Introduction to Strategy

Principles of Strategy

- Introduction

Itai Ater

Faculty of Management, TAU

The Profitability of Global Industries: 1963-2003

Utilities

6.2

Telecom s ervices

6.5

Trans poration

6.9

Energy

7.7

Materials

8.4

OVERALL AVERAGE

9

Retailing

9

Cons um er durables and apparel

9.5

Food retailing

9.6

Capital goods

9.9

Autom obiles and com ponents

9.9

Technology hardware and equipm ent

10.3

Hotels , res taurants , leis ure

10.3

Food, beverages , tobacco

11

Healthcare equipm ernt and s ervices

11.3

Sem iconductors

11.9

Com m ercial s ervices

12.8

Media

14.7

Com puter s oftware and s ervices

15

Hous ehold and pers onal products

15.2

Pharm aceuticals

18.4

0

5

10

15

Average ROIC 1963-2003 (%)

20

2

What is Strategy?

“Articulates the firm’s long-term

scope of its activities, its

competitive advantage and

through which that competitive

will enhance firm performance”

goals, the

source of

the logic

advantage

3

1

Long Term Goals



Typically refer to the market position or status the firm wants to

achieve through its strategy (e.g. market dominance, lowest cost,

most innovative)



Profit maximizing is too broad!



Long term – enduring, lasting goals (5-10 years ahead)



Goals are the “where” part of the strategy. Where the firm is

heading



Three other purposes:

Motivational

Coordination

Competitive

1.

2.

3.

4

Scope



The scope defines the activities in which

the firm will engage: products, markets,

geographies, technologies, processes



The scope defines the “what” of the firm

and importantly also the “what not”!

5

Competitive Advantage



The competitive advantage defines “how” the firm

intends to achieve its long term goals within its chosen

scope



The most general forms of competitive advantage are:

1.

Cost advantage – the firm can...