Issue 1: Week 1 - Strategy - Introduction to Strategic Management & Strategy Diamond
Why did Stripe acquire Paystack?
Why did Twitter’s founder acquire Tidal?
These are some of the questions we would be answering during this course.
Learning objectives:
1. Why Study Strategic Management?
2. What a Strategy is?
3. What are the key elements of a Strategic Diamond?
4. The determinants of Competitive advantage?
Why Study Strategy?
1. Career: It helps you to better understand your firms
objectives and make consistent decision in your function
2. Run your own business: Strategy will enable you analyze and understand your market, company, and product in other surpass your competitors
What is Strategy?
Check out the video below and try to keep the following questions in mind:
a. What question does strategic management try to answer?
b. Is strategy a mission statement?
c. What is the relationship between strategy and competitive advantage?
Answers:
a. What question does strategic management try to answer? — Strategic management tries to answer the question why some firms outcompete other firms in the marketplace
b. Is strategy a mission statement? No
What is the relationship between strategy and competitive advantage? Strategy is a theory of how a firm can outcompete other firms to gain competitive management.
Strategy can be defined as a coordinated means by which an organization pursues its goals and objectives.
Simply speaking , Strategy is about being different from your competitors in order to achieve an advantage (competitive advantage) over them in the marketplace.
It could be performing different activities from your rivals or performing similar activities in different ways.
Strategic Map for this Module
We will use this map throughout this course on Strategy. First reviewing Vision and mission, Goals and Objectives, and Strategy(strategy diamond) today.
A company’s Vision and Mission determines its Goals and Objectives which determines its Strategy. You can strategically analyze any company by reviewing its External and Internal environment. Actively Implementing one’ strategy will lead to Strategic Leadership.
The Strategy Diamond
5 elements of Strategy (Strategy Diamond)
1. Arenas — Where will we be active (and which how much emphasis)?Which product categories? distribution channels? market segments? geographical areas?
2. Vehicles — How will we get there?
Internal development? Joint ventures? Licensing/franchising? Alliances? Acquisition?
3. Differentiators — How will we win in the marketplace?
Image? Customization? Price? Styling? Product reliability? Speed to market?
4. Staging — What will be our speed and sequence of moves?
Speed of expansion? Sequence of initiatives?
5. Economic logic — How the firm will earn a profit?
Lowest costs through scale advantages? Lowest cost through scope and replication advantage? Premium prices due to unmatchable service? Premium prices due to proprietary product features?
Remember that Strategy is a COORDINATED means by which an organization pursues its goals and objectives. A company starts with Arenas, then Vehicles, Differentiators and Staging. All these 4 activities together will lead to Economic logic.
The key question strategy ultimately aims to answer is: how do firms create SUSTAINED above-average returns?
Note: You can’t be all things to all customers. You have to choose a position e.g. Premium vs low-cost
Economic logic — How the firm will earn a profit?
Let us consider the Profit Equation
Profit = Revenue — Cost
This means we can increase profit by:
Increasing Revenue (increase customer’s willingness to pay) — Premium pricing, branding, services
Reducing Cost — Scale advantage, Scope advantage
Scale advantage is simply when the unit cost decreases as you produce more quantity of the same product.
Scope advantage is when the unit cost decreases as a result of using the same resources to produce different products e.g. producing 2 different cars with the same parts.
Back to Walmart vs Kmart
In the 1st video we saw Walmart vs Kmart. 2 companies selling the exact same product yet one of them(Kmart) is no more. The main reason Kmart went bankrupt is because they had no objective or strategy.
Competitive Advantage
Anytime strategy is mentioned, it is common to hear the term Competitive Advantage. This is simple a firm’s ability to create value in a way that its rivals cannot copy. There are 3 perspectives of competitive advantage — External, Internal and Dynamic.
3 Perspectives of Competitive advantage — External, Internal and Dynamic.
External is simply a firm’s competitive advantage by its position within an attractive industry e.g. Coca-Cola within high margin soft drink industry
2. Internal is a firm’s competitive advantage due to its superior resources and capabilities e.g. superior technology/high quality staff e.g. Google
3. Dynamic refers to a market that changes rapidly and a firm needs to keep changing/innovating to stay ahead e.g. Technology: Blackberry/Nokia vs Apple
Summary
Today we have learnt Why we should study Strategy, What Strategy is, 5 elements of Strategy(The Strategy Diamond), and 3 perspectives of Competitive Advantage.
Well done. Next week we would learn about Strategic Analyses the External Environment
Check out this video about Zara
Reference
This summary is adapted from the MSc Strategy course at Durham University Business School.