Chapter 6

1. Chapter 6 Strategic Management

2. Superiority • Inimitability • Durability • Non-substitutability • Appropriability 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

3. Superiority Five Qualities that Lead to Competitive Advantage Superiority • Are you significantly better than your competitors? • At what things are you better?

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

5. Inimitability Superiority Durability Five Qualities that Lead to Competitive Advantage Durability (long lasting) • Legally protected • Patents • Copyrights • Brand names • Well-established • Brand image • Reputation for quality

6. Inimitability Superiority Durability Non-substitutability Five Qualities that Lead to Competitive Advantage 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

7. Appropriability Inimitability Superiority Durability Non-substitutability Five Qualities that Lead to Competitive Advantage 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

8. 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

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

10. 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

11. Strategic Intent • Ford—be the number one automotive company in the world. • BritishAirway—The World’s Favorite Airline. • Xerox—The World’s Document Company. • Kellogg’s—Kellogg’s Products on Every Table in the World.

12. 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

13. 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.

14. 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

15. 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)

16. 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

17. Strategic Management Process: Formulating a Strategy • Generic strategies • Cost leadership • Differentiation • Scope

18. 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 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 Generic Strategies and Scope Strategy Differentiation Cost Leadership General Focused Scope Adapted from Exhibit 6.3: Generic Strategies and Scope

19. 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

20. 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 Adapted from Exhibit 6.5: The Value Chain

21. 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

22. 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

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

24. Integrating Internal and External Analyses SWOT Analysis • Internal environment • Strengths • Weaknesses • Tools • Core competencies framework • Resource analysis framework • Value chain framework Internal Environment SW

25. 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

26. High Market Attractiveness Low High Relative Market Share Integrating Internal and External Analyses Portfolio Analysis BCG Matrix Adapted from Exhibit 6.8: BCG Matrix

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

28. High Low Integrating Internal and External Analyses Product Life Cycle Birth Growth Maturity Decline Investment sales Time Adapted from Exhibit 6.6: Product Life Cycle

29. High Low Integrating Internal and External Analyses Product Life Cycle Sales Time Adapted from Exhibit 6.7: International Product Life Cycles

30. Structure Strategy Strategic Management Process: Strategy Implementation Seven S’s • 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

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

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

33. Structure Systems Strategy Skills Style Staff Shared values Strategic Management Process: Strategy Implementation Seven S’s • Staff • Recruitment • Selection • Development • Socialization • Advancement of people in the organization Adapted from Exhibit 6.10: Seven S Model