CH 4. Strategic Management

Principle of Management
Dr. Somkiat Mansumitrchai
Ch.4 Strategic Management

What is a Competitive Advantage? The objective of strategic management is to determine, create, and maintain competitive advantage. The concept of competitive advantage is a firms ability to provide value to customers that exceed what competitors can provide.
Copyright: Dr. Somkiat Mansumitrchai
What is a Competitive Advantage? A competitive advantage is created by having and managing resources to provide goods and services that meet the following criteria:
What is a Competitive Advantage? 1. They provide superior value. 2. They are rare-competitors do not provide similar products and services in quality and quantity. 3. They are difficult to imitate. 4. They are non-substitutable.
Superior Value Rarity
Competitive Advantage
Nonsubstitutable
Difficult to imitate
What is a Competitive Advantage? Ex. HP, Wal-Mart, FedEx, Coke, Apple, Microsoft, Gillet
Superior Value
Rarity Competitive Advantage
Profit
Nonsubstitutable
Difficult to imitate
The Strategic Management Process: Strategic management process is a type of planning process in which managers 1. establish the companys general direction and objectives 2. formulate a specific strategy
The Strategic Management Process: 3. plan and carry out the strategys implementation 4. Monitor results and make necessary adjustments
Determine Strategic Vision
Define Organizational Mission
Analyze External Environment
Analyze Internal Environment
Establish Objectives
Formulate Strategy

Implement Strategy Action plans Implement plans Monitor outcomes
Determining the Firms Strategic Vision The strategic vision provides a view of the firm over the long term and what it should achieve in the future.
Ex. Xerox: The Worlds Document Company Kellogg: To have Kelloggs Products in Every Table in the World
Formulating the Firms Mission Statement A mission statement articulates the fundamental purpose of the organization and often contains several components.

Company philosophy Company identity or self-concept Principle products or services
Customers and markets Geographic focus Obligation to shareholders Commitment to employees
IRS Mission Statement The IRS mission is to provide Americas taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.
Employee Satisfaction, Training
Loyalty, Market Leadership
Human Resources
Customer Focus
Performance
Business Processes
Business Results
Productivity, Quality, Cost, Environment
Return on Assets, Sales Growth
Formulate Strategy

Conducting an External Environmental Analysis 1. The General Environment 2. Internal Analysis
External Analysis
(The General Environment)
E
Sociocuture Economic
General Environment
Politic Technology
Technological Factors The rate of technological development has increased over the last decades. Product life cycle are becoming shorter
PLC
2 GB
64 GB
1 GB
256 GB
Sales
Introduction Product Development Growth Maturity Decline
TIME
The Firms Industry and Competitor Environment (Porters Five Forces)
Industry Structure Five Forces Model

Michael Porter
FIRMS IN OTHER INDUSTRIES FOFFERING SUBSTITUTE PRODUCTS
SUPPLIERS OF RAW MATERIALS, PARTS, COMPONENTS
RIVALRY AMONG COMPETING SELLERS BUYERS
POTENTIAL NEW ENTRANTS
Few competitors Quality-based competition High Entry Barrier Few new entrances Few Substututes Many Customers Fragmented customers Many Suppliers Higher Profits
Many competitors Price-based competition Low entry barriers Many new entrants Many substitutes Few customers United customers Few suppliers Lower Profits
Internal Analysis
(Strengths and Weakness)
list of potential strengths and weaknesses
(Ferrell 1999)
(Ferrell, 1999)
abundant financial resources any distinctive competence well-know as the market leader economies of scale advance technology lower costs good market image superior management talent better marketing skills outstanding product quality good distribution skills committed employees
Potential Internal Strengths
(Ferrell, 1999)
lack of the strategic direction weak spending on R&D very narrow product line limited distribution higher costs
Potential Internal Weaknesses
out-of-date products internal operating problems weak market image poor marketing skills limited management skills undertrained employees
External & Internal Analysis

(SWOT Analysis)
External environment (opportunity & threat) analysis
SWOT Analysis
Internal environment (strength & weakness) analysis
Kotler, 2000
The SWOT Matrix

Strengths Opportunities
Ferrell 1999
The SWOT Matrix

Strengths Opportunities
Convert
Convert
Weaknesses
Minimize, Avoid
Threats
Minimize, Avoid
Ferrell 1999
Generic Strategies for Obtaining a Competitive Advantage
Copyright: Dr.Somkiat Mansumirtchai
E
Differentiation Strategy Generic Strategies
Cost Leadership
Broad-Based Strategy Options 1. Cost-Based Strategy

A plan of action that requires a firm to be the lowest-cost producer within its market.
2. Differentitation-Based Strategy
A plan of action designed to provide a product or service with unique attributes that are valued by consumers.
Differentiation Strategy Vs Low Cost Strategy
High High
Price
Low
Differentiation
Low
High High
Price
Low
Product Differentiation Strategy Value of Differentiation
Target on the segment demanding a specialized product for which it will pay a premium price.
Low
High High
Price
Low
Target on the segment Vaue of Differentiation demanding undifferentiated product for a low price Cost Leadership Strategy
Low
Focus Strategies
Focus Strategies A plan of action that isolates an enterprise from competitors and other market forces by targeting a restricted market segment.
One product for one market (Taste, preferences, needs are the same)
Undifferentiated Strategy (homogeneous market) One size fits all (no segment)
Multiple Segments (Differentiated Strategies)
Focus Strategy (Concentrate on a specific niche segment) Small but beautiful.

Formulate Strategy

THE END

CH 4. Strategic Management

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Principle of Management

Dr. Somkiat Mansumitrchai