Title: Lecture Outline
1Lecture Outline
Strategic Management and Competitive
Advantage Jay B. BarneyWilliam S. Hesterly
2Chapter 1
What is Strategy and the Strategic Management
Process?
3Defining 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
4What 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
5Example 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
6Panera 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
7Central 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?
8Strategy 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.
9Illustration of Strategy as a Mechanism of
Preparedness and Action
10What 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
11Nature of Competitive Advantage?
- How to Create a Competitive (or Unfair) Advantage
- There must be something different about a firms
offerings vis-Ã -vis competition's offerings. - Oyster Bay Story
- If all firms strategies were the same, no firm
would have a competitive advantage.
12Nature 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
13Advantages 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.
14Advantages 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.
15Advantages 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.
16Advantages 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.
17Strategic Management Process
External Analysis
Strategic Choice
Strategy Implementation
Competitive Advantage
Mission
Objectives
Internal Analysis
18A 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.
19Examples of Mission Statements(1 of 3)
20Examples of Mission Statements(2 of 3)
21Examples of Mission Statements(3 of 3)
22Objectives
- 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.
23External 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.
24Making 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.
25Video CaseIllustrating One Firms Pretense for
Making Strategic Choices
Stu Leonard's Grocery Store
26Business 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).
27Corporate-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)
28Choosing 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.
29Strategy 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
30Competitive 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
31Competitive Advantage and Economic Returns
Competitive Advantage
Economic Returns
Advantage
Above Normal
exceeding expectations
Parity
Normal
meeting expectations
Disadvantage
Below Normal
failing expectations
32Emergent 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
-
33Questions 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?
34Questions 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?
35Barriers to Strategic Management
- Demands on Managers Time
- Ambiguous and Uncertain Operating Environment
- Resistance to Change
36The 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 .
37The 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. -
38The 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
39The 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