What is Strategy ?

Strategy: The set of goal-directed actions a firm takes to gain and superior performance relative to competitors.

• compete to be the best → this is relative to the type of competition you are having (quality, final price, …)
• compete to be unique

A good strategy has 3 elements:

Diagnosis

→ identifying a competitive challenge through analysis of the firm’s external and internal environment

Guiding Policy

→ Formulate the firm’s corporate, business and functional strategies

Coherent actions

→ Implement a set of coherent actions to implement the guiding policy

Competitive Advantage

Competitive Advantage: Superior performance relative to other competitors in the same industry or the industry average. Business strategy aims at achieving competitive advantage.

• Differentiation: delivering superior value while containing the cost to create it
• Cost Leadership: offering similar value at a lower cost

→ Companies with a good strategy are able to provide products or services to consumers at a price point that they can afford while keeping their costs in check, thus making a profit at the same time.

→ Both parties benefit from this trade as each captures a part of the value created

External Analysis

Analysis of external environment: it changes continuously, many firms are unable to see the changes that are coming. Many firms are unable to see the changes that are coming or already happening.

• Macro environment: all the dimensions that are outside of the firm
• Industry environment: competitive environment of the firm

PESTEL Framework

Pestel Framework: A framework that categorises and analyses an important set of external factors (Political, Economic, Social, Technological, Ecological, and Legal) that might impinge upon a firm and threats for the firm.

• Political: result from processes and actions of government bodies that influence firm decisions and behaviour
• Economic: Includes macroeconomic factors such as growth rates, employment rates, interest rates, price stability and currency exchange rates
• Socio-cultural: Capture society’s evolving cultures, norms and values
• Technological: Capture the application of knowledge to create new processes and products
• Ecological (Environmental factors): involve broad environmental issues such as resource constraints, climate change and ecological crisis. These factors can present both threats and opportunities for organisations
• Legal: include official outcomes of political processes as manifested in laws, mandates, regulations and court decisions

The Industry Life Cycle

4 stages:

1. Introduction → 2. Growth → 3. Maturity → 4. Decline

There are always opportunities for firms that can innovate products, services, and adapt to the changing tastes of customers. During the life cycle, many things can change such as technologies, distribution channels, suppliers, competition, …