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Strategic Management:
Creating Competitive Advantages
Chapter 1 through 6Prepared by Shawna Chen
McGraw-Hill/Irwin All rights reserved.
A Hierarchy of Goals
Exhibit 1.6
2
Question
What are the criteria for meaningful strategic objectives? Hint:
• Page 31 Answers:
• Measurable• Specific• Realistic• Timely
3
Application
How should you proceed with final project? Hint:
• Caitlin’s house had a plumbing problem Solutions:
• 8 common types of challenges• Internal/external environment analyses• McKinsey’s 3 horizons or Deloitte’s growth framework
4
Application
8 common types of challenge Falling profits New product introduction Entering a new product/service market Entering a new geographic market Mergers & acquisitions Competitive response Government/regulatory environment response
5
Application
McKinsey’s 3 horizons
6
Application
Deloitte’s growth framework
7
STRATEGIC MANAGEMENT PROCESS
8
Business-Level Strategy:
Creating and Sustaining
Competitive Advantages
Chapter Five
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Question
Business-level strategyvs.
Corporate-level strategy
10
Question
What are 3 generic strategies?
11
Application:Combination Strategies
12
Exhibit 5.2
Application:Stages of the Industry Life Cycle
5-13
Exhibit 5.12
Question
Overall cost leadership Pros? (Hint: Porter’s 5 forces) Cons?
Differentiation Pros? Cons?
Focus Pros? Cons?
14
Overall Cost Leadership
Pros (5): Protects a firm against rivalry from competitors Protects a firm against powerful buyers Provides more flexibility to cope with demands
from powerful suppliers for input cost increases Provides substantial entry barriers from
economies of scale and cost advantages Puts the firm in a favorable position with respect
to substitute products
15
Overall Cost Leadership
Cons (5): Too much focus on one or a few value-chain
activities All rivals share a common input or raw material The strategy is imitated too easily A lack of parity on differentiation Erosion of cost advantages when the pricing
information available to customers increases
16
Differentiation
Pros (3): Creates higher entry barriers due to customer
loyalty Provides higher margins that enable the firm to
deal with supplier power Establishes customer loyalty and hence less
threat from substitutes
17
Differentiation
Cons (6): Uniqueness that is not valuable Too much differentiation Too high a price premium Differentiation that is easily imitated Diffusion of brand identification through product-
line extensions Perceptions of differentiation may vary between
buyers and sellers
18
Focus
Pros (2): Creates barriers of either cost leadership or
differentiation, or both Used to select niches that are least vulnerable to
substitutes or where competitors are weakest
19
Focus
Cons (3): Erosion of cost advantages within the narrow
segment Focused products and services still subject to
competition from new entrants and from imitation
Focusers can become too focused to satisfy buyer needs
20
Application:Internet-Enabled
Which generic strategy?
Answer: Focus
5-21
Application:Internet-Enabled
Which generic strategy?
Answer: Overall cost leadership
5-22
Application:Internet-Enabled
Which generic strategy?
Answer: Differentiation
5-23
Application:Team Exercise
Present your final project company’s “business-level” strategy
Critique If it fits vision If it’s a good combination If it suits product life cycle If it responses to the Internet era Can competitive advantage be sustained?
24
Corporate-Level Strategy: Creating Value
through Diversification
Chapter Six
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Question
Related diversificationVs.
Unrelated diversification
26
Related Diversification
Economic of scope Leveraging core competencies Sharing activities
Market power Pooled negotiating power Vertical integration
27
Question Which related diversification strategy Carpet Tech
uses?
Example of related diversification using economic of scope Procter & Gamble 3M
Example of related diversification using market power Automotive industry
28
ExampleU.S. Automobile Industry’s Profit Pool
5-29
Exhibit 5.8
Unrelated Diversification
Restructuring Definition? Example?
Parenting Definition? Example?
Portfolio management Definition? Example?
30
ExampleChurch & Dwight has a well balanced portfolio of
products, which includes Arm & Hammer Trojan condoms Oxi Clean AIM toothpastes First Response Nair Xtra laundry detergent Brillo
31Source: www.churchdwight.com
Application
What are the differences among: Holding company Investment company Conglomerate Keiretsu
6-32
Means to Achieve Diversification
Mergers and acquisitions (M&A)Pooling resources of other companies with a
firm’s own resource base Joint venture Strategic alliance
Internal development Corporate entrepreneurship
6-33
Question
What are the differences between merger and acquisition?
M&A Pros? Cons?
34
Mergers and Acquisitions
Pros Can be a means of obtaining valuable resources
that can help an organization expand its product offerings and services
Can lead to consolidation within an industry and can force other players to merge
Corporations can also enter new market segments by way of acquisitions
35
Mergers and Acquisitions
Cons Competing firms often can imitate any
advantages realized or copy synergies that result from the M&A.
There can be many cultural issues that may doom the intended benefits from M&A endeavors.
36
Question
What are the differences between joint venture and strategic alliance?
Joint venture & strategic alliance Pros? Cons?
37
Strategic Alliances and Joint Ventures
Pros Introduce successful product or service into a new
market• Lacks requisite marketing expertise
Join other firms to reduce manufacturing (or other) costs in the value chain• Pool capital, value-creating activities, facilities
Develop or diffuse new technologies• Use expertise of two or more companies• Develop products technologically beyond the capability of
the companies acting independently
38
Strategic Alliances and Joint Ventures
Cons Improper partner
• Each partner must bring desired complementary strengths to partnership
• Strengths contributed by each should be unique Partners must be compatible Partners must trust one another
39
Antitakeover Tactics
Greenmail payment by a firm to a hostile party for the firm’s stock at
a premium, made when the firm’s management feels that the hostile party is about to make a tender offer
Golden parachute a prearranged contract with managers specifying that, in
the event of a hostile takeover, the target firms managers will be paid a significant severance package
Poison pills Used by a company to give shareholders certain rights in
the event of takeover by a another firm
40
Application:Team Exercise
Find tv/movie moments as examples of Greenmail Golden parachute Poison pills
41