CHAPTER 1

WHAT IS STRATEGY AND
WHY IS IT IMPORTANT?

1. Understand why every company needs a sound strategy to compete successfully, manage the conduct of its business, and strengthen its prospects for long-term success.
2. Develop an awareness of the four most dependable strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage.
3. Understand that a company’s strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company’s strategy.
4. Learn why it is important for a company to have a viable business model that outlines the company’s customer value proposition and its profit formula.
5. Learn the three tests of a winning …show more content…

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THE RELATIONSHIP BETWEEN A
FIRM’S STRATEGY AND ITS
BUSINESS MODEL
Realized
Strategy

$$$?

Business
Model

Competitive
Initiatives

Value
Proposition

Business
Approaches

Profit Formula

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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A Company’s Business Model
♦ How the business will make money :
By providing customers with value.
The firm’s customer value proposition
● By generating revenues sufficient to cover costs and produce attractive profits.
The firm’s profit formula
●

It takes a proven business model—one that yields appealing profitability—to demonstrate viability of a firm’s strategy.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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Business Model Elements
♦ The Customer Value Proposition
●

Satisfying buyer wants and needs at a price customers will consider a good value.
The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to customers. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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Business Model Elements (cont’d)
♦ The Profit Formula
●

●

Creating a cost structure that allows for acceptable profits, given that pricing is tied tied to the customer value proposition.
V—the value provided to customers
P—the price charged to customers
C—the firm’s costs
The lower the costs (C) for a given customer value proposition (V–P), the greater