MAN 301 Lecture 06: Competitive Strategies and McKinsey on Strategy

Comprehensive vocabulary flashcards covering competitive strategies, the SWOT/TOWS matrix, Apple case takeaways, McKinsey strategy frameworks, the economic profit power curve, and the Five Big Moves.

Strategic Fit

The alignment of internal resources, capabilities, and the value chain with external macro/industry forces and strategic groups, which must adapt over time.

SWOT Analysis

A diagnostic framework that assesses internal attributes (Strengths and Weaknesses) and external conditions (Opportunities and Threats) before formulating recommendations.

SO / Matching

A strategic orientation in the TOWS matrix that deploys internal strengths to exploit external opportunities.

WO / Change

A strategic orientation in the TOWS matrix aimed at overcoming internal weaknesses by taking advantage of external opportunities.

ST / Neutralizing

A strategic orientation in the TOWS matrix that uses internal strengths to counter or lessen external threats.

WT / Defensive

A strategic orientation in the TOWS matrix focused on reducing internal weaknesses and limiting exposure to external threats.

Overall Low-Cost Provider Strategy

A generic competitive strategy targeting a broad market with a cost advantage to deliver comparable value at lower unit cost, carrying risks of imitation, cost escalation, or degraded value.

Broad Differentiation Strategy

A generic competitive strategy serving a broad market by creating valued distinctions that enable premium prices and customer loyalty, with the principal risk of costly differentiation lacking sufficient willingness to pay.

Focused Low-Cost Strategy

A generic competitive strategy serving a narrow market niche at a lower cost than broad or niche competitors, facing risks of niche erosion or imitation.

Focused Differentiation Strategy

A generic competitive strategy catering to a narrow segment by tailoring features, expertise, or image to segment-specific preferences, facing the risk of changing niche needs.

Best-Cost Provider Strategy

A generic competitive strategy that blends attractive quality and features with good value for money, carrying the risk of becoming stuck in the middle.

Per-Unit Operating Contribution

The profit logic expressed as $P - C$, where cost advantage expands margins by lowering $C$, and differentiation increases margins by raising willingness to pay and feasible $P$.

Strategy (McKinsey Definition)

An integrated set of difficult-to-reverse choices made ahead of time under uncertainty to create and capture economic profit, requiring bold trade-offs and commitment.

Portfolio Dynamics

Growth achieved by competing in naturally growing segments; identified in McKinsey's study as the largest contributor to revenue growth relative to M&A and market-share gains.

Economic Profit

Residual earnings generated after accounting for the opportunity cost of invested capital, calculated conceptually as $\text{EP} = (\text{ROIC} - \text{cost of capital}) \times \text{invested capital}$.

Power Curve of Economic Profit

A distribution demonstrating that economic profit across firms is highly uneven, with a small number of top performers capturing the vast majority of profit while most cluster around modest outcomes.

Endowment

A firm's baseline starting assets and position ("who you are") that shapes its position on the economic profit power curve.

Trends

The external tailwinds and headwinds ("where you are") influencing a firm's position on the economic profit power curve.

Moves

Deliberate management choices and strategic actions ("what you do") deployed to shift a firm's position on the economic profit power curve.

Five Big Moves

McKinsey's five high-impact strategic actions: programmatic M&A, dynamic resource reallocation, big capital investment, productivity improvements, and differentiation improvements.

Programmatic M&A Threshold

Completing at least one deal per year, with no single deal exceeding $30\%$ of market capitalization, and cumulatively totaling $\ge 60\%$ of market cap over a decade.

Dynamic Resource Reallocation Threshold

Reallocating $\ge 60\%$ of capital across a firm's business units over a ten-year period.

Big Capital Investment Threshold

Maintaining a capital expenditure-to-sales ratio of $\ge 1.7\times$ relative to the industry median.

Productivity Improvement Threshold

Achieving operational productivity gains that place the firm within the top $30\%$ of its industry.

Differentiation Improvement Threshold

Increasing gross margin at a rate faster than $70\%$ of industry peers.

Four Phases of Strategy Design

McKinsey's sequential strategy process: (1) Frame strategic context and aspiration, (2) investigate challenge and fact base, (3) design and evaluate strategic alternatives, and (4) commit to direction, resourcing, and roadmap.

Five Diagnostic Lenses

Analytical perspectives used collectively in strategy design: Financial, Market, Competitive Advantage, Operating Model & Talent, and ESG.

Three Classes of AI Impact

The structural impacts of artificial intelligence outlined by McKinsey: productivity gains, product innovation, and systemic disruption.