Introducing Strategic Management

What we need for effective strategy:

A mission A plan Elephants That’s the strategic process

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

Organizations should make two types of decisions

1) Strategic decisions

2) Strategically driven decisions

Organizations should make two types of decisions

1) Strategic decisions

2) Strategically driven decisions

Company A Company B Company C

What are we doing here?

All firms have strategy. The only decision is whether you manage it, or simply back into it…

Strategic Management Defined

decisions and actions required for the firm to create value and earn returns higher than those of competitors

formulation and 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?

Competitive Advantage

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

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

The Strategic Management ProcessStrategic 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

Two levels of Strategy

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Corporate-level strategy

• 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

What is Strategy?

Strategy is not doing similar activities better 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

What is Strategy?

1) Strategy is performing different activities or performing similar activities in a different 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

What is Strategy?

2) Strategy is about choosing a position which requires tradeoffs, choosing what not to 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

What is Strategy?

3) Strategy is about combining activities as advantages come from fit and reinforcing

Operational effectiveness is about excellence in individual activities

Fit/integration increases sustainability by reducing imitability

What is Strategy?

4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages

Four Perspectives on Competitive Advantage

Industrial/Organization (I/O) Economic Model – External Perspective

Resource-Based View – Internal Perspective

Dynamic Perspective – Combination of the two

Stakeholder Approach

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

Basic Premise of the I/O Model – to explain the dominant influence of the external environment on a firm's strategic actions and performance

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

Underlying Assumptions That the external environment imposes

pressures and constraints that determine the strategies resulting in above-average returns

That most firms competing within a particular industry or industry segment control similar strategically relevant resources and pursue similar strategies in light of those resources

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

Underlying Assumptions (cont.) That resources for implementing strategies

are highly mobile across firms, and that due to this mobility any resource differences between firms will be short lived

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

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

The Resource-Based Model of Above-Average Returns

Basic Premise of the Resource-Based Model – to propose that a firm's unique resources and capabilities should define its strategic actions and be used effectively to exploit opportunities in the external environment to ensure successful performance

The Resource-Based Model of Above-Average Returns

Underlying Assumptions That the internal environment imposes

pressures and constraints that determine the strategies resulting in above-average returns

That most firms competing within a particular industry or industry segment control unique strategically relevant resources and pursue dissimilar strategies in light of those resources

The Resource-Based Model of Above-Average Returns

Underlying Assumptions (cont.) That resources for implementing strategies

are not highly mobile across firms, and that due to this immobility any resource differences between firms can be sustainable

The Resource-Based Model of Above-Average Returns

Dynamic Perspective

Market dynamism renders advantages temporary

Future advantages based on the ability of the firms resources and capabilities to develop a continuous flow of advantages

The Stakeholder Model of Responsible Firm Behavior and Firm Performance

Basic Premise of the Stakeholder Model – to propose that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors

The Three Stakeholder Groups

Secondary Stakeholders

Government entities and administrators

Activists and advocacy groups Religious organizations Other nongovernmental

organizations

The Stakeholder Model of Responsible Firm Behavior and Firm Performance

Ways Stakeholder Relationships Contribute to Competitive Advantage

A trustworthy reputation draws valuable customers, suppliers, and business partners to acquire or develop competitive resources

A trustworthy reputation attracts investors to offer financial resources

Firms that have fair and respectful treatment of employee relationships attract high-quality human resources

Ways Stakeholder Relationships Contribute to Competitive Advantage

Transactions costs associated with making and enforcing agreements can be reduced

Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions

Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulations, legal suits and penalties, consumer dissatisfaction, employee work outages, or bad press)

Charting a Good Strategy

The Strategy Diamond Arenas Vehicles Differentiators Staging & Pacing Economic Logic

Strategy Diamond

Arenas

Staging

Differentiators

VehiclesEconomic Logic

Strategy is anintegrated setof choices….

Arenas

Where are we going to be

active? Product categories Channels Market Segments Geographic Segments Core Technologies Value-creating strategies

Arenas

Staging

Differentiators

VehiclesEconomic Logic

Vehicles How are we going to get there? Means of participating in

chosen markets Internal Development Joint Venture Licensing/Franchising Alliances Acquisition

Arenas

Staging

Differentiators

VehiclesEconomic Logic

Differentiators Product/service attributes that

beat competitors, for example… Image Customization Price Styling Product reliability Speed to market Safety

Arenas

Staging

Differentiators

VehiclesEconomic Logic

Staging• Timing, pace and sequencing

of strategic moves• When to launch moves

• Function of resources,

urgency and market

signals

Arenas

Staging

Differentiators

VehiclesEconomic Logic

Economic Logic

• How will returns be obtained?• Low cost through scale,

scope design, or process advantages

• Premium prices through

superior products or

service

Arenas

Staging

Differentiators

VehiclesEconomic Logic

JetBlu’s StrategyLow-fare commercial airliner in underserved/overprices US markets, focusing on JFK

Focused initial growth in NE corridor, with westward expansion

Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV

Completely internalized growth

Low-costs through uniform, fuel-efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports

Arenas

Staging

Differentiators

VehiclesEconomic Logic

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