because leading strategy is not so much a task as it
is a never-ending quest.
 For most companies, a long-run sustainable competitive
advantage-the holy grail of strategy-is a dangerous mirage.
 The longer you can keep an advantage vibrant, the better. But
any advantage is better thought of as part of a bigger story,
one frame in a motion picture.
 Although a company may change what it makes, the services it
provides, the markets it serves, and even its core
competencies, its continued existence depends on finding and
continuing to find a compelling reason for it to exist.
 Shepherding this never-ending process, being the steward of a
living strategy, is the defining responsibility of a leader.

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Who Is A Strategist?
 It's important for employees at all levels of an
organization to start thinking like strategists.
 What [people] do, and why they do it, should be driven
by strategy.
 Learning to be a strategist doesn't happen overnight. It's
like a muscle that you have to flex.
 Don't wait to see if you might someday get the chance to
drive strategy. It's a skill and a disposition that take time
to hone.

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Strategy as a Wicked Problem

Camillus (2008)
Strategy as a Wicked Problem
 In the past, many companies saw strategic planning as an
exercise in modelling and predicting the future. They
crunched through data and enjoyed lengthy planning
sessions. PowerPoint presentations charted the path to
the future, followed by Excel spreadsheets that translated
the opportunities along the way into numbers.
 Camillus (2008) argues that the old-fashioned approach
works as long as we are dealing with simple or trivial
problems. In a world of increased complexity and wicked
problems , however, strategy needs to change.

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Strategy as a Wicked Problem
 Defining the problem is as hard, if not harder, than finding
potential solutions.
 There are no ‘correct’ solutions to wicked problems, only
better or worse.
 There is no ultimate test of a solution to a wicked
problem; unexpected consequences of solutions make
evaluation a tricky task.
 You can only evaluate whether a solution is working after
you have started to do it, after which turning back and
trying something else is no longer an option.
 Moreover, any attempt to ‘solve’ a wicked problem tends
to create more unexpected problems along the way.

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Strategy as a Wicked Problem
 Every solution to a wicked problem is a ‘one-shot operation’
because there is no opportunity to learn by trial and error.
 Trying out a solution also changes the situation and therefore
changes the nature of the problem, sending you right back to
the beginning again.
 Every wicked problem is essentially unique even if it looks
familiar: this means experience does not help you to identify
prime causal factors or candidate solutions.
 How you try to explain the problem determines the nature of
the problem’s resolution – change the definition and the
candidate solution also changes.
 In organizations, most issues that are truly strategic show
strong elements of ‘wickedness’.

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Wicked Problem

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Can you say what your strategy is?
Strategy Statements
Collis and Rukstad
Advantages of a Clear Definition
 Porter’s article does not answer the more basic question
of how to describe a firm’s strategy.
 Articulating strategy! (Strategy Statement)
 With a clear definition two things happen:
 First, formulation becomes infinitely easier because executives
know what they are trying to create.
 Second, implementation becomes much simpler because the
strategy’s essence can be readily communicated and easily
internalized by everyone in the organization.

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Strategy Statements
 Three critical components of a good strategy statement –
 objective,
 scope, and
 advantage.
 Executives should be forced to be crystal clear about
them.
 These elements are a simple yet sufficient list for any
strategy that addresses competitive interaction over
unbounded terrain.

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Strategy Statement Elements (Objective)
 Any strategy statement must begin with a definition of the
ends that the strategy is designed to achieve.
 The definition of the objective should include not only an end
point but also a time frame for reaching it. (Objective).
 Firms in the same business often have the same mission. They
may also have the same values. They might even share a vision.
However, it is unlikely that even two companies in the same
business will have the same strategic objective. (Actionable
Statement- that will drive the business over the next five
years or so)
 Indeed, if your firm’s strategy can be applied to any other firm,
you don’t have a very good one.

82 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Strategy Statement Elements (Scope)
 Since most firms compete in a more or less unbounded
landscape, it is also crucial to define the scope, or
domain, of the business: the part of the landscape in
which the firm will operate. (Scope).
 A firm’s scope encompasses three dimensions: customer
or offering, geographic location, and vertical integration.
 Clearly defined boundaries in those areas should make it
obvious to managers which activities they should
concentrate on.
 The three dimensions may vary in relevance.

83 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Strategy Statement- Components
(Advantage)
 Alone, the first two aspects of strategy are insufficient.
 Last important component is to explain how you are going to
reach your objective?
 Your competitive advantage is the essence of strategy:
What your business will do differently from or better than
others defines the all-important means by which you will
achieve your stated objective.
 That advantage has complementary external and internal
components:
 a value proposition that explains why the targeted customer should
buy your product above all the alternatives, and
 a description of how internal activities must be aligned so that only
your firm can deliver that value proposition. (Advantage)

84 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Strategy Statement- Components (3)
 The complete definition of a firm’s competitive advantage
consists of two parts.
 The first is a statement of the customer value
proposition.
 Any strategy statement that cannot explain why customers
should buy your product or service is doomed to failure.
 A simple graphic that maps your value proposition against
those of rivals can be an extremely easy and useful way of
identifying what makes yours distinctive.
 The second part of the statement of advantage captures the
unique activities or the complex combination of activities
allowing that firm alone to deliver the customer value
proposition. (Activity System Map)

85 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Strategy Statement- Components
 Defining the objective, scope, and advantage requires trade-
offs, which Porter identified as fundamental to strategy.
 If a firm chooses to pursue growth or size, it must accept that
profitability will take a back seat.
 If it chooses to serve institutional clients, it may ignore retail
customers.
 If the value proposition is lower prices, the company will not
be able to compete on, for example, fashion or fit.
 Finally, if the advantage comes from scale economies, the firm
will not be able to accommodate idiosyncratic customer
needs.
 Such trade-offs are what distinguish individual companies
strategically.

86 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

A Hierarchy of Company Statements
That drives business
Organizational direction comes in several forms. The mission statement is
your loftiest guiding light – and your least specific. As you work your way
down the hierarchy, the statements become more concrete, practical, and
ultimately unique. No other company will have the same strategy statement,
which defines your competitive advantage, or balanced scorecard, which
tracks how you implement your particular strategy.

 MISSION
 Why we exist- the contribution to society
 VALUES
 What we believe in
 and how we will behave (doing things right)
 Vision
 What we want to be (indeterminate future goal)  The BASIC ELEMENTS of a
Strategy Statement
 STRATEGY
 OBJECTIVE = Ends (SMART)
 What our competitive game plan will be
 SCOPE = Domain
 BALANCED SCORECARD  ADVANTAGE = Means
 How we will monitor and implement that plan

87 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Value Proposition: Wal-Mart
 Wal-Mart’s value proposition can be
summed up as “everyday low prices for
a broad range of goods that are always
in stock in convenient geographic
locations.”
 It is those aspects of the customer
experience that the company overdelivers
relative to competitors. Under-
performance on other dimensions, such as
ambience and sales help, is a strategic
choice that generates cost savings, which
fuel the company’s price advantage.
 If the local mom-and-pop hardware store
has survived, it also has a value proposition:
convenience, proprietors who have known
you for years, free coffee and doughnuts on
Saturday mornings, and so on.
 Sears falls in the middle on many criteria. As
a result, customers lack a lot of
compelling reasons to shop there, which
goes a long way toward explaining why the
company is struggling to remain profitable.

88 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

A careful description of the unique
activities a firm performs to generate a
distinctive customer value proposition
89 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
effectively captures its strategy.
90 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
91 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
Developing a Strategy Statement
 Crafting a great strategy requires two steps:
 The first requires careful evaluation of the industry
landscape.
 This includes developing a detailed understanding of customer
needs, segmenting customers, and then identifying unique ways
of creating value for the ones the firm chooses to serve.
 It also calls for an analysis of competitors’ current strategies
and a prediction of how they might change in the future.
 The second involves a rigorous, objective assessment of
the firm’s capabilities and resources and those of
competitors to identify core competencies.

92 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Developing and Crafting Strategy
 The creative part of
developing strategy is finding
the sweet spot that aligns the
firm’s capabilities with
customer needs in a way that
competitors cannot match
given the context it competes
in.
 One of the best ways to do
this is to develop two or
three plausible but very
different strategic options.
93 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
Developing and Crafting Strategy
 Crafting the statement that captures its essence in a readily
communicable manner should involve employees in all parts of the
company and at all levels of the hierarchy.
 The wording of the strategy statement should be worked through in
painstaking detail.
 In fact, that can be the most powerful part of the strategy development
process.
 It is usually in heated discussions over the choice of a single word that a
strategy is crystallized and executives truly understand what it will involve.
 The end result should be a brief statement that reflects the three
elements of an effective strategy.
 It should be accompanied by detailed annotations that elucidate the
strategy’s nuances (to pre-empt any possible misreading) and spell
out its implications.

94 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Developing and Crafting Strategy
 When the strategy statement is circulated throughout the
company, the value proposition chart and activity-system map
should be attached.
 They serve as simple reminders of the twin aspects of
competitive advantage that underpin the strategy.
 Cascading the statement throughout the organization, so that
each level of management will be the teacher for the level
below, becomes the starting point for incorporating strategy
into everyone’s behaviour.
 The strategy will really have traction only when executives can
be confident that the actions of empowered frontline
employees will be guided by the same principles that they
themselves follow.

95 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Developing and Crafting Strategy
 The value of rhetoric should not be underestimated.
 A 35- word statement can have a substantial impact on a
company’s success because Words do lead to action.
 Spending the time to develop the few words that truly
capture your strategy and that will energize and empower
your people will raise the long-term financial
performance of your organization

96 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Who creates Strategy?
 In most companies, crafting and executing strategy is a
collaborative team effort in which every manager has a
role for the area he or she heads;
 it is rarely something that only high-level managers do.
 Chief Executive Officer (CEO)
 Has ultimate responsibility for leading the strategy-making process as strategic
visionary and as chief architect of strategy.
 Senior Executives
 Fashion the major strategy components involving their areas of responsibility.
 Managers of subsidiaries, divisions, geographic regions, plants, and
other operating units (and key employees with specialized expertise)
 Utilize on-the-scene familiarity with their business units to orchestrate their
specific pieces of the strategy.

97 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Who creates Strategy?
 Why Is Strategy-making Often a Collaborative Process?
 The many complex strategic issues involved, and
multiple areas of expertise required can make the
strategy-making task too large for one person or a
small executive group.
 When operations involve different products, industries
and geographic areas, strategy-making authority must
be delegated to functional and operating unit managers
such that all managers have a strategy-making role—
ranging from major to minor—for the area they head!
98 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
A Firm’s Strategy-making Hierarchy
Multibusiness Strategy—how to gain synergies from managing a
Corporate
portfolio of businesses together rather than as separate
Strategy
businesses

Two-Way Influence
• How to strengthen market position and gain competitive
Business advantage
Strategy • Actions to build competitive capabilities of single businesses
• Monitoring and aligning lower-level strategies
Two-Way Influence

Functional • Add relevant detail to the how’s of the business strategy

Area • Provide a game plan for managing a particular activity in ways
Strategies that support the business strategy

Two-Way Influence
• Add detail and completeness to business and functional
Operating strategies
Strategies • Provide a game plan for managing specific operating activities
with strategic significance
99 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
A STRATEGIC VISION + OBJECTIVES + STRATEGY =
A STRATEGIC LANDSCAPE

Elements of a Firm’s
Strategic Landscape

Its strategic vision, business

mission, and core values

Its strategic and financial

objectives

Its chosen strategy

101 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Test of a Winning Strategy
 Ten timeless tests can help you kick the tires on your strategy,
and kick up the level of strategic dialogue throughout your
company.
 Test 1: Will your strategy beat the market?
 Test 2: Does your strategy tap a true source of advantage?
 Test 3: Is your strategy granular about where to compete?
 Test 4: Does your strategy put you ahead of trends?
 Test 5: Does your strategy rest on privileged insights?
 Test 6: Does your strategy embrace uncertainty?
 Test 7: Does your strategy balance commitment and flexibility?
 Test 8: Is your strategy contaminated by bias?
 Test 9: Is there conviction to act on your strategy?
 Test 10: Have you translated your strategy into an action plan?

[Link]
tested-your-strategy-lately

102 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Strategic Management Process
 Rational approach used by firms to achieve strategic
competitiveness and earn above average returns.
 Strategic Management Process
 Strategic Management Inputs
 Strategic Actions: Strategy Formulation
 Strategic Actions: Strategy Implementation

It’s important to know that:

Your Strategy Process Needs a Strategy

[Link]

103 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Strategic Management Process
Macro
Environmental
Analysis (O&Ts)
• PESTE
Evaluate Current Evaluation
Performance Industry Strategy • Resource
• Mission, Values, Analysis (O&Ts) Options Requirements
Vision • Structure • Business Unit • Risk/return
• Goals & Objectives • Evolution • Corporate Implementation
• Strategies • Competition • Making it happen
Analysis & Position
Company
Analysis (S&Ws)
• Structure How do we get there?
• Resources
• Processes
• Staffing
• Culture
Where should we go?

Where are we now?

104 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023
Source of Competitive Advantage

Industry or Firm
Average Return on Invested Capital in
U.S. Industries, 1992–2006

106 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

Profitability of
Selected
U.S. Industries

107 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

What matters more:
 Wide variations in profitability among different industries.
 Similar variations in profitability among firms in many
industries.

 Prominent Researches:
 Richard Schmalensee, 1985
 Richard Rumelt, 1991
 Anita McGahab and Michael Porter, 1997

 Profitability depends only in part on a firm’s industry. The firm’s

decisions have a larger impact on profitability than its industry.

“Strategy is the act of aligning a company and its environment.”

Porter

108 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

I/O Model of Above Average Returns
 Explains the external environment’s dominant influence
on a firm's strategic actions and performance.
 Industry or segment of industry in which a company
chooses to compete has a stronger influence on
performance than do the choices managers make inside
their organization.
 The firm’s performance is believed to be determined
primarily by a range of industry properties.

109 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

I/O Model of Above Average Returns
 Underlying Assumptions
 External environment imposes pressures and constraints that
determine the strategies resulting in AAR
 Most firms compete within a particular industry/segment
Control similar strategically relevant resources

 Pursue similar strategies in light of those resources
 Resources for implementing strategies are highly mobile
across firms
 Therefore, any resource differences between firms will be
short-lived
 Organizational decision makers are rational and committed
to acting in the firm's best interests, as shown by their
profit-maximizing behaviors

110 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

 Industrial
Organizational
(I/O) Model of
Above-Average
Returns (AAR)

111
I/O Model of Above Average Returns
 Five-Forces Model (Michael Porter)
 Analytical tool previously lacking in the field of strategy
 Reinforces the importance of economic theory
 The 5 Forces includes
 Suppliers, buyers, competitive rivalry, product substitutes
and potential entrants
 Suggests an industry’s profitability is an interaction
between these 5 forces
 Firms can use the model to identify the attractiveness of an
industry (measured by profit potential) as well as the most
advantageous position for the firm to take in that industry,
given the industry’s structural characteristics.

112 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

I/O Model of Above Average Returns

 Limitations
 Only two strategies are suggested:
 Cost Leadership
 The low-cost leader
 Differentiation
 Customer willing to pay the premium price for ‘being different’
 Internal resources & capabilities not considered

113 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

The Resource Based Model of Above Average
Returns
 Each firm is a collection of unique [internal] resources
& [Link] uniqueness of its resources and
capabilities, in combination, is the basis for firm strategy
and AAR
 Combined uniqueness should define the firms’ strategic
actions
 Resources are both tangible and intangible

114 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

The Resource Based Model of Above Average
Returns
 Resources
 Inputs into a firm's production process
 Basis for competitive advantage: when resources are valuable, rare,
costly to imitate and non-subsitutable
 Internal/firm-specific resources
 Physical - Things you can touch/feel = tangible
 Human - People / employees
 Organizational capital - Relative to the firm itself
 Capability
 Capacity for a set of resources to perform a task or activity in an
integrative manner
 Core Competency
 A firm’s resources and capabilities that serve as sources of
competitive advantage over its rival
 Often visible in the form of organizational functions

115 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

The Resource Based Model of Above Average
Returns
 Summary
 A firm has superior performance because of
 Unique resources and capabilities, and the combination makes
them different, and better, than their competition – driving the
competitive advantage
 Each firm’s performance difference across time emerges because of
unique resource and capabilities (vs. industry’s structural
characteristics)

116 Sushil Kumar Dixit, LBSIM, New Delhi 10/21/2023

 The
Resource-
Based
Model of
AAR

117
The Stakeholder Management
 Basic Premise – a firm can effectively manage stakeholder
relationships to create a competitive advantage and
outperform its competitors
 Stakeholders are individuals and groups
 They can affect, and are affected by, the strategic
outcomes/performance a firm achieves and have enforceable
claims on the firm’s performance.
 Claims on a firm’s performance are enforced through the
Stakeholder’s ability to withhold participation essential to the
firm’s survival, competitiveness and profitability.

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The Stakeholder Management
 Classifications of Stakeholders
 Capital Market
 Expect returns commiserate with risk accepted by investments
 Higher the dependency relationship, the more direct and
significant firm’s response
 Product Market
 Interest maximized when the quality and reliability of firm’s
products are improved, but without a price increase.
 Organizational
 The employees- expect the firm to provide a dynamic, stimulating
and rewarding work environment.

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Stakeholder Management

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