1. Strategic Management Walter J. Ferrier

2. Page 2 The Paper Fight Two stacks of paper Anything goes… … Go!

3. Page 3 The Paper Fight What happened?

4. Page 4 The Paper Fight What happened? Another round…?

5. Page 5 What is strategic management?

6. Page 6 Strategic Management…Action that Creates Value Pazzo’s Lynagh’s Pub Lynagh’s Pub

7. Page 7 Coke’s Strategic Actions Pepsi’s Strategic Actions Rivalry Competitive Outcomes Industry Characteristics Organizational Characteristics

8. Page 8 Strategic Management – Developing a set of coordinated and integrated capabilities, decisions, and actions required to achieve competitive advantage

9. Page 9 Profit = (Price – Cost) x Qty. …Action that Creates Value

10. Page 10 Strategic Management in the News Low price leader…Price cutting Differentiated player…Unique product or marketing M&A…Restructuring…Turnaround Alliance…Joint venture New international market…Off-shore manufacturing New plants & equipment…Efficient manufacturing Market pioneer…Innovator….New products

11. Page 11 Where Does Strategy Occur? CEO & Board of Directors Top Management Functional Management Marketing Production R&D Logistics Acct./Fin. Everyone else Strategy is everyone’s job

12. Page 12 Be strategy-savvy at Hitachi Top Management Don’t let you this be you. ?

13. Page 13 Start-ups, small business, autonomous business units YOU will be a top officer, strategist, decision- maker: –Pazzo’s vs. Joe Bologna’s vs. Domino’s –Lexington Brewing Co. vs. Anheuser-Busch –John’s Running Shop vs. Footlocker –Pannell’s Swim Shop vs. Dick’s Sporting Goods

14. Page 14 What do strategists do/think about? Strive for competitive advantage / above-average returns Assess external factors causing change Develop internal factors that create advantage Navigate stakeholder landscape Strategic management process… Five Stages

15. Page 15 What else…..? External Stuff Globalization Technological change Diverse and increasingly vocal and influential stakeholders Wall Street The Natural Environment Internal Stuff Building functional capabilities Organizational culture Leadership Strategic HRM Board of Directors Efficiency

16. Page 16 Levels of Strategy Corporate Strategy Business Strategy Functional Strategy Value can be created an any or all levels

17. Page 17 Corporate Strategy Decide scope/reach of the firm In which businesses or industries do we compete? GENERAL ELECTRIC Aircraft Engines Light Bulbs AppliancesPower Generation

18. Page 18 Corporate Strategy PROCTER & GAMBLE SoapsFoodBeveragesPaper Products

19. Page 19 Corporate Strategy PEPSI Carbonated Beverages Juices, Water, Sports drinks Snack Foods Fast Food

20. Page 20 COCA-COLA Carbonated Beverages Juices, Water, Sports drinks Corporate Strategy

21. Page 21 Corporate Strategy Hitachi Automotive Systems Power Systems Consumer Products Telecommunication Systems

22. Page 22 Business Strategy Since we’re in the XYZ industry, how do we compete? Profit = (Price – Cost) x Qty. Cost advantage Size advantage Differentiation advantage Positional advantage…New market space Bridge converging industries

23. Page 23 Functional Strategy Given our choice of corporate- and/or business-level strategy… – Marketing – Production – R&D – Human resource management – Finance How do we coordinate and integrate business functions to carry out the strategy? What functional changes or innovations are required to improve the strategy?

24. Page 24 Strategy as Heuristic

25. Page 25 Situation Analysis

26. Page 26 Hierarchy of External Influences Firm Social Economic Technical Global Political/Legal Five Forces Competitor Intelligence Industry Structure Strategic Groups Political/Legal

27. Page 27 Industry Vital Statistics Industry scope: How is the industry defined? What are its boundaries? General: Size, growth rate Key Players: Rivals, customers, suppliers, government agencies Structure: Fragmented vs. concentrated; vertically integrated, etc. Performance: Profit levels, trends, distribution of, variability of

28. Page 28 Life Cycle Stage Growth is Good Growth Rate Time

29. Page 29 Innovation Cycle Time Slow is good, unless you’re the one driving innovation Growth Rate Time t1t1 t2t2 t3t3

30. Page 30 Concentrated Structure Dominant Player No. 2 Fringe Players Concentrated is good, if you’re No. 1 or No. 2 …or, if you’re a smaller player in a protected niche

31. Page 31 Fragmented Structure No Dominant Player No Clear No. 2 Multiple Players Fragmented is good, if you’ve got the best strategy/technology

32. Page 32 Threat of Substitute Products Threat of New Entry Threat of New Entry Bargaining Power of Buyers Bargaining Power of Buyers Bargaining Power of Suppliers Bargaining Power of Suppliers (+) or (-) or no influence on... Profit = (P – C) x Qty. Intensity of Rivalry Intensity of Rivalry Porter’s Five-Forces of Industry Analysis

33. Page 33 Plays out in the following ways: * Jockeying for strategic position * Price competition * Advertising wars -- Coke vs. Pepsi * New product introductions – Cheerios cereal (14 types) Regular Cheerios Apple-Cinnamon Cheerios Honey-Nut Cheerios Frosted Cheerios Three-Grain Cheerios Cheerios with Berries (blueberry, strawberry, banana, mixed) Yogurt Cheerios (vanilla or straw) Fruity Cheerios (like Fruit Loops, only healthier) * Increasing consumer warranties or service Intensity of Rivalry Among Existing Competitors

34. Page 34 PEST Five Forces Situation Analysis Summary Grid

35. Page 35 PEST Five Forces Situation Analysis – Auto Industry

36. Strategic Map Strategic Dimension / Coordinate #1 Strategic Dimension / Coordinate #2

37. Strategic Map: Beer ( Pre-light / Pre-microbrew) Dark/Full Light Low PriceHigh Price Amber Regular

38. Strategic Map: Beer ( Current) Old Swill Guinness Blackened Voodoo Anchor Porter Amstel Cardinal Miller Lite Bud Light Sam Adams Bass Ale Pilsner Urquell Killian’s Red Red Wolf Amber Bock Lowenbrau Killian’s Brown Lowenbrau Dark Milwaukee’s Best Light Bud Miller Dark/Full Light Low PriceHigh Price Amber Regular

39. Strategic Map: Beer-like Beverages? Mike’s Hard Lemon Woodchuck Cider Smirnoff Ice New Strategic Dimension Dark/Full Light Low PriceHigh Price Amber Regular Guinness Blackened Voodoo Anchor Porter Sam Adams Bass Ale Pilsner Urquell Killian’s Red Red Wolf Milwaukee’s Best Light Bud Miller

40. Page 40 Resources and Capabilities

41. Page 41 Competitive Advantage: An Internal View What is a resource? What is a capability? What’s the difference: –Potential vs. Kinetic energy? How do resources and/or capabilities contribute to competitive advantage? –Decisions –Actions and maneuvers –Force, endurance

42. Page 42 Resources vs. Capabilities vs. Actions

43. Page 43 Inputs into a firm’s value-producing stream What a firm has Capital equipment Skills of employees Brand names Deep pockets Strategic alliancesResourcesResources

44. Page 44 The ability to integrate resources to achieve a desired objective What a firm can do Quick introduction of new products Preemptive price-cutting Attention-grabbing advertising CapabilitiesCapabilities

45. Page 45 Boxing Resources Boxer 1 6’6” tall 233 lbs Runs 24 mi./week Eats 240g protein/day Has 20/20 vision Quick reflexes Fought in 3 championship fights Coached by Cuban national team coach Boxer 2 5’10” tall 175 lbs. Practices yoga Likes to eat pasta and salad Has 20/100 vision, must wear contacts Just learned how to box Prefers to coach himself

46. Page 46 Boxing Capabilities Boxer 1 Longer punching reach Punches with great force, speed and power Endurance to compete aggressively for 10-round match Able to quickly move away from fierce attacks Able to quickly see and interpret rival’s hand, feet, and eye movements Able to blend own and coach’s experience for superior strategy and tactics Boxer 2 ??

47. Page 47 Support Activities Primary Activities Value Chain Analysis To identify which resources and capabilities can add value

48. Page 48 Inbound Logistics Support Activities Primary Activities

49. Page 49 InboundLogistics Operations Support Activities Primary Activities

50. Page 50 InboundLogistics Operations Outbound Logistics Support Activities Primary Activities

51. Page 51 InboundLogistics Operations OutboundLogistics Marketing & Sales Support Activities Primary Activities

52. Page 52 InboundLogistics Operations OutboundLogistics Marketing & Sales Service Support Activities Primary Activities

53. Page 53 InboundLogistics Operations OutboundLogistics Marketing & Sales Service Procurement Support Activities Primary Activities

54. Page 54 InboundLogistics Operations OutboundLogistics Marketing & Sales Service Procurement Technological Development Support Activities Primary Activities

55. Page 55 Technological Development Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service Human Resource Management Support Activities Primary Activities

56. Page 56 Technological Development Human Resource Management HQ: TMT & Firm Infrastructure Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service Support Activities Primary Activities

57. Page 57 Technological Development Human Resource Management HQ: TMT & Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Support Activities Primary Activities

58. Page 58 Competitive Strategy

59. Page 59 Business-level [Competitive] Strategy Since we’re in the XYZ industry, how do we compete? Profit = (Price – Cost) x Qty. Cost advantage Size advantage Differentiation advantage New market space Bridge converging industries

60. Page 60 Breadth of Competitive Scope Source of Competitive Advantage Broad Target Market Narrow Target Market Cost Low Cost Generic Business Level Strategies Uniqueness

61. Page 61 Low-Cost Strategy - Operational Advantage “Dell finds it hilarious that HP and Sony fund researchers to come up with new ideas.” “Steamrollered by Dell” Newsweek, February 21, 2005

62. Page 62 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Value Chain and Low Cost Strategy Value Chain and Low Cost Strategy

63. Page 63 Inbound Logistics Inbound Logistics Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Located in Close Proximity with Suppliers

64. Page 64 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Service MARGIN Relatively Few Management Layers to Reduce Overhead Effective Training Programs to Improve Worker Efficiency and Effectiveness Timing of Asset Purchases Efficient Plant Scale to Minimize Manufacturing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Frequent Evaluation Processes to Monitor Suppliers’ Performances Policy Choice of Plant Technology Organizational Learning Efficient Order Sizes Operations Efficient Plant Scale to Minimize Mfg. Costs Timing of Asset Purchases Policy Choice of Plant Technology Organizational Learning

65. Page 65 Technological Development Human Resource Management Firm Infrastructure Procurement Outbound Logistics Marketing & Sales Service MARGIN Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Frequent Evaluation Processes to Monitor Suppliers’ Performances Efficient Order Sizes Interrelationships with Sister Units Outbound Logistics Outbound Logistics Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs Efficient Order Sizes Interrelationships with Sister Units

66. Page 66 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Marketing & Sales Global Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Marketing & Sales

67. Page 67 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Service Effective Product Installations to Reduce Recalls Effective Product Installations to Reduce Recalls

68. Page 68 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Procurement Systems and Procedures to Find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Procurement

69. Page 69 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Technological Development Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes

70. Page 70 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Human Resource Management Consistent Policies to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness

71. Page 71 Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Firm Infrastructure Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs

72. Page 72 Breadth of Competitive Scope Source of Competitive Advantage Broad Target Market Narrow Target Market Cost Generic Business Level Strategies Uniqueness Cost Leadership Differentiation

73. Page 73 S OUTH W EST Differentiation Strategy – Uniqueness Advantage

74. Page 74 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Value Chain and Differentiation Strategy Value Chain and Differentiation Strategy

75. Page 75 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Service MARGIN Inbound Logistics Inbound Logistics Superior handling of incoming raw materials to minimize damage and improve the quality of the final product

76. Page 76 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Service MARGIN Operations Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products

77. Page 77 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Outbound Logistics Outbound Logistics Accurate and responsive order processing procedures Rapid and timely product deliveries to customers

78. Page 78 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Marketing & Sales Extensive personal relationships with buyers Strong Coordination among functions in R&D, Marketing and Product Development Premium Pricing

79. Page 79 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Service Complete field stocking of replacement parts

80. Page 80 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Technological Development Strong capability in basic research Investments in technol-ogies to produce highly differentiated products Coordination among R&D, marketing and product development Coordination among R&D, marketing and product development

81. Page 81 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Support Activities Human Resource Management Compensation programs which encourage worker creativity and productivity Extensive use of subjective performance measures Superior personnel training

82. Page 82 Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN Support Activities Firm Infrastructure A companywide culture emphasizing quality and innovation A companywide culture emphasizing quality and innovation Highly developed Information Systems to better understand customers’ purchasing preferences

83. Page 83 Marketing/Innovation Advantage

84. Page 84 Where’s the Differentiated Beef? Bluegrass Meadows Beef

85. Page 85 Still Perkin’ …but a little hurtin’

86. Page 86 Breadth of Competitive Scope Source of Competitive Advantage Broad Target Market Narrow Target Market Cost Generic Business Level Strategies Uniqueness Cost Leadership Differentiation Cost Leadership Focused Differentiation

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90. Page 90 Other Strategy Heuristics Corporate-level strategy –Management of portfolio of business units –Complementarities & synergies –Mergers & acquisitions Organizational structure & governance –Functional, product, or geographic organizational differentiation –Ownership & strategic discretion –Alliances and joint ventures International strategy –Foreign market entry modes –Operational standardization vs. national adaptations

91. Page 91 Razor Trials Try the razors Compare Evaluate Discuss on Thursday

92. Strategic Management …Questions?