Lecture 1: What is Strategy?

Question 1: ABC Company

ABC Company
ABC Company is a successful online retailing company in the country. Its core business is
selling books online. The firm's success is linked to its Internet-based software technology.
ABC Company continuously integrates new technologies to develop competitive advantages
such as a wide range of product selection, reputable brand name, an attractive and user-
friendly website, and reliable services. The founder of ABC Company believes that the
successful implementation of a strategic management process and investment in technology
will lead to greater innovation that prevents competitors in the industry to duplicate its
competitive advantage.

(a) Describe the elements of the strategic management process and the interrelatedness
of these elements. (10 marks)

(b) Explain the relationship between strategic management and competitive advantage
for ABC Company. What should ABC Company do to achieve sustainable
competitive advantage? (10 marks)

Answer:
(a)

 The first element of the strategic management process is the strategy inputs that
include the information of the firm’s vision and mission statement, internal
environment and external environment analysis.

 The second element of the strategic management process is the strategic action that
includes the formulation, selection and implementation of strategy.

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  The third element of the strategic management process is the strategic outcomes that
include the evaluation of the implemented strategy. The outcomes of successful
strategy are profits, value creation and competitive advantage.

 The strategic inputs provide data and information from the internal and external
environment to the strategic leader to establish vision, mission and goals for the firm.

 The analysis of the strategic input further enable the strategic leader to formulate and
implement appropriate value create strategic inputs. The strategy outcomes will
provide feedback to strategic management process is an ongoing process that
interrelates these three elements.

(b)

The aim of strategic management is to gain and to maintain competitive advantage.

 ABC Company understands its core business and continuously integrates new
technologies to achieve competitiveness. The effective strategy to integrate
resources to establish capabilities and core competencies and eventually to
achieve competitive advantage is important to the firm.

 Competitive advantage refers to anything a firm can do better compared to its

competitors.

 A firm achieves competitive advantage when it can do something that competitors

cannot do, or owns something that competitors desire.

 ABC Company should strive to achieve sustained competitive advantage by

continually assessing and adapting to changes in the external environment and
internal resources, capabilities, core competencies.

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  ABC Company must effectively formulate, implement and evaluate strategies that
capitalise on those internal and external strengths and opportunities.

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 Question 2: Honda Entering Into US

Honda is a leading manufacturer of motorcycles. The company is credited with identifying

and targeting an untapped market for 50 cc bikes in the US, which enabled it to expand,
defeat European competition and severely damage indigenous US motorcycle manufacturers.
By 1965, Honda had 63 per cent of the US market.

But this occurred by accident. Upon entering the US market, Honda had wanted to compete
with the larger European and US bikes of 250 ccs and over. These bikes had a defined market
and were sold through dedicated motorcycle dealerships. Honda's larger machines developed
faults as they had not been designed for the hard wear-and-tear imposed by US motorcyclists.
Honda had to recall the larger machines and had made little effort to sell its small 50 cc
motorbikes. Sports goods shops and ordinary bicycle and department stores had expressed an
interest but Honda did not want to confuse its image in its 'target' market of men who bought
the larger bikes.

The faults in Honda's larger machines meant that reluctantly, Honda had to sell the small 50
cc bikes just to raise money. They proved very popular with those who would never have
bought motorbikes.

Eventually the company adopted this new market with enthusiasm. The strategy had
emerged, against conscious intentions.

This example suggests the 'common-sense' rational model will not always work.

(a) Explain the principles of rational strategic planning and support your answer with
an appropriate model. (5 marks)

(b) Discuss the TWO (2) approaches of strategy development used by Honda Japan to
enter into the US marker. (15 marks)

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 Answer:
(a)

 Rational strategic planning means logical, systematic and scientific method of

planning. This is the most popular method of performing strategic planning. In fact
most textbooks follow this method.

 Rational strategic planning is similar to the strategy as design lens where it has high
rationality and ligh legitimacy. This method is a deliberate and directive process. This
method has high legitimacy because the top management is heavily involved in
providing the direction and guidance in the strategic planning of the organisation. The
top management has the power, authority and influence over the strategy
development.

 The Exploring Strategy model by ISW is the best example to illustrate rational
strategy planning. In this model, the strategy planning is divided into three major
sequential components, namely, strategic position, strategic choice and strategy in
action.

 In each major component there are sub-components, for example in the first
component, strategic position, the sub-components are environmental analysis,
internal analysis (strategic capability), the purpose of the organisation as expressed in
mission and vision statements, and the influence of stakeholders and culture over
strategy development.

(b)
Intended Strategy
An intended strategy is a deliberate strategy where an organisation establishes corporate
objectives and set out a planned course of actions moving towards the achievement the
objectives. When the strategy is completed in line with the original intention/objective it is
term realised strategy.

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 In the case of Honda entering US, the intended strategy is to export its 250 cc Honda
superbikes to US to compete against US and European superbikes which already have
established market in US.
In the course of executing its intended strategy towards the stated objectives to realise the
strategy. Honda Japan faced a lot of environmental and internal difficulties as follow:

 It cannot gain access to the distribution channels because they are already committed
to be the sole distributors for either US or European superbike manufacturers.

 Honda 250 cc superbikes are not designed to handle the rugged terrain and demand of
US motorcyclists.

 The Honda 250cc superbikes suffer serious wear and tear on the machines where they
had to be recalled.

Finally Honda withdrew itself from the US 250 cc superbike market. In this case, the
intended strategy of Honda entering into the US superbikes ended as an unrealised strategy.

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 Question 3: Strategy & Competitors

Discuss the FIVE (5) approaches that an excellent company can compete successfully to
out-do its rivals and winning a sustainable competitive advantage. Support your answer
with relevant examples of your own. (10 marks)

Answer:

1) A low-cost provider strategy - achieving a cost-based advantage over rivals. (Walmart,

Airasia & MrDIY )

2) A broad-differentiation strategy - seeking to differentiate the company's product or

service from rivals' in ways that will appeal to a broad spectrum of buyers. (Apple -
innovative. products, Ritz-Carlton - superior service)

3) A focused low-cost strategy - concentrating on a narrow buyer segment (or market

niche) and outcompeting rivals by having lower costs than rivals and thus being able
to serve niche members at a lower price (Ikea & Checkers).

4) A focused differentiation strategy - concentrating on a narrow buyer segment (market

niche) and outcompeting rivals by offering niche members customized attributes that
meet their tastes and requirements better than rivals' products. (Rolls-Royce, Louis
Vuitton)

5) A best-cost provider strategy - giving customers more value for the money by

satisfying buyers' expectations on key quality/features/performance/service

attributes, while beating their price expectations. (car manufacturer -

Toyota Lexus is able to outcompete with Mercedes & BMW with the
similar upscale features, but selling its car at a significantly lower price -
targeted at value-conscious buyers).

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