Chapter 1
The Strategy-Making Process
LEARNING OBJECTIVES
1. Specify the relationships between superior performance, profitability, competitive advantage, and sustainable competitive advantage.
2. Identify the roles and responsibilities of strategic managers at different levels within the organization.
3. Outline the main components of the strategic management process (covered in subsequent chapters) and show how they fit together.
4. Explain why formal strategic planning may not always lead to success, and identify ways of avoiding some of the common pitfalls associated with strategic planning.
5. Describe some of the barriers to effective strategic decision making and the techniques for improving decision making.
6. Identify the attributes associated with superior strategic leadership in the strategy making process.
LECTURE OUTLINE
I. Overview
A. Why do some companies succeed and others fail? An answer can be found in the subject matter of this course. This course is about strategic management and the advantages that accrue to companies that think strategically.
B. A strategy is a course of action that managers take in the effort to attain superior performance.
C. Understanding the techniques and skills needed to identify and implement successful business strategies is critical in achieving a superior performance as a manager and gaining the competitive advantage.
II. Competitive Advantage and Superior Performance
A. For businesses, superior performance is demonstrated through above-average profitability, as compared to other firms in the same industry. Profitability is typically measured using after-tax return on invested capital.
B. The strategies that a company’s managers pursue have a major impact on its performance relative to its peers.
C. When a firm’s profitability is greater than the average profitability for all firms in its industry, it has a competitive advantage over its rivals. The greater the profitability, the greater is its competitive advantage. A sustained competitive advantage occurs when a firm maintains above-average profitability for a number of years.
In general, we will be trying to identify successful strategies that companies might pursue that will allow them to achieve a sustainable competitive advantage. If you take a look at companies like Southwest Airlines, you can see that they have a sustained competitive advantage in the airline business. Ultimately, what they are doing is taking advantage of their inimitable strengths (like their corporate culture that supports efficiency) and exploiting these strengths using strategies that lead to a competitive advantage in the industry.
D. Another component of a successful strategy is a favorable competitive or industry environment.
Some industries are not really favorable. They might have unfavorable conditions like low barriers to entry (think of how easy it is to open up, say, a tanning salon). Others are such that they inexorably lead to price wars (think of industries like the steel business—the only way to compete is on price). Still others might be unfavorable because they have to deal with very powerful buyers who can bargain down the price at every turn (i.e., companies that supply auto components to the major automobile manufacturers). An analysis of the external environment in which your business finds itself is critical because it helps companies identify strategies that take advantage of opportunities that might exist and/or adopt strategies to counter threats. Conducting an external analysis is actually the focus of your course project in this class.
III. Strategic Managers
A. General managers are responsible for the overall performance of the organization or for one of its major self-contained divisions.
B. Functional managers are responsible for specific business functions such as human resources, purchasing, production, sales, customer service, and accounts.
C. The three main levels of management are the corporate level, the
