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Principle of Management
Dr. Somkiat Mansumitrchai
Ch.4 Strategic Management
Dr. Somkiat Mansumitrchai
Copyright: Dr. Somkiat Mans umitrchai
What is a Competitive Advantage?
The objective of strategic management is to
determine, create, and maintain
competitive advantage.
The concept of competitive advantage is a
firms ability to provide value to customers
that exceed what competitors can provide.
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Copyright: Dr. Somkiat Mansumitrchai
What is a Competitive Advantage?
A competitive advantage is created byhaving and managing resources to provide
goods and services that meet the following
criteria:
Copyright: Dr. Somkiat Mans umitrchai
What is a Competitive Advantage?
1. They provide superior value.
2. They are rare-competitors do not provide
similar products and services in quality
and quantity.
3. They are difficult to imitate.
4. They are non-substitutable.
Copyright: Dr. Somkiat Mans umitrchai
CompetitiveAdvantage
Difficultto imitate
RarityRarity
SuperiorValue
SuperiorValue
Non-
substitutable
Non-
substitutable
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Copyright: Dr. Somkiat Mansumitrchai
What is a Competitive Advantage?
Ex. HP, Wal-Mart, FedEx, Coke, Apple,Microsoft, Gillet
Copyright: Dr. Somkiat Mans umitrchai
CompetitiveAdvantage
Difficultto imitate
Rarity
SuperiorValue
SuperiorValue
Non-
substitutable
Non-
substitutable
Profit
Copyright: Dr. Somkiat Mans umitrchai
The Strategic Management Process:
Strategic management process is a type of
planning process in which managers
1. establish the companys general direction
and objectives
2. formulate a specific strategy
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Copyright: Dr. Somkiat Mansumitrchai
The Strategic Management Process:
3. plan and carry out the strategysimplementation
4. Monitor results and make necessary
adjustments
Establish Objectives
Formulate Strategy
Implement Strategy
Action plans
Implement plans
Monitor outcomes
Analyze External
Environment
Define Organizational
Mission
Determine Strategic Vision
Dr. Somkiat Mansumitrchai
Analyze Internal
Environment
Copyright: Dr. Somkiat Mans umitrchai
Determining the Firms Strategic Vision
The strategic vision provides a view of the
firm over the long term and what it should
achieve in the future.
Ex. Xerox: The Worlds Document Company
Kellogg: To have Kelloggs Products in
Every Table in the World
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Copyright: Dr. Somkiat Mansumitrchai
Formulating the Firms Mission Statement
A mission statement articulates thefundamental purpose of the organization and
often contains several components.
Company philosophy
Company identity or self-concept
Principle products or services
Copyright: Dr. Somkiat Mans umitrchai
Customers and markets
Geographic focus
Obligation to shareholders
Commitment to employees
Copyright: Dr. Somkiat Mans umitrchai
IRS Mission Statement
The IRS mission is to provide Americas
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.
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Human Resources
Business ResultsBusiness Processes
Customer Focus
Performance
Employee Satisfaction, Training
Productivity, Quality, Cost, Environment
Loyalty, Market Leadership
Return on Assets, Sales Growth
Establish Objectives
Formulate Strategy
Implement Strategy
Action plans
Implement plans
Monitor outcomes
Analyze External
Environment
Define Organizational
Mission
Determine Strategic Vision
Dr. Somkiat Mansumitrchai
Analyze Internal
Environment
Copyright: Dr. Somkiat Mans umitrchai
Conducting an External EnvironmentalAnalysis
1. The General Environment
2. Internal Analysis
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External Analysis(The General Environment)
Dr. Somkiat Mansumitrchai
E
Copyright: Dr. Somkiat Mans umitrchai
GeneralEnvironment
Politic
EconomicEconomic
SociocutureSociocuture
TechnologyTechnology
Technological Factors The rate of technological development has
increased over the last decades. Product life
cycle are becoming shorter
Dr. Som kiat Mansumitrchai
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PLC
TIMEIntroduction Maturity DeclineGrowth
Product Development
Sales
64 GB
2 GB
1 GB
256 GB
Copyright: Dr. Somkiat Mans umitrchai
The Firms Industry and Competitor
Environment (Porters Five Forces)
Industry Structure
Five Forces ModelMichael Porter
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RIVALRY
AMONG
COMPETING
SELLERS
POTENTIAL
NEW
ENTRANTS
SUPPLIERS
OF RAW MATERIALS,
PARTS,
COMPONENTS
BUYERS
FIRMS IN OTHER
INDUSTRIES
FOFFERING
SUBSTITUTE
PRODUCTS
Dr. Somkiat Mansumitrchai
Few competitors
Quality-based
competition
High Entry Barrier
Few new entrances
Few Substututes
Many Customers
Fragmented
customers
Many Suppliers
HigherProfits
Dr. Somkiat Mansumitrchai
Many competitors
Price-based
competition
Low entry barriers
Many new entrants
Many substitutes
Few customers
United customers
Few suppliers
Lower
Profits
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Internal Analysis(Strengths and Weakness)
Dr. Somkiat Mansumitrchai
A list of potential strengths and weaknesses
(Ferrell 1999)
Potential
Internal Strengths
abundant financial resources
any distinctive competence
well-know as the market leader
economies of scale
advance technology
lower costs
good market image
superior management talent
better marketing skills
outstanding product quality
good distribution skills
committed employees
(Ferrell, 1999)
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Potential
Internal Weaknesses
lack of the strategic direction
weak spending on R&D
very narrow product line
limited distribution
higher costs
out-of-date products
internal operating problems
weak market image
poor marketing skills
limited management skills
undertrained employees
(Ferrell, 1999)
External & Internal
Analysis(SWOT Analysis)
Internalenvironment
(strength& weakness)
analysis
SWOT Analysis
Kotler, 2000
Externalenvironment(opportunity
& threat)analysis
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The SWOT Matrix
Strengths Opportunities
Ferrell 1999
The SWOT Matrix
Strengths Opportunities
Ferrell 1999
ThreatsWeaknesses
ConvertConvert
Minimize, Avoid Minimize, Avoid
Copyright: Dr.Somkiat Mansumirtchai
Generic Strategies
for Obtaining a
Competitive Advantage
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E
Copyright: Dr. Somkiat Mansumitrchai
Generic
Strategies
Differentiation
Strategy
Differentiation
Strategy
Cost
Leadership
Cost
Leadership
Broad-Based Strategy Options
1. Cost-Based Strategy
A plan of action that requires a firm to be the
lowest-cost producer within its market.
2. Differentitation-Based Strategy
A plan of action designed to provide a product or
service with unique attributes that are valued by
consumers.
Copyright: Dr.Somkiat Mansumirtchai
Differentiation Strategy
Vs
Low Cost Strategy
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Differentiation
Price
High
High Low
Low
Copyright: Dr.Somkiat Mansumirtchai
Value of
Differentiation
Price
High
High Low
Low
Product
Differentiation
Strategy
Target on the segment
demanding a specialized
productfor which it will pay
a premium price.
Copyright: Dr.Somkiat Mansumirtchai
Vaue of
Differentiation
Price
High
High Low
Low
Cost
Leadership
Strategy
Target on the segment
demanding undifferentiated
productfor a low price
Copyright: Dr.Somkiat Mansumirtchai
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Copyright: Dr.Somkiat Mansumirtchai
Focus Strategies
Focus Strategies
A plan of action that isolates an enterprise
from competitors and other market forces by
targeting a restricted market segment.
Copyright: Dr.Somkiat Mansumirtchai
One product for one market
(Taste, preferences, needs
are the same)
Undifferentiated Strategy (homogeneous market)
One size fits all (no segment)
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Multiple Segments (Differentiated Strategies)
Copyright: Dr.Somkiat Mansumirtchai
Focus Strategy (Concentrate on a specific niche segment)
Small but beautiful.
Copyright: Dr.Somkiat Mansumirtchai
Establish Objectives
Formulate Strategy
Implement Strategy
Action plans
Implement plans
Monitor outcomes
Analyze External
Environment
Define Organizational
Mission
Determine Strategic Vision
Dr. Somkiat Mansumitrchai
Analyze Internal
Environment
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THE END