Key Administration: Ideas A dynamic point of view Bricklayer A. Craftsman and Wm. Gerard Sanders 2009, 2 nd . Release IS - PowerPoint PPT Presentation

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Key Administration: Ideas A dynamic point of view Bricklayer A. Craftsman and Wm. Gerard Sanders 2009, 2 nd . Release IS PowerPoint Presentation
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Key Administration: Ideas A dynamic point of view Bricklayer A. Craftsman and Wm. Gerard Sanders 2009, 2 nd . Release IS

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  1. Strategic Management: Concepts A dynamic perspective Mason A. Carpenter and Wm. Gerard Sanders 2009, 2nd. Edition ISBN 9780132341400 Presentation of key concepts and logic Prepared by Daniel Degravel July 2008

  2. Ch 01 Introducing Strategic Management 002 Introduction Strategy and strategic management Components and dimensions of strategy Competitive advantage Strategic management process

  3. Ch 01 Introducing Strategic Management 003 Introduction Birth and life of Under Armor: illustration of strategic management Objective of textbook: 7 “study of concepts that you will need to answer questions about gaining and sustaining success in the world of business competition” Strategic management relies upon three fundamental themes 1-Time (dynamic industries and firms) 2-Link between strategy formulation and implementation 3-Role of strategic leadership

  4. Ch 01 Introducing Strategic Management 004 Strategy and Strategic Management 10 Strategy = coordinated view by which an organization pursues its goals and objectives, including the pattern of actions that have been taken or planned 9 Strategos = “General’s view”; a plan that will lead to victory 9 Big-picture perspective on firm and its context 8 Strategic management = process by which a firm manages the formulation and implementation of its strategy Why should we study strategy? Understanding business situation Acting in the situation Personal career and issues

  5. Ch 01 Introducing Strategic Management 005 Components and dimensions of Strategy Corporate strategy Business strategy Diamond of strategy Strategy Arenas Levels of strategy B A Time Economic logic Vehicles Differentiators

  6. Ch 01 Introducing Strategic Management 006 Components and dimensions of Strategy Implementation levers Formulation + Implementation Strategy C D Formulation Strategic Leadership Implementation People and rewards Structure Intended Deliberate Unrealized Emergent Realized Systems and processes

  7. Ch 01 Introducing Strategic Management 007 Competitive advantage 22 Competitive advantage = firm’s ability to create value in a way that its rivals cannot Two plus one perspectives on competitive advantage (and on strategy) 1-External I/O Firm’s environment determinant 2-Internal RBV Ownership of capabilities determinant 3-Dynamic Time is key Present is partially determined by past but future is open

  8. Ch 01 Introducing Strategic Management 008 Strategic management process Strategic analysis Outside Inside 3 Vision and Mission Goals and objectives 2 STRATEGY 4 Implementation 1

  9. 009 Ch 02 Vision and Mission (Leading strategically)

  10. Ch 02 Vision and Mission (Leading strategically) 010 Introduction Strategic leadership: definitions and characteristics Strategic leadership: defining Vision and Mission Strategic Purpose and strategic Coherence Stakeholders “management” Strategic decision-making: biases and ethics

  11. Ch 02 Vision and Mission (Leading strategically) 011 Introduction Anne Mulcahy CEO of Xerox since 2000 p31-33 Background of the firm Anne Mulcahy’s actions as CEO Xerox’s turnaround story: to pull a $15bn cow out of a ditch

  12. Ch 02 Vision and Mission (Leading strategically) 012 Strategic leadership: definition and characteristics 33 Leadership = task of exerting influence on other people’s pursuit of goals in an organizational context 33 Strategic leadership = task of managing an overall enterprise and influencing key organizational outcomes Responsibility Powerless to control Authority but enemies and resentment Cleat strategy? Reactive and defensive? Symbolic and substantive impact on organizational outcomes No time for hands-on management High personal price Congratulations, you are a CEO!

  13. Ch 02 Vision and Mission (Leading strategically) 013 Strategic leadership: definition and characteristics ROLESComplex and multifaceted FORMAL Authority and status INTERPERSONAL Figurehead Liaison Leader DECISIONAL Entrepreneur Disturbance handler Resource allocator Negotiator INFORMATIONAL Monitor Disseminator Spokesperson

  14. Ch 02 Vision and Mission (Leading strategically) 014 Strategic leadership: definition and characteristics SKILLS and ACTIONS Level 5 Leaders Pyramid L5 Executive L4 Effective leader L3 Competent manager L2 Contributing team member L1 Highly capable individual Professional Will Professional Modesty International skills Quality of human capital Substantive work experience Talent for strategic thinking Groups tend to make better decisions (43 social capital, succession planning) 44-45 HWYDT Mapping social network BACKGROUND and DEMOGRAPHICS PERSONALITY Work experience and education Gender, nationality, race , religion… Reasons for more diversity Tolerance for ambiguity or risk Locus of control Need for achievement Charisma and emotional intelligence Personality traits vs. Leadership abilities Courage, toughness Because top managers influence strategy by judgment and behavior, it is worthwhile to understand what makes them think and act the way they do

  15. Ch 02 Vision and Mission (Leading strategically) 015 Strategic leadership: defining Vision and Mission 46 Vision (long term status) 46 Mission (Values, purposes and relations with stakeholders) 47, 49 Goals and Objectives 49 ROIC 49 Superordinate goals 49 Balanced scorecard Strategy

  16. Ch 02 Vision and Mission (Leading strategically) 016 Strategic purpose and strategic coherence Vision and Mission do not guarantee high performance 52 Strategic coherence = symmetrical alignment of the strategic diamond, functional area policies and overarching fit of businesses under corporate umbrella 50 Strategic purpose = simplified, widely shared model of the organization and its future, including anticipated changes in environment Accepted as truthful and useful by stakeholders Strategic / Tactic / Design Environment / Vision / Mission / Strategy CL-S / BL-S Diamond 5 elements Fit Tradeoffs and options Effective strategic purpose must be tied to a coherent set of activities, near-term goals and objectives anchored in measurable strategic outcomes

  17. Ch 02 Vision and Mission (Leading strategically) 017 Stakeholders “Management” 52 Stakeholders (Interest + Power) Importance of TMT as stakeholder Benefits of STo Management: -Support and better strategic choice -Win more resources -Full understanding of STo -Anticipate STo’s reaction Management STo: Identification of STos Dimensions used Three groups a) Influence of STo on strategy b) Effects on strategy on STo c) STO’s power on strategy STos’ Management Plan Approach Objective Message to convey Actions 58-59 HWYDT Tritec JV Chrysler-Daimler Benz Analysis of STo

  18. Ch 02 Vision and Mission (Leading strategically) 018 Strategic decision-making: biases and ethics Ethics violation: Vulnerability of organizations Authority structure Incentive system 61 Corporate governance Strategic decision biases Theories about ourselves (escalation of commitment) Theories about other people Ethnocentrism; stereotyping) Theories about the world

  19. 019 Ch 03 External environment: Resources, capabilities and activities

  20. 020 Ch 03 External environment: Resources, capabilities and activities Introduction Internal drivers of competitive advantage Resources and capabilities Dynamic capabilities Value chain Strategic leadership: linking R&C to strategy

  21. 021 Ch 03 External environment: Resources, capabilities and activities Introduction Intel and its CEO Paul Otellini 69-72 World largest computer chip maker $35bn Innovation and massive R&D Evolution of the environment and transition from memory chips to micro-processor, which started from the bottom of the hierarchy and was not planned Licensing its technology then revoked these licenses and controlled the value chain

  22. 022 Ch 03 External environment: Resources, capabilities and activities Internal drivers of competitive advantage DIFFERENTIATOR of strategy diamond Why some firms perform better than others? Chapter focuses on internal characteristics of the firm or the resource-based inputs into the strategy process; these are resources and capabilities. Role of managers in configuring activities and managing R&C is also explored For Intel: 1-engineering expertise for technology creation 2-operational efficiency 3-marketing skills Texas Instruments Grocery industry: Publix, Whole Foods, Weis Strategic leadership (an learning) Internal source of competitive advantage Two models Value chain model Configuration of value chain activities in way that add more value to PS than rivals Dynamic capabilities or R&C model Available R&C are source of competitive advantage

  23. 023 Ch 03 External environment: Resources, capabilities and activities Internal drivers of competitive advantage Resources And Capabilities Competitive advantage Strategic leadership Performance Strategy

  24. 024 Ch 03 External environment: Resources, capabilities and activities Resources and capabilities 76 Resources = inputs that firm uses to create PS 76 Tangible 76 Intangible Intangible Resources are more likely to be a source of competitive advantage because more difficult to imitate for rivals However, distinction Tangible – Intangible not so clear and some Tangible resources may deliver Intangible benefits 76 Wal*Mart and quasi monopoly in rural areas that locks out potential rivals because “no room for two” 76 Union Pacific Railroads controls key rail property gives competitive advantage in transportation of certain materials 76 McDonalds has high valuable real estate because of location close to high traffic areas

  25. 025 Ch 03 External environment: Resources, capabilities and activities Resources and capabilities 77 Capability = Competency = firm’s skill in using its resources to create a PS; combination of procedures and expertise 77 Outsourcing 77 Distinctive competence = set firm apart from other firms because unique 77 Core competence = central to the main business operations of firm Capabilities vary in level (degree of complexity of task) and in location (embedded into individuals or owned by firm at global level) Globally the capabilities are activities that constitute the value chain A special class of capabilities is the “dynamic capabilities” R&C are linked and collectively represent the differentiators (strategy diamond) 77 Wal*Mart has excellent capabilities in logistics management (large store, fleet of vehicles, massive distribution centers) 77 Table with capabilities and result for Wal*Mart, The Vanguard Group and 3M 77-78 GE has general management capabilities because manages a portfolio of businesses based on sound principles 78 Intel 78 Oil industry: BP, Chevron; Exxon Mobil; Royal Dutch Shell. Only downstream activities in value chain of industry are Valero Energy; Sunoco which do not have any oil exploration activity 78 McDonalds

  26. 026 Ch 03 External environment: Resources, capabilities and activities Resources and capabilities 79 VRINE model = Valuable = take advantage of opportunities or protects from threats Rare = scarcity relative to demand not Imitable = cannot acquire capability quickly or at low cost Non substituable = cannot achieve same benefit with different capability (cost; property rights; time, causal ambiguity) Exploitable = must be usable and the value can go out of the capability 80 Union Pacific Railroad 81 McDonalds opens restaurant into Wal*Mart store; Burger King and Wendy 81 Monsanto owned patent for aspartame; Pfizer, Levitra, Cialis 81 Toyota, Honda 82 Barnes & Noble, Borders; 82 Cisco purchased Cerent to acquire fiber-optic-data-transfer capabilities 82 media companies and property rights 82 Coca cola and time; subsidizing of American government for entry overseas; Pepsi at disadvantage 83 Causal ambiguity: Apple, Google, 3M and Toyota 84 Nowell and its core NetWare product were successful. But no innovation and decline. Sun Microsystems 84 Xerox 84 Pfizer 85 Pfizer and VRINE model 84 Coca cola, Toyota, Intel

  27. 027 Ch 03 External environment: Resources, capabilities and activities Dynamic capabilities Vision quite static until now. However, developing capabilities is dynamic process Static vs. Dynamic Stock vs. Flow A stock of resources and capabilities is what is possessed at any point in time. This stock was created over time through a combination of initial endowment and accumulated investment Value of R&C is function of level (stock) of R&C and the net effect of additional investment and depreciation Process of accumulation through dynamic capabilities is different from static possession of R&C 86 Dynamic capabilities = processes by which a firm integrates, reconfigures, acquires or divests resources in order to achieve new configurations of R&C. The term “Dynamic” refers to the ability to modify and revise its R&C to match a shifting environment, especially critical in fast moving markets and is typically seen in complex areas of the firm (culture, knowledge and ability to learn).

  28. 028 Ch 03 External environment: Resources, capabilities and activities Dynamic capabilities Dynamic capabilities are manifest in several ways: -Creating new P S -Reconfiguring or transferring R&C across divisions -Building alliances and acquisitions Value of firm’s portfolio of R&C directly affected by dynamic capabilities to reconfigure R&C to the evolving environment 86 Disney and Princess line based on famous female Disney characters 86 Mail Boxes Inc. MBE (UPS) 86 Intel 86 Cisco and its acquisitions 87 Intel organizational processes Dynamic Capabilities Activities Routines Resources Capabilities

  29. 029 Ch 03 External environment: Resources, capabilities and activities Value chain • 87 Value chain = set of activities performed within the firm to produce P S • 87 Primary activities • 87 Support activities • Issues of : • Outsourcing • Creation of value by better way to perform same activities or different ways to perform these activities • 89 Trade-off protection = modification of activities implies elimination or addition of other activities. This necessity is a protection against imitation • Protecting competitive advantage is developing different activities than rivals but in such a configuration that they cannot be imitated without significant trade-offs, locking-out imitators 88 Beverage distribution firm in Kern county, CA using trucks to transport products to LA, use trucks back to Kern 89 Caterpillar, Komatsu 89-90 Southwest Airlines, and classic US airlines comparison Exhibits 3.8 and 3.9. The trade-offs they must make 91 Change of activities and value chain of Ikea, Dell and Southwest

  30. 030 Ch 03 External environment: Resources, capabilities and activities Value chain DuPont Formula breaks down determinants of profitability based on equation: Return On Assets = Net profit margin x Asset turnover 91 ROA 91 Asset turnover 91 Profit margin 92 Exhibit detail of formula 94-95 Illustration of DuPont formula in retailing industry: Wal*mart, Sears, and Kohl’s Value chain helps to see which activities must be in-house and those that can be performed outside 92 Outsourcing 92 Off-shoring Not new but broader choices now for managers 92 Ikea 92 Boeing and 787 93 Nike and Pacific Cycle 93 Baker & McKenzie law firm (team in Manilla) Three criteria for successful offshoring and outsourcing

  31. 031 Ch 03 External environment: Resources, capabilities and activities Strategic leadership • Managers are key because at root of actions • 96 Decision agent • Issue of “fait accompli” (96 Intel) • Issue of large vs. small firms managements • Portfolio of processes: • 96 Entrepreneurial • 96 Capability-building • 96 Renewal • Middle managers have important role (entrepreneur; communicator; psychoanalyst; tightrope walker) • Front line managers DuPont Formula breaks down determinants of profitability based on equation:

  32. 032 Ch 04 Macro and industry dynamics Exploring external environment

  33. 033 Ch 04 Macro and industry dynamics Introduction External context of strategy Macro-environment Industry analysis Dynamic characteristics of the external context

  34. 034 Ch 04 Macro and industry dynamics Introduction 103 Ford vs. Chevrolet battle for money but also for customers’ hearts and minds 103-106 Pepsi vs. Coke Pepsi fighting hard to catch up with Coke Restaurant business (KFC, Taco Bell and Pizza Hut), spun off with Yum Brands and finally sold off Change into core carbonated soft drinks industry Strategic wins are moving target Fight between Coke and Pepsi Value-chain of industry four functions: Production, marketing, packaging, and distribution Bottling operations Finally, the industry… good for Pepsi and Coke

  35. 035 Ch 04 Macro and industry dynamics External context of strategy Necessity to understand environment because source of opportunities and threats Broad sense Narrow sense Tools to perform analysis of competitive environment Some industries are more profitable than others 107 Coke and Pepsi Coca-Cola’s entry into wine industry in 1977, purchasing Taylor Wine and Sterling Vineyard. Finally sold them off. Two fundamental characteristics of wine industry: little brand loyalty; sale and distribution heavily regulated Tools to understand factors related to industry and relevant to firm performance at any point in time In fact, an industry “snapshot”

  36. 036 Ch 04 Macro and industry dynamics External context of strategy • Key questions about industry: • What is industry? • Macro-environmental conditions that would impact your strategy implementation? • Trends? • Characteristics of industry? ME IE SG F

  37. 037 Ch 04 Macro and industry dynamics Macro-environment 109 Macro-environment 109 PESTEL analysis = non exhaustive list of potential influences of environment on organization; focuses on future impact of macro-environmental factors (110 Exhibit 4.3 Dimensions) Make sure strategy is aligned with forces of change 109 Lands End (online clothier) expanded operations from US to Germany Local regulations were obstacle 1-Relevance of factors to context 2-Identify and categorize information 3-Analyze data and draw conclusions 109 Political 110 Economic 111 Socio-cultural 111 Technological 111 Environmental 111 Legal 111 Coke and Pepsi 111 Pepsi 111 Coca-cola

  38. 038 Ch 04 Macro and industry dynamics Macro-environment 111 Globalization Factors favoring industry globalization 1-Markets 2-Costs 3-Governments 4-Competition 112 Coke and Pepsi; Boeing and Airbus 112 Pharmaceuticals; Coke and Pepsi; Boeing and Airbus 113 Railroad industry 113 Cell-phone industry 113 Motorola and Nokia 113 Samsung and NEC

  39. 039 Ch 04 Macro and industry dynamics Industry analysis If perfect competition, no firm can earn greater-than-normal profits, because of entry of new firms or exit of incumbents if profit level raises above or below “normal” If imperfect competition, abnormal profit possible Few competitors; numerous suppliers and buyers; asymmetric information; heterogeneous PS; barriers Firm’s goal is to create a competitive advantage Industrial Organization Economics (internal conditions held constant) 114 Key Success Factors 114 Key Success Factors in soft drink industry In I/O approach, assets and strategy are dictated by industry characteristics Then, every firm must possess assets and so not rare KSF does not give competitive advantage but only allows to compete KSF are easily transferable

  40. 040 Ch 04 Macro and industry dynamics Industry analysis Industry boundaries 115 Industry = group firms producing or selling same or similar PS to same markets 115 Monopoly 115 Duopoly 115 Oligopoly 115 Concentration ratio Concentration affects intensity of competition (fragmented markets more competitive than concentrated ones) Boundaries not simple as it seems; industries are composed of many segments with different structural characteristics Classification of P or markets 115 Beverage industry Lipton, Starbucks, Seagram’s, Heineken, Mondavi, Ocean Spray, Coke and Pepsi 116 Carbonated soft drink industry 116 Cola war: Coke bought Minute Maid and Odwalla; Pepsi bought Tropicana and South Beach beverages 116 Nestle, Pepsi, Coke, Danone 116 Food industry 116 Apparel industry

  41. 041 Ch 04 Macro and industry dynamics Industry analysis • Model of Industry structure • 117 Industry Five-force model P5F • Horizontal axis is stylized version of value chain • Factors that alter negotiating strengths suppliers, buyers or rivals and threats of NE and PS • Countervailing sources of power vying for larger piece of industry’s profit • 117 Rivalry • 119 Exit barriers • 119 Threat of entry • 119 Barriers to entry • 121 Supplier power • 122 Buyer power • 123 Threat of substitute • 124 Complementors • Attractiveness of industry • P5F benefits: • Understanding of industry (Characteristics, changes, fit) • Strategy fit with 5 forces • Forces are not static but in state of flux 118 Cola wars 119 Software industry Microsoft; airline industry; Litton Industries ship building and the Navy 119 Computer-chip manufacturing 120 Soft drink industry; Virgin group 120 Barriers to entry list for 6 industries 121 Soft drink industry; Jewelry industry and De Beers; Textiles or wood; Furniture; ERP software and SAP, Oracle and PeopleSoft 122 Tire makers; National Football League Green Bay Packers; New car buyers 123 Large brewers; Matsushita Electric Industrial; Best Buy and Circuit City 123 Bottled waters and soft drink; Movie rental industry Blockbuster, Hollywood Video, Movie Gallery and Netflix; Southwest airlines 124 Table of substitutes for 6 industries 124 Music and electronics industries; Hot dogs, buns, condiments and beverages; United and delta 125 Computer peripherals; commercial real estate development and financing 126-127 P5F and Complementors analysis US airline industry

  42. 042 Ch 04 Macro and industry dynamics Industry analysis Competitor analysis: understanding and predicting the rivals’ behaviors and strategies Future competition; opportunities for growth Sources of information 128 Bicycle industry: Trek, Huffy, Schwinn 128-129 Luxury hotels: Marriott, Hyatt, Motel 6, Best Western 129 Airline industry 128 Value curve = tool for visualization of landscape, visually plot how rivals compete on several dimensions and reveal underlying assumptions about business Horizontal axis is KSF s perceived by competitors; Vertical axis is level of delivery of major groups of firms 129 Strategic group = clusters of firms following the same strategy, generally assessed by the central tendency Predicting competitors’ behaviors and responses to your own strategy; reasonable predictions For future behavior, most pertinent rivals are those in the strategic group or susceptible to enter it Future rivals’ behavior can influence your strategy Four step analysis 1) Rivals’ objectives 2) Rivals’ current strategies 3) Rivals assumptions 4) Rivals’ R&C 129 Coke and Pepsi 130-131 Value curve in the wine industry Cognition Underlying assumptions about industry, best business practices, and the world Underlying strategic logic Competitors

  43. 043 Ch 04 Macro and industry dynamics Dynamic characteristics of the external context Overconfidence in one’s strength is often preclude to decline Durability of competitive advantage varies with industry 132 Coke and Pepsi 132 Utilities 132 Consumer products Sears and Wal*Mart 132 Airline industry Southwest, Jet Blue, AA, United airlines 132-133 Pineapple industry Fresh Del Monte, Chiquita, Dole Two drivers of industry change Discontinuities Industry life cycle

  44. 044 Ch 04 Macro and industry dynamics Dynamic characteristics of the external context Industry life-cycle A storybook where P5F and structure of industry evolve over time Comparable to product life-cycle 133 Industry life-cycle = model describing evolution of industry from inception to present and possible future states 133 Cell phone handsets, laser printer, digital cameras 133 Automobile industry emerged in 1885 with invention of gasoline engine 134 Exhibit 4.10 Impact of P5F factors on industry structure dynamics 133-134 Commoditization = process by which sales eventually become to depend less on unique product features and more on prices. Generally, most of incumbents have similar R&C and offer similar products 134 Cell phone, airlines, PC 135 Reinvigoration = growth again 135 Bicycle industry Evolution and information: new entrants replace leaders 136 IBM, Dell Evolution and tactics: extra services at beginning 136 IBM and Compaq

  45. 045 Ch 04 Macro and industry dynamics Dynamic characteristics of the external context Technological discontinuities A special and intensive case of technological change in action 136 Process technology 136 Product technology 136 Incremental evolutionary change 136 Discontinuous change = breakthrough technology 137 Disruptive technologies = breakthrough technology that destroy incumbents’ competencies 137 Mini computer industry, disk drive industry 137 Innovator’s dilemma = the economic incentive are to continue to develop evolutionary improvements in their existing technology and to avoid sponsoring disruptive technology, even when the latest may eventually supplant the existing technology 137 DEC and mini computers 138 Exhibit showing interplay between incumbents and new entrants innovations 138 Notebook computers and handheld digital appliances; full-service stock and online brokerage; printed and online greeting cards; education and distance education; offset printing and digital printing; cardiac surgery and angioplasty 139 Auto industry Toyota, Honda 139 Airlines Southwest 139 Wal*Mart, Sears 139 US Stell

  46. 046 Ch 04 Macro and industry dynamics Dynamic characteristics of the external context When industries divide Emergence of new market; large enough to dedicate a distribution channel 139 3Com Corp and its Palm division 139 Sony, Compaq, Dell making hardware and Palm and Microsoft software 139 Category killers PetSmart; Home Depot and Lowe’s;;; and When industries collide 140 Consolidation = reduction in the number of industries 140 Global media and entertainment industries are agglomerating Fox, Disney, Viacom and Vivendi Universal 140 FedEx-Kinko’s 140 Computer industry has changed faster than steel industry

  47. 047 Ch 05 Creating Business strategies

  48. 048 Ch 05 Creating Business strategies Introduction Types of strategies Economic drivers of strategic positioning Threats to successful competitive positioning Strategy and fit with industry conditions Testing the quality of a strategy

  49. 049 Ch 05 Creating Business strategies Introduction 145-147 The US bicycle industry Three companies with different strategic orientations 1- Pacific Bicycle High volume, large range of products, large range of quality, distribution through mass-market retailers, all market segments, one-stop shop, lots of acquisitions, manufacturing in Asia 2- Trek Bicycle Upper-end users, high quality bikes, innovation, different market segments served, one distribution channel: independent bicycle distributors 3- Montague Boutique-style, full size high performance folding bicycle Highly specialized product targeted at narrow range of customers Through Business strategy, we will try to find the best configuration of positions

  50. 050 Ch 05 Creating Business strategies Types of strategies To reduce complexity of strategic choices, a typology “generic strategies” is used 148 Strategic positioning = the way managers situate a firm relative to its rivals along important competitive dimensions Strategic positioning aims at reducing the effects of rivalry and improve profitability 148 Trek 149 Auto industry: Daimler Benz and Porsche; Luxury cars: Buick, Lexus, Mercedes 149 Generic strategies = Four alternative positions resulting from two sets of choices: the economic logic and the scope of arenas 150-151 COST vs. DIFFERENTIATION 150 Exhibit 5.1 Generic strategies with examples of firms 151 Cost = strategic position where firm produces PS while maintaining total costs lower than it takes to rivals to produce similar PS. Basic needs; acceptable PS Creation of sustainable gap with rivals 151 Porsche, category killers such as Lowe’s and Staples 151 Wal*Mart, Pacific Bicycle, Gallo WInes