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Chapter 7 - Strategies and Strategic Management.docx

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Ryerson University
Global Management Studies
GMS 200
Shavin Malhotra

Chapter #7: Strategy and Strategic Management Strategic Management - Competitive Advantage o The ability to do something so well that one outperforms competitors o Cost and Quality- where strategy drives an emphasis on operating efficiency and product or service quality o Knowledge and Speed- where strategy drives emphasis on innovation and speed of delivery to market for new ideas o Barriers to Entry where strategy drives an emphasis on creating a market stronghold that is protected from entry by others o FinancialResources where strategy drives on investments or loss absorption that competitors cannot match o Example: Wal-Marts CA is cut costs or drive them out of the system; where they make aggressive use of the latest computer tech. to gain efficiencies in its supply chains, track sales, and quickly adjust orders to inventories to match buying trends o Sustainable Competitive Advantage: the ability to outperform rivals in ways that are difficult or costlyto imitate - Strategy o A comprehensive plan guiding resource allocation to achieve long-term organization goals o best guess about what must be done in the future to outperform its rivals and changing conditions - Strategic Intent o Focuses and applies organizational energies on a unifying and compelling goal o Helps ensure that resources are used with consistent strategic intent o Example: Coca-Cola to put a Coke within arms reach of every consumer in the world Goal of strategic management is to create above-average returns for investors. - Returns exceeding those for alternative opportunities at equivalent risk. - Earning above-average returns depends in part on the organizations competitive environment. Strategic Management - The process of formulating and implementing strategies - Strategic Analysis: the process of analyzing the organization, the environment, and the organizations competitive position and current strategies - Strategic Formulation: the process of crafting strategies to guide the allocation of resources - Strategy Implementation: the process of putting strategies into action - - Strategic Constituencies Analysis: assesses interests of stakeholders and how well the organization is responding to them What are the useful planning tools and techniques? - SWOT Core competency is a special strength that gives an organization competitive advantage Important goal of assessing core competencies. Potential core competencies: Special knowledge or expertise. Superior technology. Efficient manufacturing approaches. Unique product distribution systems - Porters Five Forces Model - BCG Porters Model Industry Analysis [Average return on invested capital (ROIC) 1992- 2006] - Example of an Industry Analysis: Average ROIC % 1. Security brokers and dealers 40.9 2. Soft Drinks - 37.6 3. Pharmaceuticals - 31.7 4. Household appliances - 19.7 5. Grocery Stores - 16.0 6. Book Publishing -13.4 7. Hotels - 10.4 8. Airlines - 5.8 Tools for External Environment Analysis- Porters Five Forces Model - Potential Entry for new competitors When a firm can easily enter a new industry, competition in that industry Increases This threat is aggravated when new entrants can leverage their existing cash flows in other businesses Example: Pepsi gained a major profit through the introduction of Aquafina (water company) Coca Cola introduced Dasani Universal, Sony BMG, Warner and EMI now overthrown by iTunes which is a successful music company (totally different industries) Increase barriers to entry through: Large economies of scale Strong brand preferences - Threat of Substitutes Industries with close competition with producers of substitute products have higher competition Example: Eyeglasses were substituted Contact Lenses Newspaper Online News Mail E-mail Business Travel Video Conferencing More pressure on pricing As pricing for substitute products decline higher competitive pressure on the industry - Bargaining Power of Suppliers Very large suppliers Cost of switching raw materials is high Example: Microsoft is a supplier to the Computer industry- Computer do not have a choice but to go to Microsoft and purchase their software If Microsoft increases their prices other computer industries do not have any other option Airline Industry very short supply on pilots which puts pressure on your industry if the pilots go on strike (reason of high competition but low profits); hence high bargaining power of suppliers - Bargaining Power of Consumers When consumers are large and buy in bulk they enjoy more power Bargaining power of consumers is also higher when Product is standard or undifferentiated They can easily switch to competing brands Levels of Strategy Business Level Strategy - Identifies how a division or strategic business unit will compete in its product or service domain - how are we going to compete for customers in this industry and market? - Decisions include; choices about product and service mix, facilities locations, new technologies - Business-level strategic decisions are driven by: Market scope Source of competitive advantage Market scope and source of competitive advantage combine to generate four generic strategies. - Cost-Leadership Seeks to operate with low costs so that products can be sold at low prices Low prices drive sales, the low cost structure allows them to still make profits even when selling t low prices that competitors cannot match Success= a continuing
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