Chapter 4:

Strategic Management
Learning Objectives

After studying this chapter, you should be able to:

Explain what a competitive advantage is and
identify its components
Describe the strategic management process
Explain the role an environmental analysis plays in
strategy formulation
List and describe the five dimensions of the general
environment
Explain the five forces in the industry and
competitor environments
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Learning Objectives

Discuss how to conduct an internal analysis of a

firm’s resources using value chain analysis
Utilize SWOT analysis to describe the
organization’s conditions and select the best
strategy
Identify and explain business-level, generic
strategies
Describe strategic actions used in strategy
implementation such as acquisitions and strategic
alliances

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Competitive Advantage

Superior Value Competitive advantage

The ability of a firm to win
Rarity consistently over the long
term in a competitive situation
Difficult to Imitate Competitive advantage is
created through the
achievement of four qualities
Non-substitutability

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Qualities Leading to Competitive
Advantage

Superior Value Superior value

Firm provides products and
services that produce value
that is superior to competitors
Comparative advantage
- Compared to others, the
value is superior
Distinctive competence
- Superior product is result
of a unique competence

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Qualities Leading to Competitive
Advantage

Superior Value Rarity

How many other firms hold
Rarity similar capabilities?

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Qualities Leading to Competitive
Advantage

Superior Value Difficult to imitate

Managers must create
Rarity barriers that make it hard for
others to copy their
superiority advantages
Difficult to Imitate
-
- Product design
Culture
- Marketing strategy
- And others

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Qualities Leading to Competitive
Advantage

Superior Value Non-substitutability

Can the customer’s need be
Rarity met by alternative means?
- Encyclopedias vs.
Difficult to Imitate information on Internet
- Movie theater
entertainment vs. concert
Non-substitutability band entertainment

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Turning a Competitive Advantage into
Profits

A competitive
advantage should
generate above-
average returns:
profits that are
greater than the
average for a
comparable set of
firms

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Strategic Management Process:
Setting Direction

Strategic management process is

a planning process in which
managers:
1. Set the organization's general
direction and objectives
2. Formulate a specific strategy
3. Plan and carry out the
strategy’s implementation
4. Monitor results and make
necessary adjustments

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Strategic Management Process
Determine strategic vision

Define organizational mission

Analyze external environment Analyze internal resources

Establish objectives

Formulate strategy

Implement strategy
• Action plans
• Implement plans
• Monitor outcomes
Adapted from Exhibit 5.1

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Determining the Strategic Vision

Strategic vision: provides a view

of the firm over the long term
and what it should achieve in
the future.
Strategic vision:
- Provides general identity,
direction, and level of
aspirations
- Is the heart of the strategy
and strategic plan
- Is short and compelling

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Mission Statement

Mission statement articulates

fundamental purpose of the
organization
Company philosophy
Company identity, or self-concept
Principal products or services
Customers and markets
Geographic focus
Obligations to shareholders
Commitment to employees

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Industry and Competitive Environment

New Entrants

Industry
competitors
Suppliers Customers

Rivalry among
existing firms

Substitutes

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Profits and Industry Forces

 Few competitors  Many competitors

Profits

Lower
Profits

Higher
 Quality-based  Price-based
competition
 High entry barriers  competition
Low entry barriers
 Few new entrants  Many new entrants
 Many customers  Many substitutes
 Fragmented  Few customers
customers  United customers
 Many  Few suppliers
suppliers

Adapted from Exhibit 5.4

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The Value Chain
Support Activities

Primary Activities
Adapted from Exhibit 5.6
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Integrating Internal and External
Analyses

Internal environment
Internal Environment
Strengths
Weaknesses

SWOT

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Integrating Internal and External
Analyses

External environment
Opportunities
Threats
Tools
- Product life cycle analysis
SWOT
External Environment

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Strategic Objectives

Strategic objectives translate the

strategic intent and mission into
concrete and measurable goals
Facilitates a firm's ability to
- Allocate resources
appropriately
- Reach a shared understanding
of priorities
- Delegate responsibilities
- Hold people accountable for
results
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