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Chapter 6 Strategic Management Superiority Inimitability Durability Non-substitutability Appropriability Competitive Advantage The objective of strategic management is to determine, create and maintain competitive advantages. Competitive advantage

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chapter 6

Chapter 6

Strategic Management

competitive advantage

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
five qualities that lead to competitive advantage

Superiority

Five Qualities that Lead to Competitive Advantage

Superiority

  • Are you significantly better than your competitors?
  • At what things are you better?
five qualities that lead to competitive advantage4

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
five qualities that lead to competitive advantage5

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
five qualities that lead to competitive advantage6

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
five qualities that lead to competitive advantage7

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
strategic management process setting direction
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
strategic management process

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

strategic management process setting direction10
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
strategic intent
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.
strategic management process setting direction12
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
shell oil company
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.
strategic management process setting direction14
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
strategic management process setting direction15
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)
strategic management process formulating a strategy
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
strategic management process formulating a strategy17
Strategic Management Process: Formulating a Strategy
  • Generic strategies
    • Cost leadership
    • Differentiation
    • Scope
generic strategies and scope

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

strategic management process formulating a strategy19
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
the value chain
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

strategic management process formulating a strategy21
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
strategic management process formulating a strategy22
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
slide23

TM 7-4

SWOT ANALYSIS

Strengths

Opportunities

Weaknesses

Threats

COMPETITIVE

ADVANTAGE

Irwin/McGraw-Hill

©The McGraw-Hill Companies, Inc., 1998

integrating internal and external analyses
Integrating Internal and External Analyses

SWOT Analysis

  • Internal environment
    • Strengths
    • Weaknesses
    • Tools
      • Core competencies framework
      • Resource analysis framework
      • Value chain framework

Internal Environment

SW

integrating internal and external analyses25
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

integrating internal and external analyses26

High

Market Attractiveness

Low

High

Relative Market Share

Integrating Internal and External Analyses

Portfolio Analysis

BCG Matrix

Adapted from Exhibit 6.8: BCG Matrix

integrating internal and external analyses27

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

integrating internal and external analyses28

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

integrating internal and external analyses29

High

Low

Integrating Internal and External Analyses

Product Life Cycle

Sales

Time

Adapted from Exhibit 6.7: International Product Life Cycles

strategic management process strategy implementation

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

strategic management process strategy implementation31

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

strategic management process strategy implementation32

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

strategic management process strategy implementation33

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