Strategic Management

Lecture 1

2024-2025 Semester B— CB4303. © Esther Chau

Agenda

• Introduction

• Course Outline nd Assessment Items

• Lecture

• Q&A
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What are some businesses that you like?
Why Study Strategic Management?
 Strategy
De nition

= Go l-directed ctions to g in nd sust in superior perform nce rel tive to competitors.

• Comp nies compete for resources

Ex mples:

• New ventures: in nci l nd hum n c pit l. • Ch rities: don tions.

• Universities: the best students nd professors. • Sports te ms: ch mpionships.

• Celebrities: endorsements. • Existing comp nies: pro it ble growth.

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 Strategic Management

• An integr tive m n gement ield.

• Combines n lysis, formul tion, nd implement tion in the quest for competitive dv nt ge.

• M stery of str tegic m n gement en bles you to:

•View irm in its entirety.

•Think like gener l m n ger.

•Position your org niz tion for superior perform nce.

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 Strategic Management

• An integr tive m n gement ield.

• Combines n lysis, formul tion, nd implement tion in the quest for competitive dv nt ge.

• M stery of str tegic m n gement en bles you to:

•View irm in its entirety. Ability to ev lu te n issue holistic lly

•Think like gener l m n ger. Underst nd the ch in of in luence cross org niz tion l levels

•Position your org niz tion for superior perform nce.

Recognize the key drivers of success
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 A Good Strategy: three elements
De nition

1. A di gnosis of the competitive ch llenge.

• An lysis of the irm’s intern l nd extern l environments.

2. A guiding policy to ddress the competitive ch llenge.

•. Formul tion.

•. Results in corpor te, business nd function l str tegies.

3. A set of coherent ctions to implement the irm’s guiding policy.

• Implement tion.
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 Course Structure
Analysis, Formulation, & Implementation

An lysis Formul tion Implement tion

• Extern l n lysis • Business str tegy • (Str tegy process & str tegic
le dership)
• Intern l n lysis • Corpor te str tegy
• Group project present tion
• Sh red v lue nd • Glob l str tegy
competitive dv nt ge

Week 2-4 Week 5-9 Week 10-13

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 Teaching & Learning Approach

Our three-hour weekly meeting would be divided into two p rts

• Lecture

• Expl in the key concepts, ide s, nd theories

• In-cl ss ctivities

• Individu l- nd group-b sed ctivities

• Apply concepts nd theories into re l-life c ses

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 Course Assessment
All Items

• Cl ss Attend nce (10%)

• Cl ss P rticip tion (10%)

• Online Quizzes (20%)

• Group Project (30%)

• Fin l Ex min tion (30%_

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 Course Assessment
Details

• Cl ss Attend nce (10%)

• Attend nce will be t ken during cl ss

• Cl ss P rticip tion (10%)

• e.g., Asking questions, nswering questions, m king present tion in the in-cl ss ctivity,
outst nding perform nce in the ctivity…

• Record your cl ss p rticip tion in cl ss nd fter cl ss vi Google form

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Course Assessment
Details (Cont’d)

• Online Quizzes (20%)

• Open book nd untimed; one ttempt only

• Access the quiz on C nv s

• The quizzes will be closed once it’s due nd it c nnot be reopened

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 Course Assessment
Details (Cont’d)

• Group Project (30%)

• A re l-life c se study of your choice: Comp ny + Industry

• Conduct extern l nd intern l n lyses to identify the str tegic issue(s) th t comp ny is
f cing

• An lyze the strengths nd we knesses of the business, nd

• Present speci ic ction pl ns

• Or l Present tion (15%) + Written Report (15%)

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Course Assessment
Details (Cont’d)

• Group Project (30%)— De dlines

• Group Form tion: week 3

• Topic Submission: week 7

• Presention weeks: week 11-13 (tent tively)

• Written report: week 13, Frid y

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 Course Assessment
Details (Cont’d)

• Fin l Ex min tion (30%)

• Two-hour closed book ex min tion

• One-p ge che t sheet (tent tively)

• Content: Ch pter 1-10 of the textbook

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Questions
 About this course
Questions you may have…

• How c n I get n A in this course?

• Do I need to re d the textbook?

• Is the course going to be boring? Are there m ny concepts nd theories?

• Is the course content re lly dist nt from wh t b chelor degree holder would do upon
gr du tion?

• Why re you te ching this course?

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 Questions for you!
Course Expectations

• C n you n me one business/comp ny th t you like nd brie ly expl in wh t you like bout
it?

• Wh t do you expect to le rn or g in from the course? You m y sh re your thoughts

reg rding: the knowledge nd skills you expect to cquire, wh t you wish to chieve, course
gr de expect tion, etc.

• Aside from our weekly meeting, on ver ge-- how m ny hours do you expect yourself to
spend on studying for this course per week?

• Bonus Question: b sed on your underst nding (not textbook de initions), wh t is str tegic
m n gement bout?
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 Competitive Advantage
De nition

= Superior perform nce rel tive to other competitors in the s me industry or the industry
ver ge.

• Competitive dv nt ge is rel tive, not bsolute.

To ssess competitive dv nt ge, benchm rk:

• Comp re the irm to competitors in the s me industry.

• Comp re the irm to the industry ver ge.

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 Competitive Advantage
Example in Hong Kong

• L ne Cr wford (HK) Limited: Cur tion of Luxury Br nds

• L ne Cr wford is renowned for its meticulously cur ted selection of glob l luxury br nds,
from est blished f shion houses to emerging designers.

• The store selects its inventory b sed on exclusivity nd qu lity; they im to o er products
th t lign with glob l luxury trends while c tering to the t stes of its sophistic ted
customer b se.

• L ne Cr wford positions itself s trusted destin tion for premium products nd

t stem ker; it is unique position unlike other dep rtment l stores in Hong Kong
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 Competitive Advantage
Examples around the world

• Apple: ecosystem integr tion

• Apple excels t o ering se mless integr tion cross its devices nd services, such s iPhones, iP ds,
M cs, nd Apple W tch.

• Am zon: oper tion l e iciency nd logistic network

• Am zon’s f st delivery through its extensive distribution network nd innov tions like AWS (Am zon
Web Services) ensure signi ic nt edge over competitors.

• Xi omi: cost le dership

• Xi omi o ers high-qu lity electronics t competitive prices nd h s l unched innov tive products
cross v rious c tegories
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 Sustainable Competitive Advantage
De nition

= A irm th t is ble to outperform its competitors or the industry ver ge over prolonged
period.

Ex mple: Apple (sm rtphone industry):

• Sust in ble competitive dv nt ge over S msung.

•H s l sted over dec de.

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 Competitive Disadvantage
De nition

= A irm th t underperforms (1) its riv ls nd/or (2) the industry ver ge

• For inst nce, is 15% return on invested c pit l (ROIC) superior?

• Sounds good but in consulting industry, the ver ge ROIC is often 20%

• The ROIC in declining industries such s newsp pers could be -5%

• Even 2% ROIC would be gre t

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 Competitive Parity
De nition

= two or more irms th t perform t the s me level

• In other words, comp ring Firm A nd Firm B:

• If Firm A performs better th n Firm B:

✓ “ Firm A h s competitive dv nt ge over Firm B”

• If Firm A nd B h ve simil r perform nce

✓ “A competitive p rity is observed between Firm A nd B”

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Gaining Competitive Advantage
Elaboration

In gener l, there re two w ys of g ining competitive dv nt ge.

• Firms need to provide goods nd services th t:

A. Consumers v lue more highly th n those of its competitors, or

B. Are simil r to the competitors’ t lower price.

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 Gaining Competitive Advantage
Elaboration (cont’d)

• The rew rds of superior v lue cre tion:

M rket
Pro it bility
Sh re
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 Strategic Positioning
De nition

= A unique position within n industry th t llows the irm to provide v lue to customers,
while controlling costs.

• Economic Contribution = V lue Cre tion - Cost

• the gre ter the better

• gre ter v lue cre tion —> enh nces the ch nce of g ining competitive dv nt ge
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 Trade-o s in Strategic Positioning
Elaboration

• Str tegic positioning requires tr de-o s between ctivities in terms of resources such s
money, time, nd hum n resources

• M n gers typci lly sk:

• how should we lloc te resources?

• which ctivities should we pursue?

• e.g., going for low cost str tegy could possibly tr de o qu lity

• iming for speci l fe tures in product m y le d to higher cost

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 A unique strategic position
Elaboration

• A successful combin tion of str tegic ctivities could le d to unique str tegic position

• Competitive dv nt ge could come from:

• Performing di erent ctivities.

• Performing the s me ctivities di erently th n riv ls.

C n you think of other
• Ex mple: W lm rt ex mples in Asi ?

• Str tegic ctivities strengthen its position s cost le der.

• Big stores, low overhe d, low w ges.

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 What Strategy is NOT
Elaboration

1. Gr ndiose st tements

2. (A f ilure to f ce competitive dv nt ge)

3. Oper tion l e ectiveness, competitive benchm rking, or t ctic l tools

• Pricing str tegy, oper tion str tegy, br nd str tegy re NOT the kind of str tegies we
consider in this course
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 Value Creation
De nition

• Comp nies with good str tegy re ble to provide products or services to consumers:

• At price point th t they c n ord.

• Th t en bles the comp ny to m ke pro it.

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Value Creation
Elaboration

• Superior perform nce llows irm to reinvest some of its pro it nd grow, providing more
employment nd c reer opportunities to the workforce.
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 Stakeholders
De nition

• Org niz tions, groups, nd individu ls:

• C n ect or c n be ected by irm’s ctions.

• H ve vested cl im or interest in the perform nce or surviv l of the irm.

Intern l st keholders: Stockholders, employees (including executives, m n gers, nd workers),

nd bo rd members.

Extern l st keholders: Customers suppliers, lli nce p rtners, creditors, unions, communities,
medi , nd governments.
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Internal and External Stakeholders
in an Exchange Relationship with the Firm

Exhibit 1.1
 Stakeholder Strategy
De nition

• An integr tive ppro ch to m n ging diverse set of st keholders to g in nd sust in

competitive dv nt ge.

St keholder m n gement bene its irm perform nce:

1. Cooper tive st keholders reve l import nt inform tion.

2. Incre sed trust lowers business tr ns ction cost.

3. C n le d to gre ter d pt bility nd lexibility.

4. More predict ble nd st ble returns.

5. Stronger reput tion.

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 Stakeholder Strategy
Elaboration

• St keholder Imp ct An lysis helps to recognize, prioritize nd ddress st keholder needs.

• Three import nt st keholder ttributes: power, legitim cy, nd urgency

• Power— when the st keholder c n get the comp ny to do something th t it would not
otherwise do.

• Legitim te cl ims— perceived to be leg lly v lid or otherwise ppropri te.

• Urgent cl ims— require comp ny’s immedi te ttention nd response.

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Stakeholder Impact Analysis
Illustration

Exhibit 1.2
 Stakeholder Impact Analysis
Elaboration

• Step 1: Identify St keholders

• The str tegic le ders focus on st keholders th t currently h ve or potenti lly c n h ve

m teri l e ect on the comp ny.

• For publicly listed comp nies, the prim ry st keholders could be sh reholders nd other
c pit l providers.

• Another group of st keholders could be customers, suppliers, nd unions.

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 Stakeholder Impact Analysis
Elaboration

• Step 2: Identify St keholders’ Interest

• “Wh t re our st keholders’ interests nd cl ims?”

• Using criteri such s power, legitim cy, nd urgency, str tegic le ders c n ev lu te the
interests nd cl ims of pertinent st keholders.

• Sh reholders typic lly h ve legitim te cl im over comp ny’s pro it, but the sep r tion of
cl ims of ownership nd cl ims of m n gement h s been eroding due to pr ctices such s
the employee stock ownership pl ns.
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 Stakeholder Impact Analysis
Elaboration

• Step 3: Identify Opportunities nd Thre ts

• “Wh t opportunities nd thre ts do our st keholders present?”

• Wh t re some potenti l thre ts consumers could impose on comp nies?

• Boycott, soci l ctivism

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 Stakeholder Impact Analysis
Elaboration

• Step 3: Identify Opportunities nd Thre ts

• Ex mple 1:
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 Stakeholder Impact Analysis
Elaboration

• Step 3: Identify Opportunities nd Thre ts

• Ex mple 2:
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 Stakeholder Impact Analysis
Elaboration

• Step 4: Identify Soci l Responsibilities

• Economic Responsibilities

• Leg l Responsibilities

• Ethic l Responsibilities

• Phil nthropic Responsibilities

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 Stakeholder Impact Analysis
Elaboration

• Step 5: Address St keholders’ Concenrs

• “Wh t should we do to e ectively ddress st keholders’ concerns?”

• Decide the ppropri te course of ctions given the prior list of consider tions
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The Pyramid of Corporate Social Responsibility

Exhibit 1.3
 AFI Framework

E ectively m n ging the str tegy process is the result of:

• An lysis (A).

• Formul tion (F).

• Implement tion (I).

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The AFI Strategy Framework

Exhibit 1.4