Introduction to Strategic Management (continued) BM499 Strategic Management David J. Bryce September 5, 2002

Strategic Management StrategyProfit Strategy:Goal and set of policies or decisions designed to achieve competitive advantage in a particular marketplace Competitive Advantage:Ability to sustainably earn supernormal profit Firm Competitive Advantage Shareholder Value

Building Competitive Advantage Examples of Competitive Success Cost Changing the Rules of the Game Differentiation Southwest Airlines Wal-Mart IKEA Amazon.com Harley Davidson Toyota

The Goal of Strategy: Exploit the Conditions of Imperfect Competition Numerous sellers and buyers unable to affect price Numerous sellers and buyers unable to affect price Perfect Information Perfect Information Homogenous products Homogenous products No barriers to entry or exit; mobile resources No barriers to entry or exit; mobile resources Zero Economic Profits Few competitors, numerous suppliers and buyers Asymmetric Information Heterogeneous Products Barriers to entry Positive Economic Profits Perfect CompetitionImperfect Competition

SWOT

Portfolio Analysis Industry Growth Rate (in constant dollars) Circle size relative to annual revenue Relative Market Share highlow high low ? DOG STAR CASH COW

Five Forces for Industry Analysis Competitors/ Rivalry Suppliers Substitutes Buyers New Entrants

Porter: What is Strategy? Operational Effectiveness—doing it better or faster than rivals Operational Effectiveness—doing it better or faster than rivals This is NOT strategy --- It can often be imitated and is therefore unsustainable Strategic Positioning: Strategic Positioning: Perform different activities than rivals, or Perform different activities than rivals, or Perform similar activities in different ways Perform similar activities in different ways

Strategic Positioning Strategy is the creation of a unique and valuable position, involving a different set of activities than competitors Strategy is the creation of a unique and valuable position, involving a different set of activities than competitors 1. Serving few needs of many customers (Jiffy lube) 2. Serving broad needs of a few customers (Bryn Mawr Trust) 3. Serving broad needs of many customers in a narrow market (Carmike Cinemas)

Strategic Positioning (continued) Strategy requires trade-offs in competing— Choosing what not to do Strategy requires trade-offs in competing— Choosing what not to do e.g. Neutrogena soap says “no” to deodorizing e.g. Neutrogena soap says “no” to deodorizing e.g. Maytag acquired many brands and lost quality position e.g. Maytag acquired many brands and lost quality position

Strategic Positioning (continued) Strategy requires creating “fit” among a company’s activities Strategy requires creating “fit” among a company’s activities When Continental Lite tried to match a few of Southwest Airlines’ activities, but not the whole interlocking system, the results were disastrous 1. First Order fit: Simple consistency between activities and strategy 2. Second Order fit: Activities are reinforcing of one another