Chapter 1
Introducing Strategic
Management

OBJECTIVES

1 Understand what a strategy is and identify the difference between business-level and corporatelevel strategy
2

Understand the relationship between strategy formulation and implementation

3 Describe the determinants of competitive advantage
4 Recognize the difference between a fundamental and a dynamic competitive advantage
5 Understand why we study strategic management

2

A TALE OF TWO STORES

Sears launches catalog business Takes control of production and distribution Rapid growth, driven by endbased locations and companycontrolled factories

Experts believe
Sears way was the only way to compete “The paragon of retailers” Financial trouble; sells off all non-retail businesses Acquired by KMart

1970
1891

1924
Moves into on-premise retailing/General Robert
Wood takes over

1960

1980

1990

2000 2005

Expands into banking, investments, real estate services, and insurance

Sam Walton opens first Wal-Mart with focus on low-prices

Dizzying growth 1962 1970

1980

30 stores located in
“one-horse towns which everybody else was ignoring”; Sam Walton

Perfects model; grows; expands into new markets
(international) and store concepts (Sam’s clubs)

A Firm’s performance is directly related to the quality of its strategy and its competency in implementing it

2000
Invests $500 million in inventory management technology 3

TWO RETAILERS AT A GLANCE

Sears

Wal-Mart

Year founded

1891

1962

Stores 1980
Stores 2004

864
2026

Revenues 1980
Revenues 2004

$25,194 million
$36,100 million

Net profits 1980
Net profits 2004

606M (2.4% return on sales)
507M (-1.4% return on sales)

$55 M(3.3% return on sales)
$10,267 M
(3.6% return on sales)

Market capitalization 1980
Market capitalization 2004

USD 4.8 billion
USD 12.2 billion

USD 1 billion
USD 200.2 billion

600
5289
$1,643 million
$285,222 million

4

A TALE OF TWO RETAILERS – PERFORMANCE MEASURES
USD millions

5

THREE OVERARCHING THEMES

Implementing a good strategy is at least as important as creating one, yet many managers give too little thought to implementation 



To succeed, the formulation of a good strategy and its implementation should be inextricably connected

Firms and industries are dynamic in nature 

Strategic leadership is essential if a firm is able to both formulate and implement strategies that create value

Strategic leadership is responsible for

 making substantive resource allocation decisions and

developing keystakeholder support of the strategy

We need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie
6

STRATEGY

Strategos: “the general’s view”

Holistic “big picture”
General

Lower officer (e.g., supply logistics infantry, heavy armored vehicles)

Tactical details

7

THE STRATEGIC MANAGEMENT PROCESS
Strategic analyses

• Internal
• External

Strategy
Vision and mission • Fundamental organizational purpose

• Organizational values •
•
•
•
•

Arenas
Vehicles
Differentiators
Staging
Economic logic

The central, integrated, externally oriented concept of how a firm will achieve its objectives Implementation levers and
Strategic
leadership

8

QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY
Unit of measure

Corporate-level strategy should ask

?

• In which markets do we compete today?
• In which markets do we want to compete tomorrow?

• How does our ownership of a business ensure its competitiveness today and in the future?
Business-level strategy should ask

?

• How do we compete in this market today? • How will we compete in this market in the future?

9

STRATEGY AND IMPLEMENTATION ITERATE

Strategy:
The process of deciding what to do

Compete as discount retailer in rural markets

WAL-MART EXAMPLE

Leverage inventory and sourcing systems to be low-cost leader

Implementation:
The process of performing all the activities necessary to do what has been planned Invest heavily in organizational structure, systems, and processes