Chapter 1 Introducing Strategic Management OBJECTIVES 1 Understand what a strategy is and identify the difference between business-level and corporatelevel strategy Understand the relationship between.
Download ReportTranscript Chapter 1 Introducing Strategic Management OBJECTIVES 1 Understand what a strategy is and identify the difference between business-level and corporatelevel strategy Understand the relationship between.
Chapter 1 Introducing Strategic Management OBJECTIVES 1 Understand what a strategy is and identify the difference between business-level and corporatelevel strategy Understand the relationship between strategy 2 formulation and implementation 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 1 UNDER ARMOUR AT A GLANCE Revenues 1996 2006 $17,000 $430,000,000 Net Income 0 Equity Value 0 57,300,000 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 2 TWO RETAILERS AT A GLANCE Sears Wal-Mart Year founded 1891 1962 Stores 1980 Stores 2004 864 2026 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 200.2 billion 600 5289 $1,643 million $285,222 million 3 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 implementation should be inextricably connected Firms and industries are dynamic in nature Strategic leadership is essential if a firm is able to both formulate and implement strategies that create value Strategic leadership is responsible for making substantive resource allocation decisions and developing keystakeholder support of the strategy We need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie 4 STRATEGY Strategos: “the general’s view” Holistic “big picture” General Lower officer (e.g., supply logistics infantry, heavy armored vehicles) Tactical details 5 THE MILITARY ROOTS OF STRATEGY “The individualist without strategy who takes opponents lightly will inevitably become the captive of others.” – Master Sun 6 THE STRATEGIC MANAGEMENT PROCESS Strategic analyses • Internal • External Strategy Vision and mission • Fundamental organizational purpose • Organizational values • • • • • 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 7 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? Business-level strategy should ask • How do we compete in this market today? ? • How will we compete in this market in the future? 8 STRATEGY AND IMPLEMENTATION ITERATE Strategy: The process of deciding what to do Compete as discount retailer in rural markets WAL-MART EXAMPLE Leverage inventory and sourcing systems to be low-cost leader Implementation: The process of performing all the activities necessary to do what has been planned Invest heavily in organizational structure, systems, and processes 9 UNPLANNED ACTIONS CAN DRIVE STRATEGY Intel’s original focus (1970s & 1980s) Design and manufacture of Dynamic, RandomAccess Memory Chips (DRAM) Focus on microprocessor segment By 1984, 95% of Intel revenue came from the microprocessor segment Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker 10 BUSINESS STRATEGY DIAMOND Arenas • Where will we be active? ( and with Arenas Staging • What will be our speed and sequence of moves? – Speed of expansion? – Sequence of initiatives Staging Economic logic • 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 much emphasis?) – Which product categories? – Which channels? – Which market segments? – Which geographic areas? – Which core technologies – Which value-creation strategies? Vehicles Vehicles • How will we get there? – Internal development? – Joint ventures? – Licensing/franchising? – Experimentation? – Acquisitions? Differentiators Differentiators • How will we win? – Image? – Customization? – Price? – Styling? – Product reliability? – Speed to market? 11 JET BLUE STRATEGY Arenas • Low fare commercial air carrier • Underserved but over-priced US cities • Start from scratch and achieve all growth Vehicles internally (i.e., do not purchase a regional airline) Objective To “bring humanity back to air travel” • High level of service compared to low fare competitors Differentiators (e.g., leather seating, satellite TV) • Grow from one route between two cities to serving 20 Strategy cities in just 3 years • Secure cost advantage by being willing and able to Economic logic perform key tasks differently – One type of plan – JFK home base – Secondary location 12 GOALS OF STRATEGY IMPLEMENTATION 1 To make sure strategy formulation is comprehensive and well informed 2 To translate good ideas into actions that can be executed (and sometimes to use execution to generate or identify good ideas) 13 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 14 FRAMEWORK FOR STRATEGY IMPLEMENTATION Key Factors of Strategy Implementation Implementation levers • Organizational structure Intended Strategy • Systems and processes • People and rewards Realized and Emergent Strategies Strategic leadership • Lever- and resource-allocation decisions • Decision support among stakeholders 15 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? 16 THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE 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 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 17