Man essentials ch4_new-1

Chapter 4:Strategic ManagementChapter 4:Strategic Management

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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

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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

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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

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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


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Rarity

How many other firms hold similar capabilities?

Rarity

How many other firms hold similar capabilities?


RarityRarity

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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


RarityRarity


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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


RarityRarity


Non-substitutabilityNon-substitutability

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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

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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

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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

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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

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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

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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

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General EnvironmentGeneral Environment

Sociocultural forces include:

Demographics

Societal values

Sociocultural forces include:

Demographics

Societal values

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Technology forces

Product technological changes

Process technological changes

Technology forces

Product technological changes

Process technological changes

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Economic forces

Current economic conditions

Economic cycles

Structural changes

Economic forces

Current economic conditions

Economic cycles

Structural changes

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Political and legal forces

Laws and regulations

Government spending

Political and legal forces

Laws and regulations

Government spending

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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

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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


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Industry and Competitive EnvironmentIndustry and Competitive Environment

SuppliersSuppliers CustomersCustomers

New EntrantsNew Entrants

Industrycompetitors

Rivalry amongexisting firms

SubstitutesSubstitutes

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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


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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


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The Value ChainThe Value Chain

Primary ActivitiesPrimary Activities

Su

pp

ort

Act

ivit

ies


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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

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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

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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

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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

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Formulating a Strategy Formulating a Strategy

Generic competitive strategies

Cost leadership

Differentiation

Focus

Generic competitive strategies

Cost leadership

Differentiation

Focus

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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

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Strategy ImplementationStrategy Implementation

StrategyStrategy

StructureStructure

SystemsSystems

SharedValuesSharedValues

SkillsSkills

StaffStaff

StyleStyle