# Introduction to Business Strategy

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## 🧭 Table of Contents
[TOC]

# 🖊️ Video Lessons

## 🧩 M14L1 - Intro to Strategy & Lesson Overview

**Lesson Objectives**
* Explain the role and importance of planning in the business organization
* Describe the differe types and purposes of plans; how they are used in the organization
* Define key strategic planning concepts and terminology
* Explain the difference between business models and business strategy and the interrelationship of the two in creating superior performance
* Discuss the effect of environmental uncertainty on approaches to develop strategic plans

**Readings**
* What is Strategy
* Tesla Motors

**Engagement**
* Tesla Motors Business Model Student Exercise
* Share Relevant Experiences in the Forum and Video Conference Calls

---

## 🧩 M14L2 - Introduction to Strategic Planning → What is Planning?

### 🔸 Management Process


The Management Process is what managers actually do. It consists of:
* <font color="#1936C9">Planning</font>
* <font color="#666699">Organizing & Staffing</font>
* <font color="#02075D">Leading</font>
* <font color="#8C92AC">Controlling</font>

<font color="#1936C9">Planning</font> → referred to as primary function of management; provides the basis for all the other functions

### 🔸 Hierarchy of Plans


An example of a typical hierarchy of plans.

Within the hierarchy of plans exists different types of plans suitable for different purposes.

As the plans are developed from Strategic to Tactical to Operational, each goal becomes more specific. The goals are designed to roll up and down the business such that if the Operational Goal is achieved, then so are both the Tactical and the Strategic goals.

### 🔸 Context for Planning


When <font color="#1936C9">Planning</font>, Management must consider the EXTERNAL context and alignment with the INTERNAL resources and capabilities

### 🔸 Why Planning is IMPORTANT

* Provides direction & basis for coordination for EVERYONE; Minimize waste & redundancy
* Reduce uncertainty by developing better understanding of the firm's external environment
* ++Residual Uncertainty++ - the truly unknowable; important in assessing risk and will influence the methods used to formulate strategy
* Establishes goal from broad firm-wide objectives to individual productivity standards
* Goals and standards facilitate control; control requires the collection of data
* Involves & engages all levels of the organization → Results in higher job satisfaction

---

## 🧩 M14L3 - Types of Plans Part 1

### 🔸 Types of Organizational Structures


**Tall Organizational Structures**:
* Numerous layers of middle management
* Often inefficient bureaucracies
* Senior Managers makes most Operational decisions; authority must be gained from several layers up prior to taking action
* Information flows from the top down (generally)
* Works well in stable environment with little variability


**Flat Organizational Structures**:
* Front-line employees are empowered to make a range of decisions
* Information flows both from the top down and the bottom up
* Few levels of middle management
* Decentralized decision-making and planning are critical in dynamic environments

### 🔸 Levels of Management


Notice that as we go down the levels, we go from Strategic to Tactical. That is not to say that First-Line Managers do not participate in Strategic Planning, but their role is often far less than Top Managers in that regard.

### 🔸 Strategic Plans

* Ultimate Goal of Strategic Planning → superior performance through creating and sustaining a competitive advantage
* Strategic Plans are developed at the corporate, business unit and functional levels of the organization and broadly impact the firm.
* Strategic Plans address the following key issues:
* Determine new markets to enter AND/OR existing markets to leave
* Identifies initiative to create and sustain competitive advantage
* Driven by management's vision, mission, and values
* Covers extended planning horizons

---

## 🧩 M14L4 - Types of Plans Part 2

### 🔸 Organizational Structure Variations

**💡 Note**: SBU stands for business unit levels


**Functional Structure Characteristics**:
* Often used by organizations with a single SBU
* Tend to be more efficient than Divisional
* May be comprised of marketing, manufacturing, operations, technology, administration, supply chain management, etc.


**Divisional Structure Characteristics**:
* Typically used by firm with multiple SBUs
* Allows Senior Manager to delegate profit responsibilities to divisional leadership

**Tesla Example**:


A Flat, Functional organizational structure.

### 🔸 Functional Plans

* Senior and Middle-Level Managers develop Functional Plans to support the Strategic Plans.

* **Functional Plans**:
* Highly interrelated across the SBU (Example: Marketing & Sales coordinate with Production)
* Typically managed by a senior-level executive
* NEVER developed independently or in isolation
* Shorter Planned Horizons when compared to Corporate or SBU plans
* Typically extend beyond the upcoming fiscal year
* Drive budget development and staffing plans
* Examples:
* Marketing Plans
* Production Plans
* Capacity Plans

### 🔸 Tactical/Operational Plans

* **Tactical Plans**:
* Narrow, specific impact to the firm
* Allocation of specific resources to specific tasks or operations
* Short planning horizons (Quarterly, monthly, weekly, daily, hourly)
* Generally developed by lower levels of management or the team leader
* Examples:
* Financial Budgets
* Production Schedules
* Staffing Schedules
* Project Work Plans

**🧠 Insight**: Focused on scheduling and directing of resources to perform activities necessary to implement the functional plans.

---

## 🧩 M14L5 - Goal Setting and Alignment

### 🔸 Academics Disagreeing

Michael Porter → deliberate, methodical approach to strategy
* "Sound strategy starts with having the right goals."

Henry Mintzberg → strategy that emerges over time as strategic intentions collide with chaning market conditions

### 🔸 Goal Setting & Alignment

Traditionally, goals set by top management flow down the organization and become the sub goals for each organizational area. Generally, become more specific with shorter planning timeframes as they go down.
* Can be effective in aligning plans throughout the organization given clear goals and communication

**Example**:


This example shows a goal that is vague and ambitious - concurring plans will be dysfunctional as a result. The goal, as stated by top management, is not the problem but rather the way the goal cascaded down.
* GOALS SHOULD BE PROPERLY STATED AT EVERY LEVEL TO BE EFFECTIVE.

### 🔸 Goal Setting

Goals should follow the SMART method:
* Specific → specific, clear, concise
* Measurable → quantifiable for measuring success
* Attainable → realistic
* Relevant → aligned with the objective
* Time Bound → timeline for accomlishing the goal

### 🔸 Strategic Goals


Top Management is often evaluated on Financial Performance, so it makes sense that goals are tailored in that way.

### 🔹 Goal Alignment - Hedgehog Sports Shoes


---

## 🧩 M14L6 - What is Business Strategy?

### 🔸 What is Business Strategy?

++Strategy++ - the goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
* A good strategy enables a firm to achieve superior performance

++Competitive Advantage++ - Super performance relative to other competitors in the same industry or industry average.
* Not absolute but judged relative to the average profitability of an industry or to a firm's direct competitors.

++Competitive Parity++ - when firms perform at the same level

++Competitive Disadvantage++ - underperformance relative to other firms and below industry average

### 🔸 Elements of a Good Business Strategy

Good strategy enables a firm to achieve Superior Performance. It consists of three elements:
* Diagnosis of the Competitive Challenge → analysis of the firm's internal and external environments
* Guiding Policy to address the competitive challenge → backed by committments (investments, architecture, etc.)
* Set of Coherent Actions to implement the firm's guiding policy

**Example - Tesla**:


**Example - Twitter**:


Twitter instead did the following:
* Recognized it won't be Facebook
* Re-oriented to a News Company
* Aggressively focused on Live Video

As a result, stock rose 136% in 2 years.

---

## 🧩 M14L7 - Competitive Advantage

Competitive Advantage:
* Determined relative to the firm's competitor's in the industry
* Often temporary
* If imitable by competitors, then they will do so and reset both firms back to competitive parity
* Created by positioning itself in the market in a way that is unique and important to customers

There are **THREE** fundamental approaches to creating superior value, while containing the costs.

### 🔸 Cost Leadership

++Cost Leadership++ - becoming the lowest-cost producer in an industry
* Usually atained through a combination of experience and efficiency
* Pricing at or below industry average while leveraging a low "cost" advantage
* Tactics used to achieve:
* Engineering
* Technology and Automation
* Economies of Scale and Scope
* Quality Tradeoffs
* Minimized Spending
* Purchasing Advantages
* Historical Costs Advantages

**Example - General**:


**Example - Ikea**:


### 🔸 Differentiation

++Differentiation++ - attempting to be unique in an industry within a broad market
* Making products unique to allow the company to charge a premium price YET keeping the costs of that differentiation less than the pricing differential
* Competitive advantage achieved as long as economic value created $(V - C)$ is greater than competitors
* Tactics used to achieve:
* Product Design
* Product Features
* Product Performance
* Perceived Quality
* Brand
* Customer Service
* Post Sales Support
* Customization
* Complements
* Customer Experience

**Example - General**:


**Example - Tesla**:


### 🔸 Focus Strategy

++Focus Strategy++ - attempting to establish either a cost leadership or differentiation competitive advantage but focused on a narrow market segment

Niche markets can provide opportunity for even greater differentiation as the firm can drill down into unique needs of specific groups of customers who may be under-served by more general products.
* Jeep Wranglers?

---

## 🧩 M14L8 - Value, Mission, and Core Values

### 🔸 Vision and Mission


Vision can be described as managment's view of a realistic, credible, attractive future for the organization.
* What management wants to accomplish

Well-crafted visions will be aspirational, motivational; will stretch the capabilities of the organization and create meaningful long-term goals.


**Example - NFL**:

Roger Goodell wants to increase the NFL's revenue to \$25 billion by 2027.


### 🔸 Characteristics of Vision and Mission Statements


### 🔹 Sample Vision and Mission Statements


### 🔸 Effective Vision and Mission Statements

Management must:
* Supplement the firm's vision statement with actionable managment's vision of the future business
* Act out the vision, mission and core values in everyday behavior
* Back up the vision and mission with strategic commitments
* Use the vision and mission to shape strategy

### 🔸 Core Values

++Core Values++ - the guiding principles of the firm
* Support the company's vision
* Shape the culture
* Reflect the company's identity and personality

There is not a universal set of core values - instead a firm must decide what values are important

Business strategy must be consistent with the firm's core values

---

## 🧩 M14L9 - The Business Model Narrative

A Business Model is how the components of a business fit together to make a profit.
* Think of it like a schematic or framework a manager may use to tell the story of the business

### 🔸 Business Model Framework


**Value Delivery**

* Customer facing/centric
* Without satisfied customer, then there is no value delivery
* Specific customer needs being addressed by the firm's products

**Value Creation & Support**

This section focuses on business operations. It includes:

* Core Competencies - unique capabilities that enable the firm to deliver and support the firm's competitive advantage. The key here is how the activities interact and reinforce each other; how they ++fit++ together.
* Activities - supported by the resources/assets of the firm
* Capabilities
* Strategic Resources - theoretically where competitive advantage stems from
* Partners - alliances a business forms to acquire capabilities and resources; can be effective in reducing business risks

---

## 🧩 M14L10 - The Economic Model

A key component of a firm's Business Model is the firm's overall Economic Model. The Economic Model defines how the firm captures its value, that is revenues against cost incurred.

### 🔸 Common Revenue Methods

* Retail
* Transaction
* Rental/Lease
* Usage
* Advertising and Sponsorship
* Affiliate Marketing
* Brokerage
* Subscription/Membership
* Licensing

### 🔹 NFL Team Example


### 🔸 Technology-Fueled New Revenue Models

* Transitioning Revenue Models
* Data Driven Revenue Models
* E-Commerce
* Sharing Economy
* Aggregators
* Virtual Goods
* In-app Purchases
* Long-tailed product assortments
* Group buying
* Crowd sourcing
* Auction

### 🔸 Business Model Framework - Continued


---

## 🧩 Synchronous Class (11/11/25)

### 🔸 What is Strategy?

The goal-direction actions a firm takes to gain and sustain superior performance relative to its competitors. Accomplished by creating and sustaining a competitive advantage at the business unit level that makes the firms offerings unique or distinctive in ways that are important to the firm's target market.

### 🔸 Scope

Scope is a key strategic issue at the corporate level.



### 🔸 Competitive Advantage

Competitive Advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals. These factors allow a firm to generate more sales OR superior margins compared to the market rivals. A firm will have Competitive Advantage when its products or services are more desirable to its target market than are the products or services of its rivals.


### 🔸 Strategic Positioning


A unique position within the industry that allows the firm to provide value to its customers while controlling costs. Success is dependent on being distinct from competitors. Must align competitive advantage and positioning.

**Example**:


### 🔸 Business Model Alignment


* Business Model refers to a company's plan for making a profit
* Identifies the products or services the business plans to sell
* Identifies the target market
* Identifies anticipated expenses
* Emerges from prior strategic decisions
* Complex Businesses may have multiple Business Models

---

## 🧩 M14L11 - Aligning to Strategy

### 🔸 Aligning Strategy to Business Models


**Cost Leadership**:

* Efficient - lower overhead and costs
* Automated processes
* Simple designs
* Outsource capabilities

**Differentiation**:

* Innovation of features and performance
* Creative marketing
* Higher quality inputs → higher quality outputs
* Higher overall costs driven by marketing, unit production cost, and higher raw material cost

**Focus**:

* Niche markets
* Address unique needs of customers within niche
* Tend to build strong loyalty
* Less attractive to competitors

---

## 🧩 M14L12 - Tesla Motors Case Exercise


Use the graphic above to analyze Tesla Motors' Business Model.

---

## 🧩 M14L13 - Tesla Motors Case Debrief


**Tesla Motors vs Traditional Auto-Maker Business Models**


---

## 🧩 M14L14 - Strategic Management Process Models

++AFI Framework++ is a strategic management tool used to analyze a company's environment, formulate a strategy, and implement it. Three common methods:
* traditional, conventional top-down approach to strategy development
* scenario-based planning
* strategy as planned emergence

### 🔸 Traditional, Top-Down Approach


* The most common method
* Works best in relatively stable environments

**Step 1 - Analysis**:


This begins with management setting the scope and planning horizon.
* Scope brings focus to the effort and identifies key business issues to address
* Horizon provides a timeline

External Analysis should be used to define the future external environment and identify future opportunities and threats. A threat to one firm might be an opportunity to another.

Internal Analysis should be used to evaluate the organization's resources. All organizations are constrained in some way by resources and skills. Again, this analysis should identify strengths and weaknesses.

Both of these combine into SWOT analysis.

**Step 2 - Formulate**:


Designing of strategies that help the organization achieve its goals. Due to resource constraints formulated strategies will typically be prioritized. This includes the development of business cases that lay out the economic and strategic reasons for pursuing an initiative.

**Step 3 - Implementation**:


Once a strategy is formulated, it must be implemented, communicated continuously and measured.

This includes funding, if necessary.

---

## 🧩 M14L15 - Strategic Planning Under Conditions of Uncertainty

### 🔸 Strategic Planning Under Uncertainty

The traditional approach requires predictions and thus often leads to understimating uncertainty. This can be dangerous and lead the firm in the wrong direction, leading to the organization being unable to defend itself against threats nor take action on opportunities.


Uncertainty stems from the external environment. The external environment includes:
* Competitors
* Markets
* Customers
* Supply Chains
* Partners
* Political and Regulatory Actions
* Technology Changes
* Economic Cycles
* Social Changes

This also includes the Industry Life Cycle - the earlier in the life cycle, the more uncertainty.

### 🔸 Characterizing Knowledge and Uncertainty

**Already Know**
* Things we know to be true with certainty OR can establish to be true with a high degree of probability
* Example: Changes in customer demographics and impact on future demand

**Knowable**
* Things we know we don't know but can be developed with proper research and analysis
* Example: Demand and pricing elasticity for a new product

**Unknowable**
* Things we know we don't know and are likely unknowable even after the best possible analysis is taken. "Residual Uncertainty"
* Example: Tariff structures and trading restrictions between the US and China

#### 🔸 Residual Uncertainty Categories


---

## 🧩 M14L16 - Alternate Approaches




# ❓ Self-Assessment Questions

1. Planning is important for all of the following reasons **except**:

*Planning eliminates uncertainty*

2. Which ONE of the following would not be considered to be a function of planning?

*Hire the senior executive responsible for strategic planning*

3. A Functional strategy is one that determines how capital will be allocated across various businesses (or strategic business units).

*False*

4. Operational plans address the "what ifs" of a business -- incorrect strategic planning assumptions and the realization of known risks.

*False*

5. Developing a marketing strategy based on product, price, place, and promotional considerations is an example of a ____________ plan.

*Functional*

6. Which ONE of the following is NOT an approach that a Snowboard manufacturing firm can use to obtain a strategic, sustainable competitive advantage?

*Lower the price on the firm's popular snowboard product line $50 below the prices of all of the firm's competitors*

7. Competitive advantage is always judged relative to other competitors or to the industry average.

*True*

8. A firm that under performs relative to other competitors in the same industry is said to have a temporary but not sustainable competitive advantage.

*False*

9. From an economic value creation perspective, the firm that does which ONE of the following achieves competitive advantage?

*Creates and captures more economic value than its rivals*

10. A firm that focused on a cost leadership strategy would likely build a business model with all of the following characteristics except:

*Large marketing expenses to promote product differentiation*

11. A ________ is the end results of decisions and tradeoffs made by management in formulating strategy.

*Business Model*

12. Based on the video lesson discussion what are the three parts of a Business Model?

*Value creation, Value delivery, Value capture*

13. Which one of the following is not one of the 3 critical factors used to evaluate economic value creation and competitive advantage?

*stock price*

14. The firm that consistently charges the lowest price for a product/quality category relative to the competition will always be following a cost leadership strategy.

*False*

15. Using the terminology of Porter’s positioning strategies, Apple Inc. would be said to be pursuing a ______ positioning strategy in its markets.

*differentiation*

16. Imagine that you are the president of Fran’s Hot Dogs ETC, a successful chain of 180 franchised fast food restaurants. The success you have experienced in the last 8 years has you thinking of what to do next. Up to now your success has been based on selling hot dogs, hamburgers, chicken fingers baskets, shakes and smoothies targeted towards price and quality conscious Millennials. You believe that the firm’s success is driven by the unique experience of dining at a Fran's upscale location as well as Fran's secret recipes for homemade condiments. Which of the choices below would best describe the firm’s strategy in terms of Porter's Generic Strategies?

*differentiation-focus strategy*

17. Continuing with Fran’s Hot Dogs ETC, recently Fran's has considered buying a smaller chain of hot dog stands that compete in several of the locations currently served by Fran's franchisees. The firm would be combined with Fran's, then franchised (using Fran's brand name) to the current Fran's franchisees in those locations. This is an example of which of the following?

*horizontal integration*

18. Continuing with Fran's Hot Dog ETC, Fran's is thinking of buying a small bakery to supply Fran’s franchisees with a steady and consistent supply of buns and rolls. This action would be an example of ________.

*backward vertical integration*

19. Firms that have 1) access to leading scientific research, 2) a highly skilled and creative product development team, 3) a strong sales team and creative marketing, and 4) a reputation for quality and innovation are likely to be pursuing a _________ strategy. Note that more than one answer may be correct. Consider only Porter generic strategies.

*differentiation strategy broadly across the market*
*differentiation strategy in a niche market*

20. MedCorr is a new company in the eyeglasses business. Its vision is to have people wear their glasses but feel they aren't wearing eyeglasses. It has decided to spend a lot of time researching scientifically and marketwise what the best eyeglasses can look and feel like. Additionally, it only wants to source high quality raw materials. The leaders are all Lean six sigma and Agile certified practitioners, so they know a thing or two about operational excellence. Which approach to competitive advantage is MedCorr most likely to be practicing?

*Differentiation ONLY*

21. Which ONE of the following is a correct match of a Porter Generic Strategy with a company's business model?

*Cost Leadership: A clothing store that sells basic, no frills, practical items with a minimalistic customer experience and a limited clothing inventory.*

22. ________ is a strategic planning methodology that is used to develop plans in an uncertain environment. Typically managers begin by identifying variables that can interact to significantly impact firm performance, then management develops alternative strategies for the most plausible future environments.

*Scenario Planning*

23. The ______ provides a statement of how the organization intends to achieve its vision and the organizations' responsibilities towards its key stakeholders.

*Mission Statement*

24. Traditional top-down strategic planning can best be described as:

*a rational data driven process in which top management attempts to program future success*

25. The traditional approach to strategic management (top-down) works best in dynamic environments where the future is highly uncertain.

*False*

26. The IKEA "flat boxes" example used in this topic was an example of the _________ approach to strategic management.

*Strategy as Planned Emergence*

27. Firms Jupiter, Mars, and Venus are all competitors in a crowded industry. Firm Jupiter charges $100 for its product and has unit COGS of $40. Firm Mars charges $100 as well but has unit COGS of $30. Firm Venus is unaware of the price point of Jupiter's and Mars' products. It charges $90 and has unit COGS of $30. Which firm(s) is practicing the Cost Leadership approach to building a competitive advantage? Select all that apply. Assume COGS represents total expenses for the product.

*Mars*
*Venus*