The document provides an overview of strategic management concepts including internal analysis, external analysis, competitive advantage, and the VRINE framework. It discusses analyzing a company's value chain, resources, and capabilities. External factors like PESTEL, Porter's five forces, and industry analysis are also summarized. The document then provides examples and questions to illustrate strategic management principles.

1. 1 Strategic Management

2. Internal Analysis (SW) External Analysis (OT)
• Value chain • PESTEL
• VRINE • 5 Forces
• Corporate value • Game theory
Arenas
Staging Vehicles
& Economic M&A
Logic
Pacing 4C
Differentiators
Implementation Strategy
• Business plan People
Symbols
Structure
• Resource allocation Rewards Processes
• Organizational design/∆
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3. 4 Strategic Management

4. Decomposition of Variation in Profit Rates
for Business Units of Diversified Companies
Corporate
parent effect
4%
Unexplained
Business-unit variation
effect 43%
32%
Year effect
Industry effect
2%
19%
Source: McGahan & Porter (1997 Strategic Management Journal)
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5.  Aldi invades Badger territory
 Bargain hunting
 What’s different about Aldi?
 Implications for rivals
 Competitive advantage & internal analysis
 What resources/capabilities lead to
competitive advantages?
 When are advantages sustained over time?
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6.  Owns discount-supermarket
giant Aldi Sud, one of
Germany's (and Europe's)
dominant grocers.
 1,000 U.S. stores in 29 states.
 Estimated sales: $37 billion.
 Brothers split ownership in
‘61; Karl took southern
Germany, U.K., Australia &
the U.S. Theo got northern
Germany and the rest of
Europe.
 Brothers transformed
mother's corner grocery
store into Aldi.
 Fiercely private: little known
other than he apparently
raises orchids and plays golf.
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7.  Value proposition: Did you save money?
 Nature of Competitive Advantage?
 Prices are typically 20-40% lower, yet Karl & Theo have
done … ok. Why is their cost structure lower?
 Recent news:
 “Shoppers Stretch Dollars, Skipping big names” (WSJ, 10/4)
 Wal-Mart retreats from Germany since Aldi has lower
prices. Now Aldi is pushes into the U.S. (WSJ, 1/09)
 Wal-Mart Loses Edge: Perception that retailer no longer
has best prices (WSJ, 8/11)
 Sustainability? Can rivals catch up?
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8. Strengths Weaknesses
V aluable
R are
I nimitable
Non-substitutable
E xploitable
Opportunities Threats
Economic Socio-Cultural
Entry
Barriers
Political Supplier
Power Rivalry Buyer
Power
Technological
Substitute
Products
Legal Environmental
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9. Technology Development
Integration
Human Resource Management
Procurement procurement
Purchasing &
Infrastructure (accting, finance, etc.)
Store ops/ Mktng/ Service
Inbound Operations Mktng/ Service
Logistics Inventory Ads
Sales
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10. Valuable: When are resources strategically
valuable?
Rare: Why might resources be scarce?
Inimitable: What prevents rivals from imitating?
Non-substitutable: What strategic substitutes
may eliminate rivals’ need for the focal resource?
Exploitable: What may hinder firms from utilizing
or capturing the gains from resources?
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11. VRINE Framework
Resource/Capability Attributes
Inimitable &
Non- Exploitable Competitive
Valuable? Rare? substitutable? by the Firm? Outcome:
No No No No Disadvantage
Competitive
Yes No No No Parity
Potential
Yes Yes No No Advantage
Temporary
Yes Yes No Yes Advantage
Sustained
Yes Yes Yes Yes Advantage
Source: Barney, Strategic Management & Competitive Advantage
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12. Firm-Specificity: assets aren’t applicable to rivals
 Knowledge of Genzyme’s proprietary research
program for an “orphan” disease may not be
applicable to a firm that cannot serve that niche.
Causal Ambiguity: Unclear what leads to success
 eHarmony: what makes a good match?
 Cask-backwards -- Winemaking skills are so tacit that
rivals can’t imitate the process.
Complexity: embedded in teams/networks/assets
 IDEO relies on social ties to leverage learning from
past design projects.
 Brokers control 95% of clients (if you keep them…).
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14.  Imitate or substitute? What policies can’t be
copied? Are there strategic substitutes?
 Teams 1-3/12-14: Copp’s, Metcalfe’s, or Hy-Vee
 Teams 4-5/15-16: Wal-Mart, Sam’s Club, Costco, Woodman’s
 Teams 6-7/17-18: Cub Foods or Pick-N-Save
 Team 8-9/19-20: Whole Foods, Trader Joe’s, Fresh Madison
Mkt, or Willy St. Coop
 Team 10-11/21-22: PDQ, Stop-N-Go, Stop-N-Shop, Quick Mart
 Repositioning?
 In response to Aldi. Should your client change anything?
 In response to other rivals’ shifting positions?
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15. 49%
50%
45%
45%
40%
35%
30%
25%
20%
15%
10% 5%
5% 1%
0%
Very easily Somewhat easily Somewhat difficult Very difficult
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16. Technology Development
Integration
Human Resource Management
Procurement procurement
Purchasing &
Infrastructure (accting, finance, etc.)
Store ops/ Mktng/ Service
Inbound Operations Mktng/ Service
Logistics Inventory Ads
Sales
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17. 18 Strategic Management

18.  Prices 30% - 50% less than full svc grocery chains
 Limited choices for Aldi customers
 1400 items (vs. 25,000 in supermkts) & 1 pkg size/category.
 ≈90% private label, but comparable quality to top brands.
 No bakery, fresh meat/seafood, deli, prepared
foods, florist, pharmacy, greeting cards, magazines.
 Stores are < 1/3 the size of average supermarket.
 Limited services for Aldi customers
 No cart collecting: Shoppers pay 25¢ (refunded upon return).
 Shoppers bag their purchases: Can bring bags, or buy
(5¢=paper or 10¢=plastic).
 10 employees/store, including manager (≈3 at a time).
 No advertising/coupons & unlisted phone numbers.
 No shelf stocking: Merchandise sold from crates.
 Open 9am - 7 pm & closed Sundays.
 No checks, credit cards or coupons.
 Stores located near rival supermarkets.
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19. Introducing Join the Club
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21. 45% 42%
40%
37%
35% 33%
32%
30%
26%
25%
24%
21%
20% 17%
14%
15%
11%
10%
5%
0%
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22.  Cost/differentiation trade-off seen as “either/or”:
 Delivering higher value to customer costs more.
 So, cannot deliver superior value & be low-cost leader.
 Companies that don’t commit to being one or the
other wind up being neither…
 Not differentiated enough to avoid price war.
 Not cost-efficient enough to win price war.
“Stuck in
? the middle” ?
Low-cost Differentiator
leader
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23.  “Stuck in middle” trap is a risk if the firm lacks focus
(all things to all people). But…
 Cost/differentiation is a trade-off only if the firm
does the same set of activities as rivals. However:
 a different set of activities may be better and cheaper.
 Revolutionary business models offer create value through
distinct value chain activities
(e.g., Southwest, Dell, Vanguard, Wal-Mart).
 Business units with both cost & differentiation
advantages have > ROI (Miller & Dess, 1996)…
 8 – 12% higher than those with only one advantage, and
 25% higher than units with neither advantage.
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24.  Internal capabilities. While market opportunities
& firm capabilities are both key, competitive
advantages often arise in unattractive industries.
 Systematic analysis. Resources and capabilities
can be identified and analyzed systematically
using the value chain and VRINE frameworks.
 Strategic Factor Markets. Many strategic moves
occur in markets for capabilities. How can firms
acquire capabilities at a bargain in such markets?
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