StrategyDr. Ananda Sabil Hussein

Strategy

An action managers take to attain a goal of an organization.

Superior Performance

Superior performancerequires …

Highprofitability

Growth in profits over

time

Wal-Mart

First year of operation – 1962 – Rogers, Arkansas

1960s – 15 Wal-Mart stores

1979-80 – 276 stores with $1 billion in sales

1989 – 1,400 stores with $26 billion in sales

1983 – SAM’s Club

1988 – Supercenters

Today -- More than 1.8 million associates worldwide, nearly 6,500 stores and wholesale clubs across 15 countries, and over $312 billion in sales.

Source: www.walmart.com

Competitive Advantage

Competitive advantage: Advantage obtained when a firm outperforms its rivals.

Distinctive competency: A unique strength that rivals lack.

Sustainable competitive advantage: A distinctive competency that rivals cannot easily match or imitate.

Barrier to imitation: Factors that make it difficult for a firm to imitate the competitive position of a rival.

Legacy constraints: Prior investments in a particular way of doing business that are difficult to change and limit a firm’s ability to imitate a successful rival.

Competitive Advantage

Distinctivecompetencies

Competitive advantage

Low costs

Productdifferentiation

Superiorperformance

If protected from copying bybarriers to imitation and

legacy constraintscompetitive advantage

will be sustained

Business-Level Strategy

Business-level strategy: Strategy concerned with deciding how a firm should compete in the industries in which it has elected to participate.

Low-cost strategy: Focusing managerial energy and attention on doing everything possible to lower the costs of the organization.

Economies of scale: Cost advantage derived from a large sales volume.

Differentiation strategy: Increasing the value of a product offering in the eyes of consumers.

The Low-Cost Value Cycles

Lower costs

Economiesof scale

Lower prices

Increaseddemand

Higherprofitabilityand profit

growth

Options for Exploiting Differentiation

Increaseprices morethan costs

Higherprofitabilityand profit

growth

Op

tion

1

Successfuldifferentiation

Moderate orno priceincrease

Increaseddemand

Economies ofscale and

lower costs

Opti

on 2

Segmenting the Market

Markets are characterized by different types of consumers.

Some are wealthy, some are not.

Some are old, some are not.

Some are influenced by popular culture, some never watch TV.

Some care deeply about status symbols, others do not.

Some place a high value on luxury, some on value of money.

Consumer Markets

Consumer markets segmentation characteristics:

Geographic

Demographic

Psychographic

Behavioralistic Source: www.netmba.com

Choosing Segments to Serve

Focus Strategy: Serving a limited number of segments.

Broad market strategy: Serving the entire market.

Types of Business-Level Strategy

Broad low cost Broad differentiation

Focused low costFocused differentiation

Many

Seg

men

ts

serv

ed

Few

Low cost DifferentiationCompetitive

theme

Configuring the Value Chain

Primary activities: Activities having to do with the design, creation, and delivery of the product; its marketing; and its support and after sales services.

Support activities: Activities that provide inputs that allow the primary activities to occur.

Organization architecture: The operations of the firm are embedded within the internal organization architecture of the enterprise, which includes the organization structure, incentives, control systems, people, and culture of the firm.

Strategic Fit

Operationsstrategy

Internalorganizationarchitecture

Business-level

strategy

Industryconditions

Supports

Fits

Supports

Su

pp

ort

s

Competitive Tactics

Competitive tactics: Actions that managers take to try to outmaneuver rivals in the market.

Tactical pricing decisions:

- Price war

- Price signaling

- Razor and razor blade pricing

Tactical Product decisions:

- Product proliferation

- Bundling

Corporate-Level Strategy

Corporate-level strategy: Strategy concerned with deciding which industries a firm should compete in and how the firm should enter or exit industries.

Vertical integration: Moving upstream into businesses that supply inputs to a firm’s core business or downstream into businesses that use the outputs of the firm’s core business.

Diversification

Diversification: Entry into new business areas.

Related diversity: Diversification into a business related to the existing business activities of an enterprise by distinct similarities in one or more activities in the value chain.

Unrelated diversity: Diversification into a business not related to the existing business activities of an enterprise by distinct similarities in one or more activities in the value chain.