University of Garden City

PG Diploma in Business Administration

Effective Business Skills

Topic (1)
Strategy Is Making Choices

Dr. Fadl Ali Ahmed

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 1. Introduction:

Consider what has happened in most industries in recent

years. For instance, the movie rental business Blockbuster has

been toppled by Netflix; record stores have given way to

music-streaming services, such as Spotify; and taxicabs may

soon be supplanted by Uber.

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 In each of these industries, a disruptive rival has emerged and

threatened or eliminated the incumbent players. So, we will

try to understand how you can sustain a competitive

advantage in your industry or how, as a new entrant, you can

plot a strategy to knock off the top players.

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 2. The Field of Business Strategy

The field of business strategy evolved through out the following stages:
(2.1) It might be said that the field of business strategy has been
emerged from an ancient Chinese military article, The Art of War ,
written by Sun Tzu. Many in business have used this text to formulate
ideas on how companies can build and sustain competitive advantage.

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 (2.2) In the 1950s and 1960s, leading business schools began to
explore the idea of competitive strategy.
(2.3) In the early 1960s, the business historian Alfred Chandler
studied some of America’s great 20th - century corporations. He
noted that as those firms changed their strategies, they also had to
change their organizational structures, systems, and processes. For
this reason, he argued that strategy drives structure in large
organizations.
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 (2.4) But in 1970, Joseph Bower at Harvard Business School
turned that argument on its head. He didn’t disagree with
Chandler, but he argued that in some companies, structure
can also drive strategy. The choices a firm makes regarding
systems, organizational structures, processes, measurements,
and so on can drive the firm’s future.

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 (2.5) The modem field of strategy was initiated by Ken Andrews and his
colleagues at Harvard Business School. They argued that strategy is a
pattern of choices that reveals the purpose and goals of an
organization.
(2.6) Economics has also influenced the field of strategy. Michael Porter
was one of the early economists who began to merge ideas from
economics with ideas from the field of business management.

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 3. Organizational Performance
Why do some firms perform better than others? To answer this
question, we must look at two factors: industry attractiveness and
competitive advantage.
(3.1) Industry attractiveness simply means that some industries are
more profitable than others. In those environments, there are more
opportunities for more companies to make healthy returns. In other
industries, it’s much more difficult for firms to make money.

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 (3.2) But we also then have to understand how a firm competes against
its rivals. Does it have an advantage over rivals? Is it able to generate
returns above the industry average? And can it do so year after year?
That’s what we mean by competitive advantage.

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 We can also identify two key questions related to competitive
advantage:
(3.2.1) How do you establish a distinctive competitive position and
create advantage over your rivals?
(3.2.2) How do you sustain that advantage against a variety of external
and internal threats?

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 Without question, if you’ve proven that you have a successful
product or service, if your customers are happy and your
investors are getting attractive returns, others will try to
imitate you. They will look for a slightly better way to do what
you’re doing—and they won’t stop. For this reason,
understanding how to sustain competitive advantage is crucial
to business strategy.
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 4. Strategic Planning

Porter has argued for the importance of having an explicit process for
formulating strategies, for understanding the goals of a corporation
and how they will be achieved. But some have been much more
doubtful and critical of the idea of strategic planning in organizations.
They argued That process, especially in large organizations, tends to
be bureaucratic and bulky. It takes a great deal of time, and it tends
to focus on budgeting rather than strategy.

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 Some scholars have also criticized the field the strategy by arguing that
it’s simply not appropriate to talk about establishing and sustaining
competitive advantage in today’s turbulent environment.
It’s generally not the case that strategy formulation is explicit,
conscious, and purposeful. It’s more often the true that strategy
emerges and evolves over time. It’s important to think about strategy
as a pattern in a stream of decisions and actions; it’s not an event but a
process.

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 The authors of (Playing to Win) have noted five key questions
to ask yourself when plotting strategy:
(4.1) What’s your winning aspiration? In other words, what are
you trying to achieve?
(4.2) Where will you play—in what product markets,
segments, and geographies?

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 (4.3) How are you going to win? That is, what are you going to
do that will give you an advantage over the competition?
(4.4) What capabilities must be in place to execute your
strategy?
(4.5) What management systems are required to implement
your strategy?

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 5. Competition

There are four facts about competition that set the stage for
the analysis of competitive environments:
(5.1) Industries vary widely in their profitability. That is, in
some businesses, it will be difficult to make money no matter
how smart the management team or how great the strategy.

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 (5.2) The industry you’re in matters a great deal; in other
words, sometimes there are forces beyond your control
driving your profitability. Those in the newspaper business, for
example, have learned this lesson as the Internet has grown.
(5.3) Competitive advantage may be fleeting.

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 (5.4) Industry structure varies widely around the world. It’s
true that we live in a more global world today, but competitive
environments can look very different in different parts of the
world for a variety of reasons, from consumer tastes and
culture to government regulation and institutions.

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 6. Industry Structure and Competitive Advantage
In 2013, the return on assets for Pfizer, a pharmaceutical company, was
12.8%. For Alaska Airlines, it was 8.7%. Can we conclude that Pfizer is a
better-managed firm than Alaska Airlines? No, we can’t look only at
absolute financial returns to make conclusions about these two
companies.

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 The pharmaceuticals industry is high profit, while the airlines industry is
low profit. If we look more deeply, we would learn that Alaska Airlines
outperforms rivals in its industry.
That’s the key comparison we need to make. We’re looking for
companies that generate excess returns relative to the industry
average; that’s competitive advantage.

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 As we look across industries, we also see that in some industries, the
leader in one year is much more likely to stay on top than the leader in
other industries. In other words, competitive advantage is fleeting, but
it’s more fleeting in some industries than others.

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