Strategy

2. Strategy

3. Learning Objectives Define strategy. Explain why the goal of strategy is to attain superior performance. Describe what is meant by competitive advantage. Explain how business-level strategy can lead to competitive advantage. Explain how operations strategy can lead to competitive advantage. Explain how corporate-level strategy can lead to competitive advantage. See Text Page: 132 See Text Page: 132

4. Strategy An action managers take to attain a goal of an organization. Learning Objective 1: Define strategy. See Text Page: 134 Learning Objective 1: Define strategy. See Text Page: 134

5. Superior Performance Learning Objective 2: Explain why the goal of strategy is to attain superior performance. See Text Page: 135 Learning Objective 2: Explain why the goal of strategy is to attain superior performance. See Text Page: 135

6. Wal-Mart First year of operation � 1962 � Rogers, Arkansas 1960s � 15 Wal-Mart stores 1979-80 � 276 stores with $1 billion in sales 1989 � 1,400 stores with $26 billion in sales 1983 � SAM�s Club 1988 � Supercenters Today -- More than 1.8 million associates worldwide, nearly 6,500 stores and wholesale clubs across 15 countries, and over $312 billion in sales. Learning Objective 2: Explain why the goal of strategy is to attain superior performance. Wal-Mart This slide presents the Wal-Mart�s growth story. Ask the students � What would they attribute Wal-Mart�s success to? (Superior performance driven by low prices, growth, and profitability.) Ask the students � how does shopping at Wal-Mart compare to other stores such as K-Mart or Target? What would be the competitive advantage of each of these stores?Learning Objective 2: Explain why the goal of strategy is to attain superior performance. Wal-Mart This slide presents the Wal-Mart�s growth story. Ask the students � What would they attribute Wal-Mart�s success to? (Superior performance driven by low prices, growth, and profitability.) Ask the students � how does shopping at Wal-Mart compare to other stores such as K-Mart or Target? What would be the competitive advantage of each of these stores?

7. Competitive Advantage Competitive advantage: Advantage obtained when a firm outperforms its rivals. Distinctive competency: A unique strength that rivals lack. Sustainable competitive advantage: A distinctive competency that rivals cannot easily match or imitate. Barrier to imitation: Factors that make it difficult for a firm to imitate the competitive position of a rival. Legacy constraints: Prior investments in a particular way of doing business that are difficult to change and limit a firm�s ability to imitate a successful rival. Learning Objective 3: Describe what is meant by competitive advantage. See Text Pages: 134-136 Learning Objective 3: Describe what is meant by competitive advantage. See Text Pages: 134-136

8. Competitive Advantage Learning Objective 3: Describe what is meant by competitive advantage. See Text Page: 136 Learning Objective 3: Describe what is meant by competitive advantage. See Text Page: 136

9. U.S. Hospitals In the 20th Century, U.S. Hospitals were considered as the premier, top-notch facilities for healthcare 21st Century has brought the competitive pressures from focused providers Result: Competitive disadvantage and the need for change Learning Objective 3: Describe what is meant by competitive advantage. U.S. Hospitals This slide argues that the U.S. hospitals have become poor in the competitive arena. Ask the students � what factors could have affected this competitive disadvantage. (Some of the factors: Cost, quality, service, and general attitude of the staff.) Ask the students � what has been their or someone in their family�s experience with the U.S. healthcare industry? The profitability of the U.S. hospitals has been on the decline since 1990s � Median EBITDA margin for hospitals have declined from 25% in 1990 to 15% in 2004. Ask the students � who could be taking the business away from these hospitals? (Private providers, smaller and more focused operations started by Physicians themselves in competition with the hospitals such as, Dialysis centers or Cardiology Centers, etc. Also, the competition for major operations are emerging internationally at a much more affordable rate with quality and service.) Source: US Hospitals for the 21st Century, The McKinsey Quarterly, August 2006 Learning Objective 3: Describe what is meant by competitive advantage. U.S. Hospitals This slide argues that the U.S. hospitals have become poor in the competitive arena. Ask the students � what factors could have affected this competitive disadvantage. (Some of the factors: Cost, quality, service, and general attitude of the staff.) Ask the students � what has been their or someone in their family�s experience with the U.S. healthcare industry? The profitability of the U.S. hospitals has been on the decline since 1990s � Median EBITDA margin for hospitals have declined from 25% in 1990 to 15% in 2004. Ask the students � who could be taking the business away from these hospitals? (Private providers, smaller and more focused operations started by Physicians themselves in competition with the hospitals such as, Dialysis centers or Cardiology Centers, etc. Also, the competition for major operations are emerging internationally at a much more affordable rate with quality and service.) Source: US Hospitals for the 21st Century, The McKinsey Quarterly, August 2006

10. Business-Level Strategy Business-level strategy: Strategy concerned with deciding how a firm should compete in the industries in which it has elected to participate. Low-cost strategy: Focusing managerial energy and attention on doing everything possible to lower the costs of the organization. Economies of scale: Cost advantage derived from a large sales volume. Differentiation strategy: Increasing the value of a product offering in the eyes of consumers. Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 137 Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 137

11. Question What type of business level strategy does Wal-Mart employ? Would Wal-Mart be successful, if it were to change its business-level strategy? Explain. See Learning Objective 6: Discuss some of the challenges of managing in a global enterprise. Question Students should be able to argue that Wal-Mart employs a low-cost strategy by capitalizing on economies of scale, i.e., going after the volume. Wal-Mart would not succeed if it were to change to the differentiation strategy at this point.See Learning Objective 6: Discuss some of the challenges of managing in a global enterprise. Question Students should be able to argue that Wal-Mart employs a low-cost strategy by capitalizing on economies of scale, i.e., going after the volume. Wal-Mart would not succeed if it were to change to the differentiation strategy at this point.

12. The Low-Cost Value Cycles Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 138 Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 138

13. Options for Exploiting Differentiation Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 139 Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 139

14. Segmenting the Market Markets are characterized by different types of consumers. Some are wealthy, some are not. Some are old, some are not. Some are influenced by popular culture, some never watch TV. Some care deeply about status symbols, others do not. Some place a high value on luxury, some on value of money. Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Pages: 140-141 Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Pages: 140-141

15. Consumer Markets Consumer markets segmentation characteristics: Geographic Demographic Psychographic Behavioralistic Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. Consumer Markets This slide presents the four characteristics of consumer market segmentation. Ask the students what additional subsets under each may be appropriate for businesses to explore? Geographic � examples of variables used � regions, size of the metropolitan city, population density, and climate Demographic � examples of variables used � age, gender, occupation, social class, income group, etc. Psychographic � examples of variables used � activities, interests, opinions, values, etc. Behavioralistic � examples of variables used � usage rate, brand loyalty, readiness to buy, occasions such as holidays, etc. Source: www.netmba.comLearning Objective 4: Explain how business-level strategy can lead to competitive advantage. Consumer Markets This slide presents the four characteristics of consumer market segmentation. Ask the students what additional subsets under each may be appropriate for businesses to explore? Geographic � examples of variables used � regions, size of the metropolitan city, population density, and climate Demographic � examples of variables used � age, gender, occupation, social class, income group, etc. Psychographic � examples of variables used � activities, interests, opinions, values, etc. Behavioralistic � examples of variables used � usage rate, brand loyalty, readiness to buy, occasions such as holidays, etc. Source: www.netmba.com

16. Choosing Segments to Serve Focus Strategy: Serving a limited number of segments. Broad market strategy: Serving the entire market. Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 140 Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 140

17. Types of Business-Level Strategy Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 141 Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 141

18. Question In the retail industry sector, Wal-Mart could be described as following ________ strategy, whereas Nordstrom could be described as following _________ strategy. broad low cost; broad differentiation focused low cost; broad low cost broad differentiation; broad low cost focused differentiation; focused low cost Learning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 141 Answer: ALearning Objective 4: Explain how business-level strategy can lead to competitive advantage. See Text Page: 141 Answer: A

19. Configuring the Value Chain Primary activities: Activities having to do with the design, creation, and delivery of the product; its marketing; and its support and after sales services. Support activities: Activities that provide inputs that allow the primary activities to occur. Organization architecture: The operations of the firm are embedded within the internal organization architecture of the enterprise, which includes the organization structure, incentives, control systems, people, and culture of the firm. Learning Objective 5: Explain how operations strategy can lead to competitive advantage. See Text Pages: 144-145 Learning Objective 5: Explain how operations strategy can lead to competitive advantage. See Text Pages: 144-145

20. Strategic Fit Learning Objective 5: Explain how operations strategy can lead to competitive advantage. See Text Page: 147 Learning Objective 5: Explain how operations strategy can lead to competitive advantage. See Text Page: 147

21. Competitive Tactics Competitive tactics: Actions that managers take to try to outmaneuver rivals in the market. Tactical pricing decisions: - Price war - Price signaling - Razor and razor blade pricing Tactical Product decisions: - Product proliferation - Bundling Learning Objective 5: Explain how operations strategy can lead to competitive advantage. See Text Pages: 147-148 Learning Objective 5: Explain how operations strategy can lead to competitive advantage. See Text Pages: 147-148

22. Price Wars and Signaling Pepsi vs. Coca-cola Cellular phones Internet services Long distance call rates Learning Objective 5: Explain how operations strategy can lead to competitive advantage. Price Wars and Signaling This slide offers examples of companies and industry typical in price wars and signaling strategies. Ask students to identify examples in each of these that illustrate these strategies. What other industries or companies do the students recall with these strategies? Cellular phones also follow the razor and razor blade strategy. The bundling strategy is also followed heavily in the cellular, internet and long distance phone service industry or bundling of all three of these by one company, such as Verizon.Learning Objective 5: Explain how operations strategy can lead to competitive advantage. Price Wars and Signaling This slide offers examples of companies and industry typical in price wars and signaling strategies. Ask students to identify examples in each of these that illustrate these strategies. What other industries or companies do the students recall with these strategies? Cellular phones also follow the razor and razor blade strategy. The bundling strategy is also followed heavily in the cellular, internet and long distance phone service industry or bundling of all three of these by one company, such as Verizon.

23. Corporate-Level Strategy Corporate-level strategy: Strategy concerned with deciding which industries a firm should compete in and how the firm should enter or exit industries. Vertical integration: Moving upstream into businesses that supply inputs to a firm�s core business or downstream into businesses that use the outputs of the firm�s core business. Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage. See Text Pages: 148-149 Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage. See Text Pages: 148-149

24. Disney Is Disney (a diversified entertainment company) vertically integrated? Domestic and international cable networks TV production and distribution Internet and mobile operations Theme parks, hotels, restaurants, and cruise line Animated motion pictures and licensing Disney Stores and Web sites Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage. Disney This slide offers a brief profile of Disney � the diversified entertainment company. For a more detailed profile, please visit the Disney web site or on yahoo�s finance site. Ask the students to explore looking at the company from a vertical structure viewpoint and it becomes evident that the Disney is a vertically integrated company that controls or partners with the content providers and well the distributors. Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage. Disney This slide offers a brief profile of Disney � the diversified entertainment company. For a more detailed profile, please visit the Disney web site or on yahoo�s finance site. Ask the students to explore looking at the company from a vertical structure viewpoint and it becomes evident that the Disney is a vertically integrated company that controls or partners with the content providers and well the distributors.

25. Diversification Diversification: Entry into new business areas. Related diversity: Diversification into a business related to the existing business activities of an enterprise by distinct similarities in one or more activities in the value chain. Unrelated diversity: Diversification into a business not related to the existing business activities of an enterprise by distinct similarities in one or more activities in the value chain. Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage. See Text Page: 150 Learning Objective 6: Explain how corporate-level strategy can lead to competitive advantage. See Text Page: 150