STRATEGIC MANAGEMENT
CHAPTER 01 : WHAT IS STRATEGY?
Strategy : “The determination of long-run goals and objectives of an enterprise and the adoption
of courses of action and the allocation of resources necessary for carrying out these goals”
Successful strategy
1. Clear and consistent long-term goals
2. Good understanding of the competitive environment
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
4. Effective implementation
5. Strategic fit between goals, environment, resources and capabilities, and
implementation
1. Clear and consistent long-term goals
The 3 determinants of a company's value creation
• Sales growth: The ability of a company to continuously increase revenues by expanding
markets, attracting new customers, or innovating products/services.
• Sales margin: How much profit is made on each sale — improving margins means the
company generates more earnings from the same level of sales.
• Capital turnover / resource utilization: How efficiently a company uses its assets
(factories, technology, investments) to generate revenue — higher turnover means more
value is created with fewer resources.
Example : McDonald’s strategy focuses on growing sales while keeping the same capacity.
Instead of only expanding by building more restaurants, they want to sell more within their
existing restaurants.
• Sales growth : improving customer service, product quality...
• Capital turnover : using the same capacity but more efficiently (higher sales per store!)
2. Good understanding of the competitive environment
Porter's 5 Forces : analyzes the structure and profitability of an industry
• Threat of entry : how easy is it for new competitors to enter
• Industry of rivalry : how intense is competition between existing firms
• Supplier power : can suppliers raise prices/reduce quality
• Buyer power : can customers push prices down or demand more value
• Substitutes : are there alternative products/services that could replace yours?
Difference between threat of entry (new) & industry of rivalry (existing)
,Example
Tobacco : buyer power is very low, they can raise the price, there are no real substitutes (vape's
are not the same), very few companies on the market
Airline industry : buyer power is high because there are a lot of airlines so we can switch when
necessary (a lot of substitutes), high rivalry, threat of entry is high (you can lease a plane and a
gate for example)
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
Competitive advantage : this means there is a bigger gap between consumers' willingness to
pay (WTP) and the company's average cost. (more profit)
• You can try to raise the WTP : by making sure the quality gets better (innovation,
branding...)
• You can try to reduce the average costs
Value created : difference between WTP and average cost
Differentiation advantage
• For a higher WTP (ex. better quality) you get more costs
Cost advantage
• You can produce cheaper (lower average costs) but the gap between AC and WTP is a
little bigger, so you get more competitive advantages
Both : the best, these company's do well (ex. Nike)
• The gap is the biggest
Example : Ryanair does well because they produce cheaper (low average costs) and they can
attract a lot of the market because of that
Competitive advantages must be :
• Unique : other companies can’t have them cause then they won’t have an effect
• Valuable : 1. affect the quality or 2. affect the average costs (WTP/AC)
• Durable : it must be for the long-term
• Not transferable : competitors cannot simply buy it or acquire it easily
• Not replicable : impossible to imitate or copy
, 4. Effective implementation
Intended strategy : what managers initially plan
Emergent strategy : the adjustments and adaptions made when unexpected events or
challenges occur
Realized strategy : what the firm does in practice (a mix of both)
5. Strategic fit between goals, environment, resources and capabilities, and
implementation
A firm’s strategy must be consistent with
- Internal environment : what the firm is capable of
- External environment : the market conditions, customer needs…
Corporate strategy : decides the scope : which industries/markets should the company operate
Competitive (business) strategy : how do we compete in this particular industry, the goal is to
sustain a competitive advantage in this market. The strategy of a company in a given industry,
how you should compete in a given industry.
CHAPTER 02 : DRIVERS OF VALUE CREATION
Value created
- Willingness to pay (WTP) – average costs
Value captured
- Value created – value captured by consumers
(consumer surplus) = producer surplus
Example :
Imagine we set the price to $40, we would sell 4 units and in that case, we have sales = $160
- Dark blue = Consumer surplus (they would pay more if necessary)
- Purple + grey = sales
- Purple = producer surplus
- Grey = costs
Imagine the average costs are $20, the total cost would be $80
, The value captured by producer = 80 (20*4)
Consumer surplus
Producer surplus
Costs
Sales : purple + grey
Value captured by producers : what can they do to maximize its value? (the drivers!)
- Increase the WTP, then you can charge a higher price
- Lower the costs, then you can capture more of that value
NOPLAT : Net Operation Profit Less Adjusted taxes
You start from the total sales of a company in a given year
= (number of units sold * price) – (number of units sold * average costs)
= total sales – total cost
= EBITDA
- depreciation
= EBIT
- taxes
= NOPAT
- tax advantages due to
debt financing
= NOPLAT
ROIC : Return On Invested Capital = key measure to see how well a company preforms
K = equity + debt
CHAPTER 01 : WHAT IS STRATEGY?
Strategy : “The determination of long-run goals and objectives of an enterprise and the adoption
of courses of action and the allocation of resources necessary for carrying out these goals”
Successful strategy
1. Clear and consistent long-term goals
2. Good understanding of the competitive environment
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
4. Effective implementation
5. Strategic fit between goals, environment, resources and capabilities, and
implementation
1. Clear and consistent long-term goals
The 3 determinants of a company's value creation
• Sales growth: The ability of a company to continuously increase revenues by expanding
markets, attracting new customers, or innovating products/services.
• Sales margin: How much profit is made on each sale — improving margins means the
company generates more earnings from the same level of sales.
• Capital turnover / resource utilization: How efficiently a company uses its assets
(factories, technology, investments) to generate revenue — higher turnover means more
value is created with fewer resources.
Example : McDonald’s strategy focuses on growing sales while keeping the same capacity.
Instead of only expanding by building more restaurants, they want to sell more within their
existing restaurants.
• Sales growth : improving customer service, product quality...
• Capital turnover : using the same capacity but more efficiently (higher sales per store!)
2. Good understanding of the competitive environment
Porter's 5 Forces : analyzes the structure and profitability of an industry
• Threat of entry : how easy is it for new competitors to enter
• Industry of rivalry : how intense is competition between existing firms
• Supplier power : can suppliers raise prices/reduce quality
• Buyer power : can customers push prices down or demand more value
• Substitutes : are there alternative products/services that could replace yours?
Difference between threat of entry (new) & industry of rivalry (existing)
,Example
Tobacco : buyer power is very low, they can raise the price, there are no real substitutes (vape's
are not the same), very few companies on the market
Airline industry : buyer power is high because there are a lot of airlines so we can switch when
necessary (a lot of substitutes), high rivalry, threat of entry is high (you can lease a plane and a
gate for example)
3. Building and using the resources and capabilities to achieve the goals, to develop a
competitive advantage
Competitive advantage : this means there is a bigger gap between consumers' willingness to
pay (WTP) and the company's average cost. (more profit)
• You can try to raise the WTP : by making sure the quality gets better (innovation,
branding...)
• You can try to reduce the average costs
Value created : difference between WTP and average cost
Differentiation advantage
• For a higher WTP (ex. better quality) you get more costs
Cost advantage
• You can produce cheaper (lower average costs) but the gap between AC and WTP is a
little bigger, so you get more competitive advantages
Both : the best, these company's do well (ex. Nike)
• The gap is the biggest
Example : Ryanair does well because they produce cheaper (low average costs) and they can
attract a lot of the market because of that
Competitive advantages must be :
• Unique : other companies can’t have them cause then they won’t have an effect
• Valuable : 1. affect the quality or 2. affect the average costs (WTP/AC)
• Durable : it must be for the long-term
• Not transferable : competitors cannot simply buy it or acquire it easily
• Not replicable : impossible to imitate or copy
, 4. Effective implementation
Intended strategy : what managers initially plan
Emergent strategy : the adjustments and adaptions made when unexpected events or
challenges occur
Realized strategy : what the firm does in practice (a mix of both)
5. Strategic fit between goals, environment, resources and capabilities, and
implementation
A firm’s strategy must be consistent with
- Internal environment : what the firm is capable of
- External environment : the market conditions, customer needs…
Corporate strategy : decides the scope : which industries/markets should the company operate
Competitive (business) strategy : how do we compete in this particular industry, the goal is to
sustain a competitive advantage in this market. The strategy of a company in a given industry,
how you should compete in a given industry.
CHAPTER 02 : DRIVERS OF VALUE CREATION
Value created
- Willingness to pay (WTP) – average costs
Value captured
- Value created – value captured by consumers
(consumer surplus) = producer surplus
Example :
Imagine we set the price to $40, we would sell 4 units and in that case, we have sales = $160
- Dark blue = Consumer surplus (they would pay more if necessary)
- Purple + grey = sales
- Purple = producer surplus
- Grey = costs
Imagine the average costs are $20, the total cost would be $80
, The value captured by producer = 80 (20*4)
Consumer surplus
Producer surplus
Costs
Sales : purple + grey
Value captured by producers : what can they do to maximize its value? (the drivers!)
- Increase the WTP, then you can charge a higher price
- Lower the costs, then you can capture more of that value
NOPLAT : Net Operation Profit Less Adjusted taxes
You start from the total sales of a company in a given year
= (number of units sold * price) – (number of units sold * average costs)
= total sales – total cost
= EBITDA
- depreciation
= EBIT
- taxes
= NOPAT
- tax advantages due to
debt financing
= NOPLAT
ROIC : Return On Invested Capital = key measure to see how well a company preforms
K = equity + debt
