CLASS 8-9 CORPORATE STRATEGY

OBJECTIVES 12345Understand why we study strategic managementRecognize the difference between a fundamental and a dynamic competitive advantageDescribe the determinants of competitive advantageUnderstand the relationship between strategy formulation and implementationUnderstand what a strategy is and identify the difference between business-level and corporate-level strategy

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A TALE OF TWO STORES18911970199020051924Sears launches catalog businessMoves into on-premise retailing/General Robert Wood takes over1960Experts believe Sears way was the only way to compete The paragon of retailers20001980Acquired by KMart1970Sam Walton opens first Wal-Mart with focus on low-prices30 stores located in one-horse towns which everybody else was ignoring; Sam Walton196220001980Invests $500 million in inventory management technology

TWO RETAILERS AT A GLANCESears Wal-MartYear founded18911962Stores 1980Stores 200486420266005289Revenues 1980Revenues 2004$25,194 million$36,100 million$1,643 million$285,222 millionNet profits 1980Net profits 2004606M (2.4% return on sales)507M (-1.4% return on sales)$55 M(3.3% return on sales)$10,267 M (3.6% return on sales)Market capitalization 1980Market capitalization 2004USD 4.8 billionUSD 12.2 billionUSD 1 billionUSD 200.2 billion

A TALE OF TWO RETAILERS PERFORMANCE MEASURESUSD millions

THREE OVERARCHING THEMES

Implementing a good strategy is at least as important as creating one, yet many managers give too little thought to implementationStrategic leadership is responsible for

making substantive resource allocation decisions and

developing key-stakeholder support of the strategy

We need to see a firms competitive position, not as a snapshot, but as an ongoing movieFirms and industries are dynamic in natureTo succeed,the formulationof a good strategy and its implementa-tion should be inextricably connectedStrategic leader-ship is essential if a firm is able to both formulate and imple-ment strategies that create value

STRATEGYGeneralLower officer (e.g., supply logistics infantry, heavy armored vehicles)Strategos: the generals viewHolistic big pictureTactical details

THE STRATEGIC MANAGEMENT PROCESSStrategic analysesInternal

External

Vision and missionFundamental organizational purpose

Organizational values

StrategyArenasVehiclesDifferentiatorsStagingEconomic logic

The central, integrated, externally oriented concept of how a firm will achieve its objectivesImplementation levers

and

Strategic leadership

QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGYUnit of measure??Corporate-level strategy should askIn which markets do we compete today?In which markets do we want to compete tomorrow?How does our ownership of a business ensure its competitiveness today and in the future?

How do we compete in this market today?How will we compete in this market in the future?

Business-level strategy should ask

STRATEGY AND IMPLEMENTATION ITERATEWAL-MART EXAMPLEStrategy:The process of deciding what to doImplementation:The process of performing all the activities necessary to do what has been plannedCompete as discount retailer in rural marketsLeverage inventory and sourcing systems to be low-cost leaderInvest heavily in organizational structure, systems, and processes

UNPLANNED ACTIONS CAN DRIVE STRATEGYIntels original focus (1970s & 1980s)Design and manufacture of Dynamic, Random-Access Memory Chips (DRAM)Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker

BUSINESS STRATEGY DIAMONDStagingDifferentiatorsEconomic logicVehiclesArenas

PROFITABILITY AND MARKET VALUATION OF US AIRLINE INDUSTRYProfitabilityMarket valuation

JET BLUE STRATEGYArenasLow fare commercial air carrierUnderserved but over-priced US cities

VehiclesStart from scratch and achieve all growth internally (i.e., do not purchase a regional airline)

DifferentiatorsHigh level of service compared to low fare competitors (e.g., leather seating, satellite TV)

StrategyGrow from one route between two cities to serving 20 cities in just 3 years

Economic logicSecure cost advantage by being willing and able to perform key tasks differently

One type of planJFK home baseSecondary location

GOALS OF STRATEGY IMPLEMENTATION

IMPORTANCE OF EXECUTIONThe important decisions, the decisions that really matter, are strategic . . . [But] more important and more difficult is to make effective the course of action decided upon. Peter Drucker

FRAMEWORK FOR STRATEGY IMPLEMENTATIONIntendedStrategyRealizedandEmergentStrategiesKey Factors of Strategy ImplementationImplementation leversOrganizational structureSystems and processesPeople and rewards

Strategic leadershipLever- and resource-allocation decisionsDecision support among stakeholders

IMPLEMENTATION LEVERSDescriptionImplementationleversStructure is the manner in which responsibilities, tasks, and people are organized. It includes the organizations authority structure, hierarchy, units, divisions, and coordinating mechanisms OrganizationalstructureSystems are all the organizational processes and procedures usedin daily operations. These include control and incentive systems, resourceallocation procedures, information systems, budgeting,and distribution Systems andprocessesThe people and rewards lever points to the importance of using all organization members to implement a strategy. Competitive advantage is generally tied to your human resources. Successful implementation depends on having the right people and then developing and training them in ways that support the firms strategy. In addition, rewards how you pay your people can accelerate the implementation of your strategy or undermine it People andrewards

COMPETITIVE ADVANTAGE

THREE PERSPECTIVES OF COMPETITIVE ADVANTAGEDynamicSuggests that in dynamic, rapidly changing markets, a firms current market position is not an accurate prediction of future performance. Instead, we look at the past for clues about how the firm arrived at its current position and to future trends both internal and external in an effort to predict the future landscapeInternalOften called the resource view, contends that firms are heterogeneous bundles of resources and capabilities and firms with superior resources and capabilities enjoy competitive advantage over other firms. This advantage makes it relatively easier to achieve consistently higher levels of performanceExternalAlso called the positional view, contends that variations in a firms competitive advantage and performance are primarily a function of industry attractiveness. Companies should therefore either (1) position themselves to compete in attractive industries or (2) adopt strategies that will make their current industries more attractive

SUMMARY

REVIEW QUESTIONS?What is strategic management?

What are the key components of the strategic management process?

How does business strategy differ from corporate strategy?

What is the relationship between strategy formulation and strategy implementation?

What are the five elements of the strategy-formulation diamond model?

What are the internal and external perspectives on competitive advantage?

What are the fundamental and dynamic perspectives on competitive advantage?

Why should you study strategic management?

GROUP ACTIVITYIdentify the characteristics of a firm at which group members would like to work. Then select an example of a firm that fits your description. What is the difference between business and corporate strategy at this firm? How could this difference affect the experiences and opportunities that you might gain by working for this firm? Finally, taking advantage of your insight into the firms strategy, construct a high-impact job-application cover letter.

GROUP ACTIVITYIdentify a firm that may be thinking of expanding into new international markets. Apply the staging element of the strategy diamond to the firms expansion opportunities or plans. Which markets should it target first and why? How will international expansion be related to the firms business and corporate strategies?