0. BUS496 Strategic Management & Policy Chapter 1 Introducing Strategic Management

1. 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
Describe the determinants of competitive advantage 4
Recognize the difference between a fundamental and a dynamic competitive advantage 5
Understand why we study strategic management

2. A TALE OF TWO STORES
Experts believe Sears way was the only way to compete “The paragon of retailers”
Rapid growth, driven by end-based locations and company-controlled factories
Sears launches catalog business
Financial trouble; sells off all non-retail businesses
Takes control of production and distribution
Acquired by KMart
1970
1891
1924
Expands into banking, investments, real estate services, and insurance
1960
1980
1990
2000
2005
A Firm’s per-formance is directly related to the quality of its strategy and its compe-tency in im-plementing it
Moves into on-premise retailing/General Robert Wood takes over
Perfects model; grows; expands into new markets (international) and store concepts (Sam’s clubs)
Sam Walton opens first Wal-Mart with focus on low-prices
Dizzying growth
1962
1970
1980
2000
30 stores located in “one-horse towns which everybody else was ignoring”; Sam Walton
Invests $500 million in inventory management technology

3. TWO RETAILERS AT A GLANCE
Sears
Wal-Mart
Year founded
1891
1962
600
5289
Stores 1980
Stores 2004
864
2026
$1,643 million
$285,222 million
Revenues 1980
Revenues 2004
$25,194 million
$36,100 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 billion

4. A TALE OF TWO RETAILERS – PERFORMANCE MEASURES
USD millions

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
To succeed,
the formulation of a good strategy and its implementa-tion should be inextricably connected
Strategic leadership is responsible for
making substantive resource allocation decisions and
developing key-stakeholder support of the strategy
Firms and industries are dynamic in nature 
Strategic leader- ship is essential if a firm is able to both formulate and imple-ment strategies that create value
We need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie

6. STRATEGY Strategos: “the general’s view” Holistic “big picture”
Lower officer (e.g., supply logistics infantry, heavy armored vehicles)
Tactical details

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

8. 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?
Business-level strategy should ask ?
How do we compete in this market today?
How will we compete in this market in the future?

9. STRATEGY AND IMPLEMENTATION ITERATE
WAL-MART EXAMPLE
Compete as discount retailer in rural markets
Leverage inventory and sourcing systems to be low-cost leader
Strategy:
The process of deciding what to do
Implementation:
The process of performing all the activities necessary to do what has been planned
Invest heavily in organizational structure, systems, and processes

10. UNPLANNED ACTIONS CAN DRIVE STRATEGY
Intel’s original focus (1970s & 1980s)
Focus on micro-processor segment
By 1984, 95% of Intel revenue came from the microprocessor segment
Design and manufacture of Dynamic, Random-Access Memory Chips (DRAM)
Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker

11. BUSINESS STRATEGY DIAMOND
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
Arenas
What will be our speed and sequence of moves?
Speed of expansion?
Sequence of initiatives
Staging
Economic logic
How will we get there?
Internal development?
Joint ventures?
Licensing/franchising?
Experimentation?
Acquisitions?
Vehicles
Staging
Vehicles
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
Differentiators
How will we win?
Image?
Customization?
Price?
Styling?
Product reliability?
Speed to market?
Differentiators

12. PROFITABILITY AND MARKET VALUATION OF US AIRLINE INDUSTRY

13. JET BLUE STRATEGY Low fare commercial air carrier Arenas
Underserved but over-priced US cities
Vehicles
Start from scratch and achieve all growth internally (i.e., do not purchase a regional airline)
Objective
To “bring humanity back to air travel”
Differentiators
High level of service compared to low fare competitors (e.g., leather seating, satellite TV)
Strategy
Grow from one route between two cities to serving 20 cities in just 3 years
Economic logic
Secure cost advantage by being willing and able to perform key tasks differently
One type of plane
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
Key Factors of Strategy Implementation
Implementation levers
Organizational structure
Systems and processes
People and rewards
Realized
and
Emergent
Strategies
Intended
Strategy
Strategic leadership
Lever- and resource-allocation decisions
Decision support among stakeholders

17. IMPLEMENTATION LEVERS
Description
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
Organizational structure
Systems are all the organizational processes and procedures used in daily operations. These include control and incentive systems, resource‑allocation procedures, information systems, budgeting, and distribution
Systems and processes
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 and rewards

18. 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?

19. THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE
Internal
External
Dynamic
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
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
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

20. SUMMARY
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
Describe the determinants of competitive advantage 3
Recognize the difference between a fundamental and a dynamic competitive advantage 4
Understand why we study strategic management 5

21. ? 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? ?

22. 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.

23. GROUP ACTIVITY
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?