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Transcript of 1 STRATEGY & COMPETITIVE ADVANTAGE. 2 Business Proposition Profits = Quantity (Revenue - Cost) 3...
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STRATEGY & COMPETITIVE ADVANTAGE
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Business PropositionBusiness Proposition
Profits = Quantity (Revenue - Cost)
3 most fundamental variables in Business
MARGIN
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Definition Definition
The determination of the long run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals
• Alfred Chandler, Strategy and Structure
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Levels of StrategyLevels of Strategy
Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes.– includes decisions about diversification, vertical integration,
acquisitions, new ventures, divestments, allocation of scarce resources between business units
Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals.
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Domain of Strategy Domain of Strategy
strategic competitiveness and above normal returns
concerns managerial decisions and actions which materially affect the success and survival of business enterprises
involves the judgment necessary to strategically position a business and its resources so as to maximize long-term profits in the face of irreducible uncertainty and aggressive competition
strategy is the linkage between a business and its current and future environment
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Concepts of Firm Performance
Concepts of Firm Performance
firm survivalaccounting profits (ROA, ROE, ROS)
– surplus of revenues over expenses
economic profit/rent (economic value added, positive NPV)
– normal return on capital – abnormal return - surplus after all inputs
shareholder value/market value…(EVA, Tobin’s q)
– Change in market value over time
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Common Elements in Successful Strategy
Successful Strategy
Profound understanding of the competitive environment
Objective appraisal of resources
Long-term, simple and agreed uponobjectives
$
EFFECTIVE IMPLEMENTATION
Source: Adapted from Robert S. Grant, 1991
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Above Normal Profits
(in Excess of the Competitive Level)
AvoidCompetitors
Be Better ThanCompetition
AttractiveIndustry
AttractiveNiche Cost
AdvantageDifferentiation
Advantage
AttractiveStrategic
Group
Entry Barriers
Mobility Barriers
Isolating Mechanisms
Sources of Superior PerformanceSources of Superior Performance
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Types of Competitive Advantage
Low CostDifferentiation
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Sources of Competitive Advantage Theoretical Frameworks
The Industrial Organization ViewThe Resource-based ViewRelationship between these two views
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The Emergence of Competitive Advantage
External Sources of Change(fast food, cars, oil)Responsiveness to Change (soft drink, retail)Innovation (book-selling, video games)
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Sustaining Competitive Advantage
Causal Ambiguity and Uncertain ImitabilityIsolating Mechanisms
-first mover advantage -deterrence and preemption
-resource constraints-dynamic capabilities