Great Zimbabwe University

Faculty of Commerce
Department of Management Studies

MMM512 Strategic Management

Facilitator
Dr M. Mutsikiwa
0773206114
mmutsikiwa@gzu.ac.zw
 CHAPTER 1

INTRODUCING STRATEGIC MANAGEMENT

OBJECTIVES

1 Understand what a strategy is and identify the

difference between business-level and corporate-
level strategy

Understand the relationship between strategy

2 formulation and implementation

3 Describe the determinants of competitive advantage

4 Recognize the difference between a fundamental

and a dynamic competitive advantage

5 Understand why we study strategic management

3
UNDER ARMOUR AT A GLANCE

1996 2006

Revenues $17,000 $430,000,000

57,300,000
Net Income 0

1,800,000,000
Equity Value 0

Brands and Trademarks Under Armour, HeatGear,

ColdGear, AllSeasonGear,
LooseGear, Click Clack
Kevin Plank’s Vision To become the world’s #1
performance athletic brand

4
TWO RETAILERS AT A GLANCE

Sears Wal-Mart

Year founded 1891 1962

600
Stores 1980 864
5289
Stores 2004 2026
$1,643 million
Revenues 1980 $25,194 million
$285,222 million
Revenues 2004 $36,100 million
Net profits 1980 606M (2.4% return on sales) $55 M(3.3% return on sales)
Net profits 2004 507M (-1.4% return on sales) $10,267 M
(3.6% return on sales)
Market capitalization 1980 USD 4.8 billion USD 1 billion
Market capitalization 2004 USD 12.2 billion USD 200.2 billion

5
THREE OVERARCHING THEMES
Implementing a good
strategy is at least as
important as creating
industries are
one, yet many
managers give too
little thought to
implementation
We need to see a firm’s competitive position, not as a snapshot, but
 
To succeed, Strategic leadership
the formulation is responsible for
Firms and
of a good strategy
and its implementa-  making substantive
dynamic in
tion should be resource allocation
nature
inextricably decisions and
connected
developing key-
 stakeholder support
Strategic leader- of the strategy
ship is essential if a
firm is able to both
formulate and imple-
ment strategies that
create value
as an ongoing movie
6
STRATEGY

Strategos: “the general’s view”

Holistic “big picture”

General

Lower officer (e.g., supply

logistics infantry, heavy armored Tactical details
vehicles)

7
THE MILITARY ROOTS OF STRATEGY

“The individualist without strategy

who takes opponents lightly will
inevitably become the captive of
others.”
– Master Sun

8
THE STRATEGIC MANAGEMENT PROCESS

Strategic analyses
• Internal

• External

Strategy
Vision and • Arenas
mission • Vehicles Implementation
• Differentiators levers
• Fundamental • Staging
organizational • Economic logic and
purpose
The central, integrated,
• Organizational externally oriented Strategic
values concept of how a firm leadership
will achieve its
objectives

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QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY
Unit of measure

Corporate-level strategy should ask

?
• In which markets do we compete today?
• In which markets do we want to
compete tomorrow?
• How does our ownership of a business
ensure its competitiveness today and in
the future?
Business-level strategy should ask

?
• How do we compete in this market
today?
• How will we compete in this market in
the future?

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STRATEGY AND IMPLEMENTATION ITERATE WAL-MART EXAMPLE

Compete as Leverage inventory

Strategy: discount retailer and sourcing systems
The process in rural markets to be low-cost leader
of deciding
what to do

Implementation:
The process of
performing all the
activities necessary
to do what has been Invest heavily in
planned organizational structure,
systems, and processes

11
UNPLANNED ACTIONS CAN DRIVE STRATEGY

Intel’s original focus

(1970s & 1980s)

By 1984, 95%
Design and manufacture
of Intel revenue
of Dynamic, Random- Focus on micro-
came from the
Access Memory Chips processor segment
microprocessor
(DRAM)
segment

Unplanned
experimental
venture to make
microprocessors
for Busicom, a
Japanese
calculator maker

12
BUSINESS STRATEGY DIAMOND
Arenas
• Where will we be active? ( and with
how much emphasis?)
– Which product categories?
– Which channels?
Arenas – Which market segments?
– Which geographic areas?
– Which core technologies
– Which value-creation strategies?
Staging
• What will be our speed and Economic Vehicles
sequence of moves? Staging Vehicles
logic • How will we get there?
– Speed of expansion?
– Internal development?
– Sequence of initiatives
– Joint ventures?
– Licensing/franchising?
Economic logic – Experimentation?
Differentiators – Acquisitions?
• How will returns be obtained?
– Lowest costs through scale Differentiators
advantages? • How will we win?
– Lowest costs through scope – Image?
and replication advantages – Customization?
– Premium prices due to – Price?
unmatchable service? – Styling?
– Premium prices due to – Product reliability?
proprietary product features? – Speed to market? 13
JET BLUE STRATEGY

• Low fare commercial air carrier

Arenas • Underserved but over-priced US cities

• Start from scratch and achieve all growth

Vehicles internally (i.e., do not purchase a regional airline)
Objective
To “bring
• High level of service compared to low fare competitors
humanity
Differentiators (e.g., leather seating, satellite TV)
back to air
travel”
• Grow from one route between two cities to serving 20
Strategy cities in just 3 years

• Secure cost advantage by being willing and able to

Economic logic perform key tasks differently
– One type of plane
– JFK home base
– Secondary location
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GOALS OF STRATEGY IMPLEMENTATION

1 To make sure strategy formulation is

comprehensive and well informed

2 To translate good ideas into actions

that can be executed (and sometimes
to use execution to generate or
identify good ideas)

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IMPORTANCE OF EXECUTION

“The important decisions, the

decisions that really matter, are
strategic . . . [But] more important
and more difficult is to make
effective the course of action
decided upon.”
– Peter Drucker

16
FRAMEWORK FOR STRATEGY IMPLEMENTATION

Key Factors of Strategy Implementation

Implementation levers
• Organizational structure
Realized
Intended
• Systems and processes and
Strategy • People and rewards Emergent
Strategies

Strategic leadership
• Lever- and resource-allocation decisions
• Decision support among stakeholders

17
COMPETITIVE ADVANTAGE

Competitive
Key question:
Advantage: a
how do Firms
Firm’s ability to
create sustained
create value in a
above-average
way that its
returns?
rivals cannot

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THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE
Internal
Often called the “resource
view”, contends that firms
are heterogeneous
bundles of resources and
capabilities and firms with
superior resources and
capabilities enjoy
competitive advantage
over other firms. This
advantage makes it
relatively easier to achieve
consistently higher levels
of performance
External
Also called the “positional
view”, contends that
variations in a firm’s
competitive advantage and
performance are primarily
a function of industry
attractiveness. Companies
should therefore either (1)
position themselves to
compete in attractive
industries or (2) adopt
strategies that will make
their current industries
more attractive
Dynamic
Suggests that in dynamic,
rapidly changing markets,
a firm’s current market
position is not an accurate
prediction of future
performance. Instead, we
look at the past for clues
about how the firm arrived
at its current position and
to future trends – both
internal and external – in
an effort to predict the
future landscape
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