Topic 1

Strategy, Competitive Advantage and

the Business Model

Strategy Management 2019; Michael Saram

 LEARNING OBJECTIVES

1. Understand what is meant by a company's strategy.

2. Explain why a company needs a creative, distinctive strategy
that sets it apart from rivals.
3. Explain why it is important for a company to have a viable
business model that outlines the company’s customer value
proposition and its profit formula.
4. Identify the five most dependable strategic approaches for
setting a company apart from rivals and winning a sustainable
competitive advantage.
5. Understand that a company’s strategy tends to evolve over
time because of changing circumstances and ongoing
management efforts to improve the company’s strategy.
6. Identify the three tests of a winning strategy.

Strategy Management 2019; Michael Saram

 Strategy Challenge

Introduction to Strategy

Strategy Management 2019; Michael Saram

 What is Strategy?

What is our present situation?

• Business environment and industry conditions
• Company’s financial and competitive capabilities
Where do we want to go from here?
• Creating a vision for the company’s future direction
How are we going to get there? How to win?
• By creating an action plan that heads the company in the
direction of its intended market position, attracts customers,
achieves financial and market performance targets, and gets it
where it wants to go

Strategy Management 2019; Michael Saram

 What is Strategy?

Strategy involves choosing how to compete (win)

• How to create products or services that attract and please
customers.
• How to position the company in its industry.
• How to develop and deploy resources to build valuable
competitive capabilities.
• How each functional piece of the business (R&D, supply chain
activities, production, sales and marketing, distribution,
finance, and human resources) will be operated.
• How to achieve the firm’s performance targets.

Strategy Management 2019; Michael Saram

 CORE CONCEPT: Strategy

A company’s strategy is the set of actions that its

managers take to outperform the company's competitors
and achieve superior profitability.

Strategy Management 2019; Michael Saram

 The Importance of a Distinctive Strategy and
Competitive Approach
A Company’s Strategy
• Distinctive set of creative strategic choices playing field to win
• Manager’s decision
• Apart from rivals
• Competitive edge
• Fit its own particular situation for competitive advantage
• Compete differently unique way to win
• Doing what rival firms do not do or, better yet, what rival firms cannot
do

Strategy Management 2019; Michael Saram

 Actions that Characterize a Company’s Strategy

Strategy Management 2019; Michael Saram

 Strategy and the Quest for
Sustainable Competitive Advantage

Strategic Approaches to Sustainable Competitive Advantage

• A low-cost provider strategy achieves a cost-based advantage over
rivals.
• A broad differentiation strategy differentiates its products or services
from rivals’ in ways that appeal to a broad spectrum of buyers.
• A focused low-cost strategy outcompetes rivals in a narrow/niche
market by achieving lower costs and offering its products at lower
prices.
• A focused differentiation strategy outcompetes rivals in a
narrow/niche market by offering buyers customized and exclusive
attributes.
• A best-cost provider strategy gives customers more value by
satisfying their expectations on key attributes, while beating their
price expectations.
Strategy Management 2019; Michael Saram
 The Importance of Capabilities in Building and
Sustaining Competitive Advantage
Competitively Valuable Capabilities
• Cannot be easily bested, matched, or imitated by rivals
• Represent superior know-how and specialized abilities that
require time to fully develop and perfect
• Result in a sustainable competitive advantage over rivals

Strategy Management 2019; Michael Saram

 CORE CONCEPT: Sustainable Competitive
Advantage
A company achieves sustainable competitive advantage
when an attractively large number of buyers develop a
durable preference for its products or services over the
offerings of competitors, despite the efforts of
competitors to overcome or erode is advantage.

Strategy Management 2019; Michael Saram

 Starbucks’ Strategy in the Coffeehouse Market

Key elements of Starbucks strategy

• Train “baristas” to serve a variety of specialty coffee drinks to
satisfy individual customer preferences in a customized way.
• Emphasize store ambience and elevating customer experience
at its stores.
• Purchase and roast only top-quality coffee beans.
• Commit to corporate responsibility.
• Expand the number of its stores domestically and
internationally.
• Broaden and periodically refresh in-store product offerings.
• Fully exploit the growing power of the Starbucks name and
brand image with out-of-store sales.

Strategy Management 2019; Michael Saram

 Starbucks’ Strategy in the Coffeehouse Market

How has Starbucks gained competitive advantage?

• Create an upscale experience for coffee drinkers by catering to
individualized tastes, enhancing the atmosphere and comfort of
the shops, and delivering a premium product produced under
environmentally sound fair trade practices.
• By differentiating itself in this way, Starbucks is able to charge
prices for its coffee that are well above those of its rivals and far
exceed the low cost of its inputs.

Strategy Management 2019; Michael Saram

 Why Strategy Evolves over Time

A strategy changes over time due to:

• Unexpected moves of competitors
• Shifting buyer needs and preferences
• Emerging market opportunities
• Managers’ new ideas for improving the strategy
• Mounting evidence strategy is not working well
A strategy evolves:
• Incremental (minor) adjustments or dramatic (major) shifts
• Proactively and adaptively

Strategy Management 2019; Michael Saram

 A Company’s Strategy is Partly Proactive
and Partly Reactive

Strategy Management 2019; Michael Saram

 CORE CONCEPT: Realized Strategy

A company’s realized strategy is a combination of

deliberate planned elements and unplanned emergent
elements. Some components of a company’s deliberate
strategy will fail in the marketplace and become
abandoned strategy elements.

Strategy Management 2019; Michael Saram

 The Relationship Between a
Company's Strategy and Business Model
Business Model
• Management’s produces a blueprint for delivering a valuable
product or service to customers that will yield an attractive
profit.
Elements of the Business Model
• The customer value proposition defines how the firm will satisfy
buyer wants and needs at a price buyers will consider a good
value.
• The profit formula describes its approach to determining a cost
structure that allows for acceptable profits given the pricing
tied to its customer value proposition.

Strategy Management 2019; Michael Saram

 The Relationship Between a
Company's Strategy and Business Model

Realized Business
Strategy $$$? Model
Competitive Value
Initiatives Proposition

Business Profit
Approaches Formula

Strategy Management 2019; Michael Saram

Value-Price-Cost Framework of the Business Model

Strategy Management 2019; Michael Saram

 CORE CONCEPT: Business Model

A company’s business model sets forth how its strategy

and operating approaches will create value for
customers, while at the same time generate ample
revenues to cover costs and realize a profit.
The two elements of a company’s business model are its
(1) customer value proposition and (2) its profit formula.

Strategy Management 2019; Michael Saram

 Pandora, Sirius XM and Broadcast Radio:
Three Contrasting Business Models
Customer value proposition Pandora Sirius XM Over-the-Air Radio
or Profit formula Broadcasters
Customer value proposition Offers free-of-charge Internet Monthly subscription users Provides free-of-charge music,
radio, smartphone users can get satellite-based music, news, traffic reports, weather,
create playlists of music and news, sports, weather, traffic and talk radio.
comedy stations. reports, and talk radio. Ads frequently interrupt
Programming has brief ads; Streaming is interrupted by programming.
no ads for subscribers. brief, occasional ads.

Profit formula Revenues come from ads Revenues come from monthly Revenues come from
targeted to different subscription fees, sales of advertising sales to national
audiences and advertising- satellite radio equipment, and and local businesses.
free subscriptions. advertising revenues.
Profit formula Cost structure is comprised of Cost structure is comprised of Cost structure is comprised of
the fixed and variable costs of fixed costs of a satellite-based fixed and variable costs of
developing user software, music and streaming service. terrestrial operations for news
operating data centers Fixed and variable costs relate and advertising sales
supporting streaming to programming and content operations, affiliate fees,
network, royalties, and royalties, marketing, and royalties, commercial
marketing. support. production and support
activities.
Profit formula Profit margin depends on Profit margin depends on Profit margin depends on
advertising and subscription attracting a sufficiently large generating sufficient
revenues to cover costs and number of subscribers to advertising revenues to cover
provide profits. cover costs and provide costs and provide attractive
profits. profits.
Strategy Management 2019; Michael Saram
 The Three Tests of a Winning Strategy

Strategic Fit
How well does the strategy fit the external and internal aspects
of the company’s situation?
Competitive Advantage
Is the strategy helping the company achieve a sustainable
competitive advantage?
Performance
Is the strategy producing good company performance, as
indicated by the firm’s profitability, financial and competitive
strengths, and market share?

Strategy Management 2019; Michael Saram

 Case/Study Discussion

Who listens to the radio anymore?

• How sustainable are the business models of Pandora, Sirius XM
and over-the-air broadcasters over the long term?
• Given the changes in user listening habits, which competitor’s
present strategy best passes the three tests of a winning
strategy?
• What internal and external factors will create particular
difficulties for each competitor in changing its strategy or
business model?

Strategy Management 2019; Michael Saram

 Why Creating and Executing Strategy Are
Important Tasks
Good strategy and good strategy execution are the most
telling indicators of good management.

A better-conceived, competently executed strategy

makes it more likely that a firm will be a standout
performer in the marketplace.

How well a firm performs directly reflects the caliber of

its strategy and the proficiency of its execution.

Strategy Management 2019; Michael Saram

 Strategy Challenge

Building a Strategy

Strategy Management 2019; Michael Saram

 The Road Ahead

Strategy is about asking and answering a most important

question.

What must managers do, and do well, to make

a company a winner in the marketplace?

Doing a good job of managing inherently requires good

strategic thinking and good management of the strategy-
creating, strategy-executing process.

Strategy Management 2019; Michael Saram

 Skills You will Apply in this Course

Analytical / Evaluative Reasoning

you need to develop &
master in this course

Problem Solving
Skill set

Creativity

Communication

Best wishes for success in the class!!

Strategy Management 2019; Michael Saram