basic principles of strategic management review for final – business 189 stuff that’s worth...
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Basic Principles Basic Principles of Strategic Managementof Strategic Management
Review for Final – Review for Final – Business 189Business 189
Stuff that’s worth Stuff that’s worth rememberingremembering
Distinctive competenceDistinctive competence
Very important strengthsVery important strengths, unique , unique to the particular firm, that create to the particular firm, that create competitive advantagecompetitive advantage• Built from resources and capabilitiesBuilt from resources and capabilities
Resource = Resource = possessions of the firm possessions of the firm • Tangible – factoriesTangible – factories• Intangible – brand namesIntangible – brand names
Capability = skills at putting resources to Capability = skills at putting resources to productive useproductive use
A A competencecompetence = a bundle of = a bundle of resources and capabilities that does resources and capabilities that does something something fundamental fundamental and and hard to imitatehard to imitate
A competence is said to be A competence is said to be distinctivedistinctive when it gives or has when it gives or has clear potential to give the firm clear potential to give the firm competitive advantagecompetitive advantage
Strategies – actions and plans to Strategies – actions and plans to attain one or more business goals attain one or more business goals
Levels of strategyLevels of strategy
Corporate level Corporate level • What businessesWhat businesses should we be in? should we be in? • What are our What are our basic attitudesbasic attitudes to them? to them?
Business level Business level • Strategy for a unit that operatesStrategy for a unit that operates
an an entire businessentire business Functional level Functional level
• Strategy for a unit that performs a Strategy for a unit that performs a particular functionparticular function for a business unit for a business unit (or (or for the organization as a whole)for the organization as a whole)
Business people spend most time Business people spend most time at business & functional levelsat business & functional levels
The critical goal is usually The critical goal is usually competitive advantagecompetitive advantage• Higher returns than others in their Higher returns than others in their
industryindustry The ultimate goal is The ultimate goal is sustained sustained
competitive advantagecompetitive advantage• For this, hard-to-imitate competencies For this, hard-to-imitate competencies
are criticalare critical
Business modelBusiness model
Management’s theory of how it will attain Management’s theory of how it will attain competitive advantage competitive advantage • Or, especially when considering corporate-level Or, especially when considering corporate-level
strategy, simply strategy, simply high profitshigh profits
The basic modelThe basic model
Good business model Good strategies Distinctive
competences you can defend
High profits –Higher return
than competitors
Deliberate vs. emergent strategyDeliberate vs. emergent strategy
Emergent strategy = actions that happen Emergent strategy = actions that happen without planningwithout planning
Deliberate strategy can be considered in Deliberate strategy can be considered in terms of terms of • Strategy formulationStrategy formulation• Strategy implementationStrategy implementation
Strategic IntentStrategic Intent
Big goalBig goal Widely shared at all levels in the Widely shared at all levels in the
organizationorganization Pursued for a long periodPursued for a long period
• with both deliberate and emergent with both deliberate and emergent strategiesstrategies
Internal analysisInternal analysis
Value creation Value creation
Cost, including cost of capital
Profit margin
Price
Value to customer
Consumer surplus
Value chainValue chain
The distinctive competence can be The distinctive competence can be anywhere on the value chainanywhere on the value chain• In primary activities or support activitiesIn primary activities or support activities
Barriers to imitationBarriers to imitation• Very diverseVery diverse• But capabilities that are hard to explain But capabilities that are hard to explain
are typically hard to imitateare typically hard to imitate
InertiaInertia Icarus paradoxIcarus paradox
External analysisExternal analysis
Industry – firm and its close Industry – firm and its close competitorscompetitors• Sector Sector • SegmentSegment
Stages in industry evolutionStages in industry evolution 5-forces analysis5-forces analysis
GlobalizationGlobalization The competitive advantages of The competitive advantages of
national industriesnational industries• Factor endowmentsFactor endowments• Demand conditionsDemand conditions• Related and supporting industriesRelated and supporting industries• Rivalry Rivalry
Measuring successMeasuring success
Return on invested capitalReturn on invested capital Return on equityReturn on equity
Those are the central ideasThose are the central ideas
The rest of the course examined The rest of the course examined issues in issues in • Functional level strategy Functional level strategy • Business-level strategyBusiness-level strategy• Technology strategyTechnology strategy• Global strategyGlobal strategy• Corporate strategyCorporate strategy• Managed changeManaged change• Corporate governance Corporate governance • Ethics Ethics
Issues in functional-level strategyIssues in functional-level strategy
Economies of scaleEconomies of scale The The experience curve experience curve – –
a combination of a combination of • Economies of scale Economies of scale andand• Learning effects Learning effects
Issues in business-level strategyIssues in business-level strategy
Product/service differentiationProduct/service differentiation Market segmentationMarket segmentation Generic strategiesGeneric strategies
• Cost leadershipCost leadership• DifferentiationDifferentiation• FocusFocus
Focused cost leadershipFocused cost leadership Focused differentiationFocused differentiation
Pursuing Pursuing bothboth cost leadership cost leadership andand differentiationdifferentiation• Difficulties (“stuck in the middle”)Difficulties (“stuck in the middle”)• Possible benefitsPossible benefits
Strategic groupsStrategic groups Game theory – look forward / reason Game theory – look forward / reason
backback
Issues in technology industriesIssues in technology industries
StandardsStandards Setting standardsSetting standards Strategies for winning format warsStrategies for winning format wars
• Killer applicationsKiller applications• Razor and bladeRazor and blade• Cooperation with competitorsCooperation with competitors
Costs in high tech industriesCosts in high tech industries
First-mover advantages, First-mover advantages, disadvantagesdisadvantages
Disruptive technology – why existing Disruptive technology – why existing firms neglect new technology that firms neglect new technology that produces cheap productsproduces cheap products
Global strategiesGlobal strategies
Basic choices of strategiesBasic choices of strategies• International strategy – transferring International strategy – transferring
existing competences abroadexisting competences abroad• Multidomestic strategy – responsiveness Multidomestic strategy – responsiveness
everywhereeverywhere• Global strategy – cost reductions Global strategy – cost reductions
through centralizationthrough centralization• Transnational strategy – seeking Transnational strategy – seeking
simultaneous simultaneous cost reductions, cost reductions, competency transfer, responsivenesscompetency transfer, responsiveness
I did not prepare slides on corporate I did not prepare slides on corporate strategy because I thought slides could not strategy because I thought slides could not easily summarize it. easily summarize it.
However, lecture notes on corporate However, lecture notes on corporate strategy are on the web site – strategy are on the web site – • Click on Business 189, then Lecture Notes, Click on Business 189, then Lecture Notes,
then then Section 18: Corporate Strategy 1.Section 18: Corporate Strategy 1. Note the diagrams I planned to put on the Board are Note the diagrams I planned to put on the Board are
at the end of the fileat the end of the file Section 19: Corporate Strategy 2Section 19: Corporate Strategy 2 may also be helpful. may also be helpful.
A basic change processA basic change process
UnfreezeUnfreeze Movement Movement Refreeze Refreeze
Key issues in corporate Key issues in corporate governancegovernance
StakeholdersStakeholders• InternalInternal• ExternalExternal
Stockholders (the owners)Stockholders (the owners) The agency problemThe agency problem
• Information assymetryInformation assymetry Corporate governanceCorporate governance
• Annual meetingAnnual meeting• Board of DirectorsBoard of Directors• Stock optionsStock options• Takeover threatsTakeover threats
Ethical decision – one a reasonable Ethical decision – one a reasonable stakeholder can supportstakeholder can support
Unethical decision – one you’d prefer Unethical decision – one you’d prefer to hideto hide