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Chapter 4:Strategic ManagementChapter 4:Strategic Management
2
Learning ObjectivesLearning Objectives
After studying this chapter, you should be able to:
Explain what a competitive advantage is and identify its components
Describe the strategic management process
Explain the role an environmental analysis plays in strategy formulation
List and describe the five dimensions of the general environment
Explain the five forces in the industry and competitor environments
After studying this chapter, you should be able to:
Explain what a competitive advantage is and identify its components
Describe the strategic management process
Explain the role an environmental analysis plays in strategy formulation
List and describe the five dimensions of the general environment
Explain the five forces in the industry and competitor environments
3
Learning ObjectivesLearning Objectives
Discuss how to conduct an internal analysis of a firm’s resources using value chain analysis
Utilize SWOT analysis to describe the organization’s conditions and select the best strategy
Identify and explain business-level, generic strategies
Describe strategic actions used in strategy implementation such as acquisitions and strategic alliances
Discuss how to conduct an internal analysis of a firm’s resources using value chain analysis
Utilize SWOT analysis to describe the organization’s conditions and select the best strategy
Identify and explain business-level, generic strategies
Describe strategic actions used in strategy implementation such as acquisitions and strategic alliances
4
Competitive AdvantageCompetitive Advantage
Competitive advantage
The ability of a firm to win consistently over the long term in a competitive situation
Competitive advantage is created through the achievement of four qualities
Competitive advantage
The ability of a firm to win consistently over the long term in a competitive situation
Competitive advantage is created through the achievement of four qualities
Superior ValueSuperior Value
RarityRarity
Difficult to ImitateDifficult to Imitate
Non-substitutabilityNon-substitutability
5
Qualities Leading to Competitive AdvantageQualities Leading to Competitive Advantage
Superior value
Firm provides products and services that produce value that is superior to competitors
Comparative advantage- Compared to others, the
value is superior
Distinctive competence- Superior product is result
of a unique competence
Superior value
Firm provides products and services that produce value that is superior to competitors
Comparative advantage- Compared to others, the
value is superior
Distinctive competence- Superior product is result
of a unique competence
Superior ValueSuperior Value
6
Qualities Leading to Competitive AdvantageQualities Leading to Competitive Advantage
Rarity
How many other firms hold similar capabilities?
Rarity
How many other firms hold similar capabilities?
Superior ValueSuperior Value
RarityRarity
7
Qualities Leading to Competitive AdvantageQualities Leading to Competitive Advantage
Difficult to imitate
Managers must create barriers that make it hard for others to copy their superiority advantages- Culture- Product design- Marketing strategy- And others
Difficult to imitate
Managers must create barriers that make it hard for others to copy their superiority advantages- Culture- Product design- Marketing strategy- And others
Superior ValueSuperior Value
RarityRarity
Difficult to ImitateDifficult to Imitate
8
Qualities Leading to Competitive AdvantageQualities Leading to Competitive Advantage
Non-substitutability
Can the customer’s need be met by alternative means?- Encyclopedias vs.
information on Internet- Movie theater
entertainment vs. concert band entertainment
Non-substitutability
Can the customer’s need be met by alternative means?- Encyclopedias vs.
information on Internet- Movie theater
entertainment vs. concert band entertainment
Superior ValueSuperior Value
RarityRarity
Difficult to ImitateDifficult to Imitate
Non-substitutabilityNon-substitutability
9
Turning a Competitive Advantage into ProfitsTurning a Competitive Advantage into Profits
A competitive advantage should generate above-average returns: profits that are greater than the average for a comparable set of firms
A competitive advantage should generate above-average returns: profits that are greater than the average for a comparable set of firms
10
Strategic Management Process: Setting DirectionStrategic Management Process: Setting Direction
Strategic management process is a planning process in which managers:
1. Set the organization's general direction and objectives
2. Formulate a specific strategy
3. Plan and carry out the strategy’s implementation
4. Monitor results and make necessary adjustments
Strategic management process is a planning process in which managers:
1. Set the organization's general direction and objectives
2. Formulate a specific strategy
3. Plan and carry out the strategy’s implementation
4. Monitor results and make necessary adjustments
11
Strategic Management ProcessStrategic Management Process
Determine strategic visionDetermine strategic vision
Establish objectivesEstablish objectives
Formulate strategyFormulate strategy
Implement strategy• Action plans
• Implement plans• Monitor outcomes
Implement strategy• Action plans
• Implement plans• Monitor outcomes
Analyze internal resourcesAnalyze internal resourcesAnalyze external environmentAnalyze external environment
Adapted from Exhibit 5.1
Define organizational missionDefine organizational mission
12
Determining the Strategic VisionDetermining the Strategic Vision
Strategic vision: provides a view of the firm over the long term and what it should achieve in the future.
Strategic vision:- Provides general identity,
direction, and level of aspirations
- Is the heart of the strategy and strategic plan
- Is short and compelling
Strategic vision: provides a view of the firm over the long term and what it should achieve in the future.
Strategic vision:- Provides general identity,
direction, and level of aspirations
- Is the heart of the strategy and strategic plan
- Is short and compelling
13
Mission StatementMission Statement
Mission statement articulates fundamental purpose of the organization
Company philosophy
Company identity, or self-concept
Principal products or services
Customers and markets
Geographic focus
Obligations to shareholders
Commitment to employees
Mission statement articulates fundamental purpose of the organization
Company philosophy
Company identity, or self-concept
Principal products or services
Customers and markets
Geographic focus
Obligations to shareholders
Commitment to employees
14
External Environmental AnalysisExternal Environmental Analysis
Managers must conduct an analysis of the firm’s general environment:
Social/cultural
Technological
Economic
Political/legal
Global
Managers must conduct an analysis of the firm’s general environment:
Social/cultural
Technological
Economic
Political/legal
Global
TheFirm
Social/Cultural
Environment
Techno-logicalEnvironment
Political/Legal
Environment
GlobalEnvironment
EconomicEnvironment
15
General EnvironmentGeneral Environment
Sociocultural forces include:
Demographics
Societal values
Sociocultural forces include:
Demographics
Societal values
16
General EnvironmentGeneral Environment
Technology forces
Product technological changes
Process technological changes
Technology forces
Product technological changes
Process technological changes
17
General EnvironmentGeneral Environment
Economic forces
Current economic conditions
Economic cycles
Structural changes
Economic forces
Current economic conditions
Economic cycles
Structural changes
18
General EnvironmentGeneral Environment
Political and legal forces
Laws and regulations
Government spending
Political and legal forces
Laws and regulations
Government spending
19
General EnvironmentGeneral Environment
Global forces
Impact on and interaction with the other forces
Institutional forces
Physical forces
Global forces
Impact on and interaction with the other forces
Institutional forces
Physical forces
20
The General Environment of Coca-ColaThe General Environment of Coca-Cola
Coca-Cola
Social/Cultural
Environment
Techno-logicalEnvironment
Political/LegalEnvironment
• Baby boomers drink less• Immigrants drink less• Concern about recycling• Concerns about health
• New recycle-friendly canning technology• New promotion opportunities via the Internet
GlobalEnvironment
EconomicEnvironment
• Increased health standards for bottling• Stricter liability legislation
• Increase in acceptance of carbonated drinks in India and China• Easier consumer access to refrigeration
• Slow economic growth• Prospect of economic recovery
Adapted from Exhibit 5.3
21
Industry and Competitive EnvironmentIndustry and Competitive Environment
SuppliersSuppliers CustomersCustomers
New EntrantsNew Entrants
Industrycompetitors
Rivalry amongexisting firms
SubstitutesSubstitutes
22
Profits and Industry ForcesProfits and Industry Forces
Few competitors Quality-based
competition High entry barriers Few new entrants Many customers Fragmented
customers Many suppliers
Few competitors Quality-based
competition High entry barriers Few new entrants Many customers Fragmented
customers Many suppliers
Many competitors Price-based
competition Low entry barriers Many new entrants Many substitutes Few customers United customers Few suppliers
Many competitors Price-based
competition Low entry barriers Many new entrants Many substitutes Few customers United customers Few suppliers
Hig
her
Pro
fits
Lo
wer
Pro
fits
Adapted from Exhibit 5.4
23
Industry and Competitive Environment of JetBlueIndustry and Competitive Environment of JetBlue
JetBlue
Customers
Business travelersLeisure travelers
Customers
Business travelersLeisure travelers
Competitors
Rivalry: PriceNew entrants: FewSubstitutes: Video
conferencing
Competitors
Rivalry: PriceNew entrants: FewSubstitutes: Video
conferencing
Suppliers
Planes: AirbusJet fuel: many
supplierssuch as
Exxon Mobil
Suppliers
Planes: AirbusJet fuel: many
supplierssuch as
Exxon Mobil
Labor
No union representationAmple supply of pilots and flight attendants
Labor
No union representationAmple supply of pilots and flight attendants
Regulators
FAAAirport authorities
Regulators
FAAAirport authorities
StrategicPartners
No airline partnersInitial partnershipWith satellite TV provider
StrategicPartners
No airline partnersInitial partnershipWith satellite TV provider
Adapted from Exhibit 5.5
24
The Value ChainThe Value Chain
Primary ActivitiesPrimary Activities
Su
pp
ort
Act
ivit
ies
Adapted from Exhibit 5.6
25
Integrating Internal and External AnalysesIntegrating Internal and External Analyses
Internal environmentStrengthsWeaknessesTools- Core competencies
framework- Resource analysis
framework- Value chain framework
Internal environmentStrengthsWeaknessesTools- Core competencies
framework- Resource analysis
framework- Value chain framework
Internal Environment
SWOTSWOT
26
Integrating Internal and External AnalysesIntegrating Internal and External Analyses
External environment
Opportunities
Threats
Tools- Product life cycle analysis- Portfolio analysis- Five forces framework
External environment
Opportunities
Threats
Tools- Product life cycle analysis- Portfolio analysis- Five forces framework
External Environment
SWOTSWOT
27
Strategic ObjectivesStrategic Objectives
Strategic objectives translate the strategic intent and mission into concrete and measurable goals
Facilitates a firm's ability to
- Allocate resources appropriately
- Reach a shared understanding of priorities
- Delegate responsibilities
- Hold people accountable for results
Strategic objectives translate the strategic intent and mission into concrete and measurable goals
Facilitates a firm's ability to
- Allocate resources appropriately
- Reach a shared understanding of priorities
- Delegate responsibilities
- Hold people accountable for results
28
Formulating a Strategy Formulating a Strategy
Competitive strategy: determining how the company is going to compete and achieve its strategic objectives, mission, and ultimate strategic intent
Generic strategies
Techniques and tools
Competitive strategy: determining how the company is going to compete and achieve its strategic objectives, mission, and ultimate strategic intent
Generic strategies
Techniques and tools
29
Formulating a Strategy Formulating a Strategy
Generic competitive strategies
Cost leadership
Differentiation
Focus
Generic competitive strategies
Cost leadership
Differentiation
Focus
30
Generic Strategies and ScopeGeneric Strategies and Scope
General player whose productor service features commandindustry average prices but
whose costs are significantlybelow the industry average
Example: Wal-Mart
General player whose productor service features commandindustry average prices but
whose costs are significantlybelow the industry average
Example: Wal-Mart
Niche player with average Prices and below-average costs
That focuses on a segment ofcustomers or a specific
geography
Example: Columbia Sports
Niche player with average Prices and below-average costs
That focuses on a segment ofcustomers or a specific
geography
Example: Columbia Sports
General player whose productor service features commandpremium prices and whose
costs are at the industryaverage
Example: Sony
General player whose productor service features commandpremium prices and whose
costs are at the industryaverage
Example: Sony
Niche player with average costsbut commanding premium
prices that focuses on the highend and customers in a general
or specific geography
Example: Morgan Motors
Niche player with average costsbut commanding premium
prices that focuses on the highend and customers in a general
or specific geography
Example: Morgan Motors
ScopeScope
GeneralGeneral FocusedFocused
Dif
fere
nti
atio
nD
iffe
ren
tiat
ion
Co
st le
ader
ship
Co
st le
ader
ship
Str
ateg
yS
trat
egy
31
Strategy ImplementationStrategy Implementation
StrategyStrategy
StructureStructure
SystemsSystems
SharedValuesSharedValues
SkillsSkills
StaffStaff
StyleStyle
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