Video Transcript: Corporate Strategy - The Role of Strategy in Business

A simple definition of the term strategy indicates these are ways companies  achieve their goals. The word had been originally used in the military and more  recently adapted for business. It descends from the Greek expression strategia,  meaning generalship or commanding an army. Both armies and companies  need strategies to use their resources in the most effective way and to establish  a favorable position. Over the past five decades, the business environment has  changed dramatically and continues to evolve at a really fast pace. It is also less predictable than ever before, which makes analytical reasoning and strategic  positioning even more important today, most strategies applied by companies  that are successful have four elements in common. One, they are based on  goals that are simple, consistent and long term. Two, the goals the company  wants to achieve have been formulated after a deep analysis of the competitive  environment. Three, they objectively consider a company's resources and  exploit them in an effective manner. Four and finally, the people responsible for  achieving these goals are strong willed and have solid decision making  capabilities. Michael Porter, the American professor at Harvard Business School who has influenced the business world more than any other academic and  revolutionized the concept of strategy, says strategy is about making choices.  It's about deliberately choosing to be different. That's quite straightforward, isn't  it, and yet so difficult to achieve. 1000s of companies compete for a place under  the sun, but only few come up with original ideas and are different. Zara, the  world's largest clothing retailer, is a typical example of how different strategies  can lead to success. Founded in 1975 in Spain, the successful retailer now runs  over 6500 stores in 88 countries. Its founder, Amancio Ortega, is the third richest man in the world, according to Forbes. So what makes the company's strategy  so successful? Zara changed the fashion industry by breaking up the biannual  cycle of fashion. Its designers need only three weeks to have an item in stores,  starting from concept to reaching the store's shelves, while other fashion  retailers prepare their collections six months in advance, Zara locks  approximately 50% of its stock by the start of the season. In this way, if a new  fashion trend appears, the company can immediately react and quickly produce  what customers really want and look for. If there is no demand for a certain item, Zara can simply discontinue production low levels of stock and a frequently  updated offering reduce the company's risk. This makes customers want to visit  Zara shops frequently, given that the collections are changed relatively quickly.  Another key element in the company's strategy is that Zara produces its clothing mainly in Spain and in Europe, where we can find the larger portion of its retail  stores. This enables shorter lead times and faster replenishing of stock with  turnaround as short as two weeks. Higher production costs are offset by the  reduced amount of money the company spends on advertising. This is a  strategy model that is original, hadn't been implemented before, and a true  success story. Things aren't always as rosy, though sometimes companies make

wrong strategic choices and struggle to adapt to a changing environment. Kodak is a well known example of a company that could not adapt to the changing  business circumstances. In the late 19th century, the American company  invented the roll film, which easily replaced the old photographic plates. The  company was perceived as an emblem of industrial innovation in the US. Kodak  was a leader in a market it had pioneered. Sounds great, right? For many years, Kodak dominated the photography market and was the leading company in the  industry. However, about 20 years ago, film photography started to decline, and  Kodak made a losing bet. The company did not capture the potential of digital  photography on time, and instead focused on investing capital in new  technologies for taking pictures with mobile phones. This did not work for them,  because it meant running away from their niche and missing a fantastic  opportunity. In retrospect, we can definitely say Kodak did not invest in  developing digital cameras as much as it should have, but other companies did.  Japanese companies such as canon, renowned for their market innovations,  quickly embraced digital photography. Kodak failed to recognize the competitive  environment was changing and underestimated the importance of digital  photography. Such strategic mistakes are more than costly. The company filed  for bankruptcy in 2012 the two stories we saw here are good examples of the  importance of strategy, and it's no coincidence the strategy module is the first  one in this course, these are some of the most. Critical decisions a company  must make. They are as important as having the right direction is for a ship in  the ocean, if you don't sail in the right direction, you probably will not get where  you want to be. It's the same with companies. Excellent strategic decisions get  you where you want to be.