INTRODUCTION
Chapter 1
An Introduction to
Strategic
Management
Two Success Stories…
Coca Cola and Southwest Airlines
What makes them so successful?
 Coca Cola
 Southwest Airlines
 Product Breadth
 Customer Focus
 Distribution
 Distinct Culture
Capabilities
 Branding
 Product Positioning
 Strong Leadership
 Low Costs
 Unique Operating
Structure
 Limited Competitive
Exposure
Strategic Management…
“The definition of the long-run goals and objectives
of an enterprise, and the adoption of course of
action and the allocation of resources necessary for
carrying out these goals.”
A. Chandler
Strategic Management…
“Strategy is the pattern of objectives, purposes or
goals and the major policies and plans for
achieving these goals, stated in such a way as to
define what business the company is in or is to be
in and the kind of company it is or is to be.”
K. Andrews
Strategic Management…
“The fundamental pattern of present and planned
resource deployments and environmental
interactions that indicate how the organization
will achieve its objectives.”
C. Hofer & D. Schendel
Strategic Management…
“What business strategy is all about is, in a word,
competitive advantage… the sole purpose of
strategic planning is to enable a company to gain,
as efficiently as possible, a sustainable edge over its
competitors.”
K. Ohmae
Strategic Management…
“An integrated and coordinated set of commitments
and actions designed to exploit core competencies
and gain competitive advantage.”
R. Hoskisson, M. Hitt, & D. Ireland
Strategic Management…
“Strategy is a set of important decisions derived
from a systematic decision making process,
conducted at the highest levels of the
organization.”
D. Gilbert, E. Hartman, J. Mauriel, & E. Freeman
Strategic Management…
A framework for analyzing the environment,
for integrating the firm’s activities, for
learning and adapting to change, and for
creating value both in the present and into
the future.
Strategic Management…
What is the common thread running
through these definitions?
Creating Value
Strategic Management…
Mintzberg’s 5 Ps
of Strategy
Plan
Perspective
Ploy
Competitive
Advantage
Position
Pattern
Mintzberg’s 5 Ps of Strategy
Plan-a consciously-intended course of action; a
guideline to deal with a situation
 E.g.-a plan to enter a new market
Ploy-a specific maneuver designed to outwit an
opponent or competitor
 E.g.-threatening to expand facilities to keep a
competitor from entering a market
 Plans = general strategies
 Ploy = competitor-specific strategy
Mintzberg’s 5 Ps of Strategy
Pattern-a consistent pattern of behavior
 Intended behavior or not
 May be the result of learned strategy over time
“Gradually the successful approaches merge into a pattern of action
that becomes our strategy. We certainly don’t have an overall
strategy on this.”
NUMMI… “is another example of how GM’s strategy boils down to
doing a little bit of everything until the market decides where it is
going.”
Mintzberg’s 5 Ps of Strategy
 Strategies about what?
Mintzberg’s 5 Ps of Strategy
Position-location of a firm in the environment;
match between firm and environment
 Compatible any preceding definition of strategy
 Essence of many contingency and configurations
theory approaches to strategy
Perspective-how an organization and its
managers perceive the environment; a perspective
shared by members of the organization
 Dominant logic = TMT shared mental model
Strategic Management is…
Strategic management is that process by
which managers formulate and integrate
the firm’s functions into streams and patterns
of action designed to fit the constraints and
demands of the market.
 Key components of this definition
 Continual process, not a state or thing
 Formulate and integrate = develop and implement
 Managers must fit the firm’s functions with both internal
and external constraints
Competitive Advantage…
“Grows out of the value a firm is able to
create for its buyers that exceeds the
firm’s cost of creating it.”
M. Porter
Competitive Advantage…
Competitive advantage is the reason a
customer chooses to transact with and
pay a profitable price to a particular firm.
Competitive Advantage
 Marginalism
 People tend to maximize marginal utility as opposed
to total utility
 They make “decisions on the margin”
 Requires firms to “pay attention to the details”
 Methodological Individualism-social phenomena can only
be understood through examining the individual
motivations and actions of individuals
 Two important distinctions of CA
 Quest for competitive advantage is never ending
 Competitors are not always known
Competitive Advantage…
• Episodic and specific to context and
situation.
• Identified and evidenced through
customer action.
• Directly related to value creation, value
appropriation, and performance.
Creating Value…
Customer
Value
Consumer Surplus
This area represents the value
created in each profitable sale and
consists of both profit to the firm
and surplus to the customer.
Selling Price
Profit
Total Cost
to the Firm
KEY
Adopting and adapting a strategy or
strategies that balance firm costs, profit,
and overall value for customers
This area represents the firm’s
total costs in presenting the
product or service for sale. To
create new value, the firm must
cover its total costs.
The SWOT Framework & Analysis…
 Internal to organization: a unique bundle of
valuable resources:
 Strength
 Weakness
 External to organization: forces that affect firm
behavior and performance:
 Opportunities
 Threats