2. © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.6
chapter
Strategy
McGraw-Hill/Irwin
Principles of Management
© The McGraw-Hill Companies, Inc., All Rights Reserved.

3. Learning Objectives Define strategy.
Explain why the goal of strategy is to attain superior performance.
Describe what is meant by competitive advantage.
Explain how business-level strategy can lead to competitive advantage.
Explain how operations strategy can lead to competitive advantage.
Explain how corporate-level strategy can lead to competitive advantage.
See Text Page: 132

4. Strategy An action managers take to attain a goal of an organization.
Can occur at multiple levels within an organization (esp. Business and Corporate levels)
Learning Objective 1: Define strategy.
See Text Page: 134

5. Superior Performance High profitability Superior performance
requires …
High
profitability
Growth in
profits over
time
Learning Objective 2: Explain why the goal of strategy is to attain superior performance.
See Text Page: 135
Above performance – what kind of organization? What other criteria could we identify for other orgs?

6. Wal-Mart First year of operation – 1962 – Rogers, Arkansas
1960s – 15 Wal-Mart stores
– 276 stores with $1 billion in sales
1989 – 1,400 stores with $26 billion in sales
1983 – SAM’s Club
1988 – Supercenters
Today -- More than 1.8 million associates worldwide, nearly 6,500 stores and wholesale clubs across 15 countries, and over $312 billion in sales.
Learning Objective 2: Explain why the goal of strategy is to attain superior performance.
Wal-Mart
This slide presents the Wal-Mart’s growth story.
Ask the students – What would they attribute Wal-Mart’s success to? (Superior performance driven by low prices, growth, and profitability.)
Ask the students – how does shopping at Wal-Mart compare to other stores such as K-Mart or Target? What would be the competitive advantage of each of these stores?
Source:

7. Competitive Advantage
Low costs
Distinctive
competencies
Superior
performance
Product
differentiation
Learning Objective 3: Describe what is meant by competitive advantage.
See Text Page: 136
If protected from copying by
barriers to imitation and
legacy constraints
competitive advantage
will be sustained

8. Competitive Advantage
Competitive advantage: Advantage obtained when a firm outperforms its rivals. (Ex. Lower costs, Product differentiation)
Distinctive competency: A unique strength that rivals lack. (p47)
Sustainable competitive advantage: A distinctive competency that rivals cannot easily match or imitate.
Barrier to imitation: Factors that make it difficult for a firm to imitate the competitive position of a rival. Ie. 3M
Legacy constraints: Prior investments in a particular way of doing business that are difficult to change and limit a firm’s ability to imitate a successful rival.
Learning Objective 3: Describe what is meant by competitive advantage.
See Text Pages:

9. Business-Level Strategy
Business-level strategy: Strategy concerned with deciding how a firm should compete in the industries in which it has elected to participate.
Low-cost strategy: Focusing managerial energy and attention on doing everything possible to lower the costs of the organization.
Economies of scale: Cost advantage derived from a large sales volume.
Differentiation strategy: Increasing the value of a product offering in the eyes of consumers.
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 137

10. Question
What type of business level strategy does Wal-Mart employ? Would Wal-Mart be successful, if it were to change its business-level strategy? Explain.
See Learning Objective 6: Discuss some of the challenges of managing in a global enterprise.
Question
Students should be able to argue that Wal-Mart employs a low-cost strategy by capitalizing on economies of scale, i.e., going after the volume. Wal-Mart would not succeed if it were to change to the differentiation strategy at this point.

11. The Low-Cost Value Cycles
Lower costs
Higher
profitability
and profit
growth
Economies
of scale
Lower prices
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 138
Increased
demand

12. Options for Exploiting Differentiation
Increase
prices more
than costs
Option 1
Successful
differentiation
Higher
profitability
and profit
growth
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 139
Option 2
Increased
demand
Moderate or
no price
increase
Economies of
scale and
lower costs

13. Segmenting the Market
Markets are characterized by different types of consumers.
Some are wealthy, some are not.
Some are old, some are not.
Some are influenced by popular culture, some never watch TV.
Some care deeply about status symbols, others do not.
Some place a high value on luxury, some on value of money.
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Pages:

14. Consumer Markets Consumer markets segmentation characteristics:
Geographic
Demographic
Psychographic
Behavioralistic
Cultural
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
Consumer Markets
This slide presents the four characteristics of consumer market segmentation.
Ask the students what additional subsets under each may be appropriate for businesses to explore?
Geographic – examples of variables used – regions, size of the metropolitan city, population density, and climate
Demographic – examples of variables used – age, gender, occupation, social class, income group, etc.
Psychographic – examples of variables used – activities, interests, opinions, values, etc.
Behavioralistic – examples of variables used – usage rate, brand loyalty, readiness to buy, occasions such as holidays, etc.
Source:
Source:

15. What consumer market segment do you belong to?
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
Consumer Markets
This slide presents the four characteristics of consumer market segmentation.
Ask the students what additional subsets under each may be appropriate for businesses to explore?
Geographic – examples of variables used – regions, size of the metropolitan city, population density, and climate
Demographic – examples of variables used – age, gender, occupation, social class, income group, etc.
Psychographic – examples of variables used – activities, interests, opinions, values, etc.
Behavioralistic – examples of variables used – usage rate, brand loyalty, readiness to buy, occasions such as holidays, etc.
Source:
Source:

16. Choosing Segments to Serve
Focus Strategy: Serving a limited number of segments.
Broad market strategy: Serving the entire market.
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 140

17. Types of Business-Level Strategy
Broad low cost
Broad differentiation
Many
Segments served
Focused low cost
Focused differentiation
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 141
Few
Low cost
Differentiation
Competitive theme

18. Business-Level Strategy and the US Retail Clothing Industry
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 141
Answer: A

19. US Retail Clothing Industry Efficiency Frontier
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 141
Answer: A

20. Value Innovation and the Efficiency Frontier
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 141
Answer: A

21. Question
In the retail industry sector, Wal-Mart could be described as following ________ strategy, whereas Nordstrom could be described as following _________ strategy.
broad low cost; broad differentiation
focused low cost; broad low cost
broad differentiation; broad low cost
focused differentiation; focused low cost
Learning Objective 4: Explain how business-level strategy can lead to competitive advantage.
See Text Page: 141
Answer: A

22. Configuring the Value Chain
Primary activities: Activities having to do with the design, creation, and delivery of the product; its marketing; and its support and after sales services.
Support activities: Activities that provide inputs that allow the primary activities to occur.
Organization architecture: The operations of the firm are embedded within the internal organization architecture of the enterprise, which includes the organization structure, incentives, control systems, people, and culture of the firm.
Learning Objective 5: Explain how operations strategy can lead to competitive advantage.
See Text Pages:

23. Strategic Fit Operations Supports strategy Industry conditions
Business-
level
strategy
Supports
Fits
Learning Objective 5: Explain how operations strategy can lead to competitive advantage.
See Text Page: 147
Internal
organization
architecture
Supports

24. Competitive Tactics
Competitive tactics: Actions that managers take to try to outmaneuver rivals in the market.
Tactical pricing decisions:
- Price war
- Price signaling
- Razor and razor blade pricing
Tactical Product decisions:
- Product proliferation
- Bundling
Learning Objective 5: Explain how operations strategy can lead to competitive advantage.
See Text Pages:

25. Corporate-Level Strategy
Corporate-level strategy: Strategy concerned with deciding which industries a firm should compete in and how the firm should enter or exit industries.
Vertical integration: Moving upstream into businesses that supply inputs to a firm’s core business or downstream into businesses that use the outputs of the firm’s core business.
Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage.
See Text Pages:

26. Disney
Is Disney (a diversified entertainment company) vertically integrated?
Domestic and international cable networks
TV production and distribution
Internet and mobile operations
Theme parks, hotels, restaurants, and cruise line
Animated motion pictures and licensing
Disney Stores and Web sites
Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage.
Disney
This slide offers a brief profile of Disney – the diversified entertainment company.
For a more detailed profile, please visit the Disney web site or on yahoo’s finance site.
Ask the students to explore looking at the company from a vertical structure viewpoint and it becomes evident that the Disney is a vertically integrated company that controls or partners with the content providers and well the distributors.
Source: finance.yahoo.com

27. Diversification Diversification: Entry into new business areas.
Related diversity: Diversification into a business related to the existing business activities of an enterprise by distinct similarities in one or more activities in the value chain.
Unrelated diversity: Diversification into a business not related to the existing business activities of an enterprise by distinct similarities in one or more activities in the value chain.
Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage.
See Text Page: 150

28. International Business Strategies
Need for Local Responsiveness
Low
High
Semiconductors
Watches
Civil Aircraft
Automobiles
Telecommunications
Aerospace
White Goods
Packaged Foods
Funeral Homes
Cement
Need for Vertical Integration
Global Industries
Multidomestic Industries
Regional Industries
Slide 8-7
INTERNATIONAL MANAGEMENT 5/e
Beamish, Morrison, Inkpen and Rosenzweig
McGraw-Hill
© 2003 The McGraw-Hill Companies, Inc. All rights reserved.