What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University What is Strategy? • Strategy is the search for a sustainable competitive advantage over rivals • Competitive advantage as shareholder value: – “above-average performance in the long run” (Porter, 1985) – “sustained superior financial performance” (Barney, 1986) – “persistent high relative profitability” (Thomas, 1986) • Competitive advantage as stakeholder value: – “a value-creating strategy not simultaneously being implemented by any current or potential competitors” (Barney, 1991) – the ability of a an enterprise to “create more economic value than the marginal (breakeven) competitor in its product market” (Peteraf & Barney, 2003) Creating Value: The Strategy Puzzle External Fit Added Value Scope Internal Fit Added Value • How does the business add value to its customers? • How does the business add value to other stakeholders? Added Value • Does the value added justify the cost of the product? • What benefits accrue from doing business with the firm (input or output)? External Fit • What is the structure of the industry? • How is the industry related to External Fit the general economy? Other industries? • What competitive dynamics drive the industry? • What strategic positions are available? Which are attainable? Scope • What businesses is the corporation in? • What businesses could the corporation enter? • Which new businesses would Scope add value to existing customers? • Can new products or services give the firm access to new customers? Internal Fit • How does the firm structure its operations? • How is authority spread in the organization? • What is the firm’s culture? Internal Fit What are the shared values? • What level of alignment exists between the internal elements of the firm? Strategic Position Added Value External Fit • How does the firm position itself in the industry to maximize its economic value? • 11 January—17 February • Industries: Soft Drinks, Construction Materials, Motorcycles, Airlines Strategic Leverage • How can the firm parlay its existing resources in to new value-added businesses? • 01 March—29 March Added Value • Companies: Intel, Ciba- Geigy, Arauco, Newell, OSI, HTC Scope Strategic Alignment • How should the firm structure its internal operations in order Added Value to maximize its value added? • 06 January • MBA 682 • Strategy Implementation & General Management Internal Fit Managing Me, Inc. • The most important firm you will ever direct is you – Professionally – Personally – Marriage & Family • What role will strategy play for you? – What’s your level of external fit? – How are you creating strategic leverage? – Where do you have (need) alignment?
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