Strategic Management Review of the Basics Sharon F. Matusik, Ph. D. Rice University

What is Strategy? The creation of a unique and valuable position involving a different set of activities from those of your competitors. …choosing what to do and what not to do. Adapted from Michael Porter’s, “What is Strategy?” 1996.

Strategy Frameworks from Vault Guide Industry level analysis Porter’s 5 Forces PIE application Firm level analysis SWOT Core competencies Value Chain Seven S Model Other forms of analysis BCG 2x2 Matrix Benchmarking, best practices

Porter’s 5 Forces THE INDUSTRY Risk of Entry (Barriers to Entry) brand loyalty absolute cost advantages econ of scale, cap req’t government regulations distribution access Bargaining Power of Buyers High if: few large buyers product unimportant to output buyers purchase in large quantities and purchase large percentage of industry output low switching costs, little differentiation threat of vertical integration backward Bargaining Power of Suppliers High if: product has few substitutes and is important, few suppliers supplier has many other outlets for product high switching costs threat of vertical integration forward THE INDUSTRY Rivalry Among Established Firms competitive structure demand conditions exit barriers Threat of Substitute Products existence of different products that serve consumers’ needs in a similar way

Firm level analysis First, consider units of analysis Corporate level Business level Global level Implementation of strategy

Units of Strategic Analysis Corporate level strategy Level and type of diversification Business level strategy Low cost, differentiation, niche Variety, needs, access based Global level strategy Global, international, transnational, multi-domestic

Firm level analysis SWOT Firm level strengths and weaknesses, matched to opportunities and threats from competitive environment Opportunities and threats “Core competency” analysis Strengths & weaknesses

Strategies: Mission, Goals Internal Analysis (strengths, weaknesses) Strategic Choice (SWOT) External Analysis (opportunities, threats) Strategies: --Corporate Level undiversified, diversified --Global transnational, global, intl, multidomestic --Business Level low cost, differentiate, niche/focus OR variety, needs, and access based Strategy Implementation: Match Strategy, Structure, Controls

Pursuing Competitive Advantage: Core Competencies imitability Assets Core Competencies ↓ Core Products Super-normal profits Competitive Advantage: Tangible Intangible …leading to… --Valuable *market access *contributes to perceived customer value --Rare --Difficult to Imitate --Nonsubstitutable Capabilities

Company infrastructure Value Chain Chain of activities to transform inputs into outputs that customers value. Support Activities Company infrastructure Human resources Materials management Primary Activities Mktg & Sales R&D Production Services

Seven S Model: Organizational Alignment Staff Style Shared Values Systems Strategy Skills Formal Structure Environment

Other Tools/Models Vault Analyses Others BCG 2X2 Matrix Benchmarking, best practices Others Game Theory Stakeholder Analysis Aligning Corporate Strategy: Resource continuum

Assumes interdependence among players Game Theory Assumes interdependence among players Allocentrism vs. egocentrism Consider how you can shape the game, don’t just play the game you find

Game Theory Elements of the game Players Added value Rules Tactics capturing vs. creating value Rules Tactics Scope

Potential to Cooperate STAKEHOLDER ANALYSIS Potential to Threaten STAKEHOLDER TYPE 4 MIXED BLESING STRATEGY: COLLABORATE STAKEHOLDER TYPE 1 SUPPORTIVE INVOLVE STAKEHOLDER TYPE 3 NONSUPPORTIVE DEFEND STAKEHOLDER TYPE 2 MARGINAL MONITOR High Low Potential to Cooperate ? From Savage, Nix, Whitehead & Blair, 1991

The Resource Continuum general nature of resources specialized wide scope of businesses narrow transferring coordination mechanisms sharing (continued)

The Resource Continuum general nature of resources specialized financial control systems operating small corporate office size large