Students
Chapter 1
Chapter Outlines
An Introduction to Strategic Management
Chapter 1 provides an introduction and some simple explanations to the basic concepts behind a strategic management. The whole point of strategic management is to achieve a competitive advantage, which can only be done by recognizing the factors influencing a business's performance from both the inside and out.
It's About Performance
Southwest's
Seven Secrets to Success
Joe Brancatelli's article on Southwest's
successful formula
Southwest Airlines: We're all in this Together
Short video documenting
Southwest's history of happy employees and happy customers
The Southwest
Difference
William F. Achtmeyer reveals how Southwest has risen above the
competition
Coca-Cola's
Secret Ingredient to Success Revealed
Tony Daltorio explains how
Coca-Cola maintains its competitive advantage
Coca-Cola:
The Real Story Behind the Real Thing
A CNBC special on
Coca-Cola's history
Coca-Cola
Profit Rises as Sales Gain in India, China
Duane D. Stanford documents
Coca-Cola's sales increase in major Asian markets
Performance is the key to success. The work of all people within the business industry from owners down to students revolves around predicting, evaluating, and directing performance. Southwest Airlines and Coca-Cola are two great examples of companies that have had exceptional performance over the duration of their operation.
Southwest began as an interstate “Air Southwest” airline in Texas, but even after expanding into a major airline Southwest maintained its customer-friendly small business attitude. As president of Southwest, Herb Kelleher embodied the fun and unconventional spirit that customers identified with. Even after the terrible condition of the airline industry after the terrorist attacks of September 11, 2001, Southwest was able to maintain its great performance by staying true to its proven business model of great customer service.
One of Coke's keys to success is its willingness and ability to widely distribute its product to find new customers. Even in 1898 Coca-Cola was already being distributed to Canada and Mexico. Coke offers such a variety of products and flavors ranging from its popular soda to fruit juice, coffee and even bottled water. With so many choices, there are few potential customers who cannot find at least one Coke product to enjoy. The biggest strength of the Coca-Cola Company, however, is its worldwide recognition. With distribution in over 200 countries and a universal symbol on constant display in even the most remote location, it is hard to find someone who hasn't tried, or at the very least seen a Coca-Cola.
Defining Strategic Management
The
Strategy Concept I: 5 P's for
Strategy
Henry Mintzberg's article revealing his 5 P's theory
Henry Mintzberg
Interviewed by Michael Kull
Mintzberg briefly shares his thoughts on the
strategic process in daily operations
Strategic management defines the process by which business minds attempt to achieve exceptional performance by analyzing the market they compete in and creating a product that will achieve such a level of performance in that market. Strategic management is a framework that, when applied, becomes a process by which managers fit the action of their firm into the environment it functions in. Strategic management creates value both for the customers, and for all the stakeholders in the firm.
Henry Mintzberg describes strategic management as parts plan, ploy, pattern, position, and perspective. Strategic management may at any time consist of one or all of these five fundamentals. Ultimately an effective strategic plan must take into account all of these fundamentals.
Competitive Advantage
Competitive
Advantage
Quick MBA's extensive explanation of competitive
advantage
Competitive advantage is the goal one pursues when employing strategic management. Despite the many different understandings and explanations of competitive advantage, it can simply be defined as “The value a firm is able to create for its buyers that exceeds the firm's cost of creating it,” as said by Michael Porter.
Consumer surplus is the margin achieved when a customer sees more value in the product than in the resources they expend to get it. Consistent consumer surplus is vital in achieving competitive advantage. Strategists too often focus on big picture strategies and fail to recognize the significance of a single transaction. Creating good consumer surplus within individual transactions creates a consistent competitive advantage over time. Competitive advantage is about a firm's relationship with its customers, not its competitors.
Strengths, Weaknesses, Opportunities, and Threats (SWOT)
SWOT
Analysis
Quick MBA's extensive explanation of a
SWOT analysis
History
of SWOT Analysis
Tim Freisner explains the origins of
the SWOT analysis
The strength, weakness, opportunity, threat model (SWOT) helps a firm identify needs relating both to its internal affairs and its outer competition. Industrial organization economics deal with the competitive landscape of the firm while the resource based view deals with the firm's capabilities and resources. Both of these must be incorporated in effective strategic management.
Competitive Advantage and Performance
Balancedscorecard.org
Website
featuring multiple resources concerning the quest for balanced scorecards within
businesses
A firm that continues to perform well by maintaining good earnings will be expected to do the same in the future. These high expectations make the company more valuable in the eyes of its investors. Any number of unforeseen factors can affect the way outsiders view the value of a company; this can bring down earnings just as quickly as earnings increase value. Focus on value creation and competitive advantage will produce a consistent gauge for a firm's day-to-day strategy. When a firm successfully aligns its vision for performance with its day-to-day operations, it is called achieving a “balanced score card.”
Key Terms
Balanced scorecard
The name given to a performance measurement framework developed by Robert Kaplan and David Norton. The framework employs a variety of different strategic and non-financial performance metrics, in combination with traditional financial measures, to produce a single “balanced” measure of performance and condition.
Competitive advantage
The reason a customer chooses to transact with one firm over another. It is episodic and best understood through the eyes of the customer.
Consumer surplus
The gap between the value a customer places on a good or service and the price that he or she pays. In essence, it is the difference between the actual price and the price a customer would have been willing to pay.
Industrial organization (IO) economics
is an area within the larger field of economics concerned with the competitive forces that affect firm behavior and performance. Established by the work of Chamberlin, Bain, and Mason, IO economics proposes that a firm's performance is a function of strategic conduct, which in turn is a function of industry structure.
A resource-based view (RBV)
Holds that competitive advantage, and the economic rents or profits associated with it, is a function of a firm's unique and valuable bundle of resources. Such advantage can persist as long as these resource bundles are effectively imitated or substituted.