Strategic Management Strategic management requires an understanding of: Strategic management process How to develop an overall strategy Intended targets of the strategy

Competitive Advantage 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 four qualities Superior Value Rarity Difficult to Imitate Non-substitutability A competitive advantage should generate above-average returns: profits that are greater than the average for a comparable set of firms

Strategic Management Process: Setting Direction Strategic management process is a planning process in which managers: 1. Set the organization's general direction and objectives 2. Formulate a specific strategy 3. Plan and carry out the strategy’s implementation 4. Monitor results and make necessary adjustments

Strategic Management Process Determine strategic vision Establish objectives Formulate strategy Implement strategy Action plans Implement plans Monitor outcomes Implement strategy Action plans Implement plans Monitor outcomes Analyze internal resources Analyze external environment Adapted from Exhibit 5.1 Define organizational mission

Determining the Strategic Vision Strategic vision: provides a view of the firm over the long term and what it should achieve in the future. Strategic vision: –Provides general identity, direction, and level of aspirations –Is the heart of the strategy and strategic plan –Is short and compelling

Mission Statement Mission statement articulates 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

External Environmental Analysis Managers must conduct an analysis of the firm’s general environment: Social/cultural Technological Economic Political/legal Global The Firm Social/ Cultural Environment Techno- logical Environment Political/ Legal Environment Global Environment Economic Environment

Industry and Competitive Environment Suppliers Customers New Entrants Industry competitors Rivalry among existing firms Substitutes

Profits and Industry Forces Few competitors Quality-based competition High entry barriers Few new entrants Many customers Fragmented customers Many suppliers Many competitors Price-based competition Low entry barriers Many new entrants Many substitutes Few customers United customers Few suppliers Many competitors Price-based competition Low entry barriers Many new entrants Many substitutes Few customers United customers Few suppliers Higher Profits Lower Profits Adapted from Exhibit 5.4

The Value Chain Primary Activities Support Activities

Integrating Internal and External Analyses Internal environment Strengths Weaknesses Tools –Core competencies framework –Resource analysis framework –Value chain framework Internal Environment SWOT

Integrating Internal and External Analyses External environment Opportunities Threats Tools –Product life cycle analysis –Portfolio analysis –Five forces framework External Environment SWOT

Strategic Objectives Strategic objectives translate the strategic intent and mission 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 Strategic objectives translate the strategic intent and mission 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

Formulating a Strategy Competitive strategy: determining how the company is going to compete and achieve its strategic objectives, mission, and ultimate strategic intent Generic strategies Techniques and tools

Formulating a Strategy Generic competitive strategies Cost leadership Differentiation Focus Other generic competitive strategies Integrated Differentiation-Cost Leadership Multipoint Competition

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 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 Niche player with average Prices and below-average costs That focuses on a segment of customers or a specific geography Example: Columbia Sports General player whose product or service features command premium prices and whose costs are at the industry average Example: Sony 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 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 Scope General Focused Differentiation Cost leadership Strategy

Strategy Implementation Strategy Structure Systems Shared Values Shared Values Skills Staff Style