Chapter 1 Introducing 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 3 UNDER ARMOUR AT A GLANCE 1996 2006 Revenues $17,000 $430,000,000 Net Income 0 57,300,000 Equity Value 0 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 4 TWO RETAILERS AT A GLANCE Sears Wal-Mart Year founded 1891 1962 Stores 1980 Stores 2004 864 2026 600 5289 Revenues 1980 Revenues 2004 $25,194 million $36,100 million $1,643 million $285,222 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 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 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    6 STRATEGY General Lower officer (e.g., supply logistics infantry, heavy armored vehicles) Strategos: “the general’s view” Holistic “big picture” Tactical details 7 THE MILITARY ROOTS OF STRATEGY “The individualist without strategy who takes opponents lightly will inevitably become the captive of others.” – Master Sun 8 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 9 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? • How do we compete in this market today? • How will we compete in this market in the future? Business-level strategy should ask 10 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 [...]...UNPLANNED ACTIONS CAN DRIVE STRATEGY Intel’s original focus (19 70s & 19 80s) Design and manufacture of Dynamic, RandomAccess Memory Chips (DRAM) Focus on microprocessor segment By 19 84, 95% of Intel revenue came from the microprocessor segment Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker 11 BUSINESS STRATEGY DIAMOND Arenas • Where will we be active?... action decided upon.” – Peter Drucker 15 FRAMEWORK FOR STRATEGY IMPLEMENTATION Key Factors of Strategy Implementation Implementation levers Intended Strategy • Organizational structure • Systems and processes • People and rewards Realized and Emergent Strategie s Strategic leadership • Lever- and resource-allocation decisions • Decision support among stakeholders 16 COMPETITIVE ADVANTAGE Competitive... – JFK home base – Secondary location 13 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) 14 IMPORTANCE OF EXECUTION “The important decisions, the decisions that really matter, are strategic [But] more important and... 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? 12 JET BLUE STRATEGY Arenas • Low fare commercial air carrier • Underserved but over-priced... Decision support among stakeholders 16 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? 17 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... 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... 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 18 . world’s #1 performance athletic brand 4 TWO RETAILERS AT A GLANCE Sears Wal-Mart Year founded 18 91 1962 Stores 19 80 Stores 2004 864 2026 600 5289 Revenues 19 80 Revenues 2004 $25 ,19 4 million $36 ,10 0. Chapter 1 Introducing Strategic Management 2 OBJECTIVES 1 2 3 4 5 Understand why we study strategic management Recognize the difference between a. difference between business-level and corporate- level strategy 3 UNDER ARMOUR AT A GLANCE 19 96 2006 Revenues $17 ,000 $430,000,000 Net Income 0 57,300,000 Equity Value 0 1, 800,000,000 Brands and