Quick Overview of Strategy
Definition of Strategy
- There are literally hundreds of definitions of “strategy” in the business literature. My personal favourite: “Strategy is … a firm’s theory about how to compete successfully” (by Jay B. Barney).
- In Barney’s definition:
- The term “theory” conveys a couple of concepts:
- A firm does not know with absolute certainty, which is the best strategy. However, some alternatives are better than others. That is, some are more likely to work than others are.
- Developing a strategy is a creative act.
- The term “compete” is also a critical part of the definition. A firm must make its choices, taking into account the fact that it is in a competitive environment.
Consequently, strategy goes beyond simply minimizing your costs or optimizing quality. If your rivals do the same thing, then you have no competitive advantage, and you therefore have no ability to make an attractive profit. - In our strategy course, we focus on creating value and capturing value.
- A firm creates value by producing a product for which customers are willing to pay more than the full cost of delivering the product to that customer.
- Thus, an important question in strategy is how to generate a healthy gap between the amount customers are willing to pay, and costs.
- Since customers differ in their preferences, part of this process involves selecting target customers and