Chapter 1 - Introducing Strategic Management pot

Chapter 1
Introducing Strategic
Management
2
OBJECTIVES
1
2
3
4
5
Understand why we study strategic management
Recognize the difference between a fundamental
and a dynamic competitive advantage
Describe the determinants of competitive advantage
Understand the relationship between strategy
formulation and implementation
Understand what a strategy is and identify the
difference between business-level and corporate-
level strategy
3
UNDER ARMOUR AT A GLANCE
1996 2006
Revenues $17,000 $430,000,000
Net Income 0
57,300,000
Equity Value 0
1,800,000,000
Brands and Trademarks
Under Armour, HeatGear,
ColdGear, AllSeasonGear,
LooseGear, Click Clack

Kevin Plank’s Vision To become the world’s #1
performance athletic brand
4
TWO RETAILERS AT A GLANCE
Sears Wal-Mart
Year founded 1891 1962
Stores 1980
Stores 2004
864
2026
600
5289
Revenues 1980
Revenues 2004
$25,194 million
$36,100 million
$1,643 million
$285,222 million
Net profits 1980
Net profits 2004
606M (2.4% return on sales)
507M (-1.4% return on
sales)
$55 M(3.3% return on sales)
$10,267 M
(3.6% return on sales)
Market capitalization 1980
Market capitalization 2004
USD 4.8 billion
USD 12.2 billion

USD 1 billion
USD 200.2 billion
5
THREE OVERARCHING THEMES
Implementing a good
strategy is at least as
important as creating
one, yet many
managers give too
little thought to
implementation
Strategic leadership
is responsible for

making substantive
resource allocation
decisions and

developing key-
stakeholder support
of the strategy
We need to see a firm’s competitive position, not as a snapshot, but
as an ongoing movie
Firms and
industries are
dynamic in
nature
To succeed,
the formulation
of a good strategy

and its implementa-
tion should be
inextricably
connected
Strategic leader-
ship is essential if a
firm is able to both
formulate and imple-
ment strategies that
create value



6
STRATEGY
General
Lower officer (e.g., supply
logistics infantry, heavy armored
vehicles)
Strategos: “the general’s view”
Holistic “big picture”
Tactical details
7
THE MILITARY ROOTS OF STRATEGY
“The individualist without strategy
who takes opponents lightly will
inevitably become the captive of
others.”
– Master Sun
8

THE STRATEGIC MANAGEMENT PROCESS
Strategic analyses
•
Internal
•
External
Vision and
mission
•
Fundamental
organizational
purpose
•
Organizational
values
Strategy
•
Arenas
•
Vehicles
•
Differentiators
•
Staging
•
Economic logic
The central, integrated,
externally oriented
concept of how a firm
will achieve its

objectives
Implementation
levers
and
Strategic
leadership
9
QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY
Unit of measure
?
?
Corporate-level strategy should ask
•
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?
•
How do we compete in this market
today?
•
How will we compete in this market in
the future?
Business-level strategy should ask
10
STRATEGY AND IMPLEMENTATION ITERATE

WAL-MART EXAMPLE
Strategy:
The process
of deciding
what to do
Implementation:
The process of
performing all the
activities necessary
to do what has been
planned
Compete as
discount
retailer in rural
markets
Leverage inventory
and sourcing systems
to be low-cost leader
Invest heavily in
organizational structure,
systems, and processes
11
UNPLANNED ACTIONS CAN DRIVE STRATEGY
Intel’s original focus
(1970s & 1980s)
Design and manufacture
of Dynamic, Random-
Access Memory Chips
(DRAM)
Unplanned

experimental
venture to make
microprocessors
for Busicom, a
Japanese
calculator maker
Focus on micro-
processor segment
By 1984, 95%
of Intel revenue
came from the
microprocessor
segment
12
BUSINESS STRATEGY DIAMOND
Staging
Differentiators
Economic
logic
Vehicles
Arenas
•
What will be our speed and
sequence of moves?
–
Speed of expansion?
–
Sequence of initiatives
Staging
•

How will returns be obtained?
–
Lowest costs through scale
advantages?
–
Lowest costs through scope
and replication advantages
–
Premium prices due to
unmatchable service?
–
Premium prices due to
proprietary product features?
Economic logic
•
How will we get there?
–
Internal development?
–
Joint ventures?
–
Licensing/franchising?
–
Experimentation?
–
Acquisitions?
Vehicles
•
How will we win?
–

Image?
–
Customization?
–
Price?
–
Styling?
–
Product reliability?
–
Speed to market?
Differentiators
•
Where will we be active? ( and with
how much emphasis?)
–
Which product categories?
–
Which channels?
–
Which market segments?
–
Which geographic areas?
–
Which core technologies
–
Which value-creation strategies?
Arenas
13
JET BLUE STRATEGY

Objective
To “bring
humanity
back to air
travel”
Arenas
Arenas
•
Low fare commercial air carrier
•
Underserved but over-priced US cities
Vehicles
Vehicles
•
Start from scratch and achieve all growth
internally (i.e., do not purchase a regional airline)
Differentiators
Differentiators
•
High level of service compared to low fare competitors
(e.g., leather seating, satellite TV)
Strategy
Strategy
•
Grow from one route between two cities to serving 20
cities in just 3 years
Economic logic
Economic logic
•
Secure cost advantage by being willing and able to

perform key tasks differently
–
One type of plan
–
JFK home base
–
Secondary location
14
GOALS OF STRATEGY IMPLEMENTATION
To make sure strategy formulation is
comprehensive and well informed
1
To translate good ideas into actions
that can be executed (and sometimes
to use execution to generate or
identify good ideas)
2
15
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
16
FRAMEWORK FOR STRATEGY IMPLEMENTATION
Intended
Strategy

Realized
and
Emergent
Strategie
s
Key Factors of Strategy Implementation
Implementation levers
•
Organizational structure
•
Systems and processes
•
People and rewards
Strategic leadership
•
Lever- and resource-allocation decisions
•
Decision support among stakeholders
17
COMPETITIVE ADVANTAGE
Competitive
Advantage: a
Firm’s ability to
create value in a
way that its
rivals cannot
Key question:
how do Firms
create sustained
above-average

returns?
18
THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE
Dynamic
Suggests that in dynamic,
rapidly changing markets,
a firm’s current market
position is not an accurate
prediction of future
performance. Instead, we
look at the past for clues
about how the firm arrived
at its current position and
to future trends – both
internal and external – in
an effort to predict the
future landscape
Internal
Often called the “resource
view”, contends that firms
are heterogeneous
bundles of resources and
capabilities and firms with
superior resources and
capabilities enjoy
competitive advantage
over other firms. This
advantage makes it
relatively easier to achieve
consistently higher levels

of performance
External
Also called the “positional
view”, contends that
variations in a firm’s
competitive advantage and
performance are primarily
a function of industry
attractiveness.
Companies should
therefore either (1)
position themselves to
compete in attractive
industries or (2) adopt
strategies that will make
their current industries
more attractive