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The Tools of The Tools of

StrategicStrategic

AnalysisAnalysis

Chapter 1Chapter 1

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The Tools of Strategic AnalysisThe Tools of Strategic Analysis

22

Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management &Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management &Competitive AdvantageCompetitive Advantage -- Barney & HesterlyBarney & Hesterly

Book Paradigm

Resource Based ± View of the Firm

VIRO

± V = Value ± R = Rarity

± I = Imitability

± O = Organization

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3


1984 Pr of its: $242 Million

Theme Par k Operations: 77 percent of pr of its

Consumer Pr oducts: 22 percent of pr of its

Filmed Entertainment: 1 percent of pr of its

Walt DisneyC

ompany

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Hired Michael Eisner - 1984

1. Increased admission prices at theme par ks1984 - $186 m 1989 - $787 m

2. Focused on movie studios (character development)1984 - $2.42 m 1994 - $845 m

3. Diversif ied into television (ABC), hotels, retail stores,

sport team, cr uise line, publishing, consumer pr oducts, licensing, etc. (Huey & McGowan, 1995)

Walt DisneyC

ompany

Mar ket Cap: 1984 = $2 billion 1994 = $28 billion

Today¶s Mar ket Cap

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Definition of Strategy

Strategy: A firm¶s plan to gain

competitive advantage

Eisner¶s theory may have been:

People will pay a premium price for extraordinary

entertainment. We have the necessary resources tocreate extraordinary entertainment. Therefore, let¶s

redeploy our resources in a different way and offer

something extraordinary to people.

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Mission Objectives

External Analysis

Internal Analysis

StrategicChoice

StrategyImplementation

Competitive Advantage

The Strategic Management Process

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Objectives

External Analysis

Internal Analysis

StrategicChoice StrategyImplementation Competiti

ve Advantage

Mission

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Objectives:

specif ic, measurable targets

the things a f irm needs to µdo¶ to achieveits mission

should inf luence other elements in the strategicmanagement pr ocess

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External and Internal Analysis

External Analysis

Systematic Examinationof the Envir onment

Internal Analysis

interest rates

demographics

social trends

technology

human resources

(knowledge) manuf acturing

abilities

technology

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Strategic Choice

External

Analysis

Internal

AnalysisStrategicChoice

BusinessLevel

Corporate

Level

positioninga business

whichbusinesses?

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Strategy Implementation

how strategies are carried out

who will do what

organizational str ucture and contr ol

who reports to whom

how does the f irm hire, pr omote, pay, etc.

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A Strategy Is Only As Good As Its Implementation

Strategy Implementation


every strategic ch

oice has strategy implementati

onimplications

strategy implementation is just as important asstrategy formulation

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Def inition: the ability to create more economic valuethan competitors

all other elements of the strategic managementpr ocess are aimed at achieving competitive advantage

Mission Objectives

External Analysis

Internal

Analysis

StrategicChoice



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C

ompetitive Advantage

The Ability to Create More EconomicValue Than Competitors

there must be something diff erent about a f irm¶soff ering vis-à-vis competitors¶ off erings

if all f irms¶ strategies were the same, no f irm

wou

ld have a c

ompetiti

ve ad

vantage

competitive advantage is the result of doingsomething diff erent and/or better than competitors

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C

ompetitive Advantage

Two Types of Diff erence

1) Pref erence

for the

f irm¶s

output

2) Cost advantage vis-à-vis competitors

people choose the f irm¶s output over others¶

people are willing to pay a premium

lower costs of pr oduction/distribution

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External Analysis

Internal Analysis

StrategicChoice



identif y and exploit diff erences that may leadto competitive advantage

The Strategic Management Pr ocess

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Q

P

D

MR

D

ATC

MC

Q

P

(D=MR=Price)

Imperfect Competition Perfect Competition


ATC

MC


Economic Models

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Temporary & Sustainable

competition limits the duration of competitiveadvantage in most cases

pr of its attract competition

competitive advantage typically results in high pr of its

Therefore,

most competitive advantage is temporary

competitors imitate the advantage or off er something better

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Temporary & Sustainable

Some competitive advantages are sustainable if :

competitors are unable to imitate the sourceof advantage

no one conceives of a better off ering

Of course,

in time, even sustainable competitive advantagemay be lost

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2020



Competitive Parity

the f irm¶s off erings are µaverage¶

people do not have a pref erence for the f irm¶s off ering

the f irm does not have a cost advantage over others

some things that may lead to competitive parity maystill be critical to success (e.g., telephones)

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Competitive Disadvantage

people may have an aversion to the f irm¶s off ering

the f irm may have a cost disadvantage

a f irm may have outdated technology/equipment

a f irm may have a negative reputation

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Measuring Competitive Advantage

Superior Economic Per formance 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 seis typically impossible

it¶s diff icult to µmeasure¶ technology

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Two Classes of Measures:

1) Accounting Measures

2) Economic Measures


Measuring Competitive Advantage

ROA, ROS, ROE, etc. that exceed industryaverages

earning a return in excess of the costof capital

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Disadvantage

Parity

Advantage

Below Normal

Normal

Above Normal

Economic Returns

exceeding expectations

meeting expectations

f ailing expectations

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Competitive Advantage &


Emergent vs. Intended Strategies

the strategic management pr ocess leads managersto intend ed strategies

However,

conditions of ten change or new information

becomes available

managers respond and adopt emergent strategies

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in the International Setting

Consistent Logic

important q

uesti

ons remain the same, b

ut theanswers may be diff erent

a f irm would still ask about social trends, butsocial trends may be moving in diff erent

directions in diff erent mar kets

culture and inf rastr ucture diff erences mustbe taken into account thr oughout the strategicmanagement pr ocess

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in the International Setting

Adopting a Global View

many f irms explicitly encourage internationalexperience

managers need to

learn to

think

abou

t strategyin a global context

obser ved phenomena have diff erent meaningin diff erent parts of the world

you need to know how the competition seesthe world

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Summary

Firms could achieve competitive parity and sur vive

they would f ace a f lat demand cur ve

their cost str ucture would be the industry average

they would need to adapt their strategy over time just to sur vive

they would f ail if they didn¶t adapt their strategy

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Summary

This course is not about mere sur vival, it is about

thriving²achieving competitive advantage

the strategic management pr ocess helps managersachieve competitive advantage

competitive advantage depends on diff erences

strategy is about discovering and exploitingthese diff erences

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Q

P

D

MR

D

ATC

MC

Q

P

(D=MR=Price)

ATC

MC


Thriving! Sur viving

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Applying Strategy to Your Career

a solid understanding of strategy concepts will

help set you

apartf r om

other j

ob candidates

you can use the pr ocess to identif y andexploit diff erence between you and others

you can use the pr ocess to determine if youwant to stay with a company

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& Competitive Advantage

Strategy Matters!

success and f ailure, between mediocrity and excellence

Strategy is of ten the diff erence between:

a great manager and average managers

stumbling thr ough lif e and moving ahead with purpose

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