SM - Ch1

Strategic Management Concepts: A
Competitive Advantage Approach

Sixteenth Edition
Chapter 1
The Nature of Strategic
Management
Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Today’s Agenda
• Introduction
• Review Syllabus
• Other Administrative Details
• Overview of the Course
• Session chapter
Dr. Khaled Bekhit, DBA, M.Phil., MBA
-Assistant Professor, School of Business, ESLSCA University, Egypt.
-MBA/PGD Academic Director at ESLSCA University, Egypt
Course Description
1. “This course provides an opportunity for practicing business skills

in real world. It focuses on working effectively in groups through
the creation of a quality Strategic Plan to learn how to act as a
consultant to help corporations with developing and implementing
business plans. This course explores a foundation to attain
competency in conceptual skills; problem solving, and decision
making skills in the business world, business functions,
organizational structure, and policy implementation and evaluation.
A significant aspect of the course is devoted to assessing the
competitive dynamics of firms.”
Course Learning Outcomes
1. Develop an understanding of the process of analyzing the external and
internal environment, deriving, selecting and implementing business
strategies in an organization.
2. Apply the strategic management process to real life business cases,
including current world/business news, and develop recommendations to
help firms create and sustain competitive advantage.
3. Master the use of specific tools to analyze the environment, derive and
select specific strategies for an organization.
4. Improve written and oral communication skills through the use of team
and individual assignments.
Classes and Communication
❑ Course Title: Strategic Management

❑ Course Code: MGT532
❑ Class Room: ONLINE COURSE
• E-mail: Khaled.Bekhit@eslsca.edu.eg
• Course Time:
• Course Days:
• Course Duration:
• Final Exam Date:
Assessment Strategy
Lectures: 1 session/week
Determination of Grades Value
Assessment (1)-Individual Assignment PSDP 10 Points
Assessment (2) Midterm– Covers Ch1-Ch5 20 points

Assessment (3)- Group Case (Strategic
30 Points
Audit Analysis Report)
Assessment (4) Final Exam Ch-Ch10 40 Points
Total 100 P
Chapter Learning Objectives (1 of 2)
1. Describe the strategic-management process.
2. Discuss the three stages of strategy formulation,
implementation, and evaluation activities.
3. Explain the need for integrating analysis and intuition in
strategic management.
4. Define and give examples of key terms in strategic
management.
Learning Objectives (2 of 2)
5.Illustrate the comprehensive strategic-management
model.
6. Describe the benefits of engaging in strategic
management.
7. Explain why some firms do no strategic planning.
8. Describe the pitfalls in actually doing strategic planning.
9.Discuss the connection between business and military
strategy.
Can you classify it into Two Groups?
Growth 1 Quality Creativity

Innovation Control Methods
Managing Asset Future

Costs Utilisation Strategy
Corporate New Brand Global

Brand Development Research
Operational
Cycle Times Logistics
Efficiency
Operation Strategic
Managing Growth /
Costs Innovation
Creativity
Quality Control
Methods
Assets New Brand

Utilization Developme
nt
Operational Global
Efficiency Research
Logistics Corporate Brand
Cycle Times Future Strategy
What is Competitive Advantage?
• Competitive advantage is a superior ability or resource

that allows one firm to out-compete all others in some
area. An advantage that a firm has over its
competitors, allowing it to generate greater sales or
profits and/or gain and retain more customers than
its competitors.
✓What makes your firm a better choice over other options

in the marketplace?
✓What is the deciding factor, the thing that really makes
the difference?
Sources of Competitive Advantage
• Competitive advantage results from matching the firm’s

core competencies to market opportunities.
1. Easily accessible location

2. Legal advantage – patents and copyrights
3. Cost leadership and differentiation - Low-cost production
4. Internal processes – makes business more productive and
efficient
5. Product – appealing packaging
Strategy and the Quest for
Competitive Advantage
• Competitive advantage:
– Requires meeting customer needs either more effectively
(with products or services that customers value more
highly) or more efficiently (by providing products or services
at a lower cost to customers).
• Sustainable competitive advantage requires:
– Giving buyers lasting reasons to prefer a firm’s products or
services over those of its competitors.
– Developing expertise and long-term competitive capabilities
that cannot be readily overcome.
– Putting the constant quest for sustainable competitive
advantage at center stage in crafting your strategy.
What is A Strategy?
• Strategy as a choice:
– Is deciding to compete differently from rivals—pressuring
rivals by doing what they do not do or, even better, doing
what they cannot do.
– Guides the company in what it must do and also in
knowing what it must not do.
Strategy Is about Making Choices
• Strategy is all about choosing How:
– How to position the firm in the marketplace.
– How to attract customers.
– How to compete against rivals.
– How to achieve the firm’s performance targets.
– How to capitalize on opportunities to grow the business.
– How to respond to changing economic and market

conditions.
Apple Inc.: Exemplifying a Successful Strategy
Key elements of Apple’s successful strategy are:
• Designing and developing its own operating systems, hardware,
application software and services.
• Continuously investing in R&D and frequently introducing products.
• Strategically locating its stores and staffing them with knowledgeable
personnel.
• Maintaining a quality brand image, supported by premium pricing.
• Committing to corporate social responsibility and sustainability through
supplier relations.
• Cultivating a diverse workforce rooted in transparency.
Strategic Approaches to Competitive
Advantage
• Porter’s Generic Strategies
• Porter proposed that a firm’s competitive advantage in
an industry is determined by its competitive scope—that
is, the breadth of the company’s or business unit’s target
market.
Porter’s Generic Strategies
• Porter called the generic strategies "Cost Leadership"

(no frills), "Differentiation" (creating uniquely desirable
products and services) and "Focus" (offering a
specialized service in a niche market). He then
subdivided the Focus strategy into two parts: "Cost
Focus" and "Differentiation Focus."
• Michael Porter believes that as a company have to

make clear choices. If they do not choose one of these
four Generic strategies, they will remain stuck in the
middle, and they will be caught up by companies that
dare to make a clear choice. Because they specialize,
they will either be able to request a lower price for their
products, or get a better or more innovative product and
then compete you away.
• Cost leadership
– lower-cost competitive strategy that aims at the broad
mass market and requires “aggressive construction of
efficient-scale facilities, vigorous pursuit of cost reductions
from experience, tight cost and overhead control,
avoidance of marginal customer accounts, and cost
minimization”
• Provides a defense against rivals

• Provides a barrier to entry (economies of scale)
• Generates increased market share
• Wal-Mart is perhaps one of the most well-known companies that
use Cost Leadership as their business strategy
6
• Differentiation
– involves the creation of a product or service that is
perceived throughout the industry as unique.
– can be associated with design, brand image,
technology, features, dealer network or customer
service
• Lowers customers sensitivity to price
• Increases buyer loyalty
• Can generate higher profits
• Once a fledgling computer company, Apple has set itself apart
through their Differentiation strategy.
6-25
• Cost focus
– low-cost competitive strategy that focuses on a
particular buyer group or geographic market and
attempts to serve only this niche to the exclusion of
others
• Claire’s, for example, seeks to appeal to young women by
selling inexpensive jewelry, accessories, and ear piercings.
Claire’s use of a focused cost leadership strategy has
been very successful
6-26
• Differentiation focus
– concentrates on a particular buyer group, product
line segment or geographic market to serve the
needs of a narrow strategic market more effectively
than its competitors.
– Philips has focused entirely on medical equipment, a

clear niche market, certainly if you compare it to the
markets from which they have left (e.g. mobile
telephony and televisions). This is a good example of
a company that has opted for Differentiation focus.
6-27
Defining Strategic Management
Strategic Management
• The art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an
organization to achieve its objectives
Stages of Strategic Management
Strategy Strategy Strategy

formulation implementation evaluation
• Strategy Formulation
– developing a vision and mission
– identifying an organization’s external opportunities and
threats
– determining internal strengths and weaknesses
– establishing long-term objectives
– generating alternative strategies
– choosing particular strategies to pursue
Strategy Formulation Decisions
• What new businesses to enter
• What businesses to abandon
• Whether to expand operations or diversify
• Whether to enter international markets
• Whether to merge or form a joint venture
• How to avoid a hostile takeover
• Strategy Implementation
– requires a firm to establish annual objectives, devise
policies, motivate employees, and allocate resources
so that formulated strategies can be executed
– often called the action stage
• Strategy Evaluation
– Determining which strategies are not working well
– Three fundamental activities:
▪ reviewing external and internal factors that are the
bases for current strategies
▪ measuring performance
▪ taking corrective actions
Key Terms in Strategic Management (2 of 6)
• Strategists
– Individuals most responsible for the success or failure
of an organization
– Help an organization gather, analyze, and organize
information
• Vision and Mission Statements
– A vision statement answers the question “What do we
want to become?”
– A mission statement answers the question “What is our
business?”
• External Opportunities and Threats
– economic, social, cultural, demographic,
environmental, political, legal, governmental,
technological, and competitive trends and events that
could significantly benefit or harm an organization
• Internal Strengths and Internal Weaknesses
– an organization’s controllable activities that are
performed especially well or poorly
– determined relative to competitors
Some Opportunities and Threats
• Availability of capital can no longer be taken for granted.
• Consumers expect green operations and products.
• Marketing is moving rapidly to the Internet.
• Commodity food prices are increasing.
• An oversupply of oil is driving oil and gas prices down.
• Long-Term Objectives
– specific results that an organization seeks to achieve in
pursuing its basic mission
– long-term means more than one year
– should be challenging, measurable, consistent,
reasonable, and clear
• Strategies
– the means by which long-term objectives will be
achieved
– may include geographic expansion, diversification,
acquisition, product development, market penetration,
retrenchment, divestiture, liquidation, and joint ventures
• Annual objectives
– short-term milestones that organizations must achieve
to reach long-term objectives
– should be measurable, quantitative, challenging,
realistic, consistent, and prioritized
– should be established at the corporate, divisional, and
functional levels in a large organization
• Policies
– the means by which annual objectives will be achieved
The Strategic-Management Model
• Where are we now?
• Where do we want to go?
• How are we going to get there?
The Strategic-Management Model Addresses Three
Central Questions
1. Where are we now?
▪ Industry conditions and competitive pressures, market standing, competitive
strengths and weaknesses, and future prospects in light of changes taking
place in the business environment.
2. Where do we want to go?

▪ What buyer needs to try to satisfy.
▪ Which growth opportunities to emphasize.
▪ Where to head and what outcomes to strive to achieve.
3. How are we going to get there?

– Challenges managers to craft a series of competitive moves and business
approaches—henceforth called a strategy—for heading the firm in the
intended direction, staking out a market position, attracting customers, and
achieving the targeted outcomes.
Figure 1-1 Comprehensive Strategic-
Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, NadjadjiAnwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
Is the Company’s Strategy a Winner?
• Three tests of a winning strategy:
• Exhibits good fit with situation.
• Results in competitive advantage.
• Promotes superior performance.
What Makes a Strategy a Winner?
• A winning strategy must pass three tests:

1. The fit test.
▪ Does it exhibit good fit with the external and internal aspects of the
firm’s dynamic situation?
2. The competitive advantage test.
▪ Is it likely to result in a sustainable competitive advantage?
3. The performance test.
▪ Is it producing superior performance, as indicated by the firm’s
profitability, financial and competitive strengths, and market
standing?
Why Crafting and Executing Strategy
Are Important Tasks
• Strategy provides:
– A prescription for doing business.
– A road map to competitive advantage.
– A game plan for pleasing customers.
– A formula for attaining long-term standout marketplace
performance.
Good Strategy + Good Strategy Execution =
Good Management
REVIEW QUESTIONS
Questions-Choose one Best Answer
1)During what stage of strategic management are a firm's specific internal strengths and weaknesses
determined?
A) Formulation
B) Implementation
C) Evaluation
D) Feedback
E) Goal-setting
2) Which phase of strategic management is called the action phase?
A) Strategy formulation
B) Strategy implementation
C) Strategy evaluation
D) Allocating resources
E) Measuring performance
3) and are external forces transforming business and society today.
A) Online social networking; strategy
B) Online social networking; high energy prices
C) Strategy; high energy prices
D) Corporate culture; stakeholders
E) Stakeholders; strategy
4) The fact that Apple has no manufacturing facilities of its own
A) has caused it to build up massive debt on its balance sheet.
B) has enabled it to remain financially lean with virtually no long-term debt.
C) has been problematic for Apple in terms of debt.
D)illustrates that having more fixed assets than rival firms can provide major competitive advantages in a
global recession.
E) means that it is in the same position as Sony.
5) An organization's vision statement
A) is a constant reminder to its employees of why the organization exists.
B) broadly charts the future direction of an organization.
C) addresses the basic question: "What is our business?"
D) answers the question: "What do we want to become?"
E) none of the above
6) Usually, external opportunities and threats are

A) uncontrollable by a single organization.
B) controlled by governments.
C) not as important as internal strengths and weaknesses.
D) key functions in strategy implementation.
E) key functions in strategy exploitation.
7) Long-term objectives should be all of the following EXCEPT
A) measurable.
B) continually changing.
C) reasonable.
D) challenging.
E) consistent.
8) What are the means by which long-term objectives will be achieved?
A) Strategies
B) Strengths
C) Weaknesses
D) Policies
E) Opportunities
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Strategic Management Concepts: A

Competitive Advantage Approach

1. “This course provides an opportunity for practicing business skills

❑ Course Title: Strategic Management

Determination of Grades Value

Assessment (1)-Individual Assignment PSDP 10 Points

Assessment (2) Midterm– Covers Ch1-Ch5 20 points

Assessment (4) Final Exam Ch-Ch10 40 Points

Growth 1 Quality Creativity

Managing Asset Future

Corporate New Brand Global

Assets New Brand

Logistics Corporate Brand

Cycle Times Future Strategy

• Competitive advantage is a superior ability or resource

✓What makes your firm a better choice over other options

• Competitive advantage results from matching the firm’s

1. Easily accessible location

– How to attract customers.

– How to compete against rivals.

– How to achieve the firm’s performance targets.

– How to capitalize on opportunities to grow the business.

– How to respond to changing economic and market

• Porter called the generic strategies "Cost Leadership"

• Michael Porter believes that as a company have to

• Provides a defense against rivals

– Philips has focused entirely on medical equipment, a

Strategy Strategy Strategy

2. Where do we want to go?

▪ Which growth opportunities to emphasize.

▪ Where to head and what outcomes to strive to achieve.

3. How are we going to get there?

• A winning strategy must pass three tests:

2) Which phase of strategic management is called the action phase?

A) Online social networking; strategy

B) Online social networking; high energy prices

C) Strategy; high energy prices

D) Corporate culture; stakeholders

4) The fact that Apple has no manufacturing facilities of its own

A) has caused it to build up massive debt on its balance sheet.

B) has enabled it to remain financially lean with virtually no long-term debt.

C) has been problematic for Apple in terms of debt.

E) means that it is in the same position as Sony.

6) Usually, external opportunities and threats are

8) What are the means by which long-term objectives will be achieved?

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