Strategic Management Concepts

Introduction to Strategy

• The primary purpose of strategy is to create value for all stakeholders, not just shareholders.
• Successful strategies rely on clear goals, understanding the competitive environment, internal strengths and weaknesses, and effective implementation.
• Strategic goals should be simple, consistent, and long-term.
• SWOT analysis, while useful, can be challenging to implement precisely.
• Strategic fit is crucial for a firm's strategy to be consistent with its internal and external environments.

Defining Strategy

• Military and business strategies share common concepts and principles, but differ in their objectives.
• The primary distinction between corporate and business strategy is that corporate strategy concerns itself with "where" a firm competes, whereas business strategy concerns itself with "how" the firm competes.
• The key to defining business strategy involves understanding "where" and "how" to compete.

Strategy Analysis

• The first treatise on strategy is Sun Tzu's "The Art of War".
• The principal difference between military and business strategy is that military strategy strives for annihilation of the enemy; whereas business strategy seeks co-existence with rivals.
• The purpose of strategy analysis is to identify a firm's strengths, weaknesses, opportunities, and threats.
• The role of resources and capabilities is a key aspect in the foundation of corporate strategy.
• The relationship between design and emergence in strategy making is best described as an interactive process where intended strategy is adapted as it is implemented.

Strategy Implementation

• Strategic management is concerned with the systematic study of the actions undertaken by organizations to achieve competitive advantage.
• When identifying a company's strategy, statements of strategy found in public documents need to be treated with skepticism and verified against corporate actions and decisions.
• Business strategy defines the "how", and it involves the way a firm competes in a specific industry or market and establishes competitive advantages over its rivals.
• Corporate-level strategy addresses the overall scope of a firm's activities and business-level strategy defines how a firm competes in specific product markets.

Strategy and Performance

• Profit and firm value are closely linked because the present value of future profits approximates the market value of securities.
• The main difference between accounting measures and stock market measures of firm performance is that accounting measures are backward-looking, whereas stock market measures are forward-looking.
• To analyze a firm's performance, it is helpful to use benchmarks, and to consider trends in accounting ratios over several years.
• Determining whether a business' diversification is related or unrelated involves evaluating whether the businesses share resources and capabilities, or whether they produce common customer-based products

The Firm's Resources and Capabilities

• A firm's resources and capabilities are the principal basis for its strategy and its primary source of profitability.
• The primary purpose of strategy analysis involves identifying the firm's resources and capabilities.
• To analyze a firm's strategic capabilities, one needs to identify the key success factors in its industry and the necessary resources and capabilities to satisfy those success factors.

Industry Structure and Dynamics

• Identifying key success factors requires answering questions about customers’ wants, and the competitive threats facing a firm’s survival, and how best to cope with those threats.
• Legal requirements that banks, telecommunication companies, and taxis must obtain government licenses positively impact industry profitability by restricting entry.
• The basic premise of industry analysis is that the level of profitability in an industry is determined by the competitive intensity of that industry.

Innovation and Competitive Advantage

• The relationship between invention and innovation is that invention relates to a new device or process; whereas innovation refers to commercializing that invention.
• To sustain competitive advantage, the cause for potential rivals’ inability to imitate a firm’s superior performance needs to be ambiguous.
• Firms will often cooperate with others in order to achieve objectives.
• Factors that can affect competitiveness within a firm's industry include: technology and demand; government policies, and global financial flows.