Speaker 1: 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. Thousands 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 6,500 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.