1. Chapter 6
Strategic Management

2. 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
Non-substitutability
Appropriability
Superiority
Inimitability
Durability
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3. Five Qualities that Lead to Competitive Advantage
Superiority
Superiority
Are you significantly better than your competitors?
At what things are you better?
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4. Five Qualities that Lead to Competitive Advantage
Superiority
Inimitability
Managers must create barriers that make it hard for others to copy their superiority advantages
Culture
Product design
Marketing strategy
And others
Inimitability
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5. Five Qualities that Lead to Competitive Advantage
Superiority
Durability (long lasting)
Legally protected
Patents
Copyrights
Brand names
Well-established
Brand image
Reputation for quality
Inimitability
Durability
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6. Five Qualities that Lead to Competitive Advantage
Superiority
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
Inimitability
Durability
Non-substitutability
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7. Five Qualities that Lead to Competitive Advantage
Superiority
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
Inimitability
Durability
Non-substitutability
Appropriability
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8. 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
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9. Strategic Management Process
Determine
strategic intent
Strategic Management Process
Define
organizational mission
Analyze environment
Set objectives
Determine requirements
Assess
resources
Develop action plans
Implement plans
Strategic Planning
Monitor outcomes
Feedback
©2005 Prentice Hall
Adapted from Exhibit 6.1: Strategic Management Process

10. 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
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11. Strategic Intent
Ford—be the number one automotive company in the world.
British Airway—The World’s Favorite Airline.
Xerox—The World’s Document Company.
Kellogg’s—Kellogg’s Products on Every Table in the World.
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12. 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
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13. 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.
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14. 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
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15. 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)
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16. 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
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17. Strategic Management Process: Formulating a Strategy
Generic strategies
Cost leadership
Differentiation
Scope
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18. 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
Differentiation Cost Leadership
Strategy
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
General Focused
Scope
©2005 Prentice Hall
Adapted from Exhibit 6.3: Generic Strategies and Scope

19. 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
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20. 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
Primary Activities
©2005 Prentice Hall
Adapted from Exhibit 6.5: The Value Chain

21. 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
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22. 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
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23. COMPETITIVE ADVANTAGE
TM 7-4
SWOT ANALYSIS
Strengths
Opportunities
Weaknesses
Threats
COMPETITIVE
ADVANTAGE
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Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1998 3 3 3 4

24. Integrating Internal and External Analyses
SWOT Analysis
Internal environment
Strengths
Weaknesses
Tools
Core competencies framework
Resource analysis framework
Value chain framework
Internal Environment SW
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25. 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
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26. Integrating Internal and External Analyses
Portfolio Analysis
High
Low
Relative Market Share
Market Attractiveness
BCG Matrix
©2005 Prentice Hall
Adapted from Exhibit 6.8: BCG Matrix

27. Integrating Internal and External Analyses
Portfolio Analysis
High
Low
Relative Market Share
Market Attractiveness
BCG Matrix
Our Ability To Compete
©2005 Prentice Hall
Adapted from Exhibit 6.9: International Matrix

28. Integrating Internal and External Analyses
Product Life Cycle
Birth
Growth
Maturity
Decline
High
Low
Investment
sales
Time
©2005 Prentice Hall
Adapted from Exhibit 6.6: Product Life Cycle

29. Integrating Internal and External Analyses
Product Life Cycle
High
Low
Sales
Time
©2005 Prentice Hall
Adapted from Exhibit 6.7: International Product Life Cycles

30. Strategic Management Process: Strategy Implementation
Seven S’s
Structure
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
©2005 Prentice Hall

31. Strategic Management Process: Strategy Implementation
Seven S’s
Structure
Shared Values
Significant meanings or guiding concepts
Shared
values
Systems
Systems
Formal processes and procedures
Management control systems
Performance measurement and reward systems
Planning and budgeting systems
The ways people relate to them
©2005 Prentice Hall
Adapted from Exhibit 6.10: Seven S Model

32. Strategic Management Process: Strategy Implementation
Seven S’s
Skills
Structure
Skills
Organizational competencies
Other capabilities residing in the organization
Shared
values
Systems
Style
Style
Leadership style of management
Operating style of the organization
Reflection of the norms people act upon
©2005 Prentice Hall
Adapted from Exhibit 6.10: Seven S Model

33. Strategic Management Process: Strategy Implementation
Seven S’s
Skills
Structure
Staff
Recruitment
Selection
Development
Socialization
Advancement of people in the organization
Shared
values
Staff
Systems
Style
This is the last slide in the presentation.
©2005 Prentice Hall
Adapted from Exhibit 6.10: Seven S Model