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Definition of Strategy
Strategy: A firms theory about how to gain competitive advantages
Eisners theory may have been: People will pay a premium price for extraordinary entertainment. We have the necessary resources to create extraordinary entertainment. Therefore, lets redeploy our resources in a different way and offer something extraordinary to people.
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Mission
Objectives
Internal Analysis
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Objectives
Strategic Choice
Strategy Implementation
Competitive Advantage
Internal Analysis
Mission
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social trends
technology
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Internal Analysis
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all other elements of the strategic management process are aimed at achieving competitive advantage
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Competitive Advantage
The Ability to Create More Economic Value Than Competitors
there must be something different about a firms offering vis--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
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Competitive Advantage
Two Types of Difference
1) Preference for the firms output people choose the firms output over others people are willing to pay a premium Example: Nordstrom 2) Cost advantage vis--vis competitors lower costs of production/distribution Example: Wal-Mart
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Competitive Advantage
The Strategic Management Process
External Analysis Internal Analysis
Strategic Choice
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Competitive Advantage
Economic Models
Imperfect Competition ATC MC P Perfect Competition ATC MC D
MR Q Q
(D=MR=Price)
Competitive Advantage
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Competitive Advantage
Temporary & Sustainable
competitive advantage typically results in high profits
profits attract competition competition limits the duration of competitive advantage in most cases Therefore,
most competitive advantage is temporary competitors imitate the advantage or offer something better
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Competitive Advantage
Temporary & Sustainable
Some competitive advantages are sustainable if: competitors are unable to imitate the source of advantage
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Competitive Advantage
Competitive Parity
the firms offerings are average people do not have a preference for the firms offering
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Competitive Advantage
Competitive Disadvantage
people may have an aversion to the firms offering the firm may have a cost disadvantage
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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 its difficult to measure technology
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Competitive Advantage
Measuring Competitive Advantage
Two Classes of Measures:
1) Accounting Measures
ROA, ROS, ROE, etc. that exceed industry averages 2) Economic Measures earning a return in excess of the cost of capital
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Competitive Advantage
Competitive Advantage
Advantage
Economic Returns
Above Normal
exceeding expectations
Parity
Normal
meeting expectations
Disadvantage
Below Normal
failing expectations
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MR Q Q
(D=MR=Price)
Thriving!
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Surviving
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