Competing For Advantage

1. Competing For Advantage Part I – Strategic Thinking Chapter 1 – Introduction to Strategic Management

2. What we need for effective strategy: • A mission • A plan • Elephants • That’s the strategic process

3. Why do we need strategy? The reasons why firms succeed and fail is perhaps the central question in strategy

4. Strategy defines…. Who are you? Where are you going? How are you going to get there?

5. Organizations should make two types of decisions 1) Strategic decisions 2) Strategically driven decisions Company B Company C Company A

6. Strategic Management Defined • decisions and actionsrequired for the firm to create value and earn returns higher than those of competitors • formulationand implementation of plans designed to achieve objectives • unifying theme that gives coherence and direction to organizational/individual decisions • game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance • integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage What is a competitive advantage?

7. Competitive Advantage • When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitate

8. Competitive advantages become sustainable competitive advantages when rivals stop trying to replicate

9. Changes in the Competitive Landscape

10. New Realities in the Competitive Landscape • Quick competitive information needs • Shorter product life cycles • Indistinguishable products • Rapid technology replacement • Availability of inexpensive information • New business culture from electronic-business models • Continuous learning is necessary

11. Disruptive Technologies • Value of existing technologies is destroyed • Creative destruction process replaces existing technologies with new ones • New markets are created

12. New Sources of Competitive Advantage • Speed to market • Access and use of information • Rapid diffusion of new, transformed knowledge throughout the company • Innovation • Integration of new conditions into organization mind set • Global standard achievement • Strategic flexibility

13. Porter’s “What is Strategy” article

14. What is Strategy? Strategy is not doingsimilar activitiesbetter than your rivals – that’s operational effectiveness • continual improvement not a sustainable advantage • industry-wide cost reductions do not lead to increased profitability • examples: PCs, automobiles, airlines

15. What is Strategy? 1) Strategy is performingdifferent activitiesor performing similar activities in adifferent way Strategy is about positioning a) Variety-based positioning • offering a unique choice of goods/services - Chic-fil-a, GameStop b) Needs-based positioning • serving most/all of a particular group of customers’ needs - Babies R Us c) Access-based positioning • serving a set of customers that require unique access – Kinkos, Movie Gallery, Superette

16. What is Strategy? 2) Strategy is about choosing apositionwhich requirestradeoffs, choosing whatnotto do • without tradeoffs, all firms would imitate Tradeoffs arise from • inconsistent image/reputation • different activities, products, equipment, employees, skills, systems, machines • priorities, internal coordination, and control

17. What is Strategy? 3) Strategy is aboutcombiningactivities as advantages come fromfit andreinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

18. What is Strategy? 4) The desire to grow is most threatening to an effective strategy • Blurs uniqueness • Creates compromises • Reduces fit • Erodes original advantages

19. Three Perspectives on Value Creation • Industrial/Organization (I/O) Economic Model • Resource-Based View • Stakeholder Approach

20. The Industrial/Organization (I/O) Model of Above-Average Returns Underlying assumptions: • External environment imposes pressures and constraints that determine the strategies resulting in above-average returns • Most firms competing within a particular industry or industry segment control similar resources, and pursue similarstrategies • Resources are highly mobile across firms, and that due to this mobility, any resource differences between firms will be short lived

21. The Industrial/ Organization (I/O) Model of Above-Average Returns

22. The Industrial/Organization (I/O) Model of Above-Average Returns • Michael Porter’s Five-Forces Model • Reinforces the importance of economic theory • Offers an analytical approach that was previously lacking in the field of strategy • Describes the forces that determine the nature/level of competition and profit potential in an industry • Suggests how an organization can use the analysis to establish a competitive advantage

23. The Resource-Based Model of Above-Average Returns • Underlying Assumptions • Internal environment imposes pressures and constraints that determine the strategies resulting in above-average returns • Most firms competing within a particular industry or industry segment control unique strategically relevant resources and pursue dissimilar • Resources are not highly mobile across firms, and that due to this immobility any resource differences between firms can be sustainable

24. The Resource-Based Model of Above-Average Returns

25. The Stakeholder Model of Responsible Firm Behavior and Firm Performance • Basic Premise of the Stakeholder Model– to propose that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors

26. The Three Stakeholder Groups

27. Secondary Stakeholders • Government entities and administrators • Activists and advocacy groups • Religious organizations • Other nongovernmental organizations

28. The Stakeholder Model of Responsible Firm Behavior and Firm Performance

29. Ways Stakeholder Relationships Contribute to Competitive Advantage • Timely and high quality strategic intelligence is gathered to improve a firm's strategic decisions • A trustworthy reputation draws valuable customers, suppliers, and business partners to acquire or develop competitive resources • A trustworthy reputation attracts investors to offer financial resources • Firms that have fair and respectful treatment of employee relationships attract high-quality human resources

30. Ways Stakeholder Relationships Contribute to Competitive Advantage • Transactions costs associated with making and enforcing agreements can be reduced • Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions • Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulations, legal suits and penalties, consumer dissatisfaction, employee work outages, or bad press)

31. Charting a Good Strategy • The Strategy Diamond • Arenas • Vehicles • Differentiators • Staging & Pacing • Economic Logic

32. Strategy Diamond Strategy is an integrated set of choices…. Arenas Economic Logic Staging Vehicles Differentiators

33. Arenas • Where are we going to be active? • Product categories • Channels • Market Segments • Geographic Segments • Core Technologies • Value-creating strategies Arenas Economic Logic Staging Vehicles Differentiators

34. Vehicles • How are we going to get there? • Means of participating in chosen markets • Internal Development • Joint Venture • Licensing/Franchising • Alliances • Acquisition Arenas Economic Logic Staging Vehicles Differentiators

35. Differentiators • Product/service attributes that beat competitors, for example… • Image • Customization • Price • Styling • Product reliability • Speed to market • Safety Arenas Economic Logic Staging Vehicles Differentiators

36. Staging • Timing, pace and sequencing of strategic moves • When to launch moves • Function of resources, urgency and market signals Arenas Economic Logic Staging Vehicles Differentiators

37. Economic Logic • How will returns be obtained? • Low cost through scale, scope design, or process advantages • Premium prices through superior products or service Arenas Economic Logic Staging Vehicles Differentiators