Chapter 6 Strategic Management

Competitive Advantage The objective of strategic management is to determine, create and maintain competitive advantages. 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 five qualities Non-substitutability Appropriability Superiority Inimitability Durability ©2005 Prentice Hall

Five Qualities that Lead to Competitive Advantage Superiority Superiority Are you significantly better than your competitors? At what things are you better? ©2005 Prentice Hall

Five Qualities that Lead to Competitive Advantage Superiority Inimitability Managers must create barriers that make it hard for others to copy their superiority advantages Culture Product design Marketing strategy And others Inimitability ©2005 Prentice Hall

Five Qualities that Lead to Competitive Advantage Superiority Durability (long lasting) Legally protected Patents Copyrights Brand names Well-established Brand image Reputation for quality Inimitability Durability ©2005 Prentice Hall

Five Qualities that Lead to Competitive Advantage Superiority Non-substitutability Can the customer’s need that you fulfill can be met by alternative means? Encyclopedias vs. information availability on the Internet Movie theater entertainment vs. concert band entertainment Inimitability Durability Non-substitutability ©2005 Prentice Hall

Five Qualities that Lead to Competitive Advantage Superiority Appropriability Can you actually capture the profits that can be made in the business? Supernormal returns Profits that are above the average for a comparable set of firms Primarily a function of greater‑than‑average cost‑price margins Inimitability Durability Non-substitutability Appropriability ©2005 Prentice Hall

Strategic Management Process: Setting Direction Strategic management process is a planning process in which managers Set the organization's general direction and objectives Formulate a specific strategy Plan and carry out the strategy’s implementation Monitor results and make necessary adjustments ©2005 Prentice Hall

Strategic Management Process Determine strategic intent Strategic Management Process Define organizational mission Analyze environment Set objectives Determine requirements Assess resources Develop action plans Implement plans Strategic Planning Monitor outcomes Feedback ©2005 Prentice Hall Adapted from Exhibit 6.1: Strategic Management Process

Strategic Management Process: Setting Direction Strategic Intent Strategic intent: what the organization ultimately wants to be and do General identity, direction, and level of aspirations of the organization A key objective is to inspire Should paint a general picture of aspiration and engender a strong emotional response in just a few words—a strategic stretch ©2005 Prentice Hall

Strategic Intent Ford—be the number one automotive company in the world. British Airway—The World’s Favorite Airline. Xerox—The World’s Document Company. Kellogg’s—Kellogg’s Products on Every Table in the World. ©2005 Prentice Hall

Strategic Management Process: Setting Direction Mission Mission statement articulates the 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 ©2005 Prentice Hall

Shell Oil Company Vision—Our vision is to be the premier U.S. company with sustained world-class performance in all aspects of our business. Mission—Shell oil company is in business to excel in oil, gas, petrochemical, and related businesses in the U.S. and where we add value internationally. In doing so, our mission is to maximize long-term shareholder value by being the best at meeting the expectations of customers, employees, suppliers, and the public. ©2005 Prentice Hall

Strategic Management Process: Setting Direction Strategic Objectives Strategic objectives translate the strategic intent and mission of the firm 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 ©2005 Prentice Hall

Strategic Management Process: Setting Direction Strategic Objectives Strategic objectives address many issues, such as Revenue growth Profitability Customer satisfaction Market share Financial returns (e.g., return on equity, return on assets) Technological leadership Cash flow Operating efficiency (e.g., costs per unit, expense per employee) ©2005 Prentice Hall

Strategic Management Process: Formulating a Strategy Competitive strategy: determining how the company is going to compete and achieve its strategic objectives, mission, and ultimate strategic intent ©2005 Prentice Hall

Strategic Management Process: Formulating a Strategy Generic strategies Cost leadership Differentiation Scope ©2005 Prentice Hall

Generic Strategies and Scope General player whose product or service features command industry average prices but whose costs are significantly below the industry average. Example: Wal-mart Niche player with average prices and below-average costs that focuses on a segment of customers or a specific geography. Example: Columbia Sports Differentiation Cost Leadership Strategy General player whose product or service features command premium prices and whose costs are at the industry average. Example: Sony Niche player with average costs but commanding premium prices that focuses on the high end and customers in a general or specific geography. Example: Morgan Motors General Focused Scope ©2005 Prentice Hall Adapted from Exhibit 6.3: Generic Strategies and Scope

Strategic Management Process: Formulating a Strategy Internal and external analysis Tools and concepts Environmental analysis Value proposition Organizational analysis Value chain Five primary activities Four support activities ©2005 Prentice Hall

The Value Chain Primary Activities Firm infrastructure (e.g., Finance, Planning) Human resource management Support Activities Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales After-sale service Primary Activities ©2005 Prentice Hall Adapted from Exhibit 6.5: The Value Chain

Strategic Management Process: Formulating a Strategy Leveraging the value chain Determine where in your value chain you have the potential to add the greatest value Segment business activities, see the important linkages and make adjustments Resource-based approach Recognize and exploit internal strengths of the company ©2005 Prentice Hall

Strategic Management Process: Formulating a Strategy Core competencies Are interrelated sets of activities that deliver competitive advantages in the short-term and long-term Provide access to a wide variety of markets Significantly contribute to perceived customer benefits of the end products or services Are difficult for competitors to imitate ©2005 Prentice Hall

COMPETITIVE ADVANTAGE TM 7-4 SWOT ANALYSIS Strengths Opportunities Weaknesses Threats COMPETITIVE ADVANTAGE ©2005 Prentice Hall Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998 3 3 3 4

Integrating Internal and External Analyses SWOT Analysis Internal environment Strengths Weaknesses Tools Core competencies framework Resource analysis framework Value chain framework Internal Environment SW ©2005 Prentice Hall

Integrating Internal and External Analyses SWOT Analysis External environment Opportunities Threats Tools Product life cycle analysis Portfolio analysis Five forces framework SW OT External Environment ©2005 Prentice Hall

Integrating Internal and External Analyses Portfolio Analysis High Low Relative Market Share Market Attractiveness BCG Matrix ©2005 Prentice Hall Adapted from Exhibit 6.8: BCG Matrix

Integrating Internal and External Analyses Portfolio Analysis High Low Relative Market Share Market Attractiveness BCG Matrix Our Ability To Compete ©2005 Prentice Hall Adapted from Exhibit 6.9: International Matrix

Integrating Internal and External Analyses Product Life Cycle Birth Growth Maturity Decline High Low Investment sales Time ©2005 Prentice Hall Adapted from Exhibit 6.6: Product Life Cycle

Integrating Internal and External Analyses Product Life Cycle High Low Sales Time ©2005 Prentice Hall Adapted from Exhibit 6.7: International Product Life Cycles

Strategic Management Process: Strategy Implementation Seven S’s Structure Strategy Plan or course of action Allocation of firm’s resources to reach goals Structure Basic grouping of reporting relationships and activities Linking of separate organizational entities Adapted from Exhibit 6.10: Seven S Model ©2005 Prentice Hall

Strategic Management Process: Strategy Implementation Seven S’s Structure Shared Values Significant meanings or guiding concepts Shared values Systems Systems Formal processes and procedures Management control systems Performance measurement and reward systems Planning and budgeting systems The ways people relate to them ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model

Strategic Management Process: Strategy Implementation Seven S’s Skills Structure Skills Organizational competencies Other capabilities residing in the organization Shared values Systems Style Style Leadership style of management Operating style of the organization Reflection of the norms people act upon ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model

Strategic Management Process: Strategy Implementation Seven S’s Skills Structure Staff Recruitment Selection Development Socialization Advancement of people in the organization Shared values Staff Systems Style This is the last slide in the presentation. ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model