MGT 490: Strategy, Competitive Advantage

• Study notes for MGT 490, Spring 2025, covering chapters 1-5.
• The notes cover strategy, competitive advantage, and the strategy formulation process.

Definition of Strategy

• A firm's strategy is its theory for gaining a competitive advantage.
• Eisner's theory was based on providing extraordinary entertainment with premium pricing.

Strategic Management Process

• Involves mission, objectives, external and internal analysis leading to strategic choice, strategy implementation, and finally, competitive advantage.
• Objectives should be specific, measurable targets needed to achieve a firm's mission and influence the strategic management process.
• Includes external analysis using PESTEL and Porter's 5 forces, and internal analysis using VRIO.
• Strategic choice involves both business-level strategies answering "how" to compete in a market, and corporate-level strategies answering "what" markets to enter.
• Strategy implementation concerns how strategies are carried out and who will do what, emphasizing organizational structure and control to ensure a strategy-structure fit.
• Every strategic choice has strategy implementation implications, and implementation is as important as formulation.

Competitive Advantage

• Defined as the ability to create more economic value than competitors, achieved by doing something different or better.
• Necessitates a unique offering compared to competitors.
• Doing something different or better results in a competitive advantage.
• Two types of differentiating to attain competitive advantage include output preference, and cost advantage.
• Nordstrom is an example of output preference strategy, and Wal-Mart uses a cost advantage strategy.
• Examples of competitive advantage include Apple's iPod and iPad.
• Competitive advantage often leads to high profits, but it also attracts competition.
• Competition typically shortens the lifespan of competitive advantage.

Sustainable vs Temporary Competitive Advantage

• Most competitive advantages are temporary due to imitation or superior offers from competitors.
• Sustainable advantage occurs when competitors cannot imitate or when no one can conceive a superior offering.
• Over time, even sustainable competitive advantages may be lost.

Competitive Parity and Disadvantage

• Competitive parity means a firm's offerings are average, without preference from customers or cost advantage.
• Competitive parity can still be critical to success while thriving.
• Competitive disadvantage arises from aversion to the firm's offerings, cost disadvantages, outdated technology, or negative reputation.
• Wal-Mart's labor and location policies are an example of competitive disadvatage.

Measuring Competitive Advantage

• Superior economic performance indicates competitive advantage.
• It is difficult to measure the specific source of a competitive advantage.
• Easily copied competitive advantages should be avoided.
• Competitive advantage is measured financially using accounting metrics (ROA, ROS, ROE exceeding industry averages) or economic metrics(earning above cost of capital).

Intended vs Emergent Strategies

• The strategic management process leads to intended strategies.
• Conditions may change, prompting managers to adopt emergent strategies.
• Honda Motorcycles serve as example of this.

How To Survive

• Competitive parity allows survival with a flat demand curve and industry-average cost structure, requiring constant strategic adaptation.
• Businesses that don't adapt will fail.

How to Thrive

• Strategic management process helps managers gain competitive edge
• Achieved by discovering and exploiting differences
• Strategy is the distinction between success, mediocrity, and moving ahead with purpose.

External Analysis

• Helps firms discover threats and opportunities, assess industry profit potential, understand competition, and make informed strategic choices.
• Frameworks to for External analysis are PESTEL and Porter’s Five Forces.

PESTEL Framework

• Allows firms to scan, monitor, and evaluate macro-environmental factors into six segments:
• Political: Government influence (public relations, legislation, litigation).
• Economic: Macroeconomic factors (growth rates, employment, interest rates, inflation, currency exchange).
• Sociocultural: Societal values, norms, culture, demographics (age, gender, family size, ethnicity).
• Technological: Application of new knowledge (processes, products, AI, quantum computing).
• Ecological: Environmental issues (natural environment, climate change, sustainable growth).
• Legal: Laws mandating political processes (deregulation industries).

Porter's Five Forces Model

• Helps leaders understand the profit potential and position their firms for competitive advantage.
• Views competition more broadly and considers that profit potential is a function of competitive forces.
• Consists of:
  • Threat of new Entrants: Potential competitor risk (based on entry barriers like scale, networks, switching costs etc.)
  • Power of Suppliers: Pressures from industry suppliers.
  • Power of Buyers: Pressures from customers. Threat of Substitutes: Alternative ways to meet Customer need.
  • Rivalry Among Competitors: Intensity and market share.
• Industry Structure: Defined by no. and size of competitors, pricing power, product/service type, and entry barrier height.

Internal Analysis

• Provides looking at strengths, weaknesses, and relative position to competitors.
• Helps a firm to determine its sources of competitive advantage, and establish strategies to exploit any sources of competitive advantage.

The Resource-Based View (RBV)

• RBV- addresses how firms can achieve better economic performance.
• RBV uses a firm’s resources and capabilities, as primary drivers of competitive advantage and economic performance.
• Resources: tangible (factories, products) and intangible assets (reputation).
• Used to conceive of and implement strategies.
• Capabilities: Skills and abilities that enable a firm to take full advantage of their other resources, like marketing or cooperative relationships.
• Four major resource categories: financial, physical, human, and organizational.
• Two Critical RBV assumptions:
• Resource heterogeneity: suggests that firms vary resources.
• Is a cost advantage because competitors may not be able to match the scale because of capital requirements (barrier to entry).
• International expansion allows enough sales the firm to invest to capture economies of scale.
• Resource immobility: suggest resources are costly to acquire.
• If one firm has valuable resources and other firms can’t imitate these resources without high costs, a sustained competitive advantage is able to likely occur.
• Heterogeneity of resources typically happens, this leads to “bundling” the resources and capabilities of a firm to take homogeneous resources and bundle them to create heterogeneous combinations for competitive edge.

VRIO Framework

• Internal analysis tool using value, rarity, imitability, and organization.
• Competitive advantage can happen a firm has resources are valuable, rare, and costly to imitate, and the firm is organized to exploit these resources.
• Each question is considered in a comparative sense (competitive environment).

Applying VRIO

• Value: Resource allows firm to exploit opportunity or neutralize threat. (increase revenues and decrease costs) and can allow one to charge a premium. Ex:Levi
• Rarity: Dynamic can be observed. Can be rare look at perfect competition dynamics , example in several pharmaceuticals.
• Imitability: Intangible are hard to imitate Ex Harley reputation style will be hard.
• Patents a two edge sword- disclosure will drop cost and time. Value can tell what the firm can do in a way to enjoy a sustained competitive advantage.
• Organization- must complement people ability for achieve advantages, ex formal and informal reporting policies(3M company).
• If they lack the following it’s a disadvantage parity and not the best environment from success.

Competitive Dynamics

• These action affect for to action affect other. Rolex and Cosio A firm may decide to take no action because, another on is serving a different part and wants to reduce through market.
• Change Can affect if current Strategy be obsolete. And to try mimic advantages and help make thing.
• Firms should try make the the best way to help come better and fill in unique for success

Internal Analysis

• Assumes that Determinates of economic performance are firm-level characteristics and resources and capabilies.
• Firms may be different and that different may be enduring,.

Business-Level Strategic Choices

• Focuses to be low cost for industry.
• Has a strategy to be unique and different and try stand.
• Porter has a a the 4 generic.

1. Cost advantage- that will make cost affective for them.
2. Differation- The action for making thing different.
3. Porter- Will target market.
4. Focus- Action product.

• Is about doing something for better and have an advantage. (Ex apple ipod)

Business Level Strategy

• Cost leadership (focused- Broad market)
• Generate economic profit by having lower cost for. Walmart
• Product differentiation (focused Broad market)
• Product customer prefer example Harley

Understanding Cost Advantage

• Allows managers know who’s the power cost.
• it could be the focal firm to exploit advantages.
• A competitor has the action advantage on cost, but not the same scale requirements (barrier to entry).
• Inter National expansion may allow a firm to have enough sales to justify investing in additional capacity to capture economies of scale

Diseconomies- for scale

• Are risk at it will be too bureaucratic.

Lean curve economies

• It gets easier and a more effect part process.
• Is better if more people are involve,and you have more customers to interact

Technologies

• It can help smaller people become more successful for competitive.

Policy

• It can help people choose what level level if quality is inexpensive.
• That allows give people to choice how they will serve the market

Cost Leadership and Compete.

• That advantages will affect from resources, it can be a valuable resource that will get people.

rare advantage

• A source must be rare enough that perfect competition has set in
• Has been different from industry standards

The imitation of how it work must be easy for them to copy.

Organization

• Is a must how people has ability to do it.

Organizational Structure

• (1) the division of management responsibilities, and (2) the establishment of reporting relationships.

Control

• Aligns what interest to the organizational

Organizational structure

• To have simple functional and multidivisional.

Formal inform-

• Have a plan in way for management to work, culture attitudes in leader styles. Compensation:
• Should be strong and formal to help be the best.

More control for customers

• Management should use the following

1. Reduce cost.
2. Stipulate lower expenses if you don’t and how thing for better.

Summary

• Should start with customers.
• For the base and with vrio standards

Differentiation ( broad - focused)

• A business will be intended to the following .

1. To have the focus value form a company
2. Create a customer preference for the firm to sell more

Base differentiations

• Customer trust, what is the best quality.

Product -Attributes

• To have perfect future set in, product. Complex and make the the first thing for it to be known

The custom relationship

• Can help sponsor what the people show.

Linkage

• To have a circuit to help Get free advertise

Market structure

• The product has to valuable for you to exploit better advantages.

Has a process to imitate, has a few steps that make customer prefer your production

• (Ex volume to help to have. Higher price.

Make the customer not in way for better and have. More product, the product has two

The best way to success to is through-substitutions.

What the business want is to make new base from their for have to duplication.

Team

• To have team and let people express different for it

The best way to run is not to opposites or go at the same time as other business.

Summary (product)

• To help for the best and have the world give u new opportunity. For better living style and professional.