Strategic Management:

Creating Competitive Advantages

Chapter 1 through 6Prepared by Shawna Chen

McGraw-Hill/Irwin All rights reserved.

A Hierarchy of Goals

Exhibit 1.6

2

Question

What are the criteria for meaningful strategic objectives? Hint:

• Page 31 Answers:

• Measurable• Specific• Realistic• Timely

3

Application

How should you proceed with final project? Hint:

• Caitlin’s house had a plumbing problem Solutions:

• 8 common types of challenges• Internal/external environment analyses• McKinsey’s 3 horizons or Deloitte’s growth framework

4

Application

8 common types of challenge Falling profits New product introduction Entering a new product/service market Entering a new geographic market Mergers & acquisitions Competitive response Government/regulatory environment response

5

Application

McKinsey’s 3 horizons

6

Application

Deloitte’s growth framework

7

STRATEGIC MANAGEMENT PROCESS

8

Business-Level Strategy:

Creating and Sustaining

Competitive Advantages

Chapter Five

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Question

Business-level strategyvs.

Corporate-level strategy

10

Question

What are 3 generic strategies?

11

Application:Combination Strategies

12

Exhibit 5.2

Application:Stages of the Industry Life Cycle

5-13

Exhibit 5.12

Question

Overall cost leadership Pros? (Hint: Porter’s 5 forces) Cons?

Differentiation Pros? Cons?

Focus Pros? Cons?

14

Overall Cost Leadership

Pros (5): Protects a firm against rivalry from competitors Protects a firm against powerful buyers Provides more flexibility to cope with demands

from powerful suppliers for input cost increases Provides substantial entry barriers from

economies of scale and cost advantages Puts the firm in a favorable position with respect

to substitute products

15

Overall Cost Leadership

Cons (5): Too much focus on one or a few value-chain

activities All rivals share a common input or raw material The strategy is imitated too easily A lack of parity on differentiation Erosion of cost advantages when the pricing

information available to customers increases

16

Differentiation

Pros (3): Creates higher entry barriers due to customer

loyalty Provides higher margins that enable the firm to

deal with supplier power Establishes customer loyalty and hence less

threat from substitutes

17

Differentiation

Cons (6): Uniqueness that is not valuable Too much differentiation Too high a price premium Differentiation that is easily imitated Diffusion of brand identification through product-

line extensions Perceptions of differentiation may vary between

buyers and sellers

18

Focus

Pros (2): Creates barriers of either cost leadership or

differentiation, or both Used to select niches that are least vulnerable to

substitutes or where competitors are weakest

19

Focus

Cons (3): Erosion of cost advantages within the narrow

segment Focused products and services still subject to

competition from new entrants and from imitation

Focusers can become too focused to satisfy buyer needs

20

Application:Internet-Enabled

Which generic strategy?

Answer: Focus

5-21

Application:Internet-Enabled

Which generic strategy?

Answer: Overall cost leadership

5-22

Application:Internet-Enabled

Which generic strategy?

Answer: Differentiation

5-23

Application:Team Exercise

Present your final project company’s “business-level” strategy

Critique If it fits vision If it’s a good combination If it suits product life cycle If it responses to the Internet era Can competitive advantage be sustained?

24

Corporate-Level Strategy: Creating Value

through Diversification

Chapter Six

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Question

Related diversificationVs.

Unrelated diversification

26

Related Diversification

Economic of scope Leveraging core competencies Sharing activities

Market power Pooled negotiating power Vertical integration

27

Question Which related diversification strategy Carpet Tech

uses?

Example of related diversification using economic of scope Procter & Gamble 3M

Example of related diversification using market power Automotive industry

28

ExampleU.S. Automobile Industry’s Profit Pool

5-29

Exhibit 5.8

Unrelated Diversification

Restructuring Definition? Example?

Parenting Definition? Example?

Portfolio management Definition? Example?

30

ExampleChurch & Dwight has a well balanced portfolio of

products, which includes Arm & Hammer Trojan condoms Oxi Clean AIM toothpastes First Response Nair Xtra laundry detergent Brillo

31Source: www.churchdwight.com

Application

What are the differences among: Holding company Investment company Conglomerate Keiretsu

6-32

Means to Achieve Diversification

Mergers and acquisitions (M&A)Pooling resources of other companies with a

firm’s own resource base Joint venture Strategic alliance

Internal development Corporate entrepreneurship

6-33

Question

What are the differences between merger and acquisition?

M&A Pros? Cons?

34

Mergers and Acquisitions

Pros Can be a means of obtaining valuable resources

that can help an organization expand its product offerings and services

Can lead to consolidation within an industry and can force other players to merge

Corporations can also enter new market segments by way of acquisitions

35

Mergers and Acquisitions

Cons Competing firms often can imitate any

advantages realized or copy synergies that result from the M&A.

There can be many cultural issues that may doom the intended benefits from M&A endeavors.

36

Question

What are the differences between joint venture and strategic alliance?

Joint venture & strategic alliance Pros? Cons?

37

Strategic Alliances and Joint Ventures

Pros Introduce successful product or service into a new

market• Lacks requisite marketing expertise

Join other firms to reduce manufacturing (or other) costs in the value chain• Pool capital, value-creating activities, facilities

Develop or diffuse new technologies• Use expertise of two or more companies• Develop products technologically beyond the capability of

the companies acting independently

38

Strategic Alliances and Joint Ventures

Cons Improper partner

• Each partner must bring desired complementary strengths to partnership

• Strengths contributed by each should be unique Partners must be compatible Partners must trust one another

39

Antitakeover Tactics

Greenmail payment by a firm to a hostile party for the firm’s stock at

a premium, made when the firm’s management feels that the hostile party is about to make a tender offer

Golden parachute a prearranged contract with managers specifying that, in

the event of a hostile takeover, the target firms managers will be paid a significant severance package

Poison pills Used by a company to give shareholders certain rights in

the event of takeover by a another firm

40

Application:Team Exercise

Find tv/movie moments as examples of Greenmail Golden parachute Poison pills

41