SI 422SI422 Midterm Study Guide.

Module 1:What is Strategy? What is Strategy according to Porter and to Grant? ● Strategy is the creation of a unique and valuable position, involving a different set of activities. ○ Grant’s View: Strategy is not a d ...

Module 1:What is Strategy? What is Strategy according to Porter and to Grant? ● Strategy is the creation of a unique and valuable position, involving a different set of activities. ○ Grant’s View: Strategy is not a detailed plan or program of instructions; it is a unifying theme that gives a coherence and direction to the actions and decisions of an individual or an organization.” ■ Designed to help the firm use its internal resources and characteristics to deal with its industry & competitive environment- Strategy must FIRTH the the firm and its environment ■ firm strategy requires understanding the external (industry) environment and internal (firm) environment and making choices to create the greatest fit between the two. That said,… ○ Porter’s View: refers to performing different activities from rivals or performing them in a different way ■ Choose the right configuration of activities, incentives, systems and make the right tradeoffs ■ STRATEGY RESULTS ON A UNIQUE ACTIVITES ■ Role of activities in strategy? Tradeoffs in Strategy Profitability varies across and within industries What is strategic management according to Grant? Operational effectiveness vs. Strategy (and which is needed to achieve sustained competitive advantage?) ● OPERATIONAL EFFECTIVENESS and strategy are both essential to superior performance, but they work in very different ways ○ Porter view: refers to the extent to which perform similar activities better than rivals ■ Necessary but not sufficient for L-R comp advantage2 ■ PORTER BELIEVES YOU CAN ACHIEVE COMP ADVANTAGE ONLY if you have BOTH operational effectiveness and a superior strategy (that fits with the demands of the environment) ● arithmetic of superior profitability: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs ● cost is generated by performing activities, and cost advantage arises from performing particular activities more efficiently than competitors ○ differentiation arises from both the choice of activities and how they are performed ○ activities, then, are the basic units of competitive advantage ● Operational Effectiveness (OE): performing similar activities better than rivals perform them. ○ Refers to any number of practices that allow a company to better utilize its inputs ○ Through programs such as TQM, time-based competition, and benchmarking, they have changed how they perform activities in order to ■ eliminate inefficiencies, improve customer satisfaction, and achieve best practice. ○ Constant improvement in operational effectiveness is necessary to achieve superior profitability. Henry Mintzberg: Strategy Design v. Strategy Emergence - Intended and emergent strategy:********* - Where is his view similar and where is it different? ● Strategic Positioning means performing different activities from rivals’ or performing similar activities in different ways. ● Productivity Frontier: sum of all existing best practices at any given time ○ Max value company delivering product or service cn create at a given cost, using best avail inputs.3 ■ can apply to individ activities, groups of linked activities, entire company’s activities ○ When a company improves operational effectiveness, moves toward the frontier ○ constantly shifting outward as new tech & mgmt approaches and as new inputs become available ● Firms can achieve comp adv only if have both OE & superior strategy ● Japanese Companies Rarely Have Strategies ● Japanese triggered global revolution in OE in the ‘70s and ‘80s, pioneering practices such as ○ TQM, continuous improvement. ○ Japanese manufacturers enjoyed substantial cost and quality advantages for many years ● Most Japanese companies imitate and emulate one another. ● Rivals far from productivity frontier and so it seemed possible to win on both cost and quality indefinitely ● Japanese companies were able to grow in an expanding domestic economy (Ownership test, better off) ● Solution: to escape destructive battles now ravaging performance, Jap. companies have to learn strategy ● Competition based on operational effectiveness alone is mutually destructive ● The competitors left standing are often those that outlasted others, not companies with real advantage Strategy Rests on Unique Activities ● essence of strategy is in activities -performing activities differently or perform diff activities than rivals. ● Strategic positions based on cust. needs, cust. accessibility, variety of company’s products or services. ● Strategic positions emerge from three distinct sources, which are not mutually exclusive and often overlap ● 1st: variety-based positioning - based on the choice of product varieties rather than customer segments ○ can serve a wide array of customers, but for most it will meet only a subset of their needs.