Manual

chapter one

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What Is Strategy and Why Is It Important?

Strategy means making clear-cut choices about how to compete.
—Jack Welch Former CEO, General Electric

The process of developing superior strategies is part planning, part trial and error, until you hit upon something that works.
—Costas Markides Professor, London Business School

Without a strategy the organization is like aship without a rudder.
—Joel Ross and Michael Kami

A strategy is a commitment to undertake one set of actions rather than another.
—Sharon Oster Professor, Yale University

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anagers face three central questions in evaluating their company’s business prospects: What’s the company’s present situation? Where does the company need to go from here? How should it get there? Arriving at

aprobing answer to the question “What’s the company’s present situation?” prompts managers to evaluate industry conditions and competitive pressures, the company’s current performance and market standing, its resource strengths and capabilities, and its competitive weaknesses. The question “Where does the company need to go from here?” pushes managers to make choices about the direction thecompany should be headed—what new or different customer groups and customer needs it should endeavor to satisfy, what market positions it need to be staking out, what changes in its business makeup are needed. The question “How should it get there?” challenges managers to craft and execute a strategy—a full-blown action plan—capable of moving the company in the intended direction, growing its business,and improving its financial and market performance. In this opening chapter, we define the concept of strategy and describe its many facets. We shall indicate the kinds of actions that determine what a company’s strategy is, why strategies are partly proactive and partly reactive, and why company strategies tend to evolve over time. We will look at what sets a winning strategy apart from ho-hum orflawed strategies and why the caliber of a company’s strategy determines whether it will enjoy a competitive advantage or be burdened by competitive disadvantage. By the end of this chapter, you will have a pretty clear idea of why the tasks of crafting and executing strategy are core management functions and why excellent execution of an excellent strategy is the most reliable recipe for turning acompany into a standout performer.

WHAT DO WE MEAN BY STRATEGY?
A company’s strategy is management’s action plan for running the business and conducting operations. The crafting of a strategy represents a managerial commitment to pursue a particular set of actions in growing the business, attracting and pleasing customers, competing successfully, conducting operations, and improving thecompany’s financial and market performance. Thus a company’s strategy is all about how—how management intends to grow the business, how it will build a loyal clientele and outcompete rivals, how each functional piece of the business (research and development,

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Part 1

Concepts and Techniques for Crafting and Executing Strategy

supply chain activities, production, sales and marketing,distribution, finance, and human resources) will be operated, how performance will be boosted. In A company’s strategy conchoosing a strategy, management is in effect saying, “Among all the many sists of the competitive moves different business approaches and ways of competing we could have choand business approaches that sen, we have decided to employ this particular combination of competitive managers areemploying to grow and operating approaches in moving the company in the intended direction, the business, attract and please strengthening its market position and competitiveness, and boosting perforcustomers, compete successmance.” The strategic choices a company makes are seldom easy decisions, fully, conduct operations, and and some of them may turn out to be wrong—but that is not an...