M
A
R
C
U
S
1-2
1
STRATEGY
BASICS
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1-3
Learning Objectives




Understanding strategy as the moves managers make to
achieve sustained competitive advantage (SCA).
Comprehending that SCA is not a few years of good
performance but persistent performance over time that is
superior to one’s competitors.
Identifying inflection points – extraordinary shifts in the
competitive landscape that change the basis for SCA.
Using analogies from chess, war, and sports to help
achieve SCA, including attentiveness to the rules,
knowing your enemy and yourself, concentrating forces,
relying on teamwork, and keeping score.
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Learning Objectives
1-4
(Continued)




Being conscious of the connection between SCA and
comparative advantage.
Seeing strategy not as detailed planning but as a series
of action-response cycles.
Understanding how to keep score and what are some
important measures of SCA.
Being aware that firms simultaneously are located in the
past, striving to achieve their mission, or what they have
been good at previously, while at the same time they
have to move toward a vision of what they would like to
excel at in the future.
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Strategic Inflection Point
A strategic inflection point occurs when a
company faces major changes in its competitive
environment.
These changes may arise from:
New technologies
Different regulatory conditions
Transformations in customer values and
preferences
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Strategy
… is the move managers make to
achieve sustained competitive
advantage.
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Sustained Competitive
Advantage (SCA)
1-7
Sustained competitive advantage is the
above average performance in an industry
for at least 10 years or more.
 Natural parity is the condition in most
industries.
 Companies that achieve SCA in most
industries are outliers.

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Mechanisms to Protect
Advantage
1-8
The industry’s structure
 Peculiar configurations of resources,
capabilities, and competencies
 Continuous positioning and repositioning
via the moves companies make

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Moves

Business Strategy – how to compete in a
given industry

Corporate Strategy – what business
should a firm be in
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Ex. 1.2:
The Framework for this Book
MOVES
ANALYSIS
External
Analysis
(Chapter 2)
Sustained
Competitive
Advantage
(Chapter 1)
Internal
Analysis
(Chapter 3)
Timing and
Positioning
(Chapter 4)
Mergers,
Acquisitions,
and Divestitures
(Chapter 5
Continuous
Repositioning
(Chapter 8)
Globalization
(Chapter 6)
Innovation and
Entrepreneurship
(Chapter 7)
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Changing the Rules




Prospectors: aggressively pursuing new growth
opportunities
Defenders: clinging to existing niche and trying
to protect turf
Analyzers: both searching for new opportunities
and protecting an existing position
Reactors: incoherently responding to the
changed circumstances
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Ex. 1.3:
Generic Moves
Business Strategy
 Price

Undercut competitors: gain market share
 Advertising, promotion, sales, distribution

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Differentiate product: enhance customer loyalty/high
margin
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1-13
Ex. 1.3
(Continued)
Corporate Strategy
 Restructure

Engage in mergers, acquisitions, divestitures: economies of
scale/scope, R&D, lower transaction costs, better coordination,
synergy, higher barriers to entry
 Go global

Form alliances and joint ventures
 Innovate


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Introduce new product: add value
Compete for future: create industries that don’t exist now
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1-14
Ex. 1.4
: Strategy Results
ACTION &
RESPONSE
ACTION &
RESPONSE
COMPETITIVE
INTERACTION
COMPETITIVE
ADVANTAGE
Source: From K.G. Smith, C.M. Grimm and M.J. Gannon. Dynamics of Competitive Strategy, p. 9. Copyright© 1992 by Sage Publications,
Inc. Reprinted by permission of Sage Publications, Inc.
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Realized Strategies
Realized strategies differ from
intended ones. They incorporate
not just one’s design but also the
response and counterresponse of
other decision makers that codetermine the result.
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Concentrating Forces
The corporation’s top management team
must:
 Determine what confers superiority
 Create a distinctive competence in which a
company has comparative advantage
 Apply this competence decisively at the proper
time and place to increase the chances of
winning
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Ex. 1.5: The Reinforcing Nature of “Getting It”
investors
talent
talent
Value
customers
customers
investors
investors
talent
customers
Time
Source: From Profit Patterns by Adrian J. Slywotsky. Copyright©1998 by Adrian J. Slywotsky. Used by permission of Time Books, a
division of Random House, Inc.
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Ex. 1.6:
Balanced Scorecard
Strategic Objectives
Financial
Strength
Delight
Consumer
Win-Win
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Return on capital
employed
Cash Flow
Profitability
Lowest Cost
Continually
delight
Strategic Measures
•Return on Equity/Return
on Assets/Return on
Investment
•Margins
•Stock Market Appreciation
•Share of key markets
•Mystery shopper rating
•Volume growth vs.
industry
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1-19
Ex. 1.6
(Continued)
Strategic Objectives
Safe/Reliable
On Spec
On Time
Good
Neighbor
Motivated and
Prepared
Workers
Marketing
1. Innovative prodts/services
Manufacturing
1. Costs under control
2. Hardware performance
Supply, Trading, Logistics
1. Delivered cost
2. Inventory
3. Health, Safety, Envr.
Involvement
Skill
Access to information
Strategic Measures
•Growth in revenue/margin improv.
•New product introductions
•Rev. from new prod. as % of tot. rev
•Total expenses vs. competition
•Yield
•Inventory level
•Number of incidents
•Days away from work
•Employee survey
•Skill inventory
•Information inventory
Source: Adapted from Robert Grant, Contemporary Strategic Analysis, 4th ed. (Oxford, England: Blackwell, 2002). Reprinted with permission of
Blackwell Publishing.
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Ex. 1.7: EVA: Top 10 Performers in 2000 (millions)
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Ex. 1.8: Corporate Ratings from
Investor’s Business Daily
Composite
EPS
Company Price
Industry Price
Sales+margins+ROE
Acc/Dist
52-week high
Closing price (5/8/01)
McGraw-Hill/Irwin
Microsoft
Apple
IBM
Yahoo!
93
63
80
A
B
B
76
69
48
10
75
C
D
B
27
21
80
70
79
C
B
B
123
122
91
39
83
A
B
A
43
18
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