MGT 4090 Management Policy & Strategy Week 1: What is Strategy?

MGT 4090 Management Policy & Strategy - Week 1 Session 1 Notes

Learning Outcomes

  1. Identify competitive advantage, sustainable competitive advantage, and competitive disadvantage.

  2. Critically appraise the role of strategy in achieving competitive advantage.

Strategic Management

  • Definition: An integrative management field combining analysis, formulation, and implementation in pursuit of competitive advantage.

  • Mastery of Strategic Management enables:

    • A holistic view of the firm

    • Strategic thinking akin to a general manager's mindset

    • Positioning the organization for optimal performance.

What is Strategy?

  • Defined as: Goal-directed and integrated actions aimed at achieving and maintaining superior performance relative to competitors.

    • Categories of competition include:

    • New Ventures: Resource competition (financial and human capital)

    • Existing Companies: Focus on profitable growth

    • Charities: Compete for donations

    • Universities: Compete for excellence in students and professors

    • Sports Teams: Pursue championships

    • Celebrities: Compete for endorsements and media attention.

Elements of a Good Strategy

  1. Diagnosis of the Competitive Challenge

    • Involves the analysis of internal and external environments of the firm.

  2. Guiding Policy

    • Addressing the competitive challenge through strategic formulation leading to corporate, business, and functional strategies.

  3. Coherent Actions for Implementation

    • Actual execution of the guiding policy with strategic actions.

Example: Crafting a Good Strategy at Tesla

  1. Competitive Challenge: Manufacturing attractive and affordable vehicles using new technology; developing necessary infrastructure.

  2. Guiding Policy: Focus on cost-competitive mass-market vehicles with significant investments in lithium-ion battery production.

  3. Coherent Actions: Increase production volumes to achieve economies of scale; construction of a new factory in Shanghai.

Competitive Advantage

  • Defined as: Superior performance relative to other competitors in the same industry or against the industry average.

    • Competitive advantage is relative, not absolute.

  • Assessment Method: Benchmarking against competitors and industry averages.

Competitive Disadvantage

  • Defined as: Underperformance compared to rivals or the industry average.

    • Example Question: Is a 20% Return on Invested Capital (ROIC) superior?

    • The answer depends on industry context.

Sustainable Competitive Advantage

  • Defined as: A firm's ability to outperform competitors or the industry average over an extended period.

    • Example: Apple in the smartphone industry has maintained a sustainable competitive advantage over Samsung for over a decade.

Gaining Competitive Advantage

  • Provide goods/services that:

    • Are valued more highly by consumers than those of competitors at similar prices.

    • Are similar to competitors’ offerings but at a lower price.

  • Benefits of superior value creation include:

    • Increased profitability

    • Enhanced market share.

Strategic Positioning

  • Defined as: A unique position within an industry that enables the firm to deliver value to customers while managing costs effectively.

  • Calculated by: Economic{ }Contribution=ValueCreation-Costs

    • The higher the economic contribution, the greater the potential for competitive advantage.

Trade-Offs in Strategic Positioning

  • Managers must make conscious trade-offs concerning:

    • Resource allocation

    • Choice of activities to pursue.

    • Example within Retail Industry:

    • Walmart focuses on cost leadership with big box outlets and low prices.

    • Nordstrom emphasizes differentiation through professional sales staff and luxurious shopping settings.

Achieving a Unique Strategic Position

  • Competitive advantage stems from:

    • Performing activities differently from rivals

    • Performing different activities than rivals.

  • Example: Walmart leverages strategic activities—large stores, low overheads, and labor costs to maintain its cost-leader position.

Misconceptions of Strategy

  1. Grandiose Statements: Phrases like “We will be number 1” do not constitute a strategy.

  2. Ignoring Competitive Challenges: For instance, Blockbuster’s failure to respond to Netflix, Redbox, Amazon Prime, and Hulu.

  3. Operational Effectiveness vs Strategy: Terms such as “pricing strategy” or “operations strategy” represent good policies but do not embody a comprehensive strategy.

Value Creation

  • Companies with strong strategies provide:

    • Products/services at obtainable prices enabling profit generation.

  • Value creation is foundational for a thriving economy, affecting sectors like:

    • Education

    • Infrastructure

    • Public Safety

    • Healthcare

    • Clean water and air supply.

Summary

  • Discussed syllabus and strategies.

  • Importance of strategy highlighted.

  • Outlined essential elements of strategy.

  • Clarified concepts of competitive advantage and what does not constitute strategy.

  • Emphasized the role of value creation.

Next Session

  • Date: Tuesday, January 13, 2026

  • Topics: Stakeholders

  • Reading Assignment: Chapter 1

  • Introduction to Capstone 2.0

Thank You!