Strategic Management

Chapter 1 Summary

LO 1.1 Define strategy & describe strategic management process

 Strategy is defined as how to gain competitive advantages. A good strategy generates advantages.
 A firm strategy is about how competition is going to evaluate and how that evolution can be
exploited for competitive advantage.
 A firm should choose its strategy carefully and systematically & to follow strategic management
process  a sequential set of analyses and choices that can increase the likelihood that a firm
will choose a good strategy which can generates competitive advantages.

MISSION    STRATEGIC  STRATEGY

OBJECTIVES EXTERNAL
ANALYSIS CHOICE IMPLEMENTATION
A long term Specific
purpose, what a measurable Identify critical -BUSINESS- Adopt the policies
firm aspires to targets so it environment, LEVEL consistence with
be in the long can be used to to know the the strategy;
Cost
run & what it evaluate its opportunities formal structure,
leadership,
wants to avoid mission and threats formal & informal
flexibility, tacit
in the meantime systems, employee
collusion
 compensation
INTERNAL
ANALYSIS -CORPORATE- policies
LEVEL
Identify what
are our Vertical COMPETITIVE
capability Integration, ADVANTAGE
(what diversification,
When it creates
resources we strategic
more economic
have & to know alliances,
value rather than
strength and merger &
rivals; competitive
weaknesses acquisition
advantage, parity,
disadvantage

LO 1.2 Define competitive advantage & its relationship with economic value creation

 Competitive advantage is when a firm creates more economic value than its rivals (temporary-
sustained)
 Economic Value is the difference between what customers are willing to pay for a firm’s
products/services and the total cost of production
 Competitive parity when firm’s economic value = rivals
 Competitive disadvantage create economic value < rivals (temporary-sustained)
LO 1.3 2 different approaches to measure competitive advantage

1. Accounting Performance : using various ratios calculated from firm’s P/L & balance sheet
statements. Compared with the average level of accounting performance in firm’s industry.
2. Economic Performance: Compare firm’s level of return with its cost of capital  it’s the rate of
return it had promise to pay to its debt and equity investors

LO 1.4 Difference between emergent and intended strategies

 Intended Strategy is the strategy that the organization hopes to execute its detailed within the
organization’s strategic plan. Ex: For new venture it’s a business plan
 Emergent Strategy is a response to an actions that creating a strategy based on unexpected
consequences it can lead to tremendous success

LO 1.5 Importance of learn strategy & strategic management process

1. Help decide where to work cause it become a tools to evaluate the firm’s strategy (career
opportunity)
2. For personal success ( how we perform our function at the firm)
3. Develop critical thinking, knowledge
4. Enhance business/entrepreneurial skills & knowledge