Business strategy notes

Theme 1: The process of strategic management

Common elements in successful strategies

• Long-term goals
• Profound understanding of the competitive environment
• Objective appraisal of resources

Static strategy competing for the present à Dynamic strategy preparing for the future à

Roles of strategy

• Decision support: strategy improves the quality of decision making
• Coordinating device: strategy creates consistency and unity
• Target: strategy improves performance by setting high aspirations
• Animation and orientation: strategy motivates and mobilises

The mission statement provides a framework within which strategies are formulated. It contains:

• Mission: reason for the existence of an organization
• Vision: desired future state
• Values: key values an organization is committed to
• Major goals: measurable desired future state an organization attempts to realize

Business model is the method of doing business by which a company generates revenue. In a given industry, competing firms have different business models. A company develops a business model that uses its distinctive competencies to differentiate its products and/or lower its cost structure.

Distinctive competencies are firm-specific strengths that allow a company to achieve superior efficiency, quality, innovation, and responsiveness to customers.

Strategies + business model + distinctive competencies = competitive advantage

Theme 2: Goals, value and performance

Stakeholder approach: the firm is a coalition of interest groups. This approach seeks to balance their different objectives.

Shareholder approach: the firm exists to maximize the wealth of its owners, i.e., maximizes the present value of profits over the life of the firm. We assume that the primary goal of the firm is profit maximization.

From value maximizing approach to strategy formulation

• Identify strategy alternatives
• Estimate cash flows associated with each strategy
• Estimate cost of capital for each strategy
• Select the strategy which generates the highest NPV

More utility consumers get from the company’s products or services, the more pricing options the company has.

How profitable a company becomes depends on three basic factors:

1. Value/utility customers place on products
2. Price company charges for products
3. Costs of creating product

There is a dynamic relationship among utility, pricing, demand, and costs.

Competitive advantage is profitability greater than the average of all companies in the same industry. Measures of profitability include:

• Return On Invested Capital (ROIC)