Strategic Management: Creating Competitive Advantages

MGMT 4489
Strategic Management
Chapter 1 Strategic Management: Creating Competitive
Advantages
Xiaoyu (Kellie) Liu, Ph.D.
Assistant Professor
Department of Management
Sobey School of Business
Saint Mary’s University
Learning Objectives
• By the end of this class, you will:
• understand key terminology in strategy
(e.g., strategy, strategic management,
vision, mission, objectives);
• comprehend the basic framework for
strategy analysis.
What is Strategy?
Origins:
• The Concept
• Legendary Chinese
General/strategist/philosopher
• Sun Tzu (545BC – 470BC)
• Military Strategy: “The Art of War”
• Goal: To win the battles & the war!
• The Term
• Derived from the Classic and Byzantine (330 AD)
• Greek “Strategos”: “general”
• General’s Knowledge
What is Strategy?
• Michael Porter:
o http://www.youtube.com/watch?v=ibrxIP0H84M
Flawed Concepts of Strategy
• Strategy as action
o “Our strategy is to merge…”
o “…internationalize…”
o “…consolidate the industry…”
o “…outsource…”
o “…double our R&D budget…”
• Strategy as aspiration
o “Our strategy is to be #1 or #2…”
o “Our strategy is to grow…”
o “Our strategy is to be the world leader…”
o “Our strategy is to provide superior returns to our shareholders…”
• Strategy as vision
o “Our strategy is to best understand and satisfy our customers’
needs…”
o “…provide superior products and services…”
o “…to advance technology for mankind…”
What is Strategy?
A good strategy provides clear and concise
answers to four key questions:
1. Where do we compete?
2. What unique value do we bring to win in these
markets?
3. What resources/capabilities do we utilize to
deliver that value?
4. How do we sustain our ability to provide that
unique value?
Kryscynski, D. (2015)
What is Strategy?
A good strategy provides clear and concise
answers to four key questions:
1. Where do we compete?
• Which industry?
• Which product markets?
• Which geographic markets?
o Not that straightforward
o e.g., Amazon?
o July 2018, Amazon acquired Whole Foods
Kryscynski, D. (2015)
What is Strategy?
A good strategy provides clear and concise answers to
four key questions:
2. What unique value do we bring to win in
these markets?
• Why do our customers choose our products/
services vs. our competitors’?
o Walmart?
o Apple?
o Tencent Video?
• Cost or differentiation attributes?
Kryscynski, D. (2015)
What is Strategy?
A good strategy provides clear and concise
answers to four key questions:
3. What resources/capabilities do we utilize
to deliver that value?
• Resources: What are in our tool boxes?
o Human resources? Technology? Network? Unique
reputation?
• Capabilities: our abilities to use the tools (from
combination & recombination)
Kryscynski, D. (2015)
What is Strategy?
A good strategy provides clear and concise answers to
four key questions:
4. How do we sustain our ability to provide that unique
value?
• How to continue to win over time?
o Blockbuster?
o Smartphone?
• Innovations? Incremental innovation or radical
innovation?
• Imitations?
• Or else?
Kryscynski, D. (2015)
Strategic Management is…
A series of…
Analyses
Decisions
Actions
… an organization
undertakes in order to
create and sustain
competitive advantages
…
Over time
p. 9
Strategic Management Process
I. Analysis (strategic analysis)
– Strategic goals (vision, mission, strategic objectives)
– Internal and external environment of the firm
II. Decisions (strategic formulation)
– Business, Corporate, International
– New business opportunities
III. Actions (strategic implementation)
– Design the organization to bring intended strategies to
reality
– Allocate necessary resources
– Corporate governance, Leadership
Strategic Management Process
Analyses
External
Internal
2
3 4
Strategic Management Process
Decisions
Business-Level Strategy
Corporate-Level
Strategy
5
6
International Strategy 7
Strategic Management Process
Actions
Organizational Design
Corporate Governance
(Control)
9
10
Leadership & Ethics 11
Innovation & Growth 8 12
Constraints: Strategic Management
Process
Analyses
Actions Decisions
Unpredictable
business
environment
Bounded rationality
(e.g., limited effort
to seek information)
Changes in
managerial
preferences
An Alternative Model of Strategy Development
(Henry Mintzberg)
Key Attributes of Strategic Management
1. Directs the organization toward overall organizational
goals and objectives
• An integrative view of organization
• Assesses how functional areas and activities “fit together” to
achieve goals and objectives
2. Includes multiple stakeholders in decision making
3. Incorporates short-term and long-term perspectives
4. Recognizes trade-offs between efficiency and
effectiveness
1. Directs the organization toward overall
organizational goals and objectives
BUT… How?
Hierarchy & Coherence in Strategy
Vision
Mission
Strategic Objectives
Departmental Objectives & Goals
Hierarchy & Coherence in Strategy
Vision
• Provides direction—“where
we are going.”
• Inspiring
• Overarching
• Long-term
• Driven by and evokes
passion
• Fundamental statement of
the organization’
s
– Values
– Aspiration
– Goals
Vision
Mission
Strategic Objectives
Departmental Objectives & Goals
Hierarchy & Coherence in Strategy
Mission statements
• More specific than vision
• Purpose of the company
• Basis of competition and
competitive advantages
• Focused on the means by
which the firm will compete
Vision
Mission
Strategic Objectives
Departmental Objectives & Goals
Hierarchy & Coherence in Strategy
Strategic Objectives
• Operationalize the mission statement
• Provide guidance on how the
organization can fulfill or move
toward the “higher goals”
• SMART: Specific, Measurable,
Appropriate, Realistic, Timely
Strategic objectives (Financial)
• Increase sales growth to 13% by
2020
• Generate internet-related revenue
of $1.5 billion in the next five
years
Strategic objectives (Non-financial)
• Reduce green gas emissions by
10% (from a 1990 base) by 2020
• Ensure customer satisfaction
• Open 6000 stores by 2020
p. 25: Exhibit 1-7
Vision
Mission
Strategic Objectives
Departmental Objectives & Goals
Hierarchy & Coherence in Strategy
Corporate
“What business do we choose to compete?”
“How can we manage those business to create more value
than they would otherwise have as free-standing units? ”
Business Unit 1
“How do we create/sustain
a competitive advantage?”
Functional
(ex. Marketing &
Sales)
Functional
(ex. Production)
Business Unit 2
“How do we create/sustain
a competitive advantage?”
Vision
Mission
Internation
al Strategy:
How to
move
beyond
home
market?
2. Includes multiple stakeholders in decision
making
BUT…Who are the most important
stakeholders?
• Shareholders?
“Profits are to business as breathing is to life. Breathing
is essential to life, but is not the purpose for living.
Similarly, profits are essential for the existence of the
corporation, but they are not the reason for its
existence”
Source: Quote from an interview by Robert M. Grant with Dennis Bakke, founder of the international power company,
AES.
• Others? (customers, employees…)
3. Incorporates short-term and long-term
perspectives
Financial Performance and Social
Responsibilities
• CSR: “the expectation that businesses or
individuals will strive to improve the overall
welfare of society” (p.16)
• Triple Bottom Line
– Financial
– Human/Social
– Environment
4. Tradeoffs between efficiency and
effectiveness
Tradeoffs?
“While efficiency may get things done at a lower
cost and higher profit today, companies are only
sustainable if they can effectively solve their
customers’ problems.”
Self Evaluations
• What is strategy?
• Strategic management process?
• Hierarchy and coherence in strategy?
(Vision, mission, strategic objectives)
• Four key attributes of strategic
management?