Barney SMCA4 01

What is Strategy What is Strategy and the Strategic and the Strategic

Management Management Process?Process?

1-1-11Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

Chapter 1Chapter 1

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-22Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

1984 Profits: $242 Million

Theme Park Operations: 77 percent of profits

Consumer Products: 22 percent of profits

Filmed Entertainment: 1 percent of profits

Walt Disney Company

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-33Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Hired Michael Eisner - 1984

1. Increased admission prices at theme parks1984 - $186 m 1989 - $787 m

2. Focused on movie studios (character development)1984 - $2.42 m 1994 - $845 m

3. Diversified into television (ABC), hotels, retail stores,sport team, cruise line, publishing, consumerproducts, licensing, etc. (Huey & McGowan, 1995)

Walt Disney Company

Market Cap: 1984 = $2 billion 1994 = $28 billion

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-44Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Definition of Strategy

Strategy: A firm’s theory about how to gaincompetitive advantages

Eisner’s theory may have been:

People will pay a premium price for extraordinaryentertainment. We have the necessary resources tocreate extraordinary entertainment. Therefore, let’sredeploy our resources in a different way and offersomething extraordinary to people.

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-55Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Strategic Management Process

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-66Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

Mission

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-77Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Objectives:

• specific, measurable targets

• the things a firm needs to ‘do’ to achieveits mission

• should influence other elements in the strategicmanagement process

Example: Steelcon’s mission & objectives

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-88Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

External and Internal Analysis

External Analysis

Systematic Examinationof the Environment

Internal Analysis

• interest rates

• demographics

• social trends

• technology

• human resources(knowledge)

• manufacturingabilities

• technology

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-99Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Strategic Choice

ExternalAnalysis

InternalAnalysis

StrategicChoice

BusinessLevel

CorporateLevel

• positioninga business

• which businesses?

Example: Black & Decker

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1010Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Strategy Implementation

• how strategies are carried out

• who will do what

• organizational structure and control

• who reports to whom

• how does the firm hire, promote, pay, etc.

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1111Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

A Strategy Is Only As Good As Its Implementation

Strategy Implementation

The Strategic Management Process

• every strategic choice has strategy implementationimplications

• strategy implementation is just as important asstrategy formulation

Example: Gen. Lee at Gettysburg

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1212Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Competitive Advantage

Definition: the ability to create more economic valuethan competitors

• all other elements of the strategic managementprocess are aimed at achieving competitive advantage

Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1313Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

The Ability to Create More EconomicValue Than Competitors

• there must be something different about a firm’soffering vis-à-vis competitors’ offerings

• if all firms’ strategies were the same, no firmwould have a competitive advantage

• competitive advantage is the result of doingsomething different and/or better than competitors

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1414Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Two Types of Difference

1) Preference for the firm’s output

2) Cost advantage vis-à-vis competitors

• people choose the firm’s output over others’

• people are willing to pay a premium

• lower costs of production/distribution

Example: Nordstrom

Example: Wal-Mart

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1515Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

• identify and exploit differences that may leadto competitive advantage

Example: Apple’s iPod

The Strategic Management Process

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1616Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Q

P

D

MR

D

ATCMC

Q

P

(D=MR=Price)

Imperfect Competition Perfect Competition

Competitive Advantage

ATCMC

Competitive AdvantageEconomic Models

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1717Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Temporary & Sustainable

• competition limits the duration of competitiveadvantage in most cases

• profits attract competition

• competitive advantage typically results in high profits

Therefore,

• most competitive advantage is temporary

• competitors imitate the advantage or offersomething better

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1818Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Temporary & Sustainable

Some competitive advantages are sustainable if:

• competitors are unable to imitate the sourceof advantage

• no one conceives of a better offering

Of course,

• in time, even sustainable competitive advantagemay be lost

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-1919Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Competitive Parity

• the firm’s offerings are ‘average’

• people do not have a preference for the firm’s offering

• the firm does not have a cost advantage over others

• some things that may lead to competitive parity maystill be critical to success (e.g., telephones)

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2020Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Competitive Disadvantage

• people may have an aversion to the firm’s offering

• the firm may have a cost disadvantage

• a firm may have outdated technology/equipment

• a firm may have a negative reputation

Example: Wal-Mart’s Labor & Location Policies

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2121Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Measuring Competitive Advantage

Superior Economic Performance Is Viewed asEvidence of Competitive Advantage

• it is rather easy to see the evidence ofcompetitive advantage

• measuring the source of the advantage per seis typically impossible

• it’s difficult to ‘measure’ technology

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2222Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Two Classes of Measures:

1) Accounting Measures

2) Economic Measures

Competitive Advantage

Measuring Competitive Advantage

• ROA, ROS, ROE, etc. that exceed industryaverages

• earning a return in excess of the costof capital

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2323Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage

Competitive Advantage

Disadvantage

Parity

Advantage

Below Normal

Normal

Above Normal

Economic Returns

• exceeding expectations

• meeting expectations

• failing expectations

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2424Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage & The Strategic Management Process

Emergent vs. Intended Strategies

• the strategic management process leads managersto intended strategies

However,

• conditions often change or new informationbecomes available

• managers respond and adopt emergent strategies

Example: Honda Motorcycles

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2525Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Summary

Firms could achieve competitive parity and survive

• they would face a flat demand curve

• their cost structure would be the industry average

• they would need to adapt their strategy overtime just to survive

• they would fail if they didn’t adapt their strategy

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2626Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Summary

This course is not about mere survival, it is aboutthriving—achieving competitive advantage

• the strategic management process helps managersachieve competitive advantage

• competitive advantage depends on differences

• strategy is about discovering and exploiting these differences

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2727Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Q

P

D

MR

D

ATCMC

Q

P

(D=MR=Price)

ATCMC

The Strategic Management Process

Thriving! Surviving

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2828Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process

Applying Strategy to Your Career

• a solid understanding of strategy concepts willhelp set you apart from other job candidates

• you can use the process to identify andexploit difference between you and others

• you can use the process to determine if youwant to stay with a company

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-2929Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Strategic Management Process& Competitive Advantage

Strategy Matters!

• success and failure, between mediocrity and excellence

Strategy is often the difference between:

• a great manager and average managers

• stumbling through life and moving ahead with purpose

The Tools of Strategic AnalysisThe Tools of Strategic Analysis

1-1-3030Copyright © 2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the

United States of America.

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall