Competitive Advantage & Strategic Management: A Comprehensive Overview

This report, based on Trevor Hunter's work at King's University College, provides a comprehensive overview of strategy and strategic management. It defines strategy as a firm's theory on gaining competitive advantages and emphasizes the importance of strategic planning. The report details the strategic management process, including external and internal analysis, setting objectives, making strategic choices at both business and corporate levels, and strategy implementation. It also defines competitive advantage, distinguishing between preference-based and cost-based advantages, and discusses how to measure it. Furthermore, it explores the concepts of competitive parity and disadvantage, and the difference between intended and emergent strategies. The report concludes by highlighting the significance of strategy in both business and personal career development.

What is Strategy?
Trevor Hunter
King’s University College

Definition of Strategy
Strategy: A firm’s theory about how to gain
competitive advantages
Strategic planning is important:
• The better the plan, the better it will predict the
future and be prepared
It is difficult to predict the future and understand the
business environment and know your own business
2© Trevor Hunter

The Strategic Management Process
Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
Mission
3
• The long term purpose of the firm
• Articulates the set of values and beliefs that inform day-to-day decision
making and gives focus and guidance
© Trevor Hunter

The Strategic Management Process
Objectives:
•Specific, measurable targets
•The things a firm needs to ‘do’ to
achieve its mission
•Should influence other elements in the
strategic management process
4© Trevor Hunter

The Strategic Management Process
External and Internal Analysis
External Analysis
Systematic Examination
of the Environment
Internal Analysis
• interest rates
• demographics
• social trends
• technology
• human resources
(knowledge)
• manufacturing
abilities
• technology
5© Trevor Hunter

The Strategic Management Process
Strategic Choice
External
Analysis
Internal
Analysis
Strategic
Choice
Business
Level
Corporate
Level
• positioning a
business
• which
businesses?
6
Mission Objectives
Choose a strategy that:
• Supports the mission
• Is consistent with objectives
• Uses strengths to capture opportunities
• Neutralizes threats and protects against
weaknesses
© Trevor Hunter

The Strategic Management Process
Strategy Implementation
• how strategies are carried out
• who will do what
• organizational structure and control
• who reports to whom
• how does the firm hire, promote, pay, etc.
7© Trevor Hunter

A Strategy Is Only As Good As Its Implementation
Strategy Implementation
The Strategic Management Process
• every strategic choice has strategy implementation
implications
• strategy implementation is just as important as
strategy formulation
8© Trevor Hunter

9
Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
The Strategic Management Process
NEED
CAN
WANT
© Trevor Hunter

The Strategic Management Process
Competitive Advantage
Definition: the ability to create more economic value
than competitors
• all elements of the strategic management
process are aimed at achieving competitive advantage
Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
10© Trevor Hunter

Competitive Advantage
The Ability to Create More Economic
Value Than Competitors
• there must be something different about a firm’s
offering vis-à-vis competitors’ offerings
• if all firms’ strategies were the same, no firm
would have a competitive advantage
• competitive advantage is the result of doing
something different and/or better than competitors
11© Trevor Hunter

Competitive Advantage
Two Types
1) Preference for the firm’s output
2) Cost advantage vis-à-vis competitors
• people choose the firm’s output over others’
• people are willing to pay a premium
• lower costs of production/distribution
Example: The Bay
Example: Wal-Mart
12© Trevor Hunter

Competitive Advantage
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
• identify and exploit differences that may lead
to competitive advantage
Examples: Apple’s iPod, iPad
The Strategic Management Process
13© Trevor Hunter

Competitive Advantage
Temporary & Sustainable
• competition limits the duration of competitive
advantage in most cases
• profits attract competition
• competitive advantage typically results in high profits
Therefore:
• most competitive advantage is temporary
• competitors imitate the advantage or offer
something better 14© Trevor Hunter

Competitive Advantage
Temporary & Sustainable
Some competitive advantages are sustainable if:
• competitors are unable to imitate the source
of advantage
• no one conceives of a better offering
Of course:
• in time, even sustainable competitive advantage
may be lost
15© Trevor Hunter

Competitive Advantage
Competitive Parity
• the firm’s offerings are ‘average’
• people do not have a preference for the firm’s offering
• the firm does not have a cost advantage over others
• some things that may lead to competitive parity may
still be critical to success
16© Trevor Hunter

Competitive Advantage
Competitive Disadvantage
• people may have an aversion to the firm’s offering
• the firm may have a cost disadvantage
• a firm may have outdated technology/equipment
• a firm may have a negative reputation
Example: Wal-Mart’s Labor & Location Policies
17© Trevor Hunter

Competitive Advantage
Measuring Competitive Advantage
Superior Economic Performance Is Viewed as
Evidence of Competitive Advantage
• it is rather easy to see the evidence of
competitive advantage
• measuring the source of the advantage per se
is typically impossible
• it’s difficult to ‘measure’ technology
18© Trevor Hunter

Two Classes of Measures:
1) Accounting Measures
2) Economic Measures
Competitive Advantage
Measuring Competitive Advantage
• ROA, ROS, ROE, etc. that exceed industry
averages
• earning a return in excess of the cost
of capital
19© Trevor Hunter

Competitive Advantage
Competitive Advantage
Disadvantage
Parity
Advantage
Below Normal
Normal
Above Normal
Economic Returns
• exceeding expectations
• meeting expectations
• failing expectations
20© Trevor Hunter

Competitive Advantage &
The Strategic Management Process
Emergent vs. Intended Strategies
• the strategic management process leads managers
to intended strategies
However:
• conditions often change or new information
becomes available
• managers respond and adopt emergent strategies
21© Trevor Hunter

The Strategic Management Process
& Competitive Advantage
Strategy Matters!
• success and failure, between mediocrity and excellence
Strategy is often the difference between:
• a great manager and average managers
• stumbling through life and moving ahead with purpose
22© Trevor Hunter

The Strategic Management Process
Applying Strategy to Your Career
• a solid understanding of strategy concepts will
help set you apart from other job candidates
• you can use the process to identify and
exploit difference between you and others
• you can use the process to determine if you
want to stay with a company
23© Trevor Hunter