bus496 strategic management & policy chapter 1 introducing strategic management
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BUS496 Strategic Management & Policy Chapter 1 Introducing Strategic Management. OBJECTIVES. Understand what a strategy is and identify the difference between business-level and corporate-level strategy. 1. Understand the relationship between strategy formulation and implementation. 2. 3. - PowerPoint PPT PresentationTRANSCRIPT
BUS496 Strategic Management
& Policy
Chapter 1Introducing 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
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A TALE OF TWO STORES
1891
1970
1990 20051924
Sears launches catalog business
Takes control of production and distribution
Moves into on-premise retailing/General Robert Wood takes over
1960
Rapid growth, driven by end-based locations and company-controlled factories
Experts believe Sears way was the only way to compete “The paragon of retailers”
20001980
Expands into banking, investments, real estate services, and insurance
Financial trouble; sells off all non-retail businesses
Acquired by KMart
1970
Sam Walton opens first Wal-Mart with focus on low-prices
30 stores located in “one-horse towns which everybody else was ignoring”; Sam Walton
1962 20001980
Dizzying growth
Invests $500 million in inventory management technology
Perfects model; grows; expands into new markets (international) and store concepts (Sam’s clubs)
A Firm’s per-formance is directly related to the quality of its strategy and its compe-tency in im-plementing it
4
TWO RETAILERS AT A GLANCE
Sears Wal-Mart
Year founded 1891 1962
Stores 1980Stores 2004
8642026
6005289
Revenues 1980Revenues 2004
$25,194 million$36,100 million
$1,643 million$285,222 million
Net profits 1980Net 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 1980Market capitalization 2004
USD 4.8 billionUSD 12.2 billion
USD 1 billionUSD 200.2 billion
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A TALE OF TWO RETAILERS – PERFORMANCE MEASURES
USD millions
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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
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STRATEGY
General
Lower officer (e.g., supply logistics infantry, heavy armored
vehicles)
Strategos: “the general’s view”
Holistic “big picture”
Tactical details
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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
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QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY
??
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
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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
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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
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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
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PROFITABILITY AND MARKET VALUATION OF US AIRLINE INDUSTRY
Profitability
Market valuation
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JET BLUE STRATEGY
Objective
To “bring humanity back to air travel”
ArenasArenas• Low fare commercial air carrier• Underserved but over-priced US cities
VehiclesVehicles• Start from scratch and achieve all growth
internally (i.e., do not purchase a regional airline)
DifferentiatorsDifferentiators• High level of service compared to low fare competitors
(e.g., leather seating, satellite TV)
StrategyStrategy• Grow from one route between two cities to serving 20
cities in just 3 years
Economic logicEconomic logic• Secure cost advantage by being willing and able to
perform key tasks differently– One type of plane– JFK home base– Secondary location
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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
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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
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FRAMEWORK FOR STRATEGY IMPLEMENTATION
IntendedStrategy
Realizedand
EmergentStrategies
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
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IMPLEMENTATION LEVERS
DescriptionImplementation
levers
Structure is the manner in which responsibilities, tasks, and people are organized. It includes the organization’s authority structure, hierarchy, units, divisions, and coordinating mechanisms
Organizationalstructure
Systems are all the organizational processes and procedures usedin daily operations. These include control and incentive systems, resource‑allocation procedures, information systems, budgeting,and distribution
Systems andprocesses
The people and rewards lever points to the importance of using all organization members to implement a strategy. Competitive advantage is generally tied to your human resources. Successful implementation depends on having the right people and then developing and training them in ways that support the firm’s strategy. In addition, rewards – how you pay your people – can accelerate the implementation of your strategy or undermine it
People andrewards
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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?
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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
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SUMMARY
Understand what a strategy is and identify the difference between business-level and corporate-level strategy
1
Understand the relationship between strategy formulationand implementation
2
Describe the determinants of competitive advantage3
Recognize the difference between a fundamental and a dynamic competitive advantage
4
Understand why we study strategic management5
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REVIEW QUESTIONS
?• What is strategic management?
• What are the key components of the strategic management process?
• How does business strategy differ from corporate strategy?
• What is the relationship between strategy formulation and strategy implementation?
• What are the five elements of the strategy-formulation – diamond model?
• What are the internal and external perspectives on competitive advantage?
• What are the fundamental and dynamic perspectives on competitive advantage?
• Why should you study strategic management?
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GROUP ACTIVITY
Choose a company with which you are familiar.
What is the difference between business and corporate strategy at this firm?
How could this difference affect the experiences and opportunities that you might gain by working for this firm?
Finally, taking advantage of your insight into the firm’s strategy, construct a high-impact job-application cover letter.
Choose a company with which you are familiar.
What is the difference between business and corporate strategy at this firm?
How could this difference affect the experiences and opportunities that you might gain by working for this firm?
Finally, taking advantage of your insight into the firm’s strategy, construct a high-impact job-application cover letter.
24
Identify a firm that may be thinking of expanding into new international markets.
Apply the staging element of the strategy diamond to the firm’s expansion opportunities or plans.
Which markets should it target first and why?
How will international expansion be related to the firm’s business and corporate strategies?
GROUP ACTIVITY