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Business Strategy

Course Overview​

Course Focus: Strategic thinking and long-term business planning

What is Business Strategy?​

Core Definition​

Business Strategy is the integrated set of decisions and actions a company takes to achieve sustainable competitive advantage and superior performance in its market.

Key Principle: "Begin with the End in Mind"

Three Fundamental Questions​

What Strategy IS:​

  • Making deliberate trade-offs
  • Choosing what NOT to do
  • Creating a unique value proposition
  • Aligning firm's internal capabilities with external market opportunities

What Strategy IS NOT:​

  • Only about operational efficiency
  • Copying industry best practices (necessary but not sufficient)
  • Doing everything

The Trade-Off Principle​

"There are no solutions, just trade-offs" - Thomas Sowell

This applies to everything in business and life. Understanding trade-offs is fundamental to strategy.

Examples of Strategic Trade-Offs:​

Walmart:

  • Trade-off: Does NOT cater to wealthy customers
  • Result: Walmart family members worth ~$60 billion each
  • Focus: Inexpensive goods for middle and lower-middle class

Porsche/Ferrari:

  • Trade-off: Only sell limited number of cars annually
  • Result: High margins, luxury positioning
  • Note: Porsche later changed strategy by acquiring Volkswagen

Apple:

  • Trade-off: Premium pricing excludes budget-conscious customers
  • Result: High margins, strong brand loyalty

Strategy vs. Tactics​

Key Distinctions​

AspectStrategyTactics
Time HorizonLong-term (months to years)Short-term (days to months)
FocusOverall positioning and competitive advantageSpecific actions and steps
Level of DetailBroad, directional decisionsDetailed, actionable plans
ExampleCompeting through product differentiation in premium marketsLaunching an ad campaign targeting high-income customers
Who Designs ItSenior executives, leadership teams (CEO, Board, Chief Strategy Officer)Middle managers, operational teams (COO, CFO, CTO)
PurposeDefine "where to compete" and "how to win"Execute specific tasks to achieve strategic objectives

Organizational Hierarchy​

Key Insight: Strategy gets approved by CEO and Board. Implementation is handled by COO and operational teams.

Strategic Positioning​

Three Approaches to Market Positioning:​

  1. Serving few needs of many customers

    • Example: Jiffy Lube (only car maintenance services)

  2. Serving broad needs of few customers

    • Example: Bessemer Trust (only ultra-wealthy clients, minimum $5M investment)

  3. Serving broad needs of many customers in a narrow market

    • Example: Super Mosheva (Jerusalem boutique grocery store in German Colony)

Creating 'Fit' Among Activities​

Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is 'distinctive' about a company.

Critical Strategic Terms​

Operational Effectiveness (OE)​

  • Performing similar activities better than rivals
  • Includes but is not limited to efficiency
  • Important: OE alone is NOT sufficient for long-term strategy
  • Can lead to acquisition if done exceptionally well

Strategic Positioning​

  • Attempts to achieve sustainable competitive advantage
  • Preserves what is 'distinctive' about the company

Productivity Frontier​

  • The maximum value a company can deliver at a given cost
  • Given the best available technology, skills, and management techniques

Strategic Objectives​

  • Measurable goals aligned with mission and vision

Competitive Advantage​

  • The edge a firm has that allows it to outperform rivals

Mission Statement​

  • Organization's purpose and reason for existence
  • Homework Assignment: Visit company websites and read mission statements
  • Note: Sometimes stated mission differs from actual practice

Strategic Fit​

  • Alignment of internal strengths with external opportunities

Industry Selection: The "Where"​

Strategy begins with choosing which industry to compete in - this fundamentally shapes everything else.

Examples of Different Industry Strategies:​

Grocery Store Industry:

  • Margins: 1-2% (worldwide standard for large stores)
  • Strategy: High volume, low margins
  • Example: Rami Levi (Israel) - multiple stores, cheap prices, thin margins

Makeup Industry:

  • Margins: Astronomical (extremely high)
  • Strategy: Premium pricing, brand positioning

Construction Industry:

  • Some companies only build roads (highly specialized)
  • Some only do foundations
  • Strategy: Deep specialization, become the best in narrow field

Carpentry Example (Tel Aviv):

  • High-end carpentry for luxury apartments
  • 6-month waiting list
  • Father (80 years old) inspects all work
  • Premium pricing, customers don't question costs
  • Strategy: Craftsmanship, exclusivity, quality control

The "How": Creating Value​

Key Question:​

How will you create and deliver something better and different for the customer?

Critical Point: If you create something the same as your competitor, you may do okay, but you won't do great.

Example: Airline Industry Transformation​

Before Deregulation:

  • Prices regulated by governments worldwide
  • Only middle-to-upper-middle class could afford tickets
  • Uniform service standards

After Deregulation:

  • Discount airlines emerged
  • Strategy: Charge for everything ("charge you for breathing air")
  • Result: Made air travel accessible to lower-middle class
  • Examples: Different from British Air, Singapore Air (best airline), American Airlines

How to Keep Competitive Advantage​

Once you have distinction and advantage, maintaining it is crucial.

Apple Example:

  • Constantly changing cables/connectors
  • Forces customers to buy new accessories
  • Cable production cost: ~$0.05
  • Retail price: ~$35
  • Strategy: Ecosystem lock-in through proprietary standards

Real-World Strategy Examples​

Apple Inc.​

Business Strategy:

  • Premium design and user-friendly interfaces
  • High-margin hardware (iPhone, MacBook, iPad)
  • Integration of hardware, software, and services
  • Protecting intellectual property and brand reputation

Product Tactics:

  • Annual incremental hardware improvements
  • Proprietary chips (M1/M2) for performance differentiation
  • Sleek, minimalist design aesthetics

Pricing Tactics:

  • Premium pricing to reinforce exclusivity
  • Bundled services (iCloud, Apple Music, Apple TV+)
  • Increase customer lifetime value

Marketing Tactics:

  • Iconic campaigns: "Think Different," "Shot on iPhone"
  • Heavy investment in in-store experience
  • Apple Stores: design, service, aesthetic

Operational Tactics:

  • Tight supply chain control
  • Strategic partnerships with carriers
  • In-store checkout innovation (employee helping you checks you out immediately)

Professor's Note: "It's absolutely brilliant. I appreciate the brilliance of ripping me off to make me buy something else."

Walmart​

Strategy:

  • Sell very inexpensive goods
  • Target customers who cannot afford expensive goods

Key Tactics:

  • Ruthless negotiation with suppliers
  • "This is the price. If you sell to us, we're going to buy more than you can possibly make"
  • Lowest prices in the industry - no one pays less
  • Some luxury brands (like Prada) refuse to sell to Walmart

Requirements for Success:

  • Cheap/affordable labor
  • Exceptional logistics
  • High volume

Result: Most profitable family-run business in America

Toyota → Lexus (Strategy Change)​

Original Strategy: Make practical, reliable cars (Toyota, Accord)

Strategy Change:

  • Wanted to enter high-end car market
  • Created Lexus brand
  • Key Insight: A Lexus is really a Toyota with:
    • Better wood
    • Leather seats
    • Enhanced instrumentation
    • Better design

Incremental Cost: Not much more than an Accord

Pricing Difference: Huge markup

Result: Brilliant strategy change - captured luxury market while maintaining operational efficiency

University Strategy Example​

Small Private Universities (U.S.):

  • Were relatively inexpensive
  • To raise enrollment: Raised prices by 20-25%
  • Result:
    • Enrollment increased 30%
    • Financial aid requests decreased
    • Moved into different class/market segment

North Carolina University Example:

  • Regional #1 in Southeast
  • Ridiculously high tuition
  • Beautiful facilities: pools, massages, campus steakhouse
  • Unique Strategy: Teach students:
    • Proper dining etiquette (multiple forks, spoons)
    • Wine ordering
    • Professional interview skills
  • Preparation for high-end job interviews

Hotel Industry Strategies​

Classification System:

Hotels tell you their strategy through star ratings (2-star, 3-star, 5-star, 7-star)

Dubai 7-Star Hotel:

  • Entry to lobby: €100
  • Presidential suite: $25,000/night
  • Strategy: Ultimate exclusivity, "keep the riff-raff out"

Tokyo Airport Hotels:

  • Inside terminal (no need to leave)
  • Rent by the hour (2-3 hours)
  • Nice rooms with views
  • Target: Travelers with long layovers
  • Value proposition: Shower, rest, work, repack

Amman Business Class Lounge:

  • One of best in world
  • Showers, beds, presentation rooms
  • High-end experience (unexpected for Amman location)
  • Always packed - extremely profitable
  • Strategy: Premium experience in unexpected location

McDonald's​

Strategy: Consistency everywhere

Professor's Experience in Moscow (First McDonald's):

  • One hour wait to enter
  • Identical to McDonald's in New York, San Francisco, Dallas
  • Same experience, different language
  • First owner made enormous fortune

Key: Same in-store experience globally

Tiffany's​

Strategy: Premium experience and brand

Key Point: "You can go around the corner to 47th Street, buy the same diamond for half the price. But that box? Wow."

Elements:

  • Beautiful store
  • Well-dressed, attractive staff
  • Exclusive atmosphere
  • The experience justifies premium pricing

Strategic Partnerships Examples​

OpenAI and Microsoft:

  • Microsoft needed to be in AI business
  • Long-term strategic partnership
  • Microsoft invested heavily in OpenAI

Credit Cards and Airlines:

  • American Airlines Visa card
  • Points from both airline and credit card company
  • Mutual customer acquisition

Airlines and Hotels:

  • Marriott partnerships
  • Points across services
  • Cross-promotion

Duolingo and LinkedIn:

  • Marketing partnerships

Universities and Programs:

  • Bar-Ilan University started international business program
  • Original strategy (1979): Core Israeli students, post-army, living nearby
  • Strategy evolved: International programs, diverse student body

Porter's Competitive Strategies​

Professor Michael Porter: "The guru of strategy" - Harvard Business School

Every strategy consultant mirrors Porter's work. Required reading for the course.

Four Generic Competitive Strategies​

1. Cost Leadership​

Goal: Become the lowest-cost producer in the industry

How it Works:

  • Achieving economies of scale
  • Efficient production and supply chain management
  • Tight cost control
  • Standardized products targeting price-sensitive customers

Target Scope: Broad market

Examples:

  • Walmart: Large-scale operations, efficient logistics, aggressive supplier negotiations
  • Ryanair: Low-cost airline with minimal frills

2. Differentiation​

Goal: Offer unique products/services that customers perceive as superior

How it Works:

  • Innovation in design, features, or technology
  • Strong brand identity
  • Superior quality or customer service
  • Unique distribution channels

Target Scope: Broad market

Examples:

  • Apple: Sleek product design, user experience, integrated ecosystem
  • Starbucks: Premium coffee experience with strong branding

3. Cost Focus​

Goal: Apply cost leadership within a specific market segment or niche

How it Works:

  • Targeting narrow customer group with lower-priced products
  • Efficiency and standardization for niche markets

Target Scope: Narrow market

Examples:

  • Aldi: Affordable groceries for cost-conscious shoppers, limited product range

4. Differentiation Focus​

Goal: Offer unique products tailored to specific market segment or niche

How it Works:

  • Deep understanding of niche customer needs
  • Customization, exclusivity, or specialized services
  • Higher prices justified by uniqueness

Target Scope: Narrow market

Examples:

  • Rolex: Premium watches for luxury buyers, emphasizing craftsmanship and exclusivity
  • Tesla (early years): High-performance electric vehicles for tech-savvy, environmentally conscious consumers
  • Emilio Pucci: Ultra-high-end fashion stores (Rome), most beautiful stores, experiential shopping

Summary Table​

StrategyCompetitive AdvantageTarget ScopeExample
Cost LeadershipLowest costBroad marketWalmart
DifferentiationUnique product/serviceBroad marketApple
Cost FocusLowest costNarrow marketAldi
Differentiation FocusUnique product/serviceNarrow marketRolex

Critical Warning: "Stuck in the Middle"​

Companies must choose a clear strategy and avoid being "stuck in the middle," where they fail to achieve either differentiation or cost leadership effectively, leading to weak competitive positioning.

Strategy Changes and Adaptations​

When to Change Strategy​

Key Insight: Most startup companies change strategies fairly early on

Reasons for Strategy Change:

  1. Internal factors: Company learns more about its capabilities
  2. External events: Market conditions, regulations, competition
  3. Forced changes: Competitors, technology disruption

Venture Capitalist Perspective:

  • VCs expect companies to change strategies
  • They nod when hearing initial strategy because they know it will likely change
  • This is normal and expected

Example: Strategy Change Necessity​

Company in Israel (name withheld):

  • Hired Chief Strategy Officer from IDF background
  • Not originally from the industry
  • Older than most executives
  • Brought fresh perspective
  • Result: Successfully steered company in new direction

Problem Identified:

  • Revenues remained flat
  • Profits declining incrementally each year
  • Year 1: Small decline (dismissed as "blip")
  • Year 2: Another decline
  • Year 3-4: "Oh my god, what are we doing?"
  • Costs rising, competition increasing
  • Eventually revenues follow profits down

Solution:

  • Outside perspective from experienced strategist
  • Overcame internal resistance ("he's not one of us")
  • CEO made courageous choice

Founder Challenge​

Common Problem:

  • Founders get "married" to their original idea
  • Spent years in school developing concept
  • Finally got funding
  • Emotionally invested
  • Resist change even when necessary

Professor's Advice:

"If you start a company, hire some older person to be your Chief Operating Officer. They have been through a lot. You're smarter than they are, you know more about the idea, but they have to push you in the direction you need to go."

Supply Chain Management​

Definition​

Managing the entire chain of suppliers, manufacturers, and distributors to ensure smooth operations.

Importance as a Tactic​

Example: Silicon Shortage (2012)

  • Silicon used in both semiconductors and solar panels
  • Tax law changed → semiconductor industry ordered massive amounts of silicon
  • Created supply shortage
  • Affected solar panel industry
  • Companies in unrelated industries had to be aware of supply chain issues

Key Learning: Supply chain disruptions can affect your strategy even if you're not directly involved in the problematic sector.

Car Manufacturing Example​

Porsche:

  • Doesn't make their own tires
  • Buys Pirelli tires (some of best tires in world)
  • Pirelli's supply chain: Must source:
    • Rubber (best quality)
    • Coating materials
    • Other components
  • Must ensure no supply chain backups

When Tactics Affect Strategy:

If supply chain management (tactic) fails, Chief Strategy Officer and CEO must be informed immediately - it becomes a strategic problem.

Buy or Build Decision​

Strategic Choice Framework​

Context: "Everybody's in AI now, everybody."

Question for Any New Business Area:

  • Build capability yourself?
  • Buy existing company/technology?

Example Consideration:

  • Microsoft and OpenAI: Microsoft chose strategic partnership/investment rather than building from scratch

Aligning Strategy with Firm Capabilities​

Critical Principle​

Strategy must align with your firm's capabilities, or you must change capabilities (hire different people).

Hospital Example​

Scenario: Hospital with small emergency room but amazing neurological center

Strategic Question: When getting customers (patients), what should be biggest part of strategy?

Answer: Promote neurological center - align with what you're best at

Key Elements:

  • Focus on strengths
  • Hire/retain best doctors in specialty
  • Market distinctive capabilities

The Discipline Challenge​

Most Difficult Aspects of Strategy:

  1. Implementation
  2. Discipline to stick with strategy
  3. Actively choosing what NOT to do

Professor's Role (as COO):

"I'm the old grouchy guy that keeps everybody from doing crazy things."

CEO vs. COO Dynamic:

  • CEO: Wants to do everything, be everywhere
  • COO: Pulls back, maintains focus
  • Example: Solar/wind/hydro development company
    • Can't be everywhere in Africa
    • Don't have money or manpower
    • Some African locations not suitable
    • Must maintain strategic focus
  • "Although we are building a project in South Sudan, that's really crazy, but what can you do?"

Strategy in Different Organization Sizes​

Large Companies​

Structure:

  • Chief Strategy Officer
  • Large strategy staff below CSO
  • Different team members analyze:
    • Different industry parts
    • New products
    • New directions
    • Market trends

Strategy Staff Characteristics:

  • For "thinkers"
  • Sit around and think about future
  • Come up with ideas
  • Present to CSO before reaching CEO

Benefits of Large Companies:

  • Different roles for different people
  • Thinkers can focus on strategy
  • Operators can focus on implementation

Small to Medium Companies​

Key Difference:

"By virtue of working for relatively small to medium-sized companies, you will get involved in strategy one way or the other. Whether you know it or not, or whether you like it or not."

Professor's Company Example:

  • Very small company
  • Has Chief Strategist
  • Everyone gets involved in strategy
  • "We argue about it constantly"
  • Constant debate is normal and healthy

Reality:

  • You may not know you're arguing about strategy
  • But you are
  • This is part of strategic process

Everything Has Strategy​

Key Insight: "Strategy is everything. Everything is strategy, whether your company is one person, or whether your company is 100,000 people."

Military:

  • Where many strategy terms originate
  • Strategy is "super important"

Sports Teams:

  • Every team has different strategy
  • Yankees vs. Orioles: different approaches
  • Hire strategy specialists
  • Sports industry: one of highest-paying in world
  • Often overlooked in business school

Key Takeaways and Principles​

1. The Thinking Class​

"This is a thinking class, not a memorization class."

Implication:

  • Focus on understanding concepts
  • Articulate ideas clearly
  • Apply principles to real situations
  • No formula memorization

2. You Already Know This​

Professor's Philosophy:

"You guys know all this already. It's the ability to articulate it is the key."

Examples:

  • You know difference between Ferrari and Volkswagen
  • You know cheap goods require cheap sourcing
  • You understand brand positioning

Goal: Learn to articulate what you instinctively understand

3. Academic to Practice​

"The idea into practice - greatest idea in the world needs to become practice."

Bridge:

  • Academic concepts → Real business decisions
  • Classroom discussions → Meeting room conversations
  • Theory → Implementation

Professor's Approach:

  • 50% of exam questions come from actual meetings
  • Usually from negative examples ("knuckleheads")
  • Carries notebook to conferences
  • Writes down real-world strategy failures and successes

4. Reading is Essential​

Do NOT Wait Until Last Minute:

  • Strategy builds on itself
  • Material interconnected
  • Understanding develops over time

Harvard Business Review:

  • Professor has subscription
  • Much course material from HBR
  • Porter's work extensively featured

Porter's Essential Reading:

  • "What is Strategy?" (Session 1 assignment)
  • Four books total
  • Foundation of strategic thinking

5. Grades and Performance​

Professor's Philosophy:

"From my perspective, if everybody got an A, then I'm doing my job."

Requirements for Success:

  1. Do the reading
  2. Don't be late with assignments
  3. Participate in class
  4. Ask questions when confused

Different Students, Different Strengths:

  • Some memorize well → Quiz favors them
  • Some speak well → Class participation favors them
  • Some write well → Assignments favor them
  • Varied assessment methods to accommodate different skills

Flexibility:

  • Professor understands students have lives
  • Children, army service, other commitments
  • Communicate beforehand if issues arise
  • "I have 5 children. They're all gonna be at my house when I get home. So, I know how it is."

Practical Advice​

For Starting a Company​

  1. Hire experienced operators

    • Older person with experience
    • Someone who's "been through a lot"
    • Balance founder's passion with practical wisdom

  2. Expect to change strategy

    • Normal and healthy
    • VCs expect it
    • Don't be emotionally rigid

  3. Focus is critical

    • Can't do everything
    • Actively choose what NOT to do
    • Resist temptation to chase every opportunity

For Strategy Staff Roles​

If You're a Thinker:

  • Strategy staff is good fit
  • Get to analyze and think
  • Come up with ideas
  • Work on future direction

Required Skills:

  • Know the business and industry well
  • Think long-term
  • Understand trade-offs
  • Communicate clearly with CEO and board

In Meetings​

Common Issues:

  • People talk about "strategy" but mean "tactics"
  • Important to distinguish
  • Use correct terminology
  • Frame discussions properly

When to Escalate to Strategy Level:

  • Tactics failing consistently
  • External events requiring change
  • Long-term performance declining
  • New opportunities emerging

Homework and Assignments​

Immediate Assignment​

Visit company websites and read mission statements

Purpose:

  • Understand how companies present strategy
  • Compare stated vs. actual mission
  • First exam question will likely reference this

Note: "Some people didn't listen to me [last time], and that was the first question on the exam."

Quiz Preparation (Week 3 or 4)​

Format:

  • In person
  • Short paragraph answers
  • No multiple choice ("the world is not multiple choice")

Content:

  • Definitions of key terms
  • Operational effectiveness
  • Strategic positioning
  • Productivity frontier
  • Competitive advantage
  • Mission statements
  • Strategic fit
  • All terms discussed in lectures

Purpose:

"I'm forcing you to know these terms, so when I give you something to read in 5 weeks, you'll know what... you're not going to sit there and not... because you can go through a document, you'll see a word, you know what the words mean, but you totally miss it."

Final Thoughts​

Strategy vs. Success​

Two Paths to Success:

  1. Great Strategy + Poor Implementation = Limited Success
  2. Mediocre Strategy + Excellent Implementation = Can Still Succeed

Ideal: Great strategy + Great implementation

Examples:

  • Apple: Both great strategy AND great implementation
  • Walmart: Both great strategy AND great implementation

Steve Jobs vs. Tim Cook​

Steve Jobs:

  • Visionary
  • Product genius
  • Created things we didn't know we wanted
  • "You're gonna buy this"

Tim Cook:

  • Chief Operating Officer background
  • Brought business mindset
  • Took Apple to next level
  • "Brought the business mindset, not just the vision"

Key Learning: Need both vision (strategy) and operational excellence (tactics/implementation)

The Discipline of Strategy​

Hardest Parts:

  1. Sticking with strategy long-term
  2. Resisting temptation to do everything
  3. Making and maintaining trade-offs
  4. Knowing when to change vs. when to persist

Success Factors:

  • Clear articulation of strategy
  • Alignment throughout organization
  • Consistent implementation
  • Periodic strategic review
  • Willingness to adapt when necessary