Organizations should make two types of decisions 1) Strategic decisions 2) Strategically driven decisions Company A Company B Company C

Strategic Management Defined decisions and actions required for the firm to create value and earn returns higher than those of competitors formulation and implementation of plans designed to achieve objectives unifying theme that gives coherence and direction to organizational/individual decisions game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage What is a competitive advantage?

Competitive Advantage When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitate

Competitive advantages become sustainable competitive advantages when rivals stop trying to replicate

The Strategic Management Process Strategic analyses Internal External Vision and mission Fundamental organizational purpose Organizational values Strategy Arenas Vehicles Differentiators Staging Economic logic The central, integrated, externally oriented concept of how a firm will achieve its objectives Implementation levers and Strategic leadership

Two levels of Strategy ? ? Corporate-level strategy In 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

What is Strategy? Strategy is not doing similar activities better than your rivals – that’s operational effectiveness continual improvement not a sustainable advantage industry-wide cost reductions do not lead to increased profitability examples: PCs, automobiles, airlines

What is Strategy? 1) Strategy is performing different activities or performing similar activities in a different way

What is Strategy? 1) Strategy is performing different activities or performing similar activities in a different way Strategy is about positioning a) Variety-based positioning offering a unique choice of goods/services - Chic-fil-a, GameStop b) Needs-based positioning serving most/all of a particular group of customers’ needs - Babies R Us c) Access-based positioning serving a set of customers that require unique access – Kinkos, Movie Gallery, Superette

What is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate vs.

Time Magazine So why haven't American, United, US Airways and the three other full-service carriers, which lost $11 billion last year and stand to lose an additional $5 billion this year, followed the lead of the profitable discounters by cutting costs and fares? Because that's not the way their business works. They have made, and lost, their money by providing the frequent departures, quick connections, spacious seats and other amenities that have been demanded by business flyers and charging them dearly for that service — more than five times the cost of a discount fare. HARD TO STRADDLE AND REPOSITION!

What is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate Tradeoffs arise from inconsistent image/reputation different activities, products, equipment, employees, skills, systems, machines priorities, internal coordination, and control

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

What is Strategy? 4) The desire to grow is most threatening to an effective strategy

What is Strategy? 4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages

Four Perspectives on Competitive Advantage Industrial/Organization (I/O) Economic Model – External Perspective Resource-Based View – Internal Perspective Dynamic Perspective – Combination of the two Stakeholder Approach

The Industrial/Organization (I/O) Model of Above-Average Returns Basic Premise of the I/O Model – to explain the dominant influence of the external environment on a firm's strategic actions and performance

The Industrial/Organization (I/O) Model of Above-Average Returns Underlying Assumptions That the external environment imposes pressures and constraints that determine the strategies resulting in above-average returns That most firms competing within a particular industry or industry segment control similar strategically relevant resources and pursue similar strategies in light of those resources

The Industrial/Organization (I/O) Model of Above-Average Returns Underlying Assumptions (cont.) That resources for implementing strategies are highly mobile across firms, and that due to this mobility any resource differences between firms will be short lived

The Industrial/ Organization (I/O) Model of Above- Average Returns

Michael Porter’s Five-Forces Model Reinforces the importance of economic theory Offers an analytical approach that was previously lacking in the field of strategy Describes the forces that determine the nature/level of competition and profit potential in an industry Suggests how an organization can use the analysis to establish a competitive advantage

The Resource-Based Model of Above-Average Returns Basic Premise of the Resource- Based Model – to propose that a firm's unique resources and capabilities should define its strategic actions and be used effectively to exploit opportunities in the external environment to ensure successful performance

The Resource-Based Model of Above- Average Returns Underlying Assumptions That the internal environment imposes pressures and constraints that determine the strategies resulting in above-average returns That most firms competing within a particular industry or industry segment control unique strategically relevant resources and pursue dissimilar strategies in light of those resources

The Resource-Based Model of Above- Average Returns Underlying Assumptions (cont.) That resources for implementing strategies are not highly mobile across firms, and that due to this immobility any resource differences between firms can be sustainable

The Resource- Based Model of Above- Average Returns

Dynamic Perspective Market dynamism renders advantages temporary Future advantages based on the ability of the firms resources and capabilities to develop a continuous flow of advantages

The Stakeholder Model of Responsible Firm Behavior and Firm Performance Basic Premise of the Stakeholder Model – to propose that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors

The Three Stakeholder Groups

Secondary Stakeholders Government entities and administrators Activists and advocacy groups Religious organizations Other nongovernmental organizations

The Stakeholder Model of Responsible Firm Behavior and Firm Performance

Ways Stakeholder Relationships Contribute to Competitive Advantage A trustworthy reputation draws valuable customers, suppliers, and business partners to acquire or develop competitive resources A trustworthy reputation attracts investors to offer financial resources Firms that have fair and respectful treatment of employee relationships attract high-quality human resources

Ways Stakeholder Relationships Contribute to Competitive Advantage Transactions costs associated with making and enforcing agreements can be reduced Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulations, legal suits and penalties, consumer dissatisfaction, employee work outages, or bad press)

Charting a Good Strategy The Strategy Diamond Arenas Vehicles Differentiators Staging & Pacing Economic Logic

Strategy Diamond Arenas Staging Differentiators Vehicles Economic Logic Strategy is an integrated set of choices….

Arenas Where are we going to be active? Product categories Channels Market Segments Geographic Segments Core Technologies Value-creating strategies Arenas Staging Differentiators Vehicles Economic Logic

Vehicles How are we going to get there? Means of participating in chosen markets Internal Development Joint Venture Licensing/Franchising Alliances Acquisition Arenas Staging Differentiators Vehicles Economic Logic

Differentiators Product/service attributes that beat competitors, for example… Image Customization Price Styling Product reliability Speed to market Safety Arenas Staging Differentiators Vehicles Economic Logic

Staging Timing, pace and sequencing of strategic moves When to launch moves Function of resources, urgency and market signals Arenas Staging Differentiators Vehicles Economic Logic

Economic Logic How will returns be obtained? Low cost through scale, scope design, or process advantages Premium prices through superior products or service Arenas Staging Differentiators Vehicles Economic Logic

JetBlu’s Strategy StagingVehicles Economic Logic Low-fare commercial airliner in underserved/overprices US markets, focusing on JFK Focused initial growth in NE corridor, with westward expansion Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV Completely internalized growth Low-costs through uniform, fuel- efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports Arenas

JetBlu’s Strategy Arenas Economic Logic Low-fare commercial airliner in underserved/overprices US markets, focusing on JFK Focused initial growth in NE corridor, with westward expansion Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV Completely internalized growth Low-costs through uniform, fuel- efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports Vehicles

JetBlu’s Strategy Arenas Differentiators Low-fare commercial airliner in underserved/overprices US markets, focusing on JFK Focused initial growth in NE corridor, with westward expansion Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV Completely internalized growth Low-costs through uniform, fuel- efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports

JetBlu’s Strategy Arenas Staging Low-fare commercial airliner in underserved/overprices US markets, focusing on JFK Focused initial growth in NE corridor, with westward expansion Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV Completely internalized growth Low-costs through uniform, fuel- efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports

JetBlu’s Strategy Arenas Economic Logic Low-fare commercial airliner in underserved/overprices US markets, focusing on JFK Focused initial growth in NE corridor, with westward expansion Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV Completely internalized growth Low-costs through uniform, fuel- efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports

Framework for Strategy Implementation Intended Strategy Realized and Emergent Strategies Key Factors of Strategy Implementation Implementation levers Organizational structure Systems and processes People and rewards Strategic leadership Lever- and resource-allocation decisions Decision support among stakeholders

Importance of execution “The 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

When asked what he thought of his team’s execution after another loss… “I’m in favor of it” – John McKay Coach, Tampa Bay Buccaneers

Hannibal facts: Second punic war ( BC) Success means controlling shipping in the Med Carthage (Tunis) in continual war with Rome Hannibal: Let’s go take care of this Elephants to Rome (Pyrenees, Alps) Controlled Rome 10 years Finally bailed; went back home (salt on land) Getting there with porters. Hire along way. Language differences. Need maps. Wrong language. Okay…align them On return: This isn’t a map of the Alps; it’s Pyrenees. The big picture stuff is more or less the same. Big picture sound enough to navigate the big stuff. That’s what we’re doing here.

It’s all about prioritizing…