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Strategy

Strategy. McGraw-Hill/Irwin Principles of Management . © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. 6. chapter. Define strategy. Explain why the goal of strategy is to attain superior performance. Describe what is meant by competitive advantage.

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Strategy

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

  2. 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. Learning Objectives

  3. Strategy An action managers take to attain a goal of an organization.

  4. Superior Performance High profitability Superior performance requires … Growth in profits over time

  5. First year of operation – 1962 – Rogers, Arkansas 1960s – 15 Wal-Mart stores 1979-80 – 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. Wal-Mart Source: www.walmart.com

  6. Competitive advantage:Advantage obtained when a firm outperforms its rivals. Distinctive competency: A unique strength that rivals lack. 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. 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. Competitive Advantage

  7. Competitive Advantage Competitive advantage Low costs Distinctive competencies Superior performance Product differentiation If protected from copying by barriers to imitation and legacy constraints competitive advantage will be sustained

  8. In the 20th Century, U.S. Hospitals were considered as the premier, top-notch facilities for healthcare 21st Century has brought the competitive pressures from focused providers Result: Competitive disadvantage and the need for change U.S. Hospitals Source: US Hospitals for the 21st Century, The McKinsey Quarterly, August 2006

  9. 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. Business-Level Strategy

  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.

  11. The Low-Cost Value Cycles Lower costs Higher profitability and profit growth Economies of scale Lower prices Increased demand

  12. Options for Exploiting Differentiation Increase prices more than costs Option 1 Successful differentiation Higher profitability and profit growth Option 2 Increased demand Moderate or no price increase Economies of scale and lower costs

  13. 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. Segmenting the Market

  14. Consumer markets segmentation characteristics: Geographic Demographic Psychographic Behavioralistic Consumer Markets Source: www.netmba.com

  15. Focus Strategy: Serving a limited number of segments. Broad market strategy: Serving the entire market. Choosing Segments to Serve

  16. Types of Business-Level Strategy Broad low cost Broad differentiation Many Segments served Focused low cost Focused differentiation Few Low cost Differentiation Competitive theme

  17. 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 Question

  18. 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. Configuring the Value Chain

  19. Strategic Fit Operations strategy Supports Industry conditions Business- level strategy Supports Fits Internal organization architecture Supports

  20. 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 Competitive Tactics

  21. Pepsi vs. Coca-cola Cellular phones Internet services Long distance call rates Price Wars and Signaling

  22. 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. Corporate-Level Strategy

  23. 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 Disney Source: finance.yahoo.com

  24. 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. Diversification

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