Getting ready to do strategy
In the early 1990s, the Allegheny hospital education and research foundation (AHERF) launched a strategy to become a large integrated health care delivery system. AHERF was not the only health care provider pursuing this strategy. In fact, this was the dominant strategic direction proposed by industry an-alysts and managers alike. Within a few years, AHERF was one of the largest integrated health care providers in the United States and its CEO was hailed as a visionary. By 1998, AHERF was also bangkrupt.
In the early 2000s, Sumsung Corporation launched a strategy to revitalize its consumer video electronics business. Long regareded as a low- quality brand, it sought a quality leadership position in the fledgling market for digital home entertainment, including high definition television (HDTV). Samsung embraced digital light processing (DLP) technology. Cheaper and fatter than plasma, more expensive and thinner than traditional rear projection televisions (RPTVs) , Samsung’s DLP televisions offered a picture quality that equaled or beat either alternative.
Samsung’s first generation DLP sets garnered rave reviews from speciality magazines and web sites. The technology appealed to critical early HDTV adopters who did their research and ignored the brand reputation. In fact, samsung’s reputation has improved since the launch of DLP. It has successfully entered the market for high-end plasma market.
It takes little imagination to come up with a strategy. In fact, almost all managers can easily identify any number of strategic options for their firms. Here are a few popular business strategies, with examples of firms that have pursued them:
Grow larger (general Electric, AHERF)
Downsize (avon, SARA LEE)
Diversify into new markets (Wal-Mart, PepsiCo)
Dominate a niche (starbucks, jiffy Lube)
Outsource the production process (Nike, IKEA)
Integrate the production process (Armani, Tiffany)
Become the cost leader, even if quality is sacrificed (Kia, Motel 6)
Become the quality leader, even if costs increase (BMW, Four Season Hotels,Samsung)
Drive rivals from the market (Philip Morris, Microsoft)
Cooperate with rivals (Philip Morris, Sony)
Be an innovator (Intel, Philips Electronics)
Be an imitator (Microsoft, Dell Computer)
While it may be easy to come up with a strategy, it is much more difficult to select the appropriate one. Foe every Samsung,there is an AHERF. Some consultants may offer compelling arguments in favor of one strategy, others may recommend the diametrically opposite strategy. To make things more confusing, what works for one firms may not work for another firm in the same industry. So while it may take little imagination to come up with strategy, it may take a lot of hard work to come up with the optimal strategy.
In brief, you are describing a strategy when you do both of the following :
1 . describe in what respect your firm’s output is truly unique (what is the product market in which your firm has a monopoly, if you will) or the process by which you achieve inimitable efficiency.
2. describe how you plan to defend this unique product or process from competition, entry, and imitation.
This book presents analyses that help you clearly identify your current or intended monopoly position
DOING STRATEGY
This book is about t process of developing analyzing strategies. It presents the principles, tools, and templates necessary for choosing among strategic alternatives. The goal of tjis process (often called strategic analysis or strategy evaluation) is to answer the following two principal questions (the PQs):
1 does the firm possess advantages that will translate into profits?
To answer this question, we need to identify what the firm brings to the market tahat enables it to outperform its rivals. The firm may have a superior quality product that the market deems worthy of a price premium. Or the firm may have a superior production process that gives it a cost advantage.
2. does the firm’s business environment permit these advantage to turn into profits?
High quality and low costs are no guarantee of profits. It is essential identify characteristics of the firm’s environment that enable it to prosper from its adantages. Through an understanding of the business environment, we can answer questions such as how competition might erode profits, what firms can do about rivalry, and how the firm can sustain its profits over the long haul.
There are several reasons why the PQs are the right questions to ask when analyzing strategic alternatives :
1. Answering the PQs gives managers a more thorough understanding of the process by which their firm creates wealt and the conditions upon which that process depends.
2. This deep understanding is necessary to insure that managers do not change strategic direction for the sake of change, rather than in response to genuine problems and chalengers.
3. By answering the PQs, managers can better determine whether a chosen strategy directly addresses the problem at hand. Willy-nilly selection of a strategy whether because it sounds good or because it has become the latest fad, is not likely to bear fruit. Evaluating and making strategic choices on the basis of how they resolve the PQs will lead to enduring profits.
4. The very process of answering the PQs often generates strategic choices. Strategy may thus be thought of as an organic process, in which choices emerge during the analytic process. We will encounter numerous e xamples in which the correct strategic response are reeled through the analysis of the PQs.
5. Correct analysis leads to effective tactical choices, effective because managers are more likely to choose actions that enance and leverage the firm’s true advantage while properly accounting for competitive responses.
A HOMEWORK ASSIGMENT

Since the book is, in effect, a course in strategy, we think it is helpful to pull from our Kellog course syllabus, specifically the section describing the homework assignment :
The evaluation of a firm’s strategy will not be satisfied by phrases such as superior marketing, superior inventory management, or superior product variety. The answer to the two key strategy evalution questions needs to be 7 to 10 single-spaced typewritten pages.
Not to worry, you won’t owe us assignment. However, contrast the richness of a 7 to 10 page single spaced strategic analysis to the platitudes that often follow ehen managers are asked, “what are this advantages?” or how competitive is the market?
This chapter lay out a broad game plan for answering the PQs. The rest of the book fills in the details and offers numerous examples of strategy in action. Chapter 2 to 4 address primarily the first of the two questions, chapter 5 to 8 turn to the second question. Chapter 9 concludes with two highly detailed strategy evaluations, one for Amazone.com and one for the Chicago hospital market. While these analysis are fairly thorough, we were limited to public information. A manager performing the analysis on his or her own firm could probe more deeply.
We offer a caveat before we processed. We acknowledge that a one size fits all framework for strategy evaluation is too much to promise. On the other hand , teaching strategy evaluation exclusively by example may leave the reader inspired but apprehensive about how to initiate his or her own analysis. Hence, we propose a set general tools and framework, but remind the reader that they may need to be adapted to his or her own particular strategic situations.
One more caveat : The methods that we present can appear daunting in their richness. We offer detailed guidance on how to perform much of the analysis forthcoming, but not all of it. It would be impractical to incorporate all the tools needed to do strategy evaluation in on book.
Furthermore, any text suggesting It has enough information to guide one through the entire process is likely to be overreaching. Many good sources exist for topics not fully developed in this book and where appropriate, we point you to them.