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Competing For Advantage

Competing For Advantage. Part I – Strategic Thinking Chapter 1 – Introduction to Strategic Management. Who remembers Hannibal? (Second Punic War?). Hannibal. Hannibal. Hannibal. Hannibal. Hannibal. Hannibal illustrates what we need for effective strategy:.

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Competing For Advantage

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  1. Competing For Advantage Part I – Strategic Thinking Chapter 1 – Introduction to Strategic Management

  2. Who remembers Hannibal? (Second Punic War?)

  3. Hannibal

  4. Hannibal

  5. Hannibal

  6. Hannibal

  7. Hannibal

  8. Hannibal illustrates what we need for effective strategy:

  9. Hannibal illustrates what we need for effective strategy: • A mission

  10. Hannibal illustrates what we need for effective strategy: • A mission • A map (a plan)

  11. Hannibal illustrates what we need for effective strategy: • A mission • A map (a plan) • Elephants

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

  13. Why do we need strategy? The reasons why firms succeed and fail is perhaps the central question in strategy

  14. 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

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

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

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

  18. 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

  19. Importance of execution “The important decisions, the decisions that really matter, are strategic . . . [But] more important and more difficult is to make effective the course of action decided upon.” – Peter Drucker

  20. When asked what he thought of his team’s execution after another loss… “I’m in favor of it” – John McKay Coach, Tampa Bay Buccaneers

  21. 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?

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

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

  24. What is the nature of today’s competitive landscape?

  25. Changes in the Competitive Landscape

  26. New Realities in the Competitive Landscape • Quick competitive information needs • Shorter product life cycles • Indistinguishable products • Rapid technology replacement • Availability of inexpensive information • New business culture from electronic-business models • Continuous learning is necessary

  27. Disruptive Technologies • Value of existing technologies is destroyed • Creative destruction process replaces existing technologies with new ones • New markets are created

  28. New Sources of Competitive Advantage • Speed to market • Access and use of information • Rapid diffusion of new, transformed knowledge throughout the company • Innovation • Integration of new conditions into organization mind set • Global standard achievement • Strategic flexibility

  29. Porter’s “What is Strategy” article

  30. 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

  31. 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

  32. 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

  33. 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

  34. Secondary Airports No meals Short hauls No seats No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares

  35. Secondary Airports No meals Short hauls No seats No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares

  36. Secondary Airports No meals Short hauls No seats No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares

  37. Secondary Airports No meals Short hauls No seats No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares

  38. Secondary Airports No meals Short hauls No seats No baggage transfers Quick Turns Standard Fleet Lean ground crews Low Fares

  39. Secondary Airports Secondary Airports No meals No meals Short hauls No seats No baggage transfers No baggage transfers No baggage transfers Quick Turns Quick Turns Standard Fleet Lean ground crews Low Fares Low Fares

  40. Secondary Airports Secondary Airports No meals No meals Short hauls No seats No baggage transfers No baggage transfers No baggage transfers Quick Turns Quick Turns Standard Fleet Lean ground crews Low Fares Low Fares How can Delta copy that? What about Jet Blue?

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

  42. What is Strategy Application Consider Starbucks, Dell, Ebay, Amazon, Southwest, and Target • Who’s continued to do well? Who has struggled? • Is there a pattern?

  43. Strategy Application • Consider one of the struggling firms (Starbucks, Dell, perhaps Ebay). • What lessons from the 4 points in Porter’s article can you identify? • What pitfalls have these firms fallen into? • How has each deviated from the insights of Porter? How successful have those deviations been?

  44. Three Perspectives on Value Creation • Industrial/Organization (I/O) Economic Model • Resource-Based View • Stakeholder Approach

  45. The Industrial/Organization (I/O) Model of Above-Average Returns Underlying assumptions: • External environment imposes pressures and constraints that determine the strategies resulting in above-average returns • Most firms competing within a particular industry or industry segment control similar resources, and pursue similarstrategies • Resources are highly mobile across firms, and that due to this mobility, any resource differences between firms will be short lived

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

  47. 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

  48. The Resource-Based Model of Above-Average Returns • Underlying Assumptions • Internal environment imposes pressures and constraints that determine the strategies resulting in above-average returns • Most firms competing within a particular industry or industry segment control unique strategically relevant resources and pursue dissimilar • Resources are not highly mobile across firms, and that due to this immobility any resource differences between firms can be sustainable

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

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