First, strategy is related to competition. If there is no competition, we do not need strategy. Second, strategy deals with the longer term. It is always about the future.

Business life has both a competitive and futureoriented context: suppliers compete with each other for the business of important buyer companies, and companies compete with each other for building a valuable customer base, while business units compete with each other for obtaining more resources from company headquarters. Moreover, those organized actors would not like to win only now, but for the longer term.

Strategic management is a management field that brings analysis, formulation, and implementation together for achieving sustainable competitive advantage.

Studying strategic management helps a person to think like a manager who must see the organization and its relationships with the environment in a holistic way in order to position the organization for superior performance.

To evaluate competitive advantage, we compare company performance to either the performance of other companies in the same industry or an industry average. A company which can surpass its competitors or the industry average over an extended period has a sustainable competitive advantage.

Sustainable competitive advantage is either being ahead of competitors or achieving higher performance than the industrial average for a long time.

Using accounting profitability is the most common practice to evaluate company performance and competitive advantage.

Accounting profitability is a company’s efficiency in utilizing production factors to generate earnings.

Some of the profitability ratios most commonly used in strategic management are the following:
• return on equity (ROE), which is profit after taxes/total stockholder’s equity,
• return on assets (ROA), which is profit after taxes/total assets,
• return on revenue (ROR), which is profit after taxes/total revenue,
• return on sales (ROS), which is profit after taxes/total sales 

Profitability ratios and total shareholder return are the most common metrics for the company performance.

Total shareholder return (TSR) is the share price at the end of a period and at the beginning of a period plus dividends. It is the most common ratio to assess stock market performance in strategic management.

Strategy refers to the determination of the basic long-term goals of an enterprise, the adoption of courses of action and the allocation of resources necessary for carrying out these goals to achieve sustainable competitive advantage. Strategy is usually a theory of the company that explains how the competition is going to evolve and how that evolution can be used for competitive advantage.

Strategic management is the integrative management field that combines analysis of the firm’s external and internal environments, formulation of strategy resulting in the company’s corporate, business, and functional strategies, and implementation of a set of coherent actions in the quest for competitive advantage.

The audiences who can affect or can be affected by the achievement of a company’s objectives are called stakeholders.

Stakeholders can be divided into two groups: internal stakeholders and external stakeholders.

Internal stakeholders are stockholders, board of directors, executive officers, other managers, and employees.

External stakeholders are all other individuals and groups that have some claim on the company. This group includes customers, suppliers, alliance partners, creditors, local and national governments, unions, local communities, media, and the public.

Although stakeholder is a relatively old term, the development of the stakeholder approach was set in motion in the beginning of 1980s.

Stakeholder approach asserts that treating stakeholders well and managing their interests helps a company achieve a higher performance.

The first step of a strategic management process is analysis.

Managers start the analysis stage by evaluating the existing vision, mission, and values statements of companies. The business environment is dynamic; thus strategic elements are subject to be modified under the impact of environmental changes. Second, they conduct an external analysis which is composed of the analyses of market and industry structures. Third, managers analyze internal variables including resources, capabilities, core competencies, and value chain activities. Fourth, managers conduct a SWOT analysis to generate insights from the whole analysis and their strategic implications. Finally, if it is necessary, they will rewrite vision, mission, and value statements.

A vision is a statement about where the company wants to be in the future. It is composed of the desired achievements of the company. A clearly phrased vision communicates management’s aspirations to stakeholders about “where we are going” and helps channel the energies of company personnel in a common direction.

There are two types of vision statements which are product-oriented vision and customer-oriented vision.

A product-oriented vision defines a company in terms of a product provided (e.g. to be the best company in the mobile phone business). Product-oriented visions tend to force managers to take a more myopic view of the competitive landscape.

A customer-oriented vision defines a company in terms of providing solutions for customer needs. Companies with customer-oriented visions can more easily adapt to changing environments.

Customer-oriented visions let companies adapt to changing environments more easily while productoriented visions can make companies less flexible and more likely to fail.

Mission is a statement about the reason for the existence of a company. Mission describes what a company actually does (the products it plans to provide and the markets in which it will compete).

A vision defines what an organization wants to accomplish ultimately, a mission describes what an organization does actually.

Values state what is desirable, proper, and appropriate in the organizational context. Values show what is right, what is wrong, what is fair, what is unfair, what is acceptable, what is unacceptable. They guide how managers and employees should conduct themselves, how they should do business, and what kind of organization they should build to help a company achieve its mission.

The external analysis comprises the analyses of the market structure and industry structure. The products (goods and services) are bought and sold in the market. Each market includes at least one industry, which is a group of companies offering products to satisfy the same customer needs. Moreover, a group of closely related industries form a sector.

We observe different behavior patterns by producers across markets to a great degree. In some markets, producers are highly competitive; in others, they seem in some ways to coordinate their actions to avoid competing with one another; and, in some markets, there is no competition at all.

Models of market structure refer to the ideal types which were developed by economists for understanding markets and explaining the behaviors in them.

For understanding markets and explaining the behaviors in them, economists have developed four principal models of market structure which are based on four dimensions:
• the number of producers in the market,
• the companies’ degree of pricing power,
• whether the products offered are undifferentiated or differentiated (products that are different but viewed substitutable by customers), and
• the market is consolidated or fragmented (market share for the leading four firms is equal to or less than 40% of total industry sales).

Monopolies have just one producer who sells an undifferentiated product with a considerable pricing power in a consolidated market.

Oligopolies have a couple of producers which sell a differentiated or an undifferentiated product with some pricing power in a consolidated market.

Monopolistic competition markets have many producers each sell a differentiated product with some pricing power in a consolidated or fragmented market. When a company can greatly differentiate its product, it creates a niche in the market in which it has some degree of temporary monopolistic power over pricing, thus the name “monopolistic competition”.

Perfect competition markets have many producers which sell an undifferentiated product with a little or no pricing power in a fragmented market.

It is about identifying opportunities and threats facing a specific company in an industrial context.

The Five Forces Model refers to a framework that was developed for identifying opportunities and threats facing a specific company in the industrial context. Porter suggested that the competitiveness of an industry can be analyzed based on five forces: rivalry among existing competitors; threats of new entrants; bargaining power of buyers and suppliers; and substitute products.

This is usually the most powerful of the five competitive forces. Four factors have a major impact on the intensity of rivalry among established companies within an industry: market structure, demand conditions, cost conditions, and the height of exit barriers in the industry.

Exit barriers are economic, strategic, and emotional factors, which block companies from leaving an industry.

The impact of new entrants depend on several factors such as economies of scale, network effects, customer switching costs, and government policy. If economies of scale is high, large existing companies can have a cost advantage over new entrants. When network effects are present, the value of the product increases with the number of customers. As a result, it will be difficult for new entrants to compete effectively. If changing suppliers may require the customer to change product specifications, retrain employees, and/or modify existing processes, switching costs can be a great barrier to entry. When restrictive government policies exist or industries are regulated heavily, the threat of entry is low.

When the number of buyers is small, and threaten to be rival producers, and when products sold to buyers are a significant percentage of a buyer’s final costs, and when buyers purchase large quantities, and the purchased product is unimportant to the final quality or price of a buyer’s products, the bargaining power of buyers is high. If the suppliers’ industry is dominated by a small number of companies and suppliers threaten to be rival producers, companies are not important customers for suppliers. When there are few good substitutes, which can be used instead of others, and suppliers do not depend heavily on the industry for a large portion of their revenues, the bargaining power of suppliers is high.

These are products which can replace other products. For example, tea can be a substitute for coffee and vice versa.

Internal analysis is the examination of resources, capabilities, core competencies, and value chain activities. Internal analysis, which is conducted after external analysis, gives managers the information they need to choose the strategy which will enable their company to achieve a sustainable competitive advantage.

All assets which the company can use when formulating and implementing strategies are resources. Resources can be tangible or intangible.

Tangible resources, such as labor, capital, and land, have physical characteristics and are visible.

Intangible resources, such as brand equity, reputation, and intellectual property (e.g. patents, copyrights, and trade secrets), have no physical characteristics and are invisible.

Rather than tangible resources, intangible resources tend to lead to competitive advantage. Competitive advantage tends to be developed from intangible rather than tangible resources. Tangible resources can be bought on the open market easily by anyone who has the necessary cash. However, it is very difficult to buy intangible resources if not impossible and it takes longer to build them.

Capabilities are a company’s resources which enable a company to fully take advantage of the other resources it controls. Capabilities enable a company to use other resources to formulate and implement its strategies. Examples of capabilities include a company’s marketing skills and teamwork and cooperation among its managers.

The interaction of resources and capabilities leads to core competencies. Core competencies are unique strengths, that are deeply embedded within a company. Core competencies are key for sustainable competitive advantage. Being superior in marketing, in creating algorithms, or in designing products are some examples of core competencies.

Value refers to the monetary amount that a customer is willing to pay for a product.

Margin refers to the difference between value and total costs.

Value chain refers to all of the diverse but integrated activities that a company performs internally. A company’s value chain contains two categories of activities that create value: the primary activities that create value for customers directly, and the support activities that facilitate and increase the performance of the primary activities.

Supply chain management, production, sales and distribution, and after-sale services are primary activities of many companies.

Support activities of many companies are human resource management, accounting, finance, and research and development (R&D).

Value chain analysis (VCA) is the process whereby a company determines the costs associated with organizational activities. The value chain analysis aims to identify where cost advantages or disadvantages exist anywhere along the value chain. The VCA process can enable a company to better identify its own strengths and weaknesses, especially as compared to a competitors’ value chain analyses and their own data examined over time.

SWOT analysis. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats of the company. While strengths and weaknesses are determined via internal analysis, opportunities and threats are obtained from external analysis.

Strategy formulation is choosing the strategy in terms of where and how to compete.

Strategy implementation is the execution of strategy.

Formulation of strategies apply to different levels: Corporate, business, functional, and operational.

Corporate-level strategy refers to the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of courses of action in seeking competitive advantage when competing in more than one industry and market simultaneously. It concerns the broad question, where to compete and effects the entire business. Thus, corporate-level strategy is concerned with decisions about in what businesses to operate.

Corporate strategy determines the boundaries of the company along two dimensions: diversification and vertical integration.

Diversification refers to the degree of doing business in different industries to offer new products and services.

There are four major types of diversification:
(1) single-business,
(2) dominant-business,
(3) related diversification, and
(4) unrelated diversification

A single-business company gets 95% or more of its revenues from one strategic business unit.

A strategic business unit (SBU) is an independent division of a larger corporation with its own mission, vision, market features, customers, and profitand-loss responsibilities.

Dominant-business diversification happens as a company gains 70% to 94% of the revenue from one business, which shares its resources, capabilities, and core competencies with all the other SBUs.

Related diversification forms when a company gains less than 70% of its revenue from one primary SBU, which shares its resources, capabilities, and core competencies with some of the other SBUs more and some of the others less, if not at all.

Unrelated diversification refers to getting less than 70% of its revenue from one primary SBU, and shares few if any of its resources, capabilities, and core competencies with the other SBUs.

The Boston Consulting Group (BCG) provides a matrix as an instrument for helping corporations allocate their resources based on the growth rate of each strategic business unit’s (SBU) market (10% per year being considered “high”), and relative market share of each SBU (the ratio between the market share of the SBU and that of its leading competitors is considered as the equal breaking point between “high” and “low”).

Implementation of corporate-level strategy is supported by three major tools: mergers and acquisitions, outsourcing, and building strategic alliances.

A merger is the integration of two independent companies that become just one company.

An acquisition refers to buying another company.

Outsourcing refers to the contracting out of activities that otherwise would be conducted within a company. There are two types of outsourcing: outsourcing primary activities and outsourcing support activities.

An “alliance” is any medium to long-term cooperative relationship between companies. It excludes one-time or short-term contracts and other agreements and does not imply some joint working relationship between companies over time.

Strategic alliance is the cooperation of companies for realizing their strategic objectives. There are three broad types of strategic alliances:
(1) nonequity alliances,
(2) equity alliances, and
(3) joint ventures.

Nonequity alliances are based on contracts between companies.

The equity alliance refers to the partnership in which one partner has minority shares of the other.

When two or more companies come together to create a new company and the companies continue to operate, a joint venture occurs.

Vertical integration refers to the degree of the direct participation of a company to the different stages of industry value chain.

Industry value chain refers to competing companies from different industries in each stage.

If a company directly participates in the stages towards the inputs for a product, it is called backward vertical integration.

If a company directly participates in stages towards the customer, it is called forward vertical integration.

Business-level strategy refers to the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of courses of action in seeking competitive advantage when confıned to a single product market. Briefly, business-level strategy is about how to compete in sectors and markets determined by corporate-level strategy.

There are two fundamentally different businesslevel strategies: cost leadership and differentiation. They are called generic strategies since they can be used by any company in the quest for competitive advantage.

A cost-leadership strategy refers to offering the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the company to charge average or lower prices to the customers. Cost leadership requires being “the” cost leader in the market.

A differentiation strategy refers to offering higher value through delivering products with unique characteristics while keeping costs at the same or similar levels with the competitors and charging higher prices to the customers. Differentiation strategy focuses on unique features.

An integration strategy refers to offering customers more value for the money by satisfying their desires and reducing costs compared to competitors with similar caliber product offerings.

Functional-level strategy is the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of the courses of action in seeking competitive advantage at the functional or department level.

If a company adopts a differentiation strategy, marketing strategy plays the most important role. There are three major tools of marketing for achieving higher value: product innovation, focusing on customer service, and finding complements.

There are two types of product innovation: incremental innovation and radical innovation

Incremental innovation refers to exploiting the existing knowledge base and small improvements of existing products.

Radical innovation refers to exploring novel knowledge and development of new and different products.

Customer relationship management (CRM) is a technique that uses IT to develop a continuous relationship with customers to maximize the value a company can deliver to them over time.

Complements refer to the products that add value to the products of companies in an industry because when used together the combined products better satisfies customer demands.

Two important tools of marketing for a cost leadership strategy are aggressive pricing, promotion and advertising, and building brand loyalty.

Three major tools of production for a cost leadership strategy are economies of scale, experience effects, and process innovation.

Economies of scale includes decreases in average costs per unit of production as output increases.

Experience effects refer to the systematic lowering of costs, which are observed to occur over the life of a product.

Process innovation includes a new method or technology to produce an existing product.

The major tools for an integration strategy are economies of scope, flexible manufacturing, and mass customization.

Economies of scope result when the value chains of two separate products (e.g. motorcycles and automobiles) share activities, such as the same marketing channels or manufacturing facilities. The cost of combined production of multiple products can be lower than the cost of separate production.

Flexible manufacturing includes to using machines to do multiple tasks so they can produce a variety of products.

Mass customization is tailoring products to meet the needs of a large number of individual customers.

The company hires a large number of lowskilled employees who receive low pay and perform repetitive jobs.

The company  hires high-skilled and creative employees who receive higher than the average pay, are developed and motivated regularly, perform customized jobs, and likely work for a long period.

If a company adopts an integration-focused HR strategy, the use of self-managing teams, whose members coordinate their own activities and make their own hiring, training, work, and reward decisions, is an appropriate tool.

Self-managing teams are composed of members who coordinate their own activities and who make their own hiring, training, work, and reward decisions.

Global strategy includes the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of courses of action in seeking competitive advantage when competing around the world.

Companies primarily confront two sets of pressures in the global context: cost reduction and local responsiveness.

Global integration - local responsiveness is a model on how to simultaneously deal with two sets of pressures for global integration and local responsiveness.

Based on the integration-responsiveness framework, the four strategic choices for companies to be adopted are as in the following:
• home replication
• localization
• global standardization
• transnational strategy 

A home replication strategy is based on selling the same products in both domestic and foreign markets through exploiting home-based core competencies.

A localization strategy requires maximizing local responsiveness hoping that local consumers will perceive the products as local ones.

A global-standardization strategy is composed of achieving significant economies of scale and low cost inputs by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.

A transnational strategy, which requires realizing global learning and diffusion of innovations, integrates the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable).

Sustainable competitive advantage is either being ahead of competitors or achieving higher performance than the industrial average for a long time.

Strategic management is the integrative management field that combines analysis of the firm’s external and internal environments, formulation of strategy resulting in the company’s corporate, business, and functional strategies, and implementation of a set of coherent actions in the quest for competitive advantage.

The effectiveness of vision statements differs based on type. A product-oriented vision defines a company in terms of a product provided (e.g. to be the best company in the mobile phone business). Product-oriented visions tend to force managers to take a more myopic view of the competitive landscape. A customer-oriented vision defines a company in terms of providing solutions for customer needs. 

Values provide guidance on what is desirable, proper, and appropriate in the organizational context.

(1) the number of producers in the market,

(2) the companies’ degree of pricing power,

(3) whether the products offered are undifferentiated or differentiated (products that are different but viewed substitutable by customers), and

(4) the market is consolidated or fragmented (market share for the leading four firms is equal to or less than 40% of total industry sales).

Corporate-level strategy includes the determination of the long-term goals and objectives, the allocation of resources, and the adoption of courses of action in seeking competitive advantage when competing in more than one industry and market simultaneously.

As a corporate-level strategy, diversification is the degree of doing business in different industries to offer new products and services. Pınar had applied a diversificiation strategy when it moved into frozen foods. Amazon’s latest corporate-level strategy is the entry into the retail business by purchasing Whole Foods. 

A strategic business unit (SBU) is an independent division of a larger corporation with its own mission, vision, market features, customers, and profit-and-loss responsibilities.

Dominant-business diversification happens as a company gains 70% to 94% of the revenue from one business, which shares its resources, capabilities, and core competencies with all the other SBUs.

The terms mergers and acquisitions are often used instead of each other, although they are not equivalent. If two independent companies come together and become just one company, a merger occurs. Mergers tend to be friendly. Usually, companies which engage in mergers have similar sizes. 

Outsourcing refers to the contracting out of activities that otherwise would be conducted within a company. There are two types of outsourcing: outsourcing primary activities and outsourcing support activities. Outsourcing primary activities have to be organized for preserving a high level of operational integration because its main attractiveness has been the prospect of minimizing stock. Outsourcing support activities, such as accounting, IT, and HR, does not require such finely adjusted integration with primary activities.

Business-level strategy refers to the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of courses of action in seeking competitive advantage when confıned to a single product market.

A differentiation strategy refers to offering higher value through delivering products with unique characteristics while keeping costs at the same or similar levels with the competitors and charging higher prices to the customers.

A cost-leadership strategy refers to offering the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the company to charge average or lower prices to the customers.

Global strategy includes the determination of the long-term goals and objectives, the allocation of the resources, and the adoption of courses of action in seeking competitive advantage when competing around the world.

Global integration - local responsiveness refers to a model on how to simultaneously deal with two sets of pressures for global integration and local responsiveness.

A home replication strategy is based on selling the same products in both domestic and foreign markets through exploiting home-based core competencies.

A localization strategy, which is common in the consumer markets and usually adopted when entering the large and/or idiosyncratic foreign markets, necessitates maximizing local responsiveness and hoping that local consumers will perceive the products as local ones.

A transnational strategy, which requires realizing global learning and diffusion of innovations, integrates the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable).

A global-standardization strategy, which is common in the industrial markets and network organizations, includes achieving significant economies of scale and low cost inputs by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.