MODULE 1 technological or people-based

changes.
Strategy and the Strategic  it is about disrupting what the
Management Process business normally does and radically
instituting changes in the way
Strategy: A firm’s theory about how to people think, work and act.
gain competitive advantages  means being responsive to changing
business climates.
"Strategy" is a word that is often
thrown around in the business world, The strategic management process
but it can mean different things to is a sequential set of analyses and
different people. Some experts says: choices that can increase the likelihood
 Strategy is a science of creating that a firm will choose a good strategy;
and implementing a unique market that is, a strategy that generates
position (Prof. Michael Porter). competitive advantages.
 Strategy is a means of creating a
long-term success plan for an
organization (economist Vladimir
Kvint)

Three main types of Business Strategy

Mission
1. Business Strategy A firm’s mission is its long-term purpose.
 primarily concerned with the way in Missions define both what a firm aspires
which an organization will approach to be in the long run and what it wants
its consumers. to avoid in the meantime.
 how to enter a market and how to A mission statement is a single
penetrate it with a new or existing sentence that describes a company's
product or service fundamental purpose by explaining why
 ask which customers the the business exists.
organization should target, which Mission Statement should be:
geographical regions the product or  informative, inspiring, enduring,
service appeals to and how the concise, clear, and conducive to both
company should go about employees and customers forming
advertising and promoting its offer. an emotional bond with the firm.
2. Operational Strategy  Most practitioners and academicians
 involves turning the business of strategic management assert that
strategy into an action plan for the an effective mission statement
organization. should include the nine components
 used by mid-level managers, after which are suggested by Fred R.
they consult with senior leaders, to David.
identify the technology, processes Components of a Mission Statement
and tools needed to make the 1. Customers
business strategy a reality. 2. Product Services
 Operational strategy is so 3. Market
important that the vast majority of 4. Technology
employees within an organization 5. Survival growth and profitability
should be working at this level of 6. Philosophy
strategy 7. Self-concept
3. Transformational Strategy 8. Concern for Public Image
 completely changes the way an 9. Concern for Employees
organization does business.
 involves more than setting a plan Objectives
for the future or thinking through
Objectives are specific measurable Corporate-level strategies are actions
targets a firm can use to evaluate the firms take to gain competitive
extent to which it is realizing its advantages by operating in multiple
mission. High-quality objectives are markets or industries simultaneously.
tightly connected to elements of a Common corporate-level strategies
firm’s mission and are relatively easy include vertical integration strategies,
to measure and track over time. Low- diversification strategies, strategic
quality objectives either do not exist or alliance strategies, merger and
are not connected to elements of a acquisition strategies, and global
firm’s mission, are not quantitative, or strategies.
are difficult to measure or difficult to
track over time. Strategic Implementation
Strategy implementation occurs when a
 specific, measurable targets firm adopts organizational policies and
 The things a firm needs to “do” to practices that are consistent with its
achieve its mission strategy. Three specific organizational
 Should influence other elements in policies and practices are particularly
the strategic management process important in implementing a
strategy:
External and Internal Analysis 1. A firm’s formal organizational
External analysis, a firm identifies the structure.
critical threats and opportunities in its 2. Its formal and informal management
competitive environment. It also control systems.
examines how competition in this 3. Its employee compensation policies.
environment is likely to evolve and
what implications that evolution has for  How strategies are carried out
the threats and opportunities a firm is  Who will do what
facing.  Organizational structure and control
 Interest rates  Who reports whom
 Demographics  How does the firm hire, promote,
 Social trends pay, etc.
 Technology
Whereas external analysis focuses on  Every strategic choice has strategy
the environmental threats and implementation implications
opportunities facing a firm, internal  Strategy implementation is just as
analysis helps a firm identify its important as strategy formulation
organizational strengths and
weaknesses.It can be used by firms to Competitive Advantage
identify those areas of its organization  The ability to create more economic
that require improvement and change. value than competitors.
 Human resources (knowledge)  All other elements of the strategic
 Manufacturing abilities management process are aimed at
 Technology achieving competitive advantage.
Economic value is simply the
Strategic Choice difference between the perceived
Business-level strategies are actions benefits gained by a customer that
firms take to gain competitive purchases a firm’s products or services
advantages in a single market or and the full economic cost of these
industry.The two most common products or services.
business-level strategies are cost
leadership and product The Ability to Create More Economic
differentiation. Value Than Competitors
 there must be something different  People may have an aversion to the
about a firm’s offering vis-à-vis firm’s offering
competitors’ offerings  The firm may have a cost
 if all firms’ strategies were the disadvantage
same, no firm would have a  A firm may have outdated
competitive advantage technology/equipment
 competitive advantage is the result  A firm may have a negative
of doing something different and/or reputation.
better than competitors.
Is it Is it Is it Is
Two Types of Difference Valu Rare hard the
1) Preference for the firm’s output able ? to orga
 people choose the firm’s output ? imita nizat
ion
over others’ te?
orga
 people are willing to pay a nize
premium d?
Yes No Competitiv
2) Cost advantage vis-à-vis competitors e Parity
 lower costs of Yes Yes No Temporary
production/distribution Competitive
Advantage
Temporary & Sustainable Yes Yes Yes No Unused
Competitive advantage typically results Competitive
in high profits, profits attract Advantage
competition, and competition limits the Yes Yes Yes Yes Long-term
Competitive
duration of competitive advantage in Advantage
most cases. Therefore, most
Measuring Competitive Advantage
competitive advantage is temporary
because competitors imitate the
Superior Economic Performance Is
advantage or offer something better.
Viewed as Evidence of Competitive
Advantage
Competitive advantages are
 It is rather easy to see the evidence
sustainable if:
of competitive advantage
 competitors are unable to imitate
 Measuring the source of the
the source of advantage
advantage per se is typically
 no one conceives of a better
impossible
offering
 It’s difficult to ‘measure’ technology
 Of course, in time, even sustainable
competitive advantage may be
Two Classes of Measures
lost.
1) Accounting Measures
 ROA, Profit Margin, ROE, etc. that
Competitive Parity
exceed industry averages
 The firm’s offerings are ‘average’.
 A measure of its competitive
And people do not have a
advantage calculated by using
preference for the firm’s offering.
information from a firm’s published
 The firm does not have a cost
profit and loss and balance sheet
advantage over others
statements.
 Some things that may lead to
Accounting ratios are simply numbers
competitive parity may still be
taken from a firm’s financial statements
critical to success (e.g.,
that are manipulated in ways that
telephones).
describe various aspects of a firm’s
performance.
Competitive Disadvantage
2) Economic Measures
 Earning a return in excess of the  their cost structure would be the
cost of capital industry average
 Economic measures of  they would need to adapt their
competitive advantage compare strategy over time just to survive
a firm’s level of return to its cost of  they would fail if they didn’t adapt
capital instead of to the average their strategy
level of return in the industry.  the strategic management process
Economic profit was defined as the helps managers achieve competitive
difference between the perceived advantage
benefit associated with purchasing a  competitive advantage depends on
firm’s products or services and the cost differences
of producing and selling that product or  strategy is about discovering and
service. exploiting these differences
Cost of capital is the rate of return
that a firm promises to pay its
suppliers of capital to induce them to

invest in the firm.

Economic Returns
Above Normal - exceeding
expectations
Normal - meeting expectations
Below Normal - failing expectations

Intended Vs. Emergent Strategies

The strategic management process
leads managers to intended strategies
However, conditions often change or
new information becomes available.
Managers respond and adopt emergent
strategies.

Emergent strategies are theories of

how to gain competitive advantage in
an industry that emerge over time or
that have been radically reshaped once
they are initially implemented.

SUMMARY
Firms could achieve competitive parity
and survive:
 they would face a flat demand
curve
MODULE 2  Structure: refers to industry
structure. Measured by: number of
Evaluating a Firm’s External competitors in an industry, the
Environment heterogeneity of products in an
industry, the cost of entry and exit in
External environment consist of two an industry, and so forth.
types:  Conduct: refers to the strategies that
 MACRO ENVIRONMENT -- Consists firms in an industry implement.
of general factors that a business  Performance: (1) the performance of
typically has no control over. individual firms and (2) the
Consists of the factors that directly performance of the economy as a
impact the operation of a company. whole.
 MICRO ENVIRONMENT -- Consists of
the factors that directly impact the Industry structure and
operation of a company. environmental opportunities

FRAGMENTED INDUSTRY
a large number of small or medium-
sized firms operate and no small set of
firms has dominant market share or
creates dominant technologies. the
practice of combining several business
units of companies into a larger
organization.

PESTEL ANALYSIS  CONSOLIDATION

the practice of combining several
business units of companies into a larger
organization.

EMERGING INDUSTRIES
newly created or newly recreated
industries formed by technological
innovations, changes in demand, the
emergence of new customer needs, and
so forth
Examples: Microprocessor Industry,
Personal Computer Industry, Medical
Imaging Industry, Biotechnology
Industry

FIRST- MOVER ADVANTAGE

advantages that come to firms that
make important strategic and
technological decisions early in the
development of an industry.
 Preemption of strategically valuable
assets - Strategically valuable assets
are resources required to
successfully compete in an industry.
The Structure-Conduct-  Creation of customer switching costs
Performance Model of Firm - Customer-switching costs exist
Performance when customers make investments
 in order to use a firm’s particular competitiveness of an industry and
products or services. force firm performance to competitive
 Technological leadership - Firms parity level.
that make early investments.

MATURE INDUSTRY
One that has passed both the emerging
and growth phases of industry growth.
Companies in these industries tend to
be larger, older, and more stable. At According to the S-C-P model, new
the beginning of the industry life cycle, competitors are motivated to enter into
new products or services find use in an industry by the superior profits
the marketplace. that some incumbent/current holders of
Characteristics existing firms in that industry may be
 slowing growth in demand earning.
 technology standard has been
reached - very stable With the absence of any barriers,
 slowing increases in production entry will continue as long as any firms
capacity in the industry are earning competitive
 decline in the rate of new product advantages, and entry will cease when
introductions all incumbent firms are earning
 increasing international competitive parity
competition
 industry-wide profits have begun to
decline
 less efficient firms have begun to
exit the industry

DECLINING INDUSTRY
An industry is in decline when it cannot
follow economic growth like other
industries. industry sales have
sustained pattern of decline some well-
established firms have exited firms A second environmental threat
have stopped investing in maintenance comes from the intensity of competition
Characteristics among a firm’s current direct
 industry sales have sustained competitors.
pattern of decline
 some well-established firms have Direct competition threatens firms by
exited reducing their economic profits
 firms have stopped investing in
maintenance ATTRIBUTES OF AN INDUSTRY THAT
INCREASE THE THREAT OF DIRECT
A Model of Environmental Threats COMPETITION
 Large number of competing firms
ENVIRONMENTAL THREATS that are roughly the same size
To a firm seeking competitive  Slow industry growth
advantages, an environmental  Lack of product differentiation
threat is any individual, group, or  Capacity added in large increments
organization outside a firm that seeks
to reduce the level of the firm’s Substitutes meet approximately the
performance. In S-C-P terms, same customer needs but do so in
environmental threats are forces different ways. They are playing an
that tend to increase the increasingly important role in
reducing the profit potential in a
variety of industries. COMPLEMENTOR
if your customers value your product
Suppliers make a wide variety of raw more when they have this other firm’s
materials, labor, and other critical product than when they have your
assets available to firms. It can product alone.
threaten the performance of firms
in an industry by increasing the price of
their supplies or by reducing the
quality of those supplies.

INDICATORS OF THE THREAT OF

SUPPLIER LEVERAGE IN AN
INDUSTRY
 Suppliers’ industry is dominated by
small number of firms.
 Suppliers sell unique or highly
differentiated products.
 Suppliers are not threatened by
substitutes.
 Suppliers threaten forward vertical
integration.
 Firms are not important customers
for suppliers

INDICATORS OF THE THREAT OF

BUYER’S INFLUENCE
 Number of buyers is small.
 Products sold to buyers are
undifferentiated and standard.
Products sold to buyers are a
significant percentage of a buyer’s
final costs.
 Buyers are not earning significant
economic profits.
 Buyers threaten backward vertical
integration.

COMPETITOR
if your customers value your product
less when they have the other firm’s
product than when they have your
product alone.