Chapter 4

Strategic Management

What is competitive advantage?

Competitive Advantage
Four criteria to gain a competitive advantage:
1. Superior Value
2. Rarity
3. Difficult to Imitate
4. Nonsubstitutability
Example: Coca-Cola

Setting Direction
First Step
Strategic vision
Mission statement

The General Environment

Sociocultural Environment
Demographics
Combination (i.e. birth rate & education levels)
Cultural environment

Coors Brewing slogan Turn it loose when converted to Spanish means Suffer
from diarrhea

Clairol launched a curling iron called Mist Stick in Germany. Mist in German is
slang for manure. It turns out manure sticks arent very popular in Germany.

It takes a tough man to make a tender chicken, is a bit different in Spanish It

takes a sexually stimulated man to make a chicken affectionate.

They never learn.

Economic Environment
Multiple forces at work
Government spending and interest rates cycle

Short term or structural?

Industry norms

Political/Legal
Regulations and political activism
i.e. coal power plants and corn filters
C.R. England

Government spending

Porters Five Forces

Few Competitors

Many competitors

Quality-based

Price-based competition

Low entry barriers

competition

Higher
Profits

High entry barriers

Many new entrants

Few new entrants

Few customers

Few substitutes

United customers

Many customers

Few suppliers

Fragmented customers

Many suppliers

Firm industry and Competitor Environment

Lower
Profits

Internal Analysis
The Value Chain
Primary activities
Support activities
Core competence

Core Competency
A deep proficiency that enables a company to
deliver unique value to customers
- Bain & Company
Access to various markets
Perceived customer benefits
Difficult to imitate

SWOT Analysis

Setting Strategic Objectives

Concrete and measurable
Addresses:
Profitability
Market share
Customer satisfaction
Cash flow
Operating efficiency
**Long Term** - typically five years or more

Formulating a Strategy
Strategy levels:
Corporate
Business (Competitive)
Functional (Unit)

Cost Leadership Strategy

Providing products for the lowest cost
Common ways of reducing cost
Developing economies of scale
Investing in manufacturing technology

Differentiation Strategy
Strive to make a business service or product
different
Can typically charge a premium price
Major R&D cost

Integrated Differentiation-Cost Leadership Strategy

Different products/services + low costs

Difficult to implement
Generally seen among international
companies

Multipoint Competition Strategy

Spreads across markets, geography, or both
Can lower quality of service

Strategic Scope
Focusing on a specific group of customers
Focus strategy: focuses on specific market
segment

Strategy Implementation
The KEY-Internal organization consistent with
strategy

Entering new product or geographic markets

Organic
Alliances
Acquisitions

Monitoring/Evaluating
Tie individual and firm objectives
Annual and quarterly evaluations
Senior executives
Lower-level managers

Reinforce or correct efforts