MGMT 386 Lecture Notes - Lecture 7: Pest Analysis, Strategic Choice, Jetblue
A firm's theory about how to gain competitive advantages
What is Competitive Advantage
Ability to create more economic value than rival forms
What is the process we use to create a competitive advantage?
Strategic Management Process
1. Mission
2.Objectives
3. Internal/External Analysis
4.Strategic Choice
5. Implement Choice
Finally you reach competivie advantage
Explain: Mission
Defining the firm's long term purpose
Missions may or may not influence performance
Explain: Objectives
Specific measurable targets that indicate whether firm is reaching mission
Explain: Internal/External Analysis
External analysis: identification of external threats & opportunities; PEST analyses, Porter's Five Forces
Internal analysis: Identify's strengths and weaknesses; assessment of the firm's resources/
capabilities
...
Explain: Strategic Choice (2 types)
1.Business-level strategies focus on a single market/
industry
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2.Corporate-level strategies focus on multiple markets
...
Explain: Implement Choice
Adoption of policies & practices that are consistent with strategy (e.g., org structure, mgmt controls,
comp.)
Why are objectives important?
Objectives reflect the "specific measurable targets a firm can use to evaluate the extent to which it is
reaching its mission"
what are the components of high-quality
(meaningful) objectives?
~Specific - what exactly needs to be done
~Measurable (high-quality objectives are easy to measure and track over time)
~Appropriate (aligned with mission or vision)
~Realistic
~Timely (deadline)
Accounting Performance Measures
a measure of its competitive advantage calculated by using information from firms published profit and
loss and balance sheet statements
How are Accounting Performance Measures grouped
1) Profitability ratios
2) Liquidity ratios
3) Leverage ratios
4) Average ratios
Economic Performance Measures
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Compare a firms level of return to its cost of capital instead of to the average level of return in the
industry.
How are Economic Performance Measures grouped
1) Dept (capital from banks and bondholders)
2) Equity (capital from individuals and institutions that purchase a firms stock)
What is Economic Value Added? (EVA)
Difference between consumer's perceived benefit and the cost of production
How is Economic Value added (EVA) calculated?
Perceived Value - Cost = EVA
Corporate vs. business strategies
~Business-level strategy:
Competing in single market/industry
(Examples: Local florist, JetBlue
)
~Corporate-level strategy
Competing in multiple markets/industries
(Examples: Wal-Mart, Apple, GE)
...
Emergent vs. intended strategies
~Intended Strategy: A strategy the firm hopes it is going to pursue
~Emergent strategy: is a strategy that emerges over time or is an intended strategy that has been
radically reshaped once its implemented
Why is the external environment important?Why do managers conduct this analysis?
Takes time and effort
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find more resources at oneclass.com
Document Summary
A firm"s theory about how to gain competitive advantages. Ability to create more economic value than rival forms. Specific measurable targets that indicate whether firm is reaching mission. External analysis: identification of external threats & opportunities; pest analyses, porter"s five forces. Internal analysis: identify"s strengths and weaknesses; assessment of the firm"s resources/ capabilities. 1. business-level strategies focus on a single market/ industry. Adoption of policies & practices that are consistent with strategy (e. g. , org structure, mgmt controls, comp. ) ~specific - what exactly needs to be done. ~measurable (high-quality objectives are easy to measure and track over time) Accounting performance measures a measure of its competitive advantage calculated by using information from firms published profit and loss and balance sheet statements. How are accounting performance measures grouped: profitability ratios, liquidity ratios, leverage ratios, average ratios. Compare a firms level of return to its cost of capital instead of to the average level of return in the industry.
