Competing For Advantage
Part I – Strategic Thinking
Chapter 1 – Introduction to Strategic
Management
Who remembers Hannibal?
(Second Punic War?)
Hannibal
Hannibal
Hannibal
Hannibal
Hannibal
Hannibal illustrates what we need for
effective strategy:
Hannibal illustrates what we need for
effective strategy:
 A mission
Hannibal illustrates what we need for
effective strategy:
 A mission
 A map (a plan)
Hannibal illustrates what we need for
effective strategy:
 A mission
 A map (a plan)
 Elephants
What we need for effective strategy:
 A mission
 A plan
 Elephants
 That’s the strategic process
Return on Assets
16
14
12
JackITB
10
MickeyD
8
Sonic
SteakShake
6
Wendy's
4
2
0
2002
2003
2004
2005
Why do we need strategy?
The reasons why firms succeed and fail is
perhaps the central question in strategy
Strategy defines….
Who are you?
Where are you going?
How are you going to get there?
Alice: Which way should I go?
Cat: That depends on where you are going.
Alice: I don’t know where I am going.
Cat: Then it doesn’t matter which way you go.
 Lewis Carroll, Though the Looking-Glass
Organizations should make two types of
decisions
1) Strategic decisions
2) Strategically driven decisions
Organizations should make two types of
decisions
1) Strategic decisions
2) Strategically driven decisions
Company A
Company B
Company C
All firms have strategy. The only decision is
whether you manage it, or simply back into it…
What are we doing here?
Strategic Management Defined
 decisions and actions required for the firm to create value
and earn returns higher than those of competitors
 formulation and implementation of plans designed to
achieve objectives
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
When asked what he thought of his
team’s execution after another loss…
“I’m in favor of it”
– John McKay
Coach, Tampa Bay
Buccaneers
Strategic Management Defined
 decisions and actions required for the firm to create value
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
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and earn returns higher than those of competitors
formulation and implementation of plans designed to
achieve objectives
unifying theme that gives coherence and direction to
organizational/individual decisions
game plan management has for positioning the company
in its chosen market, competing successfully, satisfying
customers, and achieving good business performance
integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain a
competitive advantage
What is a competitive advantage?
Competitive Advantage
 When a firm implements a strategy that rivals
can’t duplicate, or find it too expensive to do
try to imitate
 Competitive advantages become sustainable
competitive advantages when rivals stop
trying to replicate
What is the nature of today’s
competitive landscape?
Changes in the Competitive Landscape
New Realities in the Competitive
Landscape
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Quick competitive information needs
Shorter product life cycles
Indistinguishable products
Rapid technology replacement
Availability of inexpensive information
New business culture from electronicbusiness models
Continuous learning is necessary
Disruptive Technologies
 Value of existing technologies is
destroyed
 Creative destruction process replaces
existing technologies with new ones
 New markets are created
New Sources of Competitive
Advantage
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Speed to market
Access and use of information
Rapid diffusion of new, transformed
knowledge throughout the company
Innovation
Integration of new conditions into
organization mind set
Global standard achievement
Strategic flexibility
Porter’s “What is Strategy” article
What is Strategy?
Strategy is not doing similar activities better
than your rivals – that’s operational
effectiveness
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continual improvement not a sustainable
advantage
industry-wide cost reductions do not lead to
increased profitability
examples: PCs, automobiles, airlines
What is Strategy?
1) Strategy is performing different activities or performing similar
activities in a different way
Strategy is about positioning
a) Variety-based positioning
 offering a unique choice of goods/services - Chic-fil-a,
GameStop
b) Needs-based positioning
 serving most/all of a particular group of customers’ needs Babies R Us
c) Access-based positioning
 serving a set of customers that require unique access –
Kinkos, Movie Gallery, Superette
What is Strategy?
2) Strategy is about choosing a position which requires
tradeoffs, choosing what not to do

without tradeoffs, all firms would imitate
Tradeoffs arise from
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inconsistent image/reputation
different activities, products, equipment,
employees, skills, systems, machines
priorities, internal coordination, and control
What is Strategy?
3) Strategy is about combining activities as advantages
come from fit and reinforcing
Operational effectiveness is about excellence in
individual activities
Fit/integration increases sustainability by reducing
imitability
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
Secondary Airports
No meals
Short hauls
No seats
No baggage
transfers
Quick Turns
Standard Fleet
Lean ground crews
Low Fares
How can Delta copy that?
What about Jet Blue?
What is Strategy?
4) The desire to grow is most threatening to an
effective strategy
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Blurs uniqueness
Creates compromises
Reduces fit
Erodes original advantages
What is Strategy Application
Consider Starbucks, Dell, Ebay, Amazon,
Southwest, and Target
 Who’s continued to do well? Who has
struggled?
 Is there a pattern?
Strategy Application
 Consider one of the struggling firms
(Starbucks, Dell, perhaps Ebay).
 What lessons from the 4 points in Porter’s
article can you identify?
 What pitfalls have these firms fallen into?
 How has each deviated from the insights of
Porter? How successful have those
deviations been?
Three Perspectives on Value Creation
 Industrial/Organization (I/O)
Economic Model
 Resource-Based View
 Stakeholder Approach
The Industrial/Organization (I/O)
Model of Above-Average Returns
Underlying assumptions:
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External environment imposes pressures and
constraints that determine the strategies
resulting in above-average returns
Most firms competing within a particular
industry or industry segment control similar
resources, and pursue similar strategies
Resources are highly mobile across firms,
and that due to this mobility, any resource
differences between firms will be short lived
The
Industrial/
Organization
(I/O) Model
of AboveAverage
Returns
The Industrial/Organization (I/O)
Model of Above-Average Returns
 Michael Porter’s Five-Forces Model
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Reinforces the importance of economic
theory
Offers an analytical approach that was
previously lacking in the field of strategy
Describes the forces that determine the
nature/level of competition and profit
potential in an industry
Suggests how an organization can use the
analysis to establish a competitive
advantage
The Resource-Based Model of AboveAverage Returns
 Underlying Assumptions
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Internal environment imposes pressures and
constraints that determine the strategies
resulting in above-average returns
Most firms competing within a particular
industry or industry segment control unique
strategically relevant resources and pursue
dissimilar
Resources are not highly mobile across
firms, and that due to this immobility any
resource differences between firms can be
sustainable
The
ResourceBased Model
of AboveAverage
Returns
The Stakeholder Model of Responsible
Firm Behavior and Firm Performance
 Basic Premise of the Stakeholder
Model – to propose that a firm can
effectively manage stakeholder
relationships to create a competitive
advantage and outperform its
competitors
The Three Stakeholder Groups
Secondary Stakeholders
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Government entities and
administrators
Activists and advocacy groups
Religious organizations
Other nongovernmental
organizations
The
Stakeholder
Model of
Responsible
Firm Behavior
and Firm
Performance
Ways Stakeholder Relationships
Contribute to Competitive Advantage
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Timely and high quality strategic intelligence
is gathered to improve a firm's strategic
decisions
A trustworthy reputation draws valuable
customers, suppliers, and business partners
to acquire or develop competitive resources
A trustworthy reputation attracts investors to
offer financial resources
Firms that have fair and respectful treatment
of employee relationships attract high-quality
human resources
Ways Stakeholder Relationships
Contribute to Competitive Advantage
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Transactions costs associated with making
and enforcing agreements can be reduced
Implementation of strategies can be
enhanced by improving commitment from
stakeholders who are involved with strategic
decisions
Responsible behavior can protect a firm from
the expense and risk associated with
negative actions (such as adverse
regulations, legal suits and penalties,
consumer dissatisfaction, employee work
outages, or bad press)
It’s all about prioritizing…
Charting a Good Strategy
 The Strategy Diamond
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Arenas
Vehicles
Differentiators
Staging & Pacing
Economic Logic
Strategy Diamond
Strategy is an
integrated set
of choices….
Arenas
Staging
Economic
Logic
Differentiators
Vehicles
Arenas
 Where are we going to be
active?
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Product categories
Channels
Market Segments
Geographic Segments
Core Technologies
Value-creating strategies
Arenas
Staging
Economic
Logic
Differentiators
Vehicles
Vehicles
 How are we going to get there?
 Means of participating in
Arenas
chosen markets
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Internal Development
Joint Venture
Licensing/Franchising
Alliances
Acquisition
Staging
Economic
Logic
Differentiators
Vehicles
Differentiators
 Product/service attributes that
beat competitors, for
example…
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Image
Customization
Price
Styling
Product reliability
Speed to market
Safety
Arenas
Staging
Economic
Logic
Differentiators
Vehicles
Staging
• Timing, pace and sequencing
of strategic moves
• When to launch moves
•
Function of resources,
urgency and market
signals
Arenas
Staging
Economic
Logic
Differentiators
Vehicles
Economic Logic
• How will returns be obtained?
•
•
Low cost through scale,
scope design, or process
advantages
Premium prices through
Staging
superior products or
service
Arenas
Economic
Logic
Differentiators
Vehicles
JetBlu’s Strategy
Low-fare commercial
airliner in
underserved/overprices US
markets, focusing on JFK
Focused initial
growth in NE
corridor, with
westward
expansion
Staging
Arenas
Low-costs through uniform, fuelefficient fleet, saving on maintenance,
and training. Favorable gate fees at
JFK. Secondary airports
Economic
Vehicles
Logic
Completely internalized
growth
Low price, mixed with exceptional service,
e.g. leather seating and in-seat satellite TV
JetBlu’s Strategy
Low-fare commercial
airliner in
underserved/overprices US
markets, focusing on JFK
Focused initial
growth in NE
corridor, with
westward
expansion
Arenas
Low-costs through uniform, fuelefficient fleet, saving on maintenance,
and training. Favorable gate fees at
JFK. Secondary airports
Economic
Vehicles
Logic
Completely internalized
growth
Low price, mixed with exceptional service,
e.g. leather seating and in-seat satellite TV
JetBlu’s Strategy
Low-fare commercial
airliner in
underserved/overprices US
markets, focusing on JFK
Arenas
Focused initial
growth in NE
corridor, with
westward
expansion
Low-costs through uniform, fuelefficient fleet, saving on maintenance,
and training. Favorable gate fees at
JFK. Secondary airports
Completely internalized
growth
Differentiators
Low price, mixed with exceptional service,
e.g. leather seating and in-seat satellite TV
JetBlu’s Strategy
Low-fare commercial
airliner in
underserved/overprices US
markets, focusing on JFK
Focused initial
growth in NE
corridor, with
westward
expansion
Staging
Arenas
Low-costs through uniform, fuelefficient fleet, saving on maintenance,
and training. Favorable gate fees at
JFK. Secondary airports
Completely internalized
growth
Low price, mixed with exceptional service,
e.g. leather seating and in-seat satellite TV
JetBlu’s Strategy
Low-fare commercial
airliner in
underserved/overprices US
markets, focusing on JFK
Focused initial
growth in NE
corridor, with
westward
expansion
Arenas
Economic
Logic
Low-costs through uniform, fuelefficient fleet, saving on maintenance,
and training. Favorable gate fees at
JFK. Secondary airports
Completely internalized
growth
Low price, mixed with exceptional service,
e.g. leather seating and in-seat satellite TV