Competitive Advantage and
Strategic Planning
Purpose
 Business is about an idea/strategy to make
money.
 Cash flow is a measurement of the
effectiveness of your idea/strategy.
 Approaches to developing effective
strategies.
Which of the following is the best
business opportunity and why
Developing a software/spyware program that
monitors internet usage for advertising purposes.
 Starting a formal wear rental business in Ames
 Starting a college selection advising service. It
includes guidance in financial aid.
 Starting a national chain of cemeteries.
 Starting a brokerage firm for life insurance
policies. Matching corporate buyers and
corporate sellers of large personal or group life
insurance policies.

Discuss in groups.
 What were reasons for rejecting or
selecting different ideas/strategies for
making money?
Another strategy concern/corporate
strategy
Boeing VS airbus
 Head to head competition especially in
larger planes. Airbus assumes no new
gates and as demand increases on major
routes need new planes.
 Airbus wins market share for larger planes.
 What will Boeing do?
What are you going to DO?
Strategic planning
 Relevant for new markets
 Relevant for entire corporations
 Need to look at the whole industrial sector
and assess how to enter and compete with
existing firms in an industrial sector.
Top Managers as the commanding
Generals
Key words
Competitive advantage—the ability of the
firm to win consistently over the long term.
 Sustainability.
 Think in military terms—What made the US
so competitive with Military? What do we
have that others do not have?
 Same is true in business.

Examples of competitive advantage
 Wal Mart and logistics
 Patents
 Honda and motors (knowledge/patents)
 Microsoft—near monopoly (note its slowly
eroding).
 Hickory Park
How these provide competitive
advantage
 Superiority/value—What you choose to do,
you need to be best at it. Its not directly
price—its how you do it. If you do it well,
price will be low or customers will be
attracted to quality. Wal Mart is great
example.
 Inimitability– difficult for others to copy.
easy then not sustainable.
 Software programs and competitive
advantage
 Patents
 Hickory Park
If
 Durability—related to imitability.
 How long can one sustain it.
 Non-substitutable—can what you do be
replaced by other products/services. How
competitive is your industry?
 Trains.
 Records/CDs/Ipod.
Appropriability
 Cash flow high
 Supernormal returns
Nokia 80% of market
share on cell phones.
 Profit margins. Think about Microsoft.
What should it charge for windows?
Economic theory suggests
 No profits in true competition.
Airlines
since deregulation.
 Need to find ways to minimize true
competition. Gain competitive advantage.
 Strategizing. No different than military.
Better strategy usually wins. Strategy
entails more than troop movements in both
business and military.
How do we develop a competitive
advantage
 Strategic Planning Process.
Step 1
 SWOT Analysis; Strengths, Weaknesses,
Opportunities, Threats.
Internal analysis
 What are your strengths and weaknesses.
It helps to look at the value chain.
 What functions do you do well or do poorly.
Primary activities—production
/service
 Inbound logistics
 Operations
 Outbound logistics
 Marketing/sales
 After sale service
Support activities
 Procurement—global connections.
 Technology
 Human Resources—Employees and culture
pp 100-101.
 Infrastructure (miscellaneous such as
finance, legal, government relations, etc).
 Enron—Skilling and George Bush.
 OR GE and Finance
Strength is how you choose to
compete.

What is your core competency? What do you do
significantly better than your competitors?
Provides Value.

Weakness— Achilles heel? Outsource to
someone who can do better than you. Example,
small drug company partners with Merck to
distribute drug. Strength is research program. Or
can take cash flow to minimize weakness.
Hard work! Not a science.
Focus on Boeing; Wells Fargo,
Hickory Park.
 Strengths.
Environmental analysis
 In terms of opportunities and threats.
Focus on
Task environment—forces affecting
organizational performance on an
immediate or short term basis.
Commonly an industry analysis. What are
your competitors doing?
Value line examples.
 Number of competitors.
threat?)
(opportunity or
 Entry barriers and switching costs.
 Entry barriers—capital investment.
 Switching costs—contractual
relationships or capital investment
(Software).
 Substitutes—Book gives transportation
 Energy and Oil.
Oil?
Are there substitutes for
Customers
 Of course its very important.
 Consider Numbers, fragmentation,
segmentation, product knowledge, etc.
 Example Coke and growth to a global soft
drink provider.
Strategic Partners/Alliances
 Perhaps input perhaps industry
relationships and outsourcing (threat or
opportunity).
Labor
 Supply and demand.
markets.
Critical in tight labor
See jet blue
General environment
 Forces that influence the task environment
and indirectly the organization. Longer
term trends.
Sociocultural
 Demographics and changing societal
values.
Technology
 Product
 Process (includes information technology)
Economic forces
 Conditions, cyles, structural changes
Political and legal forces
 Influences the regulators—but changes
more slowly.
Global forces
 World trade, strength of the dollar,
terrorism.
Coca cola example
Generic Strategies to consider—
how to focus against competition

Cost leadership. Low
expenses. Wages,
Inventory
management, use of
raw materials (less
expensive),
technological
investments (lower
labor costs).
Differentiation
 Distinguish your products from
competitors in some manner. Quality,
Branded Image, bells and whistles.
 Nike, Toyota, electronics, patents.
Scope





General or focused.
General—all purpose.
Advantages in that large
market.
Focused—niche market.
Limited scope or breadth of
focus. Geographic, customer
segment. Advantage, less
competitive but smaller market
share.
Take a movie like the
incredibles vs the grudge.
Similar with firms.
Putting it all together is the greatest
challenge.
 Current situation and future.
Strategic plan
is long term. Unexpected changes will
always happen. New markets, new
technology etc. Do your best to plan for all
of these.
 Most firms start off with differentiation or
niche strategy focus.
Step 5
Mission statement/strategic intent
 Statement of company philosophy
 Identity
 Primary products services
 Customers/markets
 Geographic focus
 Obligations to shareholder/employees.
 Does not need to include all of these.

Examples Boeing
 People working together as a global
enterprise for areospace leadership
 Competencies are detailed customer
knowledge and focus
 Large scale systems integration
 Lean enterprise
Strengths vis a vis Airbus
Wells fargo
 The Vision & Values of Wells Fargo
 Our product: SERVICE. Our value-added:
FINANCIAL ADVICE. Our competitive
advantage: OUR PEOPLE
People and culture. Offering
financial advice—one stop
shopping.
Step 6
Strategic Objectives
 Translates mission into concrete and
measurable goals
 Needs to be related to mission.
 Book lists group. But Boeing—what are
good measures? Wells Fargo what are
good measures?
 If mission statement does not lead to
strategic objectives
After this you begin the internal
planning process (strategy
implementation)
How do you strive to meet those objectives!
We will discuss this later when it comes to
organizing.
Top level managerial work
 Competitive intelligence, environmental
scanning, building alliances, setting vision.
communicating vision, scanning for new
opportunities that support vision, and
implementing vision.
What is your image of
 Free associate
 Target & Younkers
Target vision statement
The everyday items you need most.
The absolute latest fashions. Variety.
No one gives you more reasons to go
shopping than Target. Or more
reasons to go “wow.”
it’s been our goal to offer
more fun, more style, and more value
than anyone else. At Target, we really
want you to Expect More and Pay
Less
Proffitts/Younkers
 The Friendliest Department Stores in
America!
 Style
 Quality
 Service
 Integrity
What is the match between
Image and operating goals?
Effective strategic planning
 Goals--value driven -- inside out planning
or
they can be opportunistic--outside in
planning
or
Public relations driven--sounds good
Cont
 No right way
 No right goal (tolerance for uncertainty)
 Set Metrics for goals (usually quite broad at
the strategic level).
Wal-mart’s strategic mission
 We're all working together; that's the
secret. And we'll lower the cost of living for
everyone, not just in America, but we'll give
the world an opportunity to see what it's
like to save and have a better lifestyle, a
better life for all. We're proud of what we've
accomplished; we've just begun."
Job Search hint #1
 Read the Mission statement before any job
interview.
Summary
 Need to consider planning as a central
management function
 Effective Planning
 Developing strategic plans.