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Title: Lecture Outline


1
Lecture Outline
Strategic Management and Competitive
Advantage Jay B. BarneyWilliam S. Hesterly
2
Chapter 1
What is Strategy and the Strategic Management
Process?
3
Defining StrategySlide 1 of 2
Definition of Strategy
A strategy is a theory about how to gain
competitive advantages. A good strategy is a
strategy that actually generates such advantages.
A firms strategy is defined as follows
4
What is Strategic Management?Slide 2 of 2
  • Strategic Management
  • The process by which an organization makes
    decisions and takes actions to enhance its
    long-term performance.
  • Roadmap to follow
  • Blueprint for success

5
Example of StrategyPanera Bread
Fast Food With Counter Service
Casual Dining With Table Service
  • Panera Bread
  • New theory.
  • Fast casual

Advantage Fast Disadvantage Tiresome Food
Advantage Good food Disadvantage Slow
Good Food With Counter Service
Advantage Fast Advantage Good Food
6
Panera BreadIs the Strategy Generating a
Competitive Advantage?
Performance Measure Panera
Average for Restaurant Industry
Gross Profit Margin
55.03
24.51
8.36
7.98
Net Profit Margin
Net Profit Margins of Other Restaurants
Wendys
1.33
McDonalds
12.27
Outback Steakhouse
4.60
Darden
5.51
7
Central Questions that Strategic Managers Must
Address
Do we have a coherent theory for obtaining a
competitive advantage?
What is happening in our industry?
Do we have unique capabilities that makes it
hard for our competitors to copy us?
What is our competition going to do?
How should we respond?
8
Strategy is Like a Game of Chess
Strategy is somewhat like a game of chess, and is
all about positioning your own pieces to gain
advantage.
9
Illustration of Strategy as a Mechanism of
Preparedness and Action
10
What is Competitive Advantage?
  • Competitive Advantage
  • Every firm should have one or more unique forms
    of competitive advantage
  • A firms competitive advantage comes from its
    ability to perform activities more distinctively
    or more effectively than its rivals
  • A competitive advantage gives a firm an edge over
    its rivals

11
Nature of Competitive Advantage?
  • How to Create a Competitive (or Unfair) Advantage
  • There must be something different about a firms
    offerings vis-à-vis competition's offerings.
  • Oyster Bay Story
  • If all firms strategies were the same, no firm
    would have a competitive advantage.

12
Nature of Competitive Advantage?
If you have the same strategy as your competitors
Your strategy is a wash
If the strategy is different but is easily copied
It provides only a temporary advantage
If the strategy is different but is hard to copy
It is strong and sustainable
13
Advantages of Engaging in the Strategic
Management ProcessSlide 1 of 4
  • Provides a Sense of Purpose for a Firm
  • A strategic plan includes a mission statement and
    a vision statement. The sentiments represented
    in these statements provide a sense of purpose
    for a firm.

14
Advantages of Engaging in the Strategic
Management ProcessSlide 2 of 4
  • Aids In Decision Making
  • Having a strategic plan enables the leaders of a
    firm to ensure that day-to-day decisions fit with
    the long-term interests of the organization.

15
Advantages of Engaging in the Strategic
Management ProcessSlide 3 of 4
  • Brings Everyone in the Company Together
  • Having a strategic plan encourages everyone in a
    company to work together to achieve common aims.

16
Advantages of Engaging in the Strategic
Management ProcessSlide 4 of 4
  • Focus On Forward Thinking
  • The planning function forces managers to think
    ahead and consider resource needs and potential
    opportunities or threats that the organization
    may face in the future.

17
Strategic Management Process
External Analysis
Strategic Choice
Strategy Implementation
Competitive Advantage
Mission
Objectives
Internal Analysis
18
A Firms Mission
  • Mission
  • A firms mission is its long-term purpose.
  • Missions defined both what a firm aspires to be
    in the long run and what it wants to avoid in the
    meantime.
  • Mission Statement
  • Missions are often written down in the form of
    mission statements.

19
Examples of Mission Statements(1 of 3)
20
Examples of Mission Statements(2 of 3)
21
Examples of Mission Statements(3 of 3)
22
Objectives
  • Objectives
  • Specific measurable targets a firm can use to
    evaluate the extent to which it is realizing its
    mission.
  • High Quality Objectives
  • Are tightly connected to elements of a firms
    mission and are relatively easy to measure and
    track over time.
  • Low Quality Objectives
  • Either do not exist or are not connected to
    elements of a firms mission, are not
    quantitative, and are difficult to measure or
    difficult to track over time.

23
External and Internal Analysis
  • External Analysis
  • An identification of the critical threats and
    opportunities in the competitive environment.
  • Examines how competition in this environment is
    likely to evolve and what implications that
    evolution has for the threats and opportunities a
    firm is facing.
  • Internal Analysis
  • Helps identify a firms strengths and weaknesses.
  • Helps a firm identify which of its resources and
    capabilities are likely to be sources of
    competitive advantage.
  • Identify areas that need improvement and change.

24
Making Well Informed Strategic Choices
External Analysis
Strategic Choice
Strategy Implementation
Competitive Advantage
Mission
Objectives
Internal Analysis
Armed with a mission, objectives, and completed
external and internal analyses, a firm is ready
to make its strategic choices.
25
Video CaseIllustrating One Firms Pretense for
Making Strategic Choices
Stu Leonard's Grocery Store
26
Business Level Strategies
  • Business-Level Strategies
  • Are actions firms take to gain competitive
    advantage in a single market or industry.
  • The two most common business-level strategies are
    cost leadership (Chapter 4) and product
    differentiation (Chapter 5).

27
Corporate-Level Strategies
  • Corporate Level Strategies
  • Are actions firms take to gain competitive
    advantage by operating in multiple markets or
    industries simultaneously.
  • Common corporate strategies include
  • Vertical integration strategies (Chapter 6)
  • Diversification strategies (Chapters 7 and 8)
  • Strategic alliances strategies (Chapter 9
  • Mergers and acquisition strategies (Chapter 10)

28
Choosing a Strategy
  • Objectives When Making a Strategic Choice
  • Choose a strategy that
  • Supports the firms mission
  • Is consistent with a firms objectives
  • Exploits opportunities in a firms environment
    with a firms strengths
  • Neutralizes threats in a firms environment
    while avoiding a firms weaknesses.

29
Strategy Implementation
  • Strategy Implementation
  • Occurs when a firm adopts organizational policies
    and practices that are consistent with its
    strategy.
  • Organizational policies and practices
    particularly important in implementation a
    strategy
  • Organizational structure
  • Management controls
  • Employee compensation policies

30
Competitive AdvantageTwo Approaches
  • Ways That Competitive Advantage is Accomplished
  • Preference for the firms output
    (differentiation)
  • People choose the firms output over others
  • People are willing to pay a premium
  • Example Nordstrom's
  • Cost advantages compared to competitors (cost
    leadership)
  • Lower costs of production/distribution
  • Example Wal-Mart

31
Competitive Advantage and Economic Returns
Competitive Advantage
Economic Returns
Advantage
Above Normal
exceeding expectations
Parity
Normal
meeting expectations
Disadvantage
Below Normal
failing expectations
32
Emergent Versus Intended Strategies(1 of 2)
  • Intended Strategies
  • The strategic management process (as show earlier
    in the chapter) leads managers to intended
    strategies
  • Emergent Strategies
  • However, conditions often change or new
    information becomes available
  • Managers respond and adopt emergent strategies

33
Questions to Consider About Your BusinessSlide 1
of 2
  • Question 1
  • Does your business have a roadmap to follow or
    a blueprint for success?
  • Question 2
  • Do you have a clearly defined strategy?
  • Question 3
  • Do you have a clearly defined competitive terrain?

34
Questions to Consider About Your BusinessSlide 2
of 2
  • Question 4
  • Do you have clearly discernable strengths and
    distinctive competencies? Are your distinctive
    competencies easy or difficult to imitate?
  • Question 5
  • Do you use your strengths and distinctive
    competencies to achieve a competitive advantage
    in your terrain?

35
Barriers to Strategic Management
  • Demands on Managers Time
  • Ambiguous and Uncertain Operating Environment
  • Resistance to Change

36
The Strategic Management Process in the
International Setting(1 of 2)
  • Things to Consider
  • Important questions remain the same, but the
    answers may be different.
  • A firm would still ask about social trends, but
    social trends may be moving in different
    directions in different markets.
  • Cultural and infrastructure differences must be
    taken into account throughout the strategic
    management process .

37
The Strategic Management Process in the
International Setting(2 of 2)
  • Adopting a Global View
  • Managers need to learn to think about strategy in
    a global context.
  • Observed phenomena have different meaning in
    different parts of the world.
  • Many firms explicitly encourage international
    experience
  • You need to know how the competition sees the
    world.

38
The Strategic Management Process(1 of 2)
  • Summary
  • Firms could achieve competitive parity and
    survive
  • They would face a flat demand curve
  • Their cost structure would be the industry
    average
  • They would need to adapt their strategy over time
    just to survive
  • They would fail if they didnt adapt their
    strategy

39
The Strategic Management Process(2 of 2)
  • Summary
  • This course is not about mere survival, it is
    about thrivingachieving competitive advantage.
  • The strategic management process helps managers
    achieve competitive advantage
  • Competitive advantage depends on differences
  • Strategy is about discovering and exploiting
    these differences
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