CHAPTER 1 What Is Strategy and Why Is It Important

CHAPTER 1 What Is Strategy and Why Is It Important?
A company’s strategy is the set of actions that its managers take to outperform the company’s
competitors and achieve superior profitability. Strategy is about competing differently from
rivals— doing what competitors don’t do or, even better, doing what they can’t do!
A company achieves a competitive advantage when it provides buyers with superior value
compared to rival sellers or offers the same value at a lower cost to the firm. The advantage is
sustainable if it persists despite the best efforts of competitors to match or surpass this
advantage.
A company’s strategy tends to evolve because of changing circumstances and ongoing efforts by
management to improve the strategy. Changing circumstances and ongoing management efforts
to improve the strategy cause a company’s strategy to evolve over time—a condition that makes
the task of crafting strategy a work in progress, not a one-time event. A company’s strategy is
shaped partly by management analysis and choice and partly by the necessity of adapting and
learning by doing.
A company’s deliberate strategy consists of proactive strategy elements that are planned; its
emergent strategy consists of reactive strategy elements that emerge as changing conditions
warrant.
A company’s business model sets forth the logic for how its strategy will create value for
customers and at the same time generate revenues sufficient to cover costs and realize a profit.
A winning strategy must pass three tests: 1. The Fit Test 2. The Competitive Advantage Test 3. The
Performance Test
CHAPTER 2 Charting a Company’s Direction
A company’s strategic plan lays out its future direction, performance targets, and strategy.
A strategic vision describes “where we are going”— management’s aspirations for the company
and the course and direction charted to achieve them. An effectively communicated vision is a
valuable management tool for enlisting the commitment of company personnel to actions that
move the company in the intended direction.
Wording a Vision Statement Be graphic, Be forward-looking and directional. Don’t be vague or

incomplete, Don’t dwell on the present
The distinction between a strategic vision and a mission statement is fairly clear-cut: A strategic
vision portrays a company’s aspirations for its future (“where we are going”), whereas a
company’s mission describes the scope and purpose of its present business (“who we are, what
we do, and why we are here”).
A company’s values are the beliefs, traits, and behavioral norms that company personnel are
expected to display in conducting the company’s business and pursuing its strategic vision and
mission.
Objectives are an organization’s performance targets—the specific results management wants to
achieve.
Stretch objectives set performance targets high enough to stretch an organization to perform at
its full potential and deliver the best possible results.
A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective,
concentrating the full force of its resources and competitive actions on achieving that objective.
The Balanced Scorecard is a widely used method for combining the use of both strategic and
financial objectives, tracking their achievement, and giving management a more complete and
balanced view of how well an organization is performing.
Corporate strategy establishes an overall game plan for managing a set of businesses in a
diversified, multibusiness company.
Business strategy is primarily concerned with strengthening the company’s market position and
building competitive advantage in a singlebusiness company or in a single business unit of a
diversified multibusiness corporation. Business strategy is strategy at the single-business level,
concerning how to improve performance or gain a competitive advantage in a particular line of
business.
A company’s strategic plan lays out its future direction, business purpose, performance targets,
and strategy.
CHAPTER 3 Evaluating a Company’s External Environment
The macro-environment encompasses the broad environmental context in which a company’s

industry is situated.
PESTEL analysis can be used to assess the strategic relevance of the six principal components of
the macro-environment: P olitical, E conomic, S ocial, T echnological, E nvironmental, and L egal/
Regulatory forces.
The Five Forces Model of Competition
These include (1) competition from rival sellers, (2) competition from potential new entrants to
the industry, (3) competition from producers of substitute products, (4) supplier bargaining power,
and (5) customer bargaining power.
The Six Components of the Macro-Environment
Political factors, Economic conditions, Sociocultural forces, Technological factors, Environmental

forces, Legal and regulatory factors.
Whether an industry’s entry barriers ought to be considered high or low depends on the resources
and capabilities possessed by the pool of potential entrants. High entry barriers and weak entry
threats today do not always translate into high entry barriers and weak entry threats tomorrow.
The strongest of the five forces determines the extent of the downward pressure on an industry’s
profitability.
A company’s strategy is increasingly effective the more it provides some insulation from
competitive pressures, shifts the competitive battle in the company’s favor, and positions the firm
to take advantage of attractive growth opportunities
Complementors are the producers of complementary products, which are products that enhance
the value of the focal firm’s products when they are used together.
Driving forces are the major underlying causes of change in industry and competitive conditions.
Strategic group mapping is a technique for displaying the different market or competitive
positions that rival firms occupy in the industry.
A strategic group is a cluster of industry rivals that have similar competitive approaches and
market positions.
Key success factors are the strategy elements, product and service attributes, operational
approaches, resources, and competitive capabilities that are essential to surviving and thriving in
the industry.

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CHAPTER 1 What Is Strategy and Why Is It Important?

CHAPTER 2 Charting a Company’s Direction

Wording a Vision Statement Be graphic, Be forward-looking and directional. Don’t be vague or

CHAPTER 3 Evaluating a Company’s External Environment

The macro-environment encompasses the broad environmental context in which a company’s

The Five Forces Model of Competition

The Six Components of the Macro-Environment

Political factors, Economic conditions, Sociocultural forces, Technological factors, Environmental

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