August 25, 2016

Principles of Strategic Management

Porter 2001

• It must start with the right value guide: superior long-term return on investment. Only by grounding strategy in sustained profitability will real economic value be generated. Economic value is created when managers create a value chain that provides a good or service at a cost below the price  customers are willing to pay for the product or service.

• A company’s strategy must enable it to deliver a value proposition, or set of benefits, different from those that competitors offer.

• Strategy needs to be reflected in a distinctive value configuration. To establish a sustainable competitive advantage, a company must perform different activities than rivals or perform similar activities in different ways.

• Strategies involve trade-offs. A company must abandon or forego some product features, services, or activities in order to be unique at others.

• Strategy defines how all the elements of what a company does fit together. A strategy involves making choices throughout the value configuration; all a company’s activities must be mutually reinforcing to create value to the customer and the organization.

• Strategy involves continuity of direction. A company must define a distinctive value proposition that it will stand for and be consistent with it.

Porter (2001)

Thompson, Strickland, Gamble

20th Edition - Crafting and Executing Strategy

External Analysis

Whether an industry’s entry barriers ought to be considered high or low depends on the resources and capabilities possessed by the pool of potential entrants.

High entry barriers and weak entry threats today do not always translate into high entry barriers and weak entry threats tomorrow.

A company’s strategy is increasingly effective the more it provides some insulation from competitive pressures, shifts the competitive battle in the company’s favor, and positions firms to take advantage of attractive growth opportunities.

The most important part of driving forces analysis is to determine whether the collective impact of the driving forces will be to increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability.

The real payoff of driving-forces analysis is to help managers understand what strategy changes are needed to prepare for the impacts of the driving forces.

Strategic group maps reveal which companies are close competitors and which are distant competitors.

Some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/ or because they are more favorably impacted by industry driving forces.

Studying competitors’ past behavior and preferences provides a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.

The degree to which an industry is attractive or unattractive is not the same for all industry participants and all potential entrants.

Updated  28 August 2016, 18 October 2015

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