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What Is Strategy and the Strategic Management Process?


Example: How Eisner Reinvented the Disney Empire In 1984, Disneys stock price had been flat for a decade. Earnings per share were only $ . !. Disney had profits that year of $"4" #illion. $y this point in ti#e Disney had beco#e pri#arily a the#e park co#pany. %e&enty se&en percent of its profits ca#e fro# the#e park operations that year. 'wenty two percent of profits ca#e fro# cons(#er prod(cts )licensing *ickey *o(se, Donald D(ck, etc.+. ,nly one percent of profits ca#e fro# fil#ed entertain#ent in 1984. Indeed, Disney had beco#e a different co#pany fro# what -alt Disney and his brother .oy ,. Disney left behind. In 19/1 when .oy ,. Disney died )he beca#e 0E, when -alt died in 19!!+, 1 2 of the co#panys profits ca#e fro# fil#ed entertain#ent. 'he Disney board was dissatisfied with the fir#s direction and its financial perfor#ance. *ichael Eisner was hired as the 0E, of Disney in 1984. 3e had e4tensi&e e4perience in the entertain#ent ind(stry incl(ding a stint as the president of 5ara#o(nt 5ict(res. Eisner recogni6ed the &al(e of both the fil#ed entertain#ent legacy of the fir# and the the#e park operations that had been de&eloped by that ti#e. Eisner soon foc(sed on the ani#ation and #o&ie st(dios. 3e also opened the Disney &a(lt to e4ploit the relati&ely (ntapped &al(e of Disneys ani#ated classics. 5rofits fro# fil#ed entertain#ent went fro# abo(t $".4 #illion in 1984 to $841 #illion in 1994. Eisner spent considerable ti#e d(ring the early days of his ten(re to(ring the the#e parks to see what the co#pany really had. 3e decided to (pgrade the the#e parks and increase ad#ission prices. 5rofits fro# the the#e parks went fro# $18! #illion in 1984 to $!88 #illion in 1994. 0ons(#er prod(cts went fro# profits of $17 #illion in 1984 to $477 #illion in 1994, a nat(ral res(lt of the s(ccess of the co#panys fil#ed entertain#ent and the#e park operations. 'he i#pressi&e part of these changes and res(lts is that Eisner, to 8(ite an e4tent, (sed reso(rces that Disney already possessed s(ch as ani#ation and li&e st(dios. 9ni#ators were challenged to create new and e4citing content:so#ething that had not happened in a long ti#e. %o#e of the Disney classics p(lled fro# the &a(lt were con&erted to the ;3% for#at and distrib(ted to the ho#e #arket. Its tr(e that the ti#ing of the ad&ent of the ;3% for#at and the proliferation of ho#e &ideo was fort(nate for Disney. $(t, its also tr(e that Eisner deployed the reso(rces of Disney in a different way fro# how they had been (sed in the years leading (p to 1984. Disney ani#ators created The Little Mermaid in 1989 had bo4 office receipts of $87.1 #illion. It won an ,scar. Beauty and the Beast was released in 1991, setting new bo4 office records for an

ani#ated fil# )$141.8 #illion+. The Lion King ca#e o(t in 1994 and has had bo4 office sales of o&er $7"8.1 #illion and has sold o&er 7 #illion copies in the ho#e &ideo #arket. 9ll three of these ani#ated fil#s did e4tre#ely well at the bo4 office, the &ideo store, and the toy store. In ti#e, Eisner also di&ersified the fir#s portfolio e4tensi&ely. Disney bo(ght 9$0 tele&ision, which incl(ded E%5<, hotels, professional sports tea#s )9nahei# 9ngels and the *ighty D(cks+, a cr(ise ship, and de&eloped a chain of retail stores. =icensing of Disney characters, old and new, was aggressi&ely e4panded. In the early 199 s Disney characters were a co##on, and highly pri6ed, toy incl(ded in kids #eals at fast food resta(rants and as pri6es in breakfast cereals bo4es. >ro# 1984 to 1994, Disneys #arket capitali6ation increased fro# $" billion to $"8 billion. <ow thats strategy? 'he Disney story is not so stellar d(ring the second half of Eisners " year reign at Disney. Eisner has done battle with disenchanted board #e#bers and e4ec(ti&es, #ost notably, .oy Disney who coincidentally was instr(#ental in hiring Eisner in 1984. Earnings per share peaked in 199/ at $ .91 and dipped to $@ . " in " 1. 0ritics contend that the reason for the decline in perfor#ance is that Eisner has p(shed o(t e4ec(ti&es and board #e#bers that pro&ided checks and balances to his power. Disneys failed relationship with 5i4ar is often cited as a contrib(ting factor to Disneys woes. ,ther reasons for the decline were clearly o(tside Eisners control. 'he terrorist attacks of %ept. 11, " 1, kept people away fro# the#e parks, especially foreign &isitors. 9fter Eisners depart(re in late " 1, $ob Iger took o&er. Ander Iger, Disneys re&en(es and net inco#e rose in the " !@" 8 period. )3(ey B *cCowan, >ort(ne 4D1/D1991, 171)/+E 44@11F -essel, ,rlando %entinel, *arch 11, " 4F Gahoo >inance accessed on ,ctober 1!, " 9+.

DEFINING STRATEGY
%trategy is a fir#s theory abo(t how to gain co#petiti&e ad&antage. -hile #any other definitions of strategy refer to a plan or a set of coordinated actions, we take the definition back to the theoretical le&el that wo(ld infl(ence the creation of any s(ch plan or set of actions. Hohnson and %choles define strategy as followsE I%trategy is the direction and scope of an organi6ation o&er the long-term: which achie&es advantage for the organi6ation thro(gh its config(ration of resources within a challenging environment, to #eet the needs of markets and to f(lfill stakeholder e4pectationsI. In other words, strategy is abo(tE -here is the b(siness trying to get to in the long@ter# )direction) -hich #arkets sho(ld a b(siness co#pete in and what kind of acti&ities is in&ol&ed in s(ch #arketsJ )marketsF scope+

3ow can the b(siness perfor# better than the co#petition in those #arketsJ )advantage+J -hat reso(rces )skills, assets, finance, relationships, technical co#petence, facilities+ are re8(ired in order to be able to co#peteJ )resources+J -hat e4ternal, en&iron#ental factors affect the b(sinessesK ability to co#peteJ )environment+J -hat are the &al(es and e4pectations of those who ha&e power in and aro(nd the b(sinessJ )stakeholders). Strategy at Different Levels of a Business %trategies e4ist at se&eral le&els in any organisation @ ranging fro# the o&erall b(siness )or gro(p of b(sinesses+ thro(gh to indi&id(als working in it. Corporate Strategy @ is concerned with the o&erall p(rpose and scope of the b(siness to #eet stakeholder e4pectations. 'his is a cr(cial le&el since it is hea&ily infl(enced by in&estors in the b(siness and acts to g(ide strategic decision@#aking thro(gho(t the b(siness. 0orporate strategy is often stated e4plicitly in a I#ission state#entI. Business nit Strategy @ is concerned #ore with how a b(siness co#petes s(ccessf(lly in a partic(lar #arket. It concerns strategic decisions abo(t choice of prod(cts, #eeting needs of c(sto#ers, gaining ad&antage o&er co#petitors, e4ploiting or creating new opport(nities etc. !perational Strategy @ is concerned with how each part of the b(siness is organised to deli&er the corporate and b(siness@(nit le&el strategic direction. ,perational strategy therefore foc(ses on iss(es of reso(rces, processes, people etc.

How Strategy is Managed - Strategic Management


In practice, a thoro(gh strategic #anage#ent process has three #ain co#ponents, shown in the fig(re belowE

Strategic Analysis 'his is all abo(t the analysing the strength of b(sinessesK position and (nderstanding the i#portant e4ternal factors that #ay infl(ence that position. 'he process of %trategic 9nalysis can be assisted by a n(#ber of tools, incl(dingE "ES# $nalysis @ a techni8(e for (nderstanding the Ien&iron#entI in which a b(siness operates Scenario "lanning @ a techni8(e that b(ilds &ario(s pla(sible &iews of possible f(t(res for a b(siness %ive %orces $nalysis @ a techni8(e for identifying the forces which affect the le&el of co#petition in an ind(stry &arket Segmentation @ a techni8(e which seeks to identify si#ilarities and differences between gro(ps of c(sto#ers or (sers Directional "olicy &atrix @ a techni8(e which s(##ari6es the co#petiti&e strength of a b(sinessKs operations in specific #arkets Competitor $nalysis @ a wide range of techni8(es and analysis that seeks to s(##ari6e a b(sinessesK o&erall co#petiti&e position Critical Success %actor $nalysis @ a techni8(e to identify those areas in which a b(siness #(st o(tperfor# the co#petition in order to s(cceed S'!# $nalysis @ a (sef(l s(##ary techni8(e for s(##ari6ing the key iss(es arising fro# an assess#ent of a b(sinessKs IinternalI position and Ie4ternalI en&iron#ental infl(ences. Strategic Choice %trategic choice is the point in the process where #anagers choose how to organi6e and position the reso(rces of the fir#. E#phasi6e the following pointsE L #eaningf(l strategic choices can be #ade only when #anagers (nderstand the e4ternal and internal en&iron#ents they face

L L

strategic choices are #ade at two le&elsE the b(siness le&el and the corporate le&el b(siness le&el strategic choices deal with the positioning of a gi&en b(siness a b(siness #ay be positioned at the top of the #arket:high 8(ality, high price, it #ay be positioned at the lower end of the #arket:low 8(ality, low price, or it #ay be positioned so#ewhere in between these e4tre#es corporate le&el strategic choices deter#ine in which b(sinesses a fir# will operate

Strategy Implementation 'he i#ple#entation ele#ent of the strategic #anage#ent process is, M(st as the na#e i#plies, concerned with how #anagers carry o(t the strategic choices they #ake. Emphasize that: L ,rgani6ational str(ct(re and control are the broad categories of i#ple#entation iss(es that are typically considered in the strategic #anage#ent process. L 3iring, pro#otion, co#pensation, and disciplinary policies are all iss(es that wo(ld need to be addressed as a fir# engages in the strategic #anage#ent process. L Different strategic choices call for different i#ple#entation approaches

Mission, Vision and !"ecti#es


ission and !ision 9 written declaration of an organi6ationKs core p(rpose and foc(s that nor#ally re#ains (nchanged o&er ti#e. 5roperly crafted #ission state#ents )1+ ser&e as filters to separate what is i#portant fro# what is not, )"+ clearly state which #arkets will be ser&ed and how, and )7+ co##(nicate a sense of intended direction to the entire organi6ation. 9 #ission is different fro# a &ision in that the for#er is the ca(se and the latter is the effectF a #ission is so#ething to be acco#plished whereas a &ision is so#ething to be p(rs(ed for that acco#plish#ent. Example: 9fter short, b(t &ery s(ccessf(l careers in in&est#ent banking, two sisters started a shoe co#pany. ,ne of the sisters had worked on a #erger between two shoe #an(fact(rers. 'heir father had been a steel worker whose feet were badly inM(red in an ind(strial accident. 'hese sisters were an4io(s to start a fir# that had significant #eaning to the#. 'he #ission of their new fir# was Nto pro&ide the safest, highest 8(ality shoes to the steel constr(ction ind(stry.O 9s yo( #ight i#agine, they were passionate abo(t the #ission of their new fir#E %teelcon %hoes.
Steelcons mission is to provide the safest, highest quality shoes to the steel construction industry, but one of the firms objectives is to establish relationships with the locals of the United Metal Wor ers Union in major U!S! cities!

Company" #okia (ision: I0onnecting 5eople. ,(r goal is to b(ild great #obile prod(cts that enable billions of people worldwide to enMoy #ore of what life has to offer. ,(r challenge is to achie&e this in an increasingly dyna#ic and co#petiti&e en&iron#ent. Ideas. Energy. E4cite#ent. ,pport(nities. In todayKs #obile world, it feels like anything is possible@and thatKs what inspires (s to get o(t of bed e&ery day.I &ission: I$(ild a new winning #obile ecosyste# in partnership with *icrosoft. $ring the ne4t billion online in de&eloping growth #arket. In&est in ne4t@generation disr(pti&e technologies. increase o(r foc(s on speed, res(lts and acco(ntabilityI

$%&ectives ,bMecti&es nat(rally flow fro# the #ission or raison detre of fir#s. ,bMecti&es are specific, #eas(rable targets that a fir# needs to reach in order to carry o(t its #ission. Emphasize that: L the #ission and obMecti&es of a fir# sho(ld ser&e as the basis or backgro(nd for the strategic #anage#ent process L a fir#s #ission and obMecti&es sho(ld infor# the analysis done in e&ery other seg#ent of the #odel L st(dents sho(ld incl(de a disc(ssion of a fir#s #ission and obMecti&es in case analyses and in their written work to help ens(re that they do not arri&e at s(ggestions that are in conflict with the fir#s #ission and obMecti&es

"ompetitive #dvantage
0o#petiti&e ad&antage is the desired end state of the strategic #anage#ent process. Each of the other seg#ents of the strategic #anage#ent process is (ndertaken with the ai# of achie&ing co#petiti&e ad&antage. Example: 9ny co#petiti&e ad&antage that %teelcon #ay enMoy will co#e fro# ha&ing analy6ed the e4ternal en&iron#ent and the internal en&iron#ent to infor# strategic choices, which will need to be i#ple#ented appropriately. If all this is done in a way that is consistent with the #ission of %teelcon, it can reasonably e4pect to achie&e co#petiti&e ad&antage. Defining Competitive Advantage 0o#petiti&e ad&antage is the ability to create #ore econo#ic &al(e than co#petitors. E4plain and elaborate on the followingE

L L

L L

co#petiti&e ad&antage #eans that there is so#ething abo(t a fir#s offering to the #arket that allows the fir# to reali6e greater econo#ic &al(e than co#petitors )3arley@Da&idson *otorcycles+ that difference in econo#ic &al(e co(ld co#e abo(t in se&eral different ways L it co(ld be that the prod(ct offered or the way it is offered ca(ses people to prefer it to the point that they are willing to pay a higher price for the prod(ct )<ordstro#+ L it co(ld be that the fir# has fig(red o(t a way to prod(ce and distrib(te the prod(ct at a lo'er cost than co#petitors )-al@*art+ a fir#s strategic choices and its i#ple#entation of those choices deter#ine whether or not these differences will e4ist )P@*arts apparently failed atte#pts to #o&e (pscale+ th(s, co#petiti&e ad&antage ste#s fro# preferences andDor cost advantages

Temporary and Sustainable Competitive Advantage ,ne of the f(nda#entals of econo#ics, and h(#an beha&ior for that #atter, is that if so#ething pro&es to be profitable )or otherwise desirable+ others will atte#pt to i#itate or ac8(ire it. 'h(s, if a fir# de&elops a co#petiti&e ad&antage other fir#s will atte#pt to i#itate whate&er it is that gi&es that fir# an ad&antage. 'his #eans that #ost ad&antages will be relati&ely short@li&ed beca(se of i#itation. Example: 0ell(lar telephone ser&ice pro&iders 8(ickly #atch the offerings of co#petitors:free nights and weekends, #(ltiple phone fa#ily plans, nationwide long distance, &ariable (sage plans, etc. 9ny one of these plan feat(res wo(ld likely be a so(rce of co#petiti&e ad&antage if a single fir# co(ld offer it witho(t be 8(ickly i#itated. -hen these feat(res were first offered, cons(#ers had preferences for one co#pany o&er another. 9fter the #aMor co#petitors all offered these feat(res there was no ad&antage to offering the feat(res. 9 co#petiti&e ad&antage #ay be s(stainable if other fir#s are (nable to i#itate the so(rce of co#petiti&e ad&antage. 'he logic as to why and how co#petiti&e ad&antage can be s(stainable will be co&ered in #ore detail later in the book. 9t this point in the co(rse it is s(fficient to state that co#petiti&e ad&antages will persist (ntil another fir# can eitherE L d(plicate the so(rce of co#petiti&e ad&antage, or L offer a s(bstit(te that is &al(ed as highly as the original so(rce of co#petiti&e ad&antage. )mportant "oint: 5erhaps the #ost i#portant thing for st(dents to (nderstand at the beginning of the co(rse is that when we talk abo(t a s(stainable co#petiti&e ad&antage we do not #ean that the ad&antage will last indefinitely no #atter what co#petitors do. *ost fir#s that see# to ha&e a s(stainable co#petiti&e ad&antage are able to inno&ate repeatedly, s(ch as by introd(cing new prod(cts, o&er ti#e. 'h(s, the ad&antage see#s to be the ability to inno&ate and stay ahead of co#petitors rather than a single prod(ct or ser&ice.

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9 fir#s co#petiti&e ad&antage is also dependent on what cons(#ers want at any gi&en point in ti#e. A.%. a(to#akers )C*, >ord, Heep+ e4perienced se&eral years of pheno#enal sales of sport (tility &ehicles )%A;s+. 3owe&er, cons(#ers appear to be losing their taste for these larger &ehicles. 0oncerns abo(t highway safety and gas cons(#ption see# to be cooling the #arket for %A;s. If this trend contin(es, design ability and prod(ction capacity for %A;s co(ld t(rn fro# a so(rce of co#petiti&e ad&antage to a so(rce of co#petiti&e disad&antage. 'h(s, a co#petiti&e ad&antage can fade away d(e to changes in cons(#er preferences e&en if co#petitors do not co#pete away the ad&antage. Competitive arity 0o#petiti&e parity #eans that a fir# andDor its o(tp(t are &iewed as being abo(t the sa#e as other fir#s, or in other words, abo(t a&erage in the #arketplace. Example: *any people &iew store brand deni# Means as being abo(t the sa#e. %hopko, P@*art, 0ostco, -al@*art, %ears, and 'arget all offer deni# Means. 'hese Means are basic and si#ple clothing. 0ons(#ers apparently do not see i#portant differences a#ong these offerings. 9s a res(lt, these retailers do not enMoy any co#petiti&e ad&antage ste##ing fro# their store brand Means. Competitive Disadvantage 9 co#petiti&e disad&antage can occ(r for #any reasonsE L potential c(sto#ers #ay ha&e an a&ersion )preference not to b(y+ to a fir#s #arket offering Example: %o#e cons(#ers ref(se to shop at -al@*art beca(se of the co#panys policies on &ario(s iss(es. =abor interests arg(e that -al@*art stifles atte#pts to organi6e labor and that it fa&ors offshore labor by p(rchasing fro# foreign prod(cers. ,thers oppose -al@*arts e4pansion policies beca(se they fear that -al@*art dri&es o(t s#aller co#petitors and thereby destroys downtown areas of s#aller towns and cities. -al@*art does not appear to s(ffer significant sales losses as a res(lt of these a&ersions. 3owe&er, a#ong like#inded cons(#ers -al@*art is at a co#petiti&e disad&antage beca(se of these policies. L an (nfa&orable cost str(ct(re d(e to o(tdated and inefficient e8(ip#ent andDor technology L a bad rep(tation If the fir# or the fir#s o(tp(t is &iewed as being inferior to #ost other fir#s, al#ost anything co(ld potentially beco#e a so(rce of co#petiti&e disad&antage. !easuring Competitive Advantage Describe Two Different Measures of Competiti e !d antage 0o#petiti&e ad&antage is often #eas(red in acco(nting ter#s and econo#ic ter#s. 9 fir# is said to ha&e a co#petiti&e ad&antage if one or #ore of its acco(nting #eas(res e4ceed)s+ the ind(stry a&erage for that partic(lar #eas(re. >or e4a#ple, if a fir#s ret(rn

on sales is "7 percent and the ind(stry a&erage is 11 percent, we wo(ld take that as an indication that the fir# had a co#petiti&e ad&antage. ,n the other hand, econo#ic #eas(res of perfor#ance are co#pared to a fir#s own cost of capital to deter#ine if that fir# has a co#petiti&e ad&antage. If a fir# earns a " percent ret(rn on e8(ity and the fir# calc(lates that its cost of capital is only 1" percent, then we wo(ld concl(de that the fir# has a co#petiti&e ad&antage. $oth of these #ethods of assessing the co#petiti&e ad&antage of a fir# point back to o(r definition of a co#petiti&e ad&antageE the ability to create #ore econo#ic &al(e than co#petitors. #ormal $%onomi% &eturn -hen a fir# M(st earns its cost of capital it is said to be earning a nor#al econo#ic ret(rn. %(ch a fir# is #eeting the e4pectations of the #arket with regard to the le&el of risk an in&est#ent in s(ch fir# entails. 9nother way of looking at this idea is that if a fir# is earning a nor#al ret(rn, in&estors are M(st barely willing to keep in&esting in the fir#. If the fir# were to earn any less, in&estors wo(ld p(ll their capital o(t of the fir#. Above #ormal $%onomi% &eturn %pecifically, a fir# is said to be earning an abo&e nor#al econo#ic ret(rn if the fir# is earning #ore than its cost of capital. 9n abo&e nor#al econo#ic ret(rn is indicati&e of a co#petiti&e ad&antage. $y definition, s(ch a fir# is said to be e4ceeding the e4pectations of the #arket. 'his is another i#portant indicator of co#petiti&e ad&antage. 'he fir# is doing better than the #arket e4pects a fir# to do in its partic(lar ind(stry. %(ch a fir# will likely attract new capital as in&estors will be eager to get in on the higher ret(rns of this fir#. 'elo( #ormal &eturn ,f co(rse, a fir# earning less than its cost of capital is said to be earning a below nor#al econo#ic ret(rn. >ir#s cannot s(r&i&e long if they are earning below nor#al econo#ic ret(rns. In&estors will take their capital elsewhere. )mportant "oint: 'he relationships between types of co#petiti&e ad&antage, acco(nting perfor#ance, and econo#ic perfor#ance are fairly straightforward. 9 co#petiti&e ad&antage is said to lead to abo&e a&erage acco(nting perfor#ance and abo&e nor#al econo#ic perfor#ance. 0o#petiti&e parity leads to a&erage acco(nting perfor#ance and nor#al econo#ic perfor#ance. ,f co(rse, co#petiti&e disad&antage is said to lead to below a&erage acco(nting perfor#ance and below nor#al econo#ic perfor#ance.

EMERGENT VERSUS INTENDED STRATEGIES


E"plain the Difference Between Emergent and #ntended $trategies 9n intended strategy is the strategy that an organi6ation hopes to e4ec(te. Intended strategies are (s(ally described in detail within an organi6ations strategic plan. 9n emergent strategy is an (nplanned strategy that arises in response to (ne4pected opport(nities and challenges. %o#eti#es e#ergent strategies res(lt in disasters. E#ergent strategies can also lead to tre#endo(s s(ccess.

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C A!!ENGE "UESTI#NS
1. -ill a fir# that has a s(stained co#petiti&e disad&antage necessarily go o(t of b(sinessJ 3ow abo(t a fir# with below a&erage acco(nting perfor#ance o&er a long period of ti#eJ 3ow abo(t a fir# with below nor#al econo#ic perfor#ance o&er a long period of ti#eJ a+ <o, a fir# co(ld ha&e a s(stained co#petiti&e disad&antage and re#ain in b(siness. .e#e#ber that a s(stained co#petiti&e disad&antage si#ply #eans the fir# is generating less &al(e than co#petitors. *any fir#s contin(e to operate e&en tho(gh they do so at a co#petiti&e disad&antage in so#e areas beca(se they (s(ally ha&e so#e ad&antage in another area. If the fir# had no co#petiti&e ad&antages at all, in ti#e the fir# wo(ld likely begin to earn below nor#al econo#ic ret(rns and #ay go o(t of b(siness as e4plained in answer )c+ below. b+ <o, a fir# co(ld ha&e below a&erage acco(nting perfor#ance and re#ain in b(siness. 9s long as the ret(rns to the owners of the fir#s are satisfactory, the fir# will re#ain in b(siness, e&en if those ret(rns are less than the ind(stry a&erage. c+ Ges, a fir# that earns a below a&erage econo#ic ret(rn o&er a long period of ti#e will e&ent(ally go o(t of b(siness. 'he reason for this is that the fir# is earning less than its cost of capital. In ti#e, the fir# wo(ld be (nable to attract capital and wo(ld be forced to go o(t of b(siness.

". 0an #ore than one fir# ha&e a co#petiti&e ad&antage in an ind(stry at the sa#e ti#eJ Is it possible for a fir# to si#(ltaneo(sly ha&e a co#petiti&e ad&antage and a co#petiti&e disad&antageJ a+ Ges, #ore than one fir# can ha&e a co#petiti&e ad&antage in an ind(stry at the sa#e ti#e. 'wo or #ore fir#s co(ld ha&e ad&antages in different areas and thereby appeal to different c(sto#ers:each fir# ha&ing an ad&antage o&er other fir#s with respect to different c(sto#ers. b+ Ges, a fir# can si#(ltaneo(sly ha&e a co#petiti&e ad&antage and a co#petiti&e disad&antage. -al@*art is a good e4a#ple. -al@*art has a co#petiti&e ad&antage in distrib(tion logistics and infor#ation technology. It also has a disad&antage in rep(tation a#ong so#e c(sto#ers beca(se of its labor and location policies. ,n balance, it wo(ld appear that the ad&antages -al@*art enMoys &astly o(tweigh its disad&antages. Problem Set Answers 1. -rite obMecti&es for each of the following #ission state#ents.

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a. b. c. d.

-e will be a leader in phar#ace(tical inno&ation 0(sto#er satisfaction is o(r pri#ary goal -e pro#ise on ti#e deli&ery 5rod(ct 8(ality is o(r first priority.

Ans(ers a. 9t least "12 of o(r sales in the ne4t fi&e years will be generated fro# new prod(cts. b. Ens(re that c(sto#er co#plaints are less than 12 of all (nits sold. c. 9t least 982 of all deli&eries each 8(arter will be consistent with the ter#s negotiated with o(r c(sto#ers. d. Ens(re that %i4 %ig#a is i#ple#ented across all #an(fact(ring lines within two years. ". .ewrite each of the following obMecti&es to #ake the# #ore helpf(l in g(iding a fir#s strategic #anage#ent process. a. b. c. d. -e will introd(ce fi&e new dr(gs -e will (nderstand o(r c(sto#ers needs. 9l#ost all of o(r prod(cts will be deli&ered on ti#e. 'he n(#ber of defects in o(r prod(cts will fall.

Ans(ers a. >or the ne4t fi&e years, one new dr(g will be s(ccessf(lly bro(ght to #arket each year. b. 0(sto#er profiles will be de&eloped for each of o(r c(sto#ers thro(gh point of sale s(r&eys leading to at least 982 acc(racy in o(r c(sto#er database within two years. c. =ess than 12 of o(r deli&eries each 8(arter will fail to #eet o(r specified deli&ery ti#es d. Defects will not e4ceed 1 defect per 1 , (nits prod(ced per 8(arter. 7. 9re fir#s with the following financial res(lts earning below nor#al, nor#al, or abo&e nor#al econo#ic perfor#anceJ a. b. c. d. .,9 Q 14.72, -900 Q 1".82 .,9 Q 4.72, -900 Q !./2 .,9 Q !.12, -900 Q 9."2 .,9 Q 8.72, -900 Q 8.72

Ans(ers a. b. c. d. 9bo&e nor#al econo#ic perfor#ance $elow nor#al econo#ic perfor#ance $elow nor#al econo#ic perfor#ance <or#al econo#ic perfor#ance

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4. 9re these sa#e fir#s earning below a&erage, a&erage, or abo&e a&erage acco(nting perfor#anceJ a. b. c. d. .,9 Q 14.72, Ind(stry 9&g. .,9 Q 11."2 .,9 Q 4.72, Ind(stry 9&g. .,9 Q 4.12 .,9 Q !.12, Ind(stry 9&g. .,9 Q !.12 .,9 Q 8.72, Ind(stry 9&g. .,9 Q 9.42

Ans(ers a. b. c. d. $elow a&erage acco(nting perfor#ance 9&erage )slightly abo&e+ acco(nting perfor#ance 9bo&e )a&erage+ a&erage acco(nting perfor#ance $elow a&erage acco(nting perfor#ance

1. Is it possible for a fir# to si#(ltaneo(sly earn abo&e nor#al econo#ic ret(rns and below a&erage acco(nting ret(rnsJ 3ow abo(t below nor#al econo#ic ret(rns and abo&e a&erage acco(nting ret(rnsJ -hy or why notJ If this can occ(r, which #eas(re of perfor#ance is #ore reliableE econo#ic perfor#ance or acco(nting perfor#anceJ -hyJ Ans(er Cenerally, there is a correlation between econo#ic and acco(nting #eas(res of co#petiti&e ad&antage. It is possible for a fir# to earn abo&e a&erage acco(nting perfor#ance and si#(ltaneo(sly below nor#al econo#ic perfor#ance. 'he sa#e is tr(e for below a&erage acco(nting perfor#ance and si#(ltaneo(sly abo&e a&erage econo#ic perfor#ance. In the for#er, the fir# is not earning its cost of capital b(t is earning abo&e ind(stry a&erage acco(nting perfor#ance. In the latter, the fir# has a &ery low cost of capital and is earning at a rate in e4cess of this cost, b(t still below the ind(stry a&erage.