Theme 1: what is strategy and why is it important?
Competitive advantage = concurrentievoordeel
Competition = “you will have to share the pie”
NOT the same as comparative advantage
Meeting the customers need more effectively (with products and services that customers value
more highly) or more efficiently (at a lower cost)
What is business?
o Creating value on a product or service that customers are willing to pay a price
Building competitive advantage:
o Low-cost provider (bv. Aldi)
o Differentiation on features (bv. Apple)
o Differentiation market niche (bv. Maserati and Ferrari)
o Cost market niche (bv. Alibaba in China)
How does it emerge? (hoe ontstaat het?)
o External sources of change (changing customer demand, changing prices, technological
change)
o Internal sources of change
Is where you create a lot of value and where you capture all the value
Strategy is about having an idea how you prepare an organization to create competitive advantage
Depends on two issues:
Capabilities: can they do it?
Rent creating factors: how does the industry look like? What is the attractiveness of the industry
o Attractiveness depends on three factors:
1. Intensity of competition (based on Porters five forces)
2. Demand and supply
3. Regulations
Explain the Honda case
The intended strategy of Honda in the 50s was to bring in the big bikes to compete with Harley Davidson
in the US.
Unfortunately, the Honda bikes were suffering from engineering issues because of the weather in
California they didn’t succeed in selling the number of bikes and thus, were unable to compete with
Harley Davidson!
So, Honda’s plan didn’t succeed as was expected: the deliberateness strategy (= the plan, intended,
proactive) didn’t work out as Honda exported the bikes from Japan directly to California.
What happened afterwards was an emergent strategy: the sales people of Honda were driving the big
bikes from one shop to another shop. A sales manager saw the bike and wanted to sell it in its shop.
Honda had a great advertising campaign as nobody in the US was driving a Honda bike in the first place.
They did not only advertise to males but also and especially to females.
This became the realized strategy of Honda as they didn’t stick to their plan.
You need to understand that there is a distinction to be made between the deliberate strategy (=
the intended strategy, the plan) that you’re trying to execute, and the emergent strategy
because you’re flexible enough to adapt where necessary so it becomes the realized strategy
o An organization’s realized strategy can be observed in the pattern of its actions over time
You may have a plan, but the plan doesn’t guarantee that it will be executed/ succeed
That is how Honda became a powerful corporation in the late 50s – early 60s
1
,So:
Deliberateness (= intended, proactive strategy) versus emergence (= unintended, reactive strategy)
Deliberative strategy emergent strategy realized strategy
o Instead of focusing on the big bikes (= intended strategy) they adapted themselves and
decided to focus on other kind of bikes
o That’s how Honda grabbed the market (with this little muppets), this was a non-existing
kind of bike in the USA
Explain me the Business model
Business is value creation
Two principles to create value:
WTP = willingness to pay
o The value provided to customers
o Enhance the customers experience
o A customer is prepared to pay a certain price for a product
o The more you can exceed expectations of the customer, the more ‘loyal’ the customer will
be
o serving the customer increase in WTP competitive advantages
o Translated to financial performance = the same as sales: will drive the performance of an
organization
• EBITDA (= sales – cost)
• EBIT (= EBITA – depreciation)
• NOPAT (= EBIT – taxes) net income
WTS = willingness to supply
o The cost of the supplier
o Make it more attractive for vendors and employees to work with the company
Think in value, not in profit: increase the WTP (= customers perspective) & decrease the WTS (=
employees’, suppliers’ perspective)
Sharing value with customers, employees and suppliers (= crucial players for any organization)
Three major players:
o 1. Customer delight: the customer value proposition
Between WTP and price
Satisfying buyer wants and needs at a price customers will consider a good
value.
The greater the value provided (V or WTP) and the lower the price (P), the more
attractive the value proposition is to customers
The more attractive the value proposition to customers, the wider the
gap between the value provided to the customers and the actual price
customers pay for a product
Satisfying buyers wants and needs at the price customers will consider a good
value
Willingness to pay is higher than the actual price of a product you like
o Eg. Apple – Iphone’s price is 1000 euros, but you would still buy
it if it was 1300 euros
WTP should be always higher than the actual price (you as an organization
should treat your customers well)
o 2. Firm margin: value capturing
Between price and cost
Companies create value by increasing WTP and decreasing WTS
Companies capture value by setting prices and compensation
2
, Strategy is all about creating value for shareholders
o 3. Employee satisfaction and supplier surplus: the supplier & employee value proposition
Between cost and WTS
The share to the suppliers is the difference between how much they get paid by
the firm (i.e. the firm’s cost) and their Value or WTS
Think of it as a surplus that the suppliers earn from the transaction.
A similar logic applies to the employee: the compensation – WTS
represents the satisfaction of the employee
So the employee value proposition is the value created between the
compensation/cost and the WTS
What is strategy?
Strategy is about a mission, a vision a way to prepare for the future needs to be translated into
performance
Strategy is about competition: increasing the pie without bothering others?
o Strategy is about competing differently from rivals:
Doing better what they do or don’t do
Doing what they can’t do
Doing something which sets the firm apart and attracts customers
Deciding what we should or shouldn’t do to produce a competitive edge
Can be described as adopting a particular position
BASIC DEFINITION:
A strategy is…
A set of rules that enable the company to make many decisions over a period of time.
A strategy explains how an organization – faced with uncertainty and competition – will achieve
superior performance through value creation within a certain business context, and improve the
value of the organization
E.g. ‘we want to have a market share of 20% next year’ isn’t a strategy It’s an objective, because it
doesn’t explain HOW the organization is going to get that 20% market share
Strategy is about how:
o How to outcompete rivals.
o How to respond to economic and market conditions and growth opportunities.
o How to manage functional pieces of the business.
o How to improve the firm’s financial and market performance.
A strategy must:
Have a direction, based on a proper diagnosis of the situation: what is going on today and which
actions does the organization need to take to get what it wants to be!
o Absent a diagnosis, one cannot judge one’s own choice of an overall guiding policy,
much less someone else’s choice
Translate overall directive into coordinated action focused on key points of leverage in the
situation.
A plan is not a strategy!
It’s not because you make profit that you have a good strategy…
Is strategy about being the best in class or is it about being unique?
3
, Example: which car is the best… there is no consensus on what is the best car: it’s hard to be the best,
but it’s easier to be unique it’s also strategically better than being the best
But even more importantly: being unique (on your own terms) that allows you to deliver value to
customers who are willing to pay a proper price for your value proposition.
An organization’s strategy provides direction and guidance, in terms of not only what the
organization should do but also what it shouldn’t do
o Knowing what not to do can be as important as knowing what to do.
Competitive success requires an organization’s managers to make strategic choices about
the key building blocks of its strategy that differ from the choices made by competitors.
You can be the best today, but not the best tomorrow: it’s not because you were
successful once, that you will be always successful
Continuously adapting to a changing environment and investing to stay ahead
Cf. Michael Porter:
● Having a unique value proposition makes more sense. This exactly what Michael Porter is saying:
“instead of getting into a mindless price war, it makes more sense to position your organization
with a particular value proposition that is very different from another organization.”
o In an industry, you have different organizations and each firm will look at particular
market segments, niches and target groups.
o From a firm’s perspective, it’s more sensible to look at a unique positioning. By this, you
try to increase the cake rather than looking at a mindless price competition.”
Innovation is the driving factor of firms.
Three test to determine if a strategy is successful
The Strategic Fit Test: how well does the strategy fit with the external and internal aspects of the
firm’s overall situation?
o External fit: no strategy can work well unless it exhibits good external fit and is in sync
with prevailing market conditions
o Internal fit: an organization needs to be able to execute the strategy in a competent
manner. A winning strategy has to be tailored to the organization’s resources and
competitive capabilities and be supported by a complementary set of functional activities
The Competitive Advantage Test: can the strategy help the organization achieve a sustainable
competitive advantage?
o 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.
o Good strategies enable an organization to achieve a competitive advantage over key
rivals that is long-lasting
The Performance Test: is the strategy producing good organization performance?
o Performance indicators include: profitability and financial strength, and competitive
strength and market standing
Successful strategy
Simple, consistent, long-term goals: what do you want to achieve
Profound understanding of the competitive environment: what is going on in the industry
(externally)
Objective appraisal of resources: how strong in the organization internally (capabilities?)
Strategic decisions: three conditions
4
Competitive advantage = concurrentievoordeel
Competition = “you will have to share the pie”
NOT the same as comparative advantage
Meeting the customers need more effectively (with products and services that customers value
more highly) or more efficiently (at a lower cost)
What is business?
o Creating value on a product or service that customers are willing to pay a price
Building competitive advantage:
o Low-cost provider (bv. Aldi)
o Differentiation on features (bv. Apple)
o Differentiation market niche (bv. Maserati and Ferrari)
o Cost market niche (bv. Alibaba in China)
How does it emerge? (hoe ontstaat het?)
o External sources of change (changing customer demand, changing prices, technological
change)
o Internal sources of change
Is where you create a lot of value and where you capture all the value
Strategy is about having an idea how you prepare an organization to create competitive advantage
Depends on two issues:
Capabilities: can they do it?
Rent creating factors: how does the industry look like? What is the attractiveness of the industry
o Attractiveness depends on three factors:
1. Intensity of competition (based on Porters five forces)
2. Demand and supply
3. Regulations
Explain the Honda case
The intended strategy of Honda in the 50s was to bring in the big bikes to compete with Harley Davidson
in the US.
Unfortunately, the Honda bikes were suffering from engineering issues because of the weather in
California they didn’t succeed in selling the number of bikes and thus, were unable to compete with
Harley Davidson!
So, Honda’s plan didn’t succeed as was expected: the deliberateness strategy (= the plan, intended,
proactive) didn’t work out as Honda exported the bikes from Japan directly to California.
What happened afterwards was an emergent strategy: the sales people of Honda were driving the big
bikes from one shop to another shop. A sales manager saw the bike and wanted to sell it in its shop.
Honda had a great advertising campaign as nobody in the US was driving a Honda bike in the first place.
They did not only advertise to males but also and especially to females.
This became the realized strategy of Honda as they didn’t stick to their plan.
You need to understand that there is a distinction to be made between the deliberate strategy (=
the intended strategy, the plan) that you’re trying to execute, and the emergent strategy
because you’re flexible enough to adapt where necessary so it becomes the realized strategy
o An organization’s realized strategy can be observed in the pattern of its actions over time
You may have a plan, but the plan doesn’t guarantee that it will be executed/ succeed
That is how Honda became a powerful corporation in the late 50s – early 60s
1
,So:
Deliberateness (= intended, proactive strategy) versus emergence (= unintended, reactive strategy)
Deliberative strategy emergent strategy realized strategy
o Instead of focusing on the big bikes (= intended strategy) they adapted themselves and
decided to focus on other kind of bikes
o That’s how Honda grabbed the market (with this little muppets), this was a non-existing
kind of bike in the USA
Explain me the Business model
Business is value creation
Two principles to create value:
WTP = willingness to pay
o The value provided to customers
o Enhance the customers experience
o A customer is prepared to pay a certain price for a product
o The more you can exceed expectations of the customer, the more ‘loyal’ the customer will
be
o serving the customer increase in WTP competitive advantages
o Translated to financial performance = the same as sales: will drive the performance of an
organization
• EBITDA (= sales – cost)
• EBIT (= EBITA – depreciation)
• NOPAT (= EBIT – taxes) net income
WTS = willingness to supply
o The cost of the supplier
o Make it more attractive for vendors and employees to work with the company
Think in value, not in profit: increase the WTP (= customers perspective) & decrease the WTS (=
employees’, suppliers’ perspective)
Sharing value with customers, employees and suppliers (= crucial players for any organization)
Three major players:
o 1. Customer delight: the customer value proposition
Between WTP and price
Satisfying buyer wants and needs at a price customers will consider a good
value.
The greater the value provided (V or WTP) and the lower the price (P), the more
attractive the value proposition is to customers
The more attractive the value proposition to customers, the wider the
gap between the value provided to the customers and the actual price
customers pay for a product
Satisfying buyers wants and needs at the price customers will consider a good
value
Willingness to pay is higher than the actual price of a product you like
o Eg. Apple – Iphone’s price is 1000 euros, but you would still buy
it if it was 1300 euros
WTP should be always higher than the actual price (you as an organization
should treat your customers well)
o 2. Firm margin: value capturing
Between price and cost
Companies create value by increasing WTP and decreasing WTS
Companies capture value by setting prices and compensation
2
, Strategy is all about creating value for shareholders
o 3. Employee satisfaction and supplier surplus: the supplier & employee value proposition
Between cost and WTS
The share to the suppliers is the difference between how much they get paid by
the firm (i.e. the firm’s cost) and their Value or WTS
Think of it as a surplus that the suppliers earn from the transaction.
A similar logic applies to the employee: the compensation – WTS
represents the satisfaction of the employee
So the employee value proposition is the value created between the
compensation/cost and the WTS
What is strategy?
Strategy is about a mission, a vision a way to prepare for the future needs to be translated into
performance
Strategy is about competition: increasing the pie without bothering others?
o Strategy is about competing differently from rivals:
Doing better what they do or don’t do
Doing what they can’t do
Doing something which sets the firm apart and attracts customers
Deciding what we should or shouldn’t do to produce a competitive edge
Can be described as adopting a particular position
BASIC DEFINITION:
A strategy is…
A set of rules that enable the company to make many decisions over a period of time.
A strategy explains how an organization – faced with uncertainty and competition – will achieve
superior performance through value creation within a certain business context, and improve the
value of the organization
E.g. ‘we want to have a market share of 20% next year’ isn’t a strategy It’s an objective, because it
doesn’t explain HOW the organization is going to get that 20% market share
Strategy is about how:
o How to outcompete rivals.
o How to respond to economic and market conditions and growth opportunities.
o How to manage functional pieces of the business.
o How to improve the firm’s financial and market performance.
A strategy must:
Have a direction, based on a proper diagnosis of the situation: what is going on today and which
actions does the organization need to take to get what it wants to be!
o Absent a diagnosis, one cannot judge one’s own choice of an overall guiding policy,
much less someone else’s choice
Translate overall directive into coordinated action focused on key points of leverage in the
situation.
A plan is not a strategy!
It’s not because you make profit that you have a good strategy…
Is strategy about being the best in class or is it about being unique?
3
, Example: which car is the best… there is no consensus on what is the best car: it’s hard to be the best,
but it’s easier to be unique it’s also strategically better than being the best
But even more importantly: being unique (on your own terms) that allows you to deliver value to
customers who are willing to pay a proper price for your value proposition.
An organization’s strategy provides direction and guidance, in terms of not only what the
organization should do but also what it shouldn’t do
o Knowing what not to do can be as important as knowing what to do.
Competitive success requires an organization’s managers to make strategic choices about
the key building blocks of its strategy that differ from the choices made by competitors.
You can be the best today, but not the best tomorrow: it’s not because you were
successful once, that you will be always successful
Continuously adapting to a changing environment and investing to stay ahead
Cf. Michael Porter:
● Having a unique value proposition makes more sense. This exactly what Michael Porter is saying:
“instead of getting into a mindless price war, it makes more sense to position your organization
with a particular value proposition that is very different from another organization.”
o In an industry, you have different organizations and each firm will look at particular
market segments, niches and target groups.
o From a firm’s perspective, it’s more sensible to look at a unique positioning. By this, you
try to increase the cake rather than looking at a mindless price competition.”
Innovation is the driving factor of firms.
Three test to determine if a strategy is successful
The Strategic Fit Test: how well does the strategy fit with the external and internal aspects of the
firm’s overall situation?
o External fit: no strategy can work well unless it exhibits good external fit and is in sync
with prevailing market conditions
o Internal fit: an organization needs to be able to execute the strategy in a competent
manner. A winning strategy has to be tailored to the organization’s resources and
competitive capabilities and be supported by a complementary set of functional activities
The Competitive Advantage Test: can the strategy help the organization achieve a sustainable
competitive advantage?
o 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.
o Good strategies enable an organization to achieve a competitive advantage over key
rivals that is long-lasting
The Performance Test: is the strategy producing good organization performance?
o Performance indicators include: profitability and financial strength, and competitive
strength and market standing
Successful strategy
Simple, consistent, long-term goals: what do you want to achieve
Profound understanding of the competitive environment: what is going on in the industry
(externally)
Objective appraisal of resources: how strong in the organization internally (capabilities?)
Strategic decisions: three conditions
4
