Strategic Management & Competitive
Advantage: Concepts and Cases
Sixth Edition, Global Edition
Chapter 1
What Is Strategy and the
Strategic Management
Process?
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Learning Objectives
1.1 Define strategy and describe the strategic management
process.
1.2 Define competitive advantage and explain its
relationship to economic value creation.
1.3 Describe two different approaches to measuring
competitive advantage.
1.4 Explain the difference between emergent and intended
strategies.
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Origin of strategy
• Strategos (Greek) = Army
General
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Origin of strategy
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Evolution of strategy
1911: Scientific Management by Fredrick Tylor
1912: HBS Business Policy course
1959: The Ford Foundation recommendation “Capstone”
1962: Alfred’s Chandler “Strategy and Structure”
1969: AACSB regulation
1980s: SMJ + Michael Porter’s
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Importance of strategy
• Clearer sense of strategic vision
• Improved understanding of a rapidly changing
environment
• The attainment of an appropriate “fit” between an
organization’s environment and its resources and
structure
• Sharper focus on what is strategically important
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Characteristics of strategy
• Big Picture
• Top management
• Long term
• Takes internal and external environment into
consideration
• Competitive advantage
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Al-Marai
1977: Establishment of a diary company
1990s: Restructure → Centralized
Mid 2000s: IPO and Diversifications
Late 2000s: Internationalization
2022: 53.6 B market cap
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Walt Disney Company
Hired Michael Eisner—1984
1. Increased admission prices at theme parks
1984—$186 m 1989—$787 m
2. Focused on movie studios (character development)
1984—$2.42 m 1994—$845 m
3. Diversified into television (ABC), hotels, retail stores,
sport team, cruise line, publishing, consumer products,
licensing, etc.
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Walt Disney Company
Market Cap:
1984 = $2 B
1994 = $28 B
2023 = $188.7 B
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Definition of Strategy
Strategy: An integrated set of
choices that positions
an organization within
its environment
(roadmap) to achieve
its vision in the long
term.
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Definition of Strategy
Strategy: A firm’s theory about how to gain
competitive advantages
Disney’s theory may have been:
“People will pay a premium price for extraordinary
entertainment. We have the necessary resources to
create extraordinary entertainment. Therefore, let’s
redeploy our resources in a different way and offer
something extraordinary to people.”
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The Strategic Management Process
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The Strategic Management Process
& Vision
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The Strategic Management Process
• A Mission statement describes an
organization’s purpose.
• Typically, a mission statement
answers these three questions:
– What do you do?
– How do you do it?
– Why do you do it?
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The Strategic Management Process
To provide quality and nutritious food & beverages that enrich
consumers’ lives every day.
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The Strategic Management Process
To entertain, inform and inspire people around the globe through
the power of unparalleled storytelling, reflecting the iconic
brands, creative minds and innovative technologies that make
ours the world’s premier entertainment company.
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The Strategic Management Process
• A vision statement provides
strategic direction and
describes what the company
wants to achieve in the future.
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The Strategic Management Process
To grow our leading position as the trusted choice for food and
beverages in the region, delighting consumers with quality
nutrition every day.
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The Strategic Management Process
Objectives:
• specific, measurable targets
• the things a firm needs to “do” to achieve its mission
• should influence other elements in the strategic
management process
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The Strategic Management Process
External and Internal Analysis
Systematic Examination of the Environment
External Analysis Internal Analysis
• interest rates • human resources
(knowledge)
• demographics
• manufacturing
• social trends abilities
• technology • technology
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The Strategic Management Process
Strategic Choice
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The Strategic Management Process
Business-level strategy:
• actions firms take to
gain competitive
advantages in a single
market or industry.
Corporate-level
strategy:
• actions firms take to
gain competitive
advantages in
multiple markets or
industry.
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The Strategic Management Process
Strategy Implementation
• Translating plans into actions by deciding on specific
organizational structure and policies.
• how strategies are carried out
• who will do what
• organizational structure and control
– who reports to whom
– how does the firm hire, promote, pay, etc.
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The Strategic Management Process
Strategy Implementation
• every strategic choice has strategy implementation
implications
• strategy implementation is just as important as strategy
formulation
A Strategy Is Only As Good As Its Implementation
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The Strategic Management Process
• all other elements of the strategic management process
are aimed at achieving competitive advantage
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1-28
The Strategic Management Process
Competitive Advantage
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.
Competitive Advantage
Definition: The Ability to Create More Economic
Value Than Competitors
• there must be something different about a firm‘s
offering vis-à-vis competitors‘ offerings
• if all firms‘ strategies were the same, no firm
would have a competitive advantage
• competitive advantage is the result of doing
something different and/or better than competitors
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Competitive Advantage
The Strategic Management Process
identify and exploit differences that may lead to competitive
advantage
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Competitive Advantage
Two Types of Differences
1) Superior output
• people choose the firm‘s output over others‘
• people are willing to pay a premium
Example: Apple
2) Cost advantage vis-à-vis competitors
• lower costs of production/distribution
Example: Geely
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Competitive Advantage
Temporary & Sustainable
• competitive advantage typically results in high profits
• profits attract competition
• competition limits the duration of competitive advantage
in most cases
Therefore,
• most competitive advantage is temporary
– competitors imitate the advantage or offer something
better
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Competitive Advantage
Some competitive advantages are sustainable if:
• competitors are unable to imitate the source of advantage
• no one conceives of a better offering
Of course,
• in time, even sustainable competitive advantage may be
lost
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Competitive Advantage
Competitive Parity
• the firm’s offerings are “average”
• people do not have a preference for the firm’s offering
• the firm does not have a cost advantage over others
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Competitive Advantage
Competitive Disadvantage
• people may have an aversion to the firm’s offering
• the firm may have a cost disadvantage
• a firm may have outdated technology/equipment
• a firm may have a negative reputation
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Competitive Advantage
Measuring Competitive Advantage
Superior Economic Performance Is Viewed as
Evidence of Competitive Advantage
• it is rather easy to see the evidence of competitive
advantage
• measuring the source of the advantage per se is
typically impossible
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Competitive Advantage
Measuring Competitive Advantage
Two Classes of Measures:
1. Accounting Measures
• ROA, ROS, ROE, etc. that exceed industry averages
2. Economic Measures
• earning a return in excess of the cost of capital
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Competitive Advantage
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Competitive Advantage & The Strategic
Management Process
Emergent vs. Intended 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
Example: Honda Motorcycles
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1-41
The Strategic Management Process
Intended strategy: Deliberate strategy: Realized strategy:
Astrategy a fi rm thought An intended strategy The strategy a fi rm is
it was going to pursue. a fi rmactually actually pursuing.
implements.
Emergent strategy:
Unrealized strategy: Astrategy that emerges
An intended strategy a over tim e or that has been
fi rm does notactually radically reshaped once
implement. implemented.
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The Strategic Management Process
Summary
• Firms could achieve competitive parity and survive
• They would face a flat demand curve
• Their cost structure would be the industry average
• They would need to adapt their strategy over time just to
survive
• They would fail if they didn’t adapt their strategy
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