company’s future over the long term.

Achieving this entails making a managerial commitment to a

coherent array of well-considered choices about how to compete. 2 These include choices about: CORE
CONCEPT A company’s strategy is the set of actions that its managers take to outperform the company’s
competitors and achieve superior profitability. • How to attract and please customers. • How to
compete against rivals. • How to position the company in the marketplace and capitalize on attractive
opportunities to grow the business. • How to respond to changing economic and market conditions. •
How to manage each functional piece of the business (R&D, supply chain activities, production, sales and
marketing, distribution, finance, and human resources). • How to achieve the company’s performance
targets. In most industries, companies have considerable freedom in choosing the hows of strategy. 3
Thus some companies strive to achieve lower costs than rivals, while others aim for product superiority
or more personalized customer service or enhanced quality dimensions that rivals cannot match. Some
companies opt for wide product lines, while others concentrate their energies on a narrow product
lineup. Some competitors deliberately confine their operations to local or regional markets; others opt
to compete nationally, internationally (several countries), or globally (all or most of the major country
markets worldwide). Strategy Is about Competing Differently Mimicking the strategies of successful
industry rivals—with either copycat product offerings or maneuvers to stake out the same market
position—rarely works. Rather, every company’s strategy needs to have some distinctive element that
draws in customers and produces a competitive edge. Strategy, at its essence, is about competing
differently— doing what rival firms don’t do or what rival firms can’t do. 4 This does not mean that the
key elements of a company’s strategy have to be 100 percent different, but rather that they must differ
in at least some important respects. A strategy stands a better chance of succeeding when it is
predicated on actions, business approaches, and competitive moves aimed at (1) appealing to buyers in
ways that set a company apart from its rivals and (2) staking out a market position that is not crowded
with strong competitors. A company’s strategy provides direction and guidance, in terms of not only
what the company should do but also what it should not do. Knowing what not to do can be as
important as knowing what to do, strategically. At best, making the wrong strategic moves will prove a
distraction and a waste of company resources. At worst, it can bring about unintended long-term
consequences that put the company’s very survival at risk. Figure 1.1 illustrates the broad types of
actions and approaches that often characterize a company’s strategy in a particular business or industry.
For a more concrete example of the specific actions constituting a firm’s strategy, see Illustration
Capsule 1.1, describing Starbucks’s strategy in the specialty coffee market. Strategy and the Quest for
Competitive Advantage The heart and soul of any strategy are the actions and moves in the marketplace
that managers are taking to gain a competitive advantage over rivals. A company achieves a competitive
advantage whenever it has some type of edge over rivals in attracting buyers and coping with
competitive forces. There are many routes to competitive advantage, but they all involve either giving
buyers what they perceive as superior value Strategy is about competing differently from rivals— doing
what competitors don’t do or, even better, doing what they can’t do! LO 1 What we mean by a
company’s strategy. LO 2 The concept of a sustainable competitive advantage. tho20598_ch01_001-
017.indd 4 8/28/14 10:32 PM Final PDF to printer CHAPTER 1 What Is Strategy and Why Is It Important?
5 compared to the offerings of rival sellers or giving buyers the same value as others at a lower cost to
the firm. Superior value can mean a good product at a lower price, a superior product that is worth
paying more for, or a best-value offering that represents an attractive combination of price, features,
quality, service, and other attributes. Delivering superior value or delivering value more efficiently—
whatever form it takes—nearly always requires performing value chain activities differently than rivals
do and building competencies and resource capabilities that are not readily matched. In Illustration
Capsule 1.1, it’s evident that Starbucks has gained a competitive advantage over its rivals in the coffee
shop industry through its efforts to 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
manner from other coffee purveyors, Starbucks has been able to charge prices for its coffee that are
well above those of its rivals and far exceed the low cost of its inputs. Its expansion policies have
allowed the company to make it easy for customers to find a Starbucks shop almost anywhere, further
enhancing the brand and cementing customer loyalty. A creative distinctive strategy such as that used
by Starbucks is a company’s most reliable ticket for developing a competitive advantage over its rivals. If
a strategy is not distinctive, then there can be no competitive advantage, since no firm would be
meeting customer needs better or operating more efficiently than any other. FIGURE 1.1 Identifying a
Company’s Strategy—What to Look For Actions to strengthen competitiveness via strategic alliances and
collaborative partnerships Actions to strengthen market standing and competitiveness by acquiring or
merging with other companies Actions to strengthen the firm’s bargaining position with suppliers,
distributors, and others Actions to gain sales and market share via more performance features, more
appealing design, better quality or customer service, wider product selection, or other such actions
Actions to gain sales and market share with lower prices based on lower costs Actions to capture
emerging market opportunities and defend against external threats to the company’s business
prospects Actions and approaches used in managing R&D, production, sales and marketing, finance, and
other key activities Actions to enter new product or geographic markets or to exit existing ones Actions
to upgrade, build, or acquire competitively important resources and capabilities THE PATTERN OF
ACTIONS AND BUSINESS APPROACHES THAT DEFINE A COMPANY’S STRATEGY tho20598_ch01_001-
017.indd 5 8/28/14 10:32 PM Final PDF to printer 6 ILLUSTRATION CAPSULE 1.1 Since its founding in
1985 as a modest nine-store operation in Seattle, Washington, Starbucks had become the premier
roaster and retailer of specialty coffees in the world, with over 18,800 store locations as of April 2013. In
fiscal 2013, its annual sales were expected to exceed $15 billion—an all-time high for revenues and net
earnings. The key elements of Starbucks’s strategy in the coffeehouse industry included: • Train
“baristas” to serve a wide variety of specialty coffee drinks that allow customers to satisfy their
individual preferences in a customized way. Starbucks essentially brought specialty coffees, such as
cappuccinos, lattes, and macchiatos, to the mass market in the United States, encouraging customers to
personalize their coffee-drinking habits. Requests for such items as an “Iced Grande Hazelnut Macchiato
with Soy Milk, and no Hazelnut Drizzle” could be served up quickly with consistent quality. • Emphasize
store ambience and elevation of the customer experience at Starbucks stores. Starbucks’s management
viewed each store as a billboard for the company and as a contributor to building the company’s brand
and image. The company went to great lengths to make sure the store fixtures, the merchandise
displays, the artwork, the music, and the aromas all blended to create an inviting environment that
evoked the romance of coffee and signaled the company’s passion for coffee. Free Wi-Fi drew those
who needed a comfortable place to work while they had their coffee. • Purchase and roast only top-
quality coffee beans. The company purchased only the highest-quality arabica beans and carefully
roasted coffee to exacting standards of quality and flavor. Starbucks did not use chemicals or artificial
flavors when preparing its roasted coffees. • Foster commitment to corporate responsibility. Starbucks
was protective of the environment and contributed positively to the communities where Starbucks
stores were located. In addition, Starbucks promoted Fair Trade practices and paid above-market prices
for coffee beans to provide its growers and suppliers with sufficient funding to sustain their operations
and provide for their families. • Expand the number of Starbucks stores domestically and internationally.
Starbucks operated stores in hightraffic, high-visibility locations in the United States and abroad. The
company’s ability to vary store size and format made it possible to locate stores in settings such as
downtown and suburban shopping areas, office buildings, and university campuses. The company also
focused on making Starbucks a global brand, expanding its reach to more than 60 countries in 2013. •
Broaden and periodically refresh in-store product offerings. Noncoffee products by Starbucks included
teas, fresh pastries and other food items, candy, juice drinks, music CDs, and coffee mugs and coffee
accessories. • Fully exploit the growing power of the Starbucks name and brand image with out-of-store
sales. Starbucks’s Consumer Packaged Goods division included domestic and international sales of
Frappuccino, coffee ice creams, and Starbucks coffees. Starbucks’s Strategy in the Coffeehouse Market
Source: Company documents, 10-Ks, and information posted on Starbucks’s website.
tho20598_ch01_001-017.indd 6 8/28/14 10:32 PM Final PDF to printer CHAPTER 1 What Is Strategy and
Why Is It Important? 7 If a company’s competitive edge holds promise for being sustainable (as opposed
to just temporary), then so much the better for both the strategy and the company’s future profitability.
What makes a competitive advantage sustainable (or durable), as opposed to temporary, are elements
of the strategy that give buyers lasting reasons to prefer a company’s products or services over those of
competitors— reasons that competitors are unable to nullify or overcome despite their best efforts. In
the case of Starbucks, the company’s unparalleled name recognition, its reputation for high-quality
specialty coffees served in a comfortable, inviting atmosphere, and the accessibility of the shops make it
difficult for competitors to weaken or overcome Starbucks’s competitive advantage. Not only has
Starbucks’s strategy provided the company with a sustainable competitive advantage, but it has made
Starbucks one of the most admired companies on the planet. Five of the most frequently used and
dependable strategic approaches to setting a company apart from rivals, building strong customer
loyalty, and winning a competitive advantage are: 1. A low-cost provider strategy —achieving a cost-
based advantage over rivals. Walmart and Southwest Airlines have earned strong market positions
because of the low-cost advantages they have achieved over their rivals. Low-cost provider strategies
can produce a durable competitive edge when rivals find it hard to match the low-cost leader’s
approach to driving costs out of the business. 2. A broad differentiation strategy —seeking to
differentiate the company’s product or service from that of rivals in ways that will appeal to a broad
spectrum of buyers. Successful adopters of differentiation strategies include Apple (innovative
products), Johnson & Johnson in baby products (product reliability), LVMH (luxury and prestige), and
BMW (engineering design and performance). One way to sustain this type of competitive advantage is
to be sufficiently innovative to thwart the efforts of clever rivals to copy or closely imitate the product
offering. 3. A focused low-cost strategy —concentrating on a narrow buyer segment (or market niche)
and outcompeting rivals by having lower costs and thus being able to serve niche members at a lower
price. Private-label manufacturers of food, health and beauty products, and nutritional supplements use
their low-cost advantage to offer supermarket buyers lower prices than those demanded by producers
of branded products. 4. A focused differentiation strategy —concentrating on a narrow buyer segment
and outcompeting rivals by offering buyers customized attributes that meet their specialized needs and
tastes better than rivals’ products. Lululemon, for example, specializes in high-quality yoga clothing and
the like, attracting a devoted set of buyers in the process. Jiffy Lube International in quick oil changes,
McAfee in virus protection software, and The Weather Channel in cable TV provide some other
examples of this strategy. 5. A best-cost provider strategy —giving customers more value for the money
by satisfying their expectations on key quality features, performance, and/or service attributes while
beating their price expectations. This approach is a hybrid strategy that blends elements of low-cost
provider and differentiation strategies; the aim is to have lower costs than rivals while simultaneously
offering better differentiating attributes. Target is an example of a company that is known for its hip
product design (a reputation it built by featuring cheap-chic designers such as Isaac Mizrahi), as well as a
more appealing shopping ambience for discount store shoppers. Its dual focus on low costs as well as
differentiation shows how a best-cost provider strategy can offer customers great value for the money.
CORE CONCEPT 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. LO 3
The five most basic strategic approaches for setting a company apart from rivals and winning a
sustainable competitive advantage. tho20598_ch01_001-017.indd 7 11/4/14 3:15 PM Final PDF to
printer 8 PART 1 Concepts and Techniques for Crafting and Executing Strategy Winning a sustainable
competitive edge over rivals with any of the preceding five strategies generally hinges as much on
building competitively valuable expertise and capabilities that rivals cannot readily match as it does on
having a distinctive product offering. Clever rivals can nearly always copy the attributes of a popular
product or service, but for rivals to match the experience, know-how, and specialized capabilities that a
company has developed and perfected over a long period of time is substantially harder to do and takes
much longer. FedEx, for example, has superior capabilities in next-day delivery of small packages, while
Google is known for its Internet search capabilities. Apple has demonstrated impressive product
innovation capabilities in digital music players, smartphones, and e-readers. Hyundai has become the
world’s fastest-growing automaker as a result of its advanced manufacturing processes and unparalleled
quality control system. Each of these capabilities has proved hard for competitors to imitate or best.
Why a Company’s Strategy Evolves over Time The appeal of a strategy that yields a sustainable
competitive advantage is that it offers the potential for an enduring edge over rivals. However,
managers of every company must be willing and ready to modify the strategy in response to changing
market conditions, advancing technology, unexpected moves by competitors, shifting buyer needs,
emerging market opportunities, and new ideas for improving the strategy. Most of the time, a
company’s strategy evolves incrementally as management fine-tunes various pieces of the strategy and
adjusts the strategy in response to unfolding events. 5 However, on occasion, major strategy shifts are
called for, such as when the strategy is clearly failing or when industry conditions change in dramatic
ways. Industry environments characterized by high-velocity change require companies to repeatedly
adapt their strategies. 6 For example, companies in industries with rapid-fire advances in technology like
medical equipment, electronics, and wireless devices often find it essential to adjust key elements of
their strategies several times a year, sometimes even finding it necessary to “reinvent” their approach to
providing value to their customers. Regardless of whether a company’s strategy changes gradually or
swiftly, the important point is that the task of crafting strategy is not a one-time event but always a work
in progress. Adapting to new conditions and constantly evaluating what is working well enough to
continue and what needs to be improved are normal parts of the strategy-making process, resulting in
an evolving strategy.7 A Company’s Strategy Is Partly Proactive and Partly Reactive The evolving nature
of a company’s strategy means that the typical company strategy is a blend of (1) proactive, planned
initiatives to improve the company’s financial performance and secure a competitive edge and (2)
reactive responses to unanticipated developments and fresh market conditions. The biggest portion of a
company’s current strategy flows from previously initiated actions that have proven themselves in the
marketplace and newly launched initiatives aimed at edging out rivals and boosting financial
performance. This part of management’s action plan for running the company is its deliberate strategy,
consisting of proactive strategy LO 4 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. tho20598_ch01_001-017.indd 8 8/28/14 10:32 PM Final PDF to printer
CHAPTER 1 What Is Strategy and Why Is It Important? 9 elements that are both planned and realized as
planned (while other planned strategy elements may not work out and are abandoned in consequence)
—see Figure 1.2 . 8 But managers must always be willing to supplement or modify the proactive strategy
elements with as-needed reactions to unanticipated conditions. Inevitably, there will be occasions when
market and competitive conditions take an unexpected turn that calls for some kind of strategic
reaction. Hence, a portion of a company ’ s strategy is always developed on the fly, coming as a response
to fresh strategic maneuvers on the part of rival firms, unexpected shifts in customer requirements, fast-
changing technological developments, newly appearing market opportunities, a changing political or
economic climate, or other unanticipated happenings in the surrounding environment. These adaptive
strategy adjustments make up the firm’s emergent strategy. A company’s strategy in toto (its realized
strategy ) thus tends to be a combination of proactive and reactive elements, with certain strategy
elements being abandoned because they have become obsolete or ineffective. A company’s realized
strategy can be observed in the pattern of its actions over time, which is a far better indicator than any
of its strategic plans on paper or any public pronouncements about its strategy. FIGURE 1.2 A Company’s
Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments Deliberate Strategy (Proactive
Strategy Elements) A Company’s Current (or Realized) Strategy Abandoned strategy elements New
strategy elements that emerge as managers react adaptively to changing circumstances New planned
initiatives plus ongoing strategy elements continued from prior periods Emergent Strategy (Reactive
Strategy Elements) CORE CONCEPT 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 STRATEGY AND ITS BUSINESS MODEL At the core of every
sound strategy is the company’s business model. A business model is management’s blueprint for
delivering a valuable product or service to customers in a manner that will generate revenues sufficient
to cover costs and yield an tho20598_ch01_001-017.indd 9 8/28/14 10:32 PM Final PDF to printer 10
PART 1 Concepts and Techniques for Crafting and Executing Strategy attractive profit. 9 The two
elements of a company’s business model are (1) its customer value proposition and (2) its profit
formula. The customer value proposition lays out the company’s approach to satisfying buyer wants and
needs at a price customers will consider a good value. The profit formula describes the company’s
approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to
its customer value proposition. Figure 1.3 illustrates the elements of the business model in terms of
what is known as the Value-Price-Cost Framework.10 As the framework indicates, the customer value
proposition can be expressed as V – P, which is essentially the customers’ perception of how much value
they are getting for the money. The profit formula, on a per-unit basis, can be expressed as P – C. Plainly,
from a customer perspective, the greater the value delivered ( V ) and the lower the price ( P ), the more
attractive is the company’s value proposition. On the other hand, the lower the costs ( C ), given the
customer value proposition ( V – P ), the greater the ability of the business model to be a moneymaker.
Thus the profit formula reveals how efficiently a company can meet customer wants and needs and
deliver on the value proposition. The nitty-gritty issue surrounding a company’s business model is
whether it can execute its customer value proposition profitably. Just because company managers have
crafted a strategy for competing and running the business, this does not automatically mean that the
strategy will lead to profitability—it may or it may not. Gillette’s business model in razor blades involves
selling a “master product”— the razor—at an attractively low price and then making money on repeat
purchases of razor blades that can be produced cheaply and sold at high profit margins. Printer
manufacturers like Hewlett-Packard, Canon, and Epson pursue much the same business model as
Gillette—selling printers at a low (virtually break-even) price and making large profit margins on the
repeat purchases of printer supplies, especially ink cartridges. McDonald’s invented the business model
for fast food— providing value to customers in the form of economical quick-service meals at clean,
convenient locations. Its profit formula involves such elements as standardized cost-efficient store
design, stringent specifications for ingredients, operating procedures specified in detail for each unit,
and heavy reliance on advertising and instore promotions to drive volume. Illustration Capsule 1.2
describes three contrasting business models in radio broadcasting. FIGURE 1.3 The Business Model and
the Value-Price-Cost Framework Customer Value (V) Customer’s share (Customer Value Proposition)
Product Price (P) Per-Unit Cost (C) Firm’s share (Profit Formula) LO 5 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. CORE CONCEPT 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. tho20598_ch01_001-017.indd 10 8/28/14 10:32 PM Final PDF to printer 11 ILLUSTRATION
CAPSULE 1.2 Pandora Sirius XM Over-the-Air Radio Broadcasters Customer value proposition • Through
free-of-charge Internet radio service, allowed PC, tablet computer, and smartphone users to create up
to 100 personalized music and comedy stations. • Utilized algorithms to generate playlists based on
users’ predicted music preferences. • Offered programming interrupted by brief, occasional ads;
eliminated advertising for Pandora One subscribers. • For a monthly subscription fee, provided Satellite-
based music, news, sports, national and regional weather, traffic reports in limited areas, and talk radio
programming. • Also offered subscribers streaming Internet channels and the ability to create
personalized commercialfree stations for online and mobile listening. • Offered programming
interrupted only by brief, occasional ads. • Provided freeof-charge music, national and local news, local
traffic reports, national and local weather, and talk radio programming. • Included frequent
programming interruption for ads. Profi t formula Revenue generation: Display, audio, and video ads
targeted to different audiences and sold to local and national buyers; subscription revenues generated
from an advertising-free option called Pandora One. Cost structure: Fixed costs associated with
developing software for computers, tablets, and smartphones. Fixed and variable costs related to
operating data centers to support streaming network, content royalties, marketing, and support
activities. Revenue generation: Monthly subscription fees, sales of satellite radio equipment, and
advertising revenues. Cost structure: Fixed costs associated with operating a satellite-based music
delivery service and streaming Internet service. Fixed and variable costs related to programming and
content royalties, marketing, and support activities. Revenue generation: Advertising sales to national
and local businesses. Cost structure: Fixed costs associated with terrestrial broadcasting operations.
Fixed and variable costs related to local news reporting, advertising sales operations, network affiliate
fees, programming and content royalties, commercial production activities, and support activities. Profi t
margin: Profi tability dependent on generating sufficient advertising revenues and subscription revenues
to cover costs and provide attractive profi ts. Profi t margin: Profi tability dependent on attracting a
sufficiently large number of subscribers to cover costs and provide attractive profi ts. Profi t margin:
Profi tability dependent on generating sufficient advertising revenues to cover costs and provide
attractive profi ts. Pandora, Sirius XM, and Overthe-Air Broadcast Radio: Three Contrasting Business
Models tho20598_ch01_001-017.indd 11 8/28/14 10:32 PM Final PDF to printer 12 PART 1 Concepts
and Techniques for Crafting and Executing Strategy Three tests can be applied to determine whether a
strategy is a winning strategy: 1. The Fit Test: How well does the strategy fit the company ’ s situation?
To qualify as a winner, a strategy has to be well matched to industry and competitive conditions, a
company’s best market opportunities, and other pertinent aspects of the business environment in which
the company operates. No strategy can work well unless it exhibits good external fit and is in sync with
prevailing market conditions. At the same time, a winning strategy must be tailored to the company’s
resources and competitive capabilities and be supported by a complementary set of functional activities
(i.e., activities in the realms of supply chain management, operations, sales and marketing, and so on).
That is, it must also exhibit internal fit and be compatible with a company’s ability to execute the
strategy in a competent manner. Unless a strategy exhibits good fit with both the external and internal
aspects of a company’s overall situation, it is likely to be an underperformer and fall short of producing
winning results. Winning strategies also exhibit dynamic fit in the sense that they evolve over time in a
manner that maintains close and effective alignment with the company’s situation even as external and
internal conditions change. 11 2. The Competitive Advantage Test: Is the strategy helping the company
achieve a sustainable competitive advantage? Strategies that fail to achieve a durable competitive
advantage over rivals are unlikely to produce superior performance for more than a brief period of time.
Winning strategies enable a company to achieve a competitive advantage over key rivals that is long-
lasting. The bigger and more durable the competitive advantage, the more powerful it is. 3. The
Performance Test: Is the strategy producing good company performance? The mark of a winning
strategy is strong company performance. Two kinds of performance indicators tell the most about the
caliber of a company’s strategy: (1) competitive strength and market standing and (2) profitability and
financial strength. Above-average financial performance or gains in market share, competitive position,
or profitability are signs of a winning strategy. Strategies that come up short on one or more of the
preceding tests are plainly less appealing than strategies passing all three tests with flying colors.
Managers should use the same questions when evaluating either proposed or existing strategies. New
initiatives that don’t seem to match the company’s internal and external situations should be scrapped
before they come to fruition, while existing strategies must be scrutinized on a regular basis to ensure
they have good fit, offer a competitive advantage, and are contributing to above-average performance
or performance improvements. LO 6 The three tests of a winning strategy. A winning strategy must pass
three tests: 1. The Fit Test 2. The Competitive Advantage Test 3. The Performance Test WHAT MAKES A
STRATEGY A WINNER? WHY CRAFTING AND EXECUTING STRATEGY ARE IMPORTANT TASKS Crafting and
executing strategy are top-priority managerial tasks for two big reasons. First, a clear and reasoned
strategy is management’s prescription for doing business, its road map to competitive advantage, its
game plan for pleasing customers, and its formula for improving performance. High-achieving
enterprises are nearly always the tho20598_ch01_001-017.indd 12 8/28/14 10:33 PM Final PDF to
printer CHAPTER 1 What Is Strategy and Why Is It Important? 13 product of astute, creative, and
proactive strategy making. Companies don’t get to the top of the industry rankings or stay there with
illogical strategies, copycat strategies, or timid attempts to try to do better. Only a handful of companies
can boast of hitting home runs in the marketplace due to lucky breaks or the good fortune of having
stumbled into the right market at the right time with the right product. Even if this is the case, success
will not be lasting unless the companies subsequently craft a strategy that capitalizes on their luck,
builds on what is working, and discards the rest. So there can be little argument that the process of
crafting a company’s strategy matters—and matters a lot. Second, even the best of strategies will lead to
failure if it is not executed proficiently. The processes of crafting and executing strategies must go hand
in hand if a company is to be successful in the long term. The chief executive officer of one successful
company put it well when he said: In the main, our competitors are acquainted with the same
fundamental concepts and techniques and approaches that we follow, and they are as free to pursue
them as we are. More often than not, the difference between their level of success and ours lies in the
relative thoroughness and self-discipline with which we and they develop and execute our strategies for
the future. Good Strategy + Good Strategy Execution =  Good Management Crafting and executing
strategy are thus core management functions. Among all the things managers do, nothing affects a
company’s ultimate success or failure more fundamentally than how well its management team charts
the company’s direction, develops competitively effective strategic moves and business approaches, and
pursues what needs to be done internally to produce good day-in, day-out strategy execution and
operating excellence. Indeed, good strategy and good strategy execution are the most telling signs of
good management. The rationale for using the twin standards of good strategy making and good
strategy execution to determine whether a company is well managed is therefore compelling: The better
conceived a company ’ s strategy and the more competently it is executed, the more likely the company
will be a standout performer in the marketplace. In stark contrast, a company that lacks clear-cut
direction, has a flawed strategy, or can’t execute its strategy competently is a company whose financial
performance is probably suffering, whose business is at long-term risk, and whose management is sorely
lacking. How well a company performs is directly attributable to the caliber of its strategy and the
proficiency with which the strategy is executed. THE ROAD AHEAD Throughout the chapters to come
and in Part 2 of this text, the spotlight is trained on the foremost question in running a business
enterprise: What must managers do, and do well, to make a company a winner in the marketplace? The
answer that emerges is that doing a good job of managing inherently requires good strategic thinking
and good management of the strategy-making, strategy-executing process. The mission of this book is to
provide a solid overview of what every business student and aspiring manager needs to know about
crafting and executing strategy. We will explore what good strategic thinking entails, describe the core
concepts and tools of strategic analysis, and examine the ins and outs of crafting and executing strategy.
The accompanying cases will help build your skills in tho20598_ch01_001-017.indd 13 8/28/14 10:33 PM
Final PDF to printer 14 PART 1 Concepts and Techniques for Crafting and Executing Strategy KEY POINTS
1. A company’s strategy is its game plan to attract and please customers, outperform its competitors,
and achieve superior profitability. 2. The central thrust of a company’s strategy is undertaking moves to
build and strengthen the company’s long-term competitive position and financial performance by
competing differently from rivals and gaining a sustainable competitive advantage over them. 3. 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. 4. A company’s strategy
typically evolves over time, emerging from a blend of (1) proactive deliberate actions on the part of
company managers to improve the strategy and (2) reactive emergent responses to unanticipated
developments and fresh market conditions. 5. 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. Thus, it contains two crucial elements: (1) the customer value proposition —a
plan for satisfying customer wants and needs at a price customers will consider good value, and (2) the
profit formula —a plan for a cost structure that will enable the company to deliver the customer value
proposition profitably. These elements are illustrated by the Value-Price-Cost Framework. 6. A winning
strategy will pass three tests: (1) Fit (external, internal, and dynamic consistency), (2) Competitive
Advantage (durable competitive advantage), and (3) Performance (outstanding financial and market
performance). 7. Crafting and executing strategy are core management functions. How well a company
performs and the degree of market success it enjoys are directly attributable to the caliber of its strategy
and the proficiency with which the strategy is executed.