Chap01 Strategic Mgmt


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Chap01 Strategic Mgmt

  1. 1. CHAPTER 1 Strategy and the Quest for Competitive Advantage McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Thinking Strategically: The Three Big Strategic Questions <ul><li>1. Where are we now? </li></ul><ul><li>2. Where do we want to go? </li></ul><ul><ul><li>Business(es) to be in and market positions to stake out </li></ul></ul><ul><ul><li>Buyer needs and groups to serve </li></ul></ul><ul><ul><li>Direction to head </li></ul></ul><ul><li>3. How are we going to get there? </li></ul><ul><ul><li>A company’s answer to “how will we get there?” is its strategy </li></ul></ul>
  3. 3. What Do We Mean By “Strategy”? <ul><li>Consists of competitive moves and business approaches used by managers to run the company </li></ul><ul><li>Management’s “action plan” to </li></ul><ul><ul><li>Attract and please customers </li></ul></ul><ul><ul><li>Compete successfully </li></ul></ul><ul><ul><li>Conduct operations </li></ul></ul><ul><ul><li>Achieve target levels of organizational performance </li></ul></ul>
  4. 4. Answering the Question, “How Are We Going to Get There?” <ul><li>How to please customers </li></ul><ul><li>How to out-compete rivals </li></ul><ul><li>How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on) </li></ul><ul><li>How to respond to changing market conditions </li></ul><ul><li>How to achieve targeted levels of performance </li></ul>
  5. 5. Elements of a Company’s Business Strategy
  6. 6. Strategy and Sustainable Competitive Advantage <ul><li>A company achieves sustainable competitive advantage when a sufficiently large number of buyers develop a lasting preference for its products/services over those offered by rivals </li></ul>
  7. 7. Four Proven Strategic Approaches to Winning a Sustainable Competitive Advantage <ul><li>Developing a cost-based advantage </li></ul><ul><li>Creating a differentiation-based advantage </li></ul><ul><li>Focusing on a narrow market niche within an industry </li></ul><ul><li>Developing unmatched resource strengths and competitive capabilities </li></ul>
  8. 8. Competitive Strategy Examples <ul><li>Strive to be the industry’s low-cost provider </li></ul><ul><ul><li>Wal-Mart </li></ul></ul><ul><ul><li>Southwest Airlines </li></ul></ul><ul><li>Out-compete rivals on a key differentiating feature </li></ul><ul><ul><li>Harley-Davidson – Outlaw image and distinctive engine sound </li></ul></ul><ul><ul><li>Rolex – Top-of-the-line prestige </li></ul></ul><ul><ul><li> – Wide selection and convenience </li></ul></ul>
  9. 9. Competitive Strategy Examples <ul><li>Focus on a narrow market niche </li></ul><ul><ul><li>McAfee – Virus protection auctions </li></ul></ul><ul><ul><li>Starbucks – Premium coffees and coffee drinks </li></ul></ul><ul><ul><li>The Weather Channel – Cable TV </li></ul></ul><ul><li>Develop expertise, resource strengths, and capabilities not easily imitated by rivals </li></ul><ul><ul><li>Walt Disney – Theme park management and family entertainment </li></ul></ul><ul><ul><li>Ritz-Carlton – Personalized customer service </li></ul></ul>
  10. 10. Why Do Strategies Evolve? <ul><li>A company’s strategy is a work in progress </li></ul><ul><li>Changes may be necessary to react to </li></ul><ul><ul><li>Shifting market conditions </li></ul></ul><ul><ul><li>Fresh moves of competitors </li></ul></ul><ul><ul><li>Evolving customer preferences </li></ul></ul><ul><ul><li>Emerging market opportunities </li></ul></ul><ul><ul><li>New ideas to improve strategy </li></ul></ul><ul><ul><li>Crisis situations </li></ul></ul>
  11. 11. A Company’s Strategy Is a Blend of Planned Initiatives and Unplanned Reactive Adjustments
  12. 12. What Is a Business Model? <ul><li>A business model addresses “How do we make money in this business?” </li></ul><ul><li>Do the revenue-cost-profit economics of the strategy make good business sense? </li></ul><ul><ul><ul><ul><li>Look at revenue streams the strategy is expected to produce </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Look at associated cost structure and potential profit margins </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money? </li></ul></ul></ul></ul>
  13. 13. Microsoft’s Business Model <ul><li>Employ highly skilled programmers to develop proprietary code; keep source code hidden from users </li></ul><ul><li>Sell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market share </li></ul><ul><li>Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit </li></ul><ul><li>Provide modest level of technical support to users at no cost </li></ul><ul><li>Rejuvenate revenues by periodically introducing next-generation software that prompt PC users to upgrade their operating systems </li></ul>
  14. 14. Red Hat’s Business Model <ul><li>Rely on collaborative efforts of volunteer programmers to create the software </li></ul><ul><li>Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux </li></ul><ul><li>Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages </li></ul><ul><li>Make source code open and available to all users </li></ul><ul><li>Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, and software customization </li></ul>
  15. 15. Tests of a Winning Strategy <ul><li>GOODNESS OF FIT TEST </li></ul><ul><ul><li>How well does strategy fit the firm’s situation? </li></ul></ul><ul><li>COMPETITIVE ADVANTAGE TEST </li></ul><ul><ul><li>Does strategy lead to sustainable competitive advantage? </li></ul></ul><ul><li>PERFORMANCE TEST </li></ul><ul><ul><li>Does strategy boost firm performance? </li></ul></ul>