Chapter 4Strategic Management

http://www.youtube.com/watch?v=HEjY4KtNZoE

What is competitive advantage?

Competitive AdvantageFour criteria to gain a competitive advantage: 1. Superior Value2. Rarity3. Difficult to Imitate4. Nonsubstitutability

Example: Coca-Cola

Setting Direction

First Step Strategic vision Mission statement

The General Environment Sociocultural Environment

Demographics Combination (i.e. birth rate & education levels)

Cultural environment

They never learn.

Coors Brewing slogan Turn it loose when converted to Spanish means Suffer from diarrhea

Clairol launched a curling iron called Mist Stick in Germany. Mist in German is slang for manure. It turns out manure sticks arent very popular in Germany.

It takes a tough man to make a tender chicken, is a bit different in Spanish It takes a sexually stimulated man to make a chicken affectionate.

Economic Environment Multiple forces at work

Government spending and interest rates cycle

Short term or structural?

Industry norms

Political/Legal

Regulations and political activism i.e. coal power plants and corn filters C.R. England

Government spending

Firm industry and Competitor Environment

Few Competitors

Quality-based

competition

High entry barriers

Few new entrants

Few substitutes

Many customers

Fragmented customers

Many suppliers

Many competitors

Price-based competition

Low entry barriers

Many new entrants

Few customers

United customers

Few suppliers Lower Profits

Higher Profits

Porters Five Forces

Internal AnalysisThe Value Chain Primary activities

Support activities

Core competence

Core CompetencyA deep proficiency that enables a company to

deliver unique value to customers

- Bain & Company

Access to various marketsPerceived customer benefits

Difficult to imitate

SWOT Analysis

Setting Strategic ObjectivesConcrete and measurableAddresses: Profitability Market share Customer satisfaction Cash flow Operating efficiency**Long Term** - typically five years or more

Formulating a StrategyStrategy levels: Corporate

Business (Competitive)

Functional (Unit)

Cost Leadership Strategy Providing products for the lowest cost Common ways of reducing cost

Developing economies of scale Investing in manufacturing technology

Differentiation Strategy Strive to make a business service or product

different Can typically charge a premium price Major R&D cost

Integrated Differentiation-Cost Leadership Strategy

Different products/services + low costs Difficult to implement Generally seen among international

companies

Multipoint Competition Strategy

Spreads across markets, geography, or both Can lower quality of service

Strategic Scope Focusing on a specific group of customers Focus strategy: focuses on specific market

segment

Strategy Implementation The KEY-Internal organization consistent with

strategy Entering new product or geographic markets

Organic Alliances Acquisitions

Monitoring/Evaluating Tie individual and firm objectives Annual and quarterly evaluations

Senior executives Lower-level managers

Reinforce or correct efforts