Chapter 1

Chapter OneStrategic Management and Strategic CompetivenessPages 2 - 311

Why do we need strategy?The reasons why firms succeed and fail is perhaps the central question in strategy

Answers the fundamental question of the firmWhere we are now?Where we going?How are we going to get there?3Strategic Management Defineddecisions and actions that determine long-term performanceformulation and implementation of plans designed to achieve objectivesunifying theme that gives coherence and direction to organizational/individual decisionsgame plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performanceintegrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

What is a competitive advantage?

4Competitive AdvantageWhen a firm implements a strategy that rivals cant duplicate, or find it too expensive to do try to imitate

Todays Competitive LandscapeGlobal EconomyKnowledge IntensityInformationTechnologyTechnology Change & DiffusionHypercompetitionStrategic FlexibilityIntelligence ManagementGlobal PerspectiveSpeed, Innovation & IntegrationNew Managerial MindsetWhat is Strategy? Strategy is not doing similar activities better than your rivals thats operational effectivenesscontinual improvement not a sustainable advantageindustry-wide cost reductions do not lead to increased profitabilityexamples: PCs, automobiles, airlines7What is Strategy? Strategy is performing different activities or performing similar activities in a different way

8What is Strategy? Doing things differently, strategically, puts a firm in a different position. Strategy is about positioning yourself relative to rivals.

For example, a firm could: -offer a unique choice of goods/services - Chic-fil-a-serve most or all of a customer groups needs - Babies R Us-serve a set of customers that require unique access Kinkos, Movie Gallery, Superette9What is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to dowithout tradeoffs, all firms would imitate

vs. vs. vs.

vs.

10Time MagazineSo why haven't American, United, US Airways and the three other full-service carriers, which lost $11 billion last year and stand to lose an additional $5 billion this year, followed the lead of the profitable discounters by cutting costs and fares? Because that's not the way their business works. They have made, and lost, their money by providing the frequent departures, quick connections, spacious seats and other amenities that have been demanded by business flyers and charging them dearly for that service more than five times the cost of a discount fare.Hard to Straddle and Hard to Reposition!

11What is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to dowithout tradeoffs, all firms would imitateTradeoffs arise frominconsistent image/reputationdifferent activities, products, equipment, employees, skills, systems, machinespriorities, internal coordination, and controlSo, once a position is chosen and pursued, it is difficult to fulfill another position or move to another position12What is Strategy? 3) Strategy is about combining activities as advantages come from fit/integration of consistent, reinforcing activities

13Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary Airports14Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary Airports15Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary Airports16Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary Airports17Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary Airports18Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary AirportsNo baggagetransfersLow FaresSecondary AirportsQuick TurnsNo mealsNo baggagetransfers19Quick TurnsNo mealsShort haulsStandard FleetNo baggagetransfersLow FaresNo seatsLean ground crewsSecondary AirportsNo baggagetransfersLow FaresSecondary AirportsQuick TurnsNo mealsNo baggagetransfersHow can Delta copy that?What about Jet Blue?20What is Strategy? 3) Strategy is about combining activities as advantages come from fit/integration of consistent, reinforcing activitiesOperational effectiveness is about excellence in individual activitiesFit/integration increases sustainability by reducing imitability21What is Strategy? 4) The desire to grow is most threatening to an effective strategy

22What is Strategy? 4) The desire to grow is most threatening to an effective strategy Blurs uniquenessCreates compromisesReduces fitErodes original advantages

23So.how can firms be profitable?1) Choose an attractive industry in which to compete - Where we compete? Corporate level strategy

2) Attain a competitive advantage within an industry - How we compete?Business level strategy

24Two Models of ProfitabilityI/O Model (Industrial/Organizational Economics Model)

Resource Based Model25I/O ModelEnvironment Drives Strategy & PerformanceThree Key AssumptionsFirms environment imposes pressures/constraints upon the firmFirms possess similar resourcesResources are mobile across firms

Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability27

I/O ModelEnvironment Drives Strategy & Performance27Resource Based ModelFirms Resources Drive Strategy & PerformanceThree Key AssumptionsFirms resources and capabilities are critical to strategic actionFirms possess unique resourcesResources are not mobile across firms

Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability

Resource Based ModelFirms Resources Drive Strategy & PerformanceWhat is strategic effectiveness?Consistent, long-termgoals and objectivesConsistent, long-termgoals and objectives30What is strategic effectiveness?Consistent, long-termgoals and objectivesConsistent, long-termgoals and objectivesReflects and understandingof the environment31What is strategic effectiveness?Consistent, long-termgoals and objectivesConsistent, long-termgoals and objectivesReflects and understandingof the environmentTakes resources into consideration32What is strategic effectiveness?Consistent, long-termgoals and objectivesConsistent, long-termgoals and objectivesReflects and understandingof the environmentTakes resources into considerationEffectivelyimplemented33What is strategic effectiveness?Consistent, long-termgoals and objectives

Consistent, long-termgoals and objectivesReflects and understandingof the environmentTakes resources into considerationEffectivelyimplementedStrategicEffectiveness(fit)34Strategic Vision vs. MissionA strategic vision concerns wherewe are going or what do we want to be.Markets to be pursuedFuture product/ market/customer/ technology focusKind of company management is trying to create

A mission statement concerns who we are and what we doCurrent product and service offeringsCustomer needs being servedTechnologicaland businesscapabilities

Mission StatementsBoundaries of the current businessFundamental purpose that sets it apart from other firms of its typeConveysWho we are,What we do, andWhy we are hereDont offer me thingsDont offer me shoes Offer me comfort for my feet & the pleasure of walkingDont offer me clothes Offer me fashion, style, or an certain imageDont offer me books Offer me hours of escape & the benefit of knowledgeDont offer me furniture Offer me comfort and a peaceful place to loungeDont offer me things Offer me ideas, emotions, ambience, feelings, benefits37(Our) vision is to dominate the global foodservice business industry. Global dominance means setting the performance standards for customer satisfaction while increasing market share and profitability through our Convenience, Value and Execution Strategies.

38(Our) vision is to dominate the global toothpick industry. Global dominance means setting the performance standards for customer satisfaction while increasing market share and profitability through our Convenience, Value and Execution Strategies.39Our mission is to provide a customer a means of moving people and things up, down, sideways over short distances with higher reliability than any similar enterprise in the world.

40One vision drives everything we do: A computer on every desk and in every home using great software as an empowering tool

41Our business is renting cars. Our mission is total customer satisfaction.

42Our business is leasing camels. Our mission is to totally alienate all of our customers.

43To be the premier organization in nurturing and enriching the bond between people and animals

We supply the computing industry with chips, boards, systems, and software. Our products are used as building blocks to create advanced computing systems for PC users. Our mission is to be the preeminent building block supplier to the new computing industry worldwide. To be the leading supplier of PCs and PC servers in all customer segments.

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ObjectivesTurns mission into performance outcomesOrganizations produce what is measuredLong and Short term46Types of Objectives RequiredOutcomes focusedon improving financial performanceOutcomes focused on improving competitive vitality and future business positionFinancial Objectives Strategic Objectives$6 Characteristics of a Good Objective

1. Stretching/Motivating486 Characteristics of a Good Objective

2) Measurable496 Characteristics of a Good Objective

3) Realistic/Achievable506 Characteristics of a Good Objective4) Agreeable

51

5) Timebound

6 Characteristics of a Good Objective6 Characteristics of a Good Objective

6) Understandable536 Characteristics of a Good ObjectiveU SMARTUnderstandableStretchingMeasurableAgreeableRealisticTimeboundObjectivesTo be one of the top three banking companies in terms of market share in all significant markets we serve.To provide shareholders a secure investment with a superior return.To be the low-cost producer of aluminum and to outperform the average ROE of the Standard and Poors industrial stock index.To achieve 100% total customer satisfaction everydayin every restaurantfor every customerTo be the industry's innovative leader30% of the company annual sales must come from products fewer than four years old55ObjectivesIncrease sales growth 6% to 8% and accelerate core earning growth from 13% to 15% per share in each of the next five yearsCapitalize on e-commerceDevelop a smart card strategy that will help us play a key role in shaping on-line paymentsReduce greenhouse gasses by 10% by 2010We want to operate 6,000 stores by 2010Cut corporate overhead costs by $30 million per year

56Current financial results are lagging indicators reflecting results of past decisions and actionsgood profitability now does not translate into stronger capability for delivering better financial results laterHowever, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years aheadGood strategic performance is thus a leading indicator of a companys capability to deliver improved future financial performance

Leading versus Lagging IndicatorsStakeholdersIndividual or groups whoAffect mission/vision of the firmAre affected by strategic outcomes of the firmHave enforceable claims on the performance of the firmCapital Market StakeholdersShareholders and capital suppliersProduct Market StakeholdersCustomers, suppliers, communities, unionsOrganizational StakeholdersEmployeesTodays firms must affectively balance the demands and expectations of all stakeholders.Levels of Strategic Management

Levels of Strategic Management

Answers the question Where?Levels of Strategic Management

Answers the question How?How?How? HPs Corporate StrategyEnterprise Storage & ServersHP ServicesSoftwarePersonal SystemsImagining and PrintingFinancial Services

Where are we going to compete?What businesses are we in? HPs Business StrategyEnterprise Storage & ServersHP ServicesSoftwarePersonal SystemsImagining and PrintingFinancial Services

How are we going to compete against Dell?How are we going to compete against Sun Microsystems?Xerox?Cannon? HPs Business StrategyEnterprise Storage & ServersHP ServicesSoftwarePersonal SystemsImagining and PrintingFinancial Services

Profits are won and lost at the business level!!Team Special for Monday1) Team Name2) Team Mission StatementDo this on a single Powerpoint pageYou will be judged by a panel of faculty, students, friends, and family on the quality and innovation of your name and mission statement.On a separate powerpoint page, same file, write 3 strategic and 3 financial objectives for the BSG.100, 75 and 50 points allocated to 1st, 2nd and 3rd place teamsSend attachment to don.neubaum@bus.oregonstate.edu by 8:00PM Sunday.Chart184.312.57.29.26.66.111.75.28.16.18.512.56.51.67913.96.66.8

JackITBMickeyDSonicSteakShakeWendy'sReturn on Assets

Sheet12002200320042005JackITB86.66.17MickeyD4.36.18.59Sonic12.511.712.513.9SteakShake7.25.26.56.6Wendy's9.28.11.66.8

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