Slide 1Why do we need strategy?Strategic Management DefinedCompetitive AdvantageToday’s Competitive LandscapeWhat is Strategy?What is Strategy?What is Strategy?What is Strategy?What is Strategy?What is Strategy?So….how can firm’s be profitable?Two Models of ProfitabilityI/O Model Environment Drives Strategy & PerformanceI/O Model Environment Drives Strategy & PerformanceSlide 16Slide 17What is strategic effectiveness?Strategic Vision vs. MissionMission StatementsObjectivesTypes of Objectives Required6 Characteristics of a Good ObjectiveSlide 24StakeholdersLevels of Strategic ManagementLevels of Strategic ManagementLevels of Strategic ManagementHP’s Corporate StrategyHP’s Business StrategyHP’s Business StrategyChapter OneStrategic Management and Strategic CompetivenessPages 2 - 31Why do we need strategy?The reasons why firms succeed and fail is perhaps the central question in strategyAnswers the fundamental question of the firmWhere we are now?Where we going?How are we going to get there?Strategic Management Defined•decisions and actions that determine long-term performance•formulation and 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 advantageWhat is a competitive advantage?Competitive Advantage•When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitateToday’s Competitive LandscapeGlobal EconomyKnowledge IntensityInformationTechnologyTechnology Change & DiffusionHypercompetition•Strategic Flexibility•Intelligence Management•Global Perspective•Speed, Innovation & IntegrationNew Managerial MindsetWhat is Strategy? Strategy is not doing similar activities better 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, airlinesWhat is Strategy? 1) Strategy is performing different activities or performing similar activities in a different wayWhat is Strategy? Doing things differently, strategically, puts a firm in a different position. Strategy is about positioning yourself relative to rivals.For example, a firm could: -offer a unique choice of goods/services - Chic-fil-a-serve most or all of a customer group’s needs - Babies R Us-serve a set of customers that require unique access – Kinkos, Movie Gallery, SuperetteWhat is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do–without tradeoffs, all firms would imitateTradeoffs arise from–inconsistent image/reputation–different activities, products, equipment, employees, skills, systems, machines–priorities, internal coordination, and controlSo, once a position is chosen and pursued, it is difficult to fulfill another position or move to another positionWhat is Strategy? 3) Strategy is about combining activities as advantages come from fit/integration of consistent, reinforcing activitiesOperational effectiveness is about excellence in individual activitiesFit/integration increases sustainability by reducing imitabilityWhat is Strategy? 4) The desire to grow is most threatening to an effective strategy –Blurs uniqueness–Creates compromises–Reduces fit–Erodes original advantagesSo….how can firm’s be profitable?1) Choose an attractive industry in which to compete - Where we compete? •Corporate level strategy2) Attain a competitive advantage within an industry - How we compete?•Business level strategyTwo Models of ProfitabilityI/O Model (Industrial/Organizational Economics Model)Resource Based ModelI/O ModelEnvironment Drives Strategy & Performance•Three Key Assumptions– – – •Therefore, firms must find an attractive industry or segment within the industry to gain above average profitability15I/O ModelEnvironment Drives Strategy & PerformanceResource Based ModelFirms’ Resources Drive Strategy & Performance•Three Key Assumptions– – – •Therefore, firms must find an attractive industry or segment within the industry to gain above average profitabilityResource Based ModelFirms’ Resources Drive Strategy & PerformanceWhat is strategic effectiveness?Strategic Vision vs. Mission•A strategic vision concerns “wherewe are going” or ”what do we want to be.”–Markets to be pursued–Future product/ market/customer/ technology focus–Kind of company management is trying to create•A mission statement concerns “who we are and what we do”–Current product and service offerings–Customer needs being served–Technologicaland businesscapabilitiesMission Statements•Boundaries of the current business•Fundamental purpose that sets it apart from other firms of its type•Conveys–Who we are,–What we do, and–Why we are hereObjectives•Turns mission into performance outcomes•Organizations produce what is measured•Long and Short termTypes of Objectives RequiredOutcomes focusedon improving financial performanceOutcomes focused on improving competitive vitality and future business positionFinancial Objectives Strategic Objectives$6 Characteristics of a Good Objective•U SMART–Understandable–Stretching–Measurable–Agreeable–Realistic–Timebound–Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later–However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead–Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performanceLeading versus Lagging IndicatorsStakeholders•Individual or groups who–Affect mission/vision of the firm–Are affected by strategic outcomes of the firm–Have enforceable claims on the performance of the firm•Capital Market Stakeholders–Shareholders and capital suppliers•Product Market