Strategic Management Essentials: Crafting Effective Strategies

1. Introducing Strategic Management

2. What we need for effective strategy: • A mission • A plan • Elephants • That’s the strategic process

3. Strategy defines…. Who are you? Where are you going? How are you going to get there? Alice: Which way should I go? Cat: That depends on where you are going. Alice: I don’t know where I am going. Cat: Then it doesn’t matter which way you go. • Lewis Carroll, Though the Looking-Glass

4. Organizations should make two types of decisions 1) Strategic decisions 2) Strategically driven decisions

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

6. What are we doing here? All firms have strategy. The only decision is whether you manage it, or simply back into it…

7. Strategic Management Defined • decisions and actionsrequired for the firm to create value and earn returns higher than those of competitors • formulationand 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?

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

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

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

11. 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? ? Business-level strategy • How do we compete in this market today? • How will we compete in this market in the future?

12. What is Strategy? Strategy is not doingsimilar activitiesbetter 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

13. What is Strategy? 1) Strategy is performingdifferent activitiesor performing similar activities in adifferent 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

14. What is Strategy? 2) Strategy is about choosing apositionwhich requirestradeoffs, choosing whatnotto 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

15. What is Strategy? 3) Strategy is aboutcombiningactivities as advantages come fromfit andreinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

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

17. 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

18. 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

19. 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 similarstrategies in light of those resources

20. 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

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

22. 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

23. 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

24. 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 dissimilarstrategies in light of those resources

25. 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

26. The Resource-Based Model of Above-Average Returns

27. 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

28. 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

29. The Three Stakeholder Groups

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

31. The Stakeholder Model of Responsible Firm Behavior and Firm Performance

32. 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

33. 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)

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

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

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

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

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

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

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

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

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