m a n a g e m e n t 2e
Hitt/Black/Porter
Chapter 5:
Strategic Management
PowerPoint slides by
Susan A. Peterson, Scottsdale Community College
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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Strategic Management
Strategic management requires
an understanding of:
Strategic management
process
How to develop an overall
strategy
Intended targets of the
strategy
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Competitive Advantage
Superior Value
Rarity
Difficult to Imitate
Non-substitutability
Competitive advantage
The ability of a firm to win
consistently over the long
term in a competitive situation
Competitive advantage is
created through the
achievement of four qualities
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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
Rarity
How many other firms hold
similar capabilities?
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Qualities Leading to Competitive
Advantage
Superior Value
Rarity
Difficult to Imitate
Difficult to imitate
Managers must create
barriers that make it hard for
others to copy their
superiority advantages
- Culture
- Product design
- Marketing strategy
- And others
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Qualities Leading to Competitive
Advantage
Superior Value
Rarity
Difficult to Imitate
Non-substitutability
Non-substitutability
Can the customer’s need be
met by alternative means?
- Encyclopedias vs.
information on Internet
- Movie theater
entertainment vs. concert
band entertainment
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Turning a Competitive Advantage into
Profits
A competitive
advantage should
generate aboveaverage 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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Mission Statement for the Internal
Revenue Service
The IRS mission is to “provide America’s
Taxpayers top quality service by
helping them understand and meet
their tax responsibilities
and by applying the tax law with
integrity and fairness to all.”
Adapted from Exhibit 5.2
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External Environmental Analysis
Managers must conduct
an analysis of the
firm’s general
environment:
Social/
Cultural
Environment
Technological
Environment
Social/cultural
Technological
Economic
Environment
The
Firm
Economic
Political/
Legal
Environment
Political/legal
Global
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Global
Environment
16
General Environment
Sociocultural forces include:
Demographics
Societal values
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General Environment
Technology forces
Product technological
changes
Process technological
changes
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General Environment
Economic forces
Current economic
conditions
Economic cycles
Structural changes
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General Environment
Political and legal forces
Laws and regulations
Government spending
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General Environment
Global forces
Impact on and interaction
with the other forces
Institutional forces
Physical forces
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The General Environment of Coca-Cola
• Baby boomers drink less
• Immigrants drink less
• Concern about recycling
• Concerns about health
• Slow economic
growth
• Prospect of
economic recovery
Social/
Cultural
Environment
Techno-
• New recycle-friendly
canning technology
• New promotion
opportunities via the Internet
logical
Environment
Coca-Cola
Economic
Environment
• Increase in acceptance
of carbonated drinks in
India and China
• Easier consumer
access to refrigeration
Political/Legal
Environment
• Increased health
standards for bottling
• Stricter liability
legislation
Global
Environment
Adapted from Exhibit 5.3
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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






Higher
Profits

Few competitors
Quality-based
competition
High entry barriers
Few new entrants
Many customers
Fragmented
customers
Many suppliers







Many competitors
Price-based
competition
Low entry barriers
Many new entrants
Many substitutes
Few customers
United customers
Few suppliers
Lower
Profits

Adapted from Exhibit 5.4
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Industry and Competitive Environment of
JetBlue
Customers
Competitors
Business travelers
Leisure travelers
Rivalry: Price
New entrants: Few
Substitutes: Video
conferencing
Strategic
Partners
Suppliers
No airline partners
Initial partnership
With satellite TV
provider
JetBlue
Regulators
FAA
Airport authorities
Planes: Airbus
Jet fuel: many
suppliers
such as
Exxon Mobil
Labor
No union
representation
Ample supply of
pilots and flight
attendants
Adapted from Exhibit 5.5
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Support Activities
The Value Chain
Primary Activities
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Adapted from Exhibit 5.6
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Integrating Internal and External Analyses
Internal environment
Strengths
Weaknesses
Tools
- Core competencies
framework
- Resource analysis
framework
- Value chain framework
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Internal Environment
SWOT
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Integrating Internal and External Analyses
External environment
Opportunities
Threats
Tools
- Product life cycle analysis
- Portfolio analysis
- Five forces framework
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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Formulating a Strategy
Competitive strategy: determining how the
company is going to compete and achieve its
strategic objectives, mission, and ultimate
strategic intent
Generic strategies
Techniques and tools
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Formulating a Strategy
Generic competitive
strategies
Cost leadership
Differentiation
Focus
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Cost leadership
Differentiation
Strategy
Generic Strategies and Scope
General player whose product
or service features command
industry average prices but
whose costs are significantly
below the industry average
Niche player with average
Prices and below-average costs
That focuses on a segment of
customers or a specific
geography
Example: Wal-Mart
Example: Columbia Sports
General player whose product
or service features command
premium prices and whose
costs are at the industry
average
Niche player with average costs
but commanding premium
prices that focuses on the high
end and customers in a general
or specific geography
Example: Sony
Example: Morgan Motors
General
Focused
Scope
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Formulating a Strategy
Other generic
competitive
strategies:
Integrated
Differentiation-Cost
Leadership
Multipoint
Competition
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Strategy Implementation
Strategy
Skills
Structure
Shared
Values
Systems
Staff
Style
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