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Strategic Management
Jay AnandManagement Certificate Program
Ohio State Universityemail: [email protected]
Tel: (614) 247-6851Fax: (614) 292-7062
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What is Strategy?
• The word “strategy” is derived from the Greek word ‘strategus’: art of the general.
• Some common definitions:– Strategy is the pattern of major objectives and goals, and is
the essential policies and plans for achieving these goals.– Strategy is the match between the organization and
environment.– Strategy is an integrated set of actions aimed at securing
sustainable competitive advantage.
• But what is strategy, really?
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Skill Pyramid for Success
TechnicalSkills
HumanSkills
StrategicSkills
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Levels of Strategy
TopMgmt.
TopMgmt.
BusinessUnit 1Auto
BusinessUnit 2
Electronics
Region1
Asia
Region2
Europe
BusinessUnit 3Hotels
Region3
N. America
Corporate Strategy International Strategy
Business Unit Strategy
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Business Unit Performance
Environmental Forces:Macro Factors
Industry Structure
Strategy Formulation/Implementation
Performance
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Environmental Analysis
THE INDUSTRYENVIRONMENT
• Customers • Suppliers• Competitors
Government
Naturalenvironment
Technology Demographics
Economy
Social structure
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Basic Issues
• What is the structure of this industry? What are the major competitive forces? What are the major trends?
• What does it take to do better than average in this industry? What are the sources of sustainable competitive advantage?
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Industry Profitability
Drugs 21.4% 11.8%Printing and publishing 15.5 7.1Food and kindred products 15.2 6.6Chemicals and allied products 15.1 7.5Petroleum and coal products 13.1 6.5Instruments and related products 12.9 7.2Industrial chemicals and synthetics 12.9 6.2Paper and allied products 12.5 6.0Aircraft, guided missiles, and parts 12.4 4.1Fabricated metal products 12.3 5.7Motor vehicles and equipment 11.6 5.6Rubber and misc. plastic products 11.6 5.1Electric and electronic equipment 11.5 5.4Machinery, except electrical 11.1 5.8Stone, clay, and glass products 10.4 4.8Textile mill products 9.3 4.3Nonferrous metals 8.3 3.9Iron and steel 3.9 1.5
ROE ROA
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Determinants of Industry Profits
• Potential profits determined by creation of value for the customer. Value to a customer depends upon the intensity of need and the availability of substitutes.
• Actual profits (as opposed to potential profits) depend on intensity of competition.
• Distribution of profits depends on relative bargaining power between firms at different stages in the value chain.
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Firm Profitability
American Home Products 19Merck 16Bristol Myers Squibb 14Eli Lilly 14Schering Plough 13Upjohn 10Pfizer 9American Cyanamid 7
Oregon Steel Mills 12Worthington 10Nucor 9USX-US Steel 3Inland Steel 2ARMCO -1Bethlehem -2LTV -3
ROA%
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INDUSTRY ANALYSIS
• Attractiveness• Key Success
Factors
COMPETITIVE ANALYSIS
COMPANY ANALYSIS
• Capabilities
• Likely actions and reactions
• Objectives
• Capabilities
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Competitive Advantage
Customer
Your company Competition
Value Value
CompetitiveAdvantage
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Competitive Advantage
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Competitive Advantage
Type ofAdvantage
Differentiation
Low Cost
•Hard to get•Always erodes over time due to obsolescence and imitation•Need to constantly renew competitive advantage
Resources/Capabilities
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Perspectives on Strategy
External• What the firm should do?• Opportunities and Threats• Planning/Decision-making
Industry structural analysis
Competitive analysis
Competitive positioning
Strategic marketing planning
Portfolio planning
Internal• What can the firm do?• Strengths and Weaknesses• Resources and capabilities
Total quality management
Re-engineering
Core competence
Resources/capabilities perspective
Learning organization
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Unpacking Competitive Advantage
• How did the US basketball team perform in the last 3 Olympics (2000-Sydney, 2004-Athens & 2008-Beijing))?
• Why is Afghanistan so difficult to rule?• What causes famines?• Why are the smartest people are not always the best
managers/leaders?• Why do small start-ups contribute disproportionate
innovations despite having fewer resources?
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“The way a team plays as a whole determines its success. You may have the greatest bunch of individual stars in the world, but if they don’t play together, the club won’t be worth a dime.”
George Herman (Babe) Ruth, Jr.
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Competitive Domain
Competitive Advantage
Implementation
•Markets•Segments
•Low cost•Differentiation•Underlying resources
•Organizational structure•Systems•Culture
Business Unit Strategy
Decision Maker/Leader
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Corporate/International Strategy
Shareholders
Firm
Business Unit 1
BusinessUnit 2
Shareholders
Firm 1 Firm 2
Business Unit 1
Business Unit 2
Synergies:2+2=5?
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Decision Maker/Leader
Competitive Domain
Competitive Advantage
Implementation
•Industries/Markets•Countries/Regions
•Core competencies•Synergies•Financial benefits
•Organizational structure•Systems•Culture•Leadership
Corporate/International Strategy
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Effective Strategy
• Easy to understand and communicate; supported by in-depth analysis
• Combines qualitative and quantitative analysis; questions underlying assumptions
• Cross-functional• Makes choices; provides guidance for making
tactical decisions• Flexible; includes contingency plans• Anticipates and addresses implementation issues
besides strategy analysis
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Developing Strategic Skills
• Common-sense?• Read books?• Work experience?• Combination of frameworks and simulated
diverse experiences
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Personal Action in a Strategic Context
• Do you understand the environment and strategic context of your organization?
• Do you know how your actions support the strategy of your organization?
• What contacts/knowledge do you have that would be valuable inputs to strategy formulation and implementation?
• Do you demonstrate the commitment and persistence to achieve the desired results?
• In spite of your intentions, are your actions supporting or impeding the strategic efforts?
• Are you developing the leadership qualities required to excel?