1 Competing for Advantage Robert E. Hoskisson Michael A. Hitt R. Duane Ireland The PowerPoint slides for this textbook were prepared by: R. Dennis Middlemist.

Competing for AdvantageCompeting for Advantage

Robert E. HoskissonRobert E. Hoskisson Michael A. HittMichael A. Hitt

R. Duane IrelandR. Duane IrelandThe PowerPoint slides for this textbook were prepared by:

R. Dennis Middlemist

Professor of Management

Colorado State UniversityIf you have any concerns, contact me directly at

Dennis@Middlemist.com

This slide is informational only. Do not display in the classroom.

Introduction toIntroduction toStrategic ManagementStrategic Management

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 1Chapter 1

Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4The InternalThe InternalOrganizationOrganization

Chapter 6Chapter 6Competitive Rivalry andCompetitive Rivalry andCompetitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9International StrategyInternational Strategy

Chapter 1Chapter 1Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3The ExternalThe ExternalEnvironmentEnvironment

Chapter 5Chapter 5Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11Corporate GovernanceCorporate Governance

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 7Chapter 7Corporate-Level StrategyCorporate-Level Strategy

Chapter 10Chapter 10Cooperative StrategyCooperative Strategy

Chapter 12Chapter 12Strategic EntrepreneurshipStrategic Entrepreneurship

StrategicAnalysis

StrategicThinking

CreatingCompetitiveAdvantage

MonitoringAnd CreatingEntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

DefinitionsDefinitions

Strategic Management ProcessStrategic Management ProcessThe full set of commitments, decisions, The full set of commitments, decisions, and actions required for a firm to create and actions required for a firm to create value and earn above-average returnsvalue and earn above-average returns

Value CreationValue CreationWhat is achieved when a firm What is achieved when a firm successfully formulates and implements a successfully formulates and implements a strategy that other companies are unable strategy that other companies are unable to duplicate or find too costly to imitate.to duplicate or find too costly to imitate.

Returns that are in excess of what an investor Returns that are in excess of what an investor expects to earn from other investments with a expects to earn from other investments with a similar amount of risksimilar amount of risk

Above-Average ReturnsAbove-Average Returns

Returns that are equal to those an investor Returns that are equal to those an investor expects to earn from other investments with expects to earn from other investments with a similar amount of riska similar amount of risk

Average ReturnsAverage Returns

RiskRiskAn investor’s uncertainty about the An investor’s uncertainty about the economic gains or losses that will result economic gains or losses that will result from a particular investmentfrom a particular investment

Fundamental nature of competition is changing

Competitive LandscapeCompetitive Landscape

Hypercompetitive Hypercompetitive environmentsenvironments

Dynamics of strategic maneuvering among global and innovative combatants

Price-quality positioning, new know-how, first mover

Protect or invade established product or geographic markets

Emergence of global economy

Goods, services, people, skills, and ideas move freely across geographic borders

Spread of economic innovations around the world

Political and cultural adjustments are required

Emergence of global economy

Rapid technological change

Increasing rate of technological change and diffusion

The information age

Increasing knowledge intensity

Strategic FlexibilityStrategic Flexibility

A set of capabilities used to respond to A set of capabilities used to respond to various demands and opportunities various demands and opportunities existing in a dynamic and uncertain existing in a dynamic and uncertain competitive environmentcompetitive environment

It involves coping with uncertainty and the It involves coping with uncertainty and the accompanying risksaccompanying risks

StrategicFlexibilityStrategic

Flexibility

Strategic FlexibilityStrategic Flexibility

StrategicStrategicflexibilityflexibility

StrategicStrategicreorientationreorientation

Capacity toCapacity tolearnlearn

OrganizationalOrganizationalslackslack

1.1. Strategy dictated by the Strategy dictated by the external environment of external environment of the firm (what the firm (what opportunities exist in opportunities exist in these environments?)these environments?)

2.2. Firm develops internal Firm develops internal skills required by skills required by external environment external environment (what can the firm do (what can the firm do about the opportunities?)about the opportunities?)

GeneralGeneral

EnvironmentEnvironment

GlobalGlobal

TechnologicalTechnological

Sociocultural

al Dem

ographic

1. External Environments

Industry Environment

Competitor Environment

I/O Model of Above-Average ReturnsI/O Model of Above-Average Returns

Four Assumptions of the I/O ModelFour Assumptions of the I/O Model

1.1. The external environment is assumed to The external environment is assumed to possess pressures and constraints that possess pressures and constraints that determine the strategies that would result determine the strategies that would result in above-average returnsin above-average returns

2.2. Most firms competing within a particular Most firms competing within a particular industry or within a certain segment of it industry or within a certain segment of it are assumed to control similar are assumed to control similar strategically relevant resources and to strategically relevant resources and to pursue similar strategies in light of those pursue similar strategies in light of those resourcesresources

Four Assumptions of the I/O ModelFour Assumptions of the I/O Model

3.3. Resources used to implement strategies Resources used to implement strategies are highly mobile across firmsare highly mobile across firms

4.4. Organizational decision makers are Organizational decision makers are assumed to be rational and committed to assumed to be rational and committed to acting in the firm’s best interests, as acting in the firm’s best interests, as shown by their profit-maximizing shown by their profit-maximizing behaviorsbehaviors

Industrial Organization Industrial Organization ModelModel

1.1. Study the external Study the external environment, especially the environment, especially the industry environmentindustry environment• economies of scaleeconomies of scale• barriers to market entrybarriers to market entry• diversificationdiversification• product differentiationproduct differentiation• degree of concentration of degree of concentration of

firms in the industryfirms in the industry

The External EnvironmentThe External Environment

2.2. Locate an attractive industry Locate an attractive industry with a high potential for with a high potential for above-average returnsabove-average returns

Attractive industry: one whose Attractive industry: one whose structural characteristics structural characteristics suggest above-average returnssuggest above-average returns

An Attractive IndustryAn Attractive Industry

3.3. Identify the strategy called Identify the strategy called for by the attractive industry for by the attractive industry to earn above-average returnsto earn above-average returns

Strategy formulation: selection Strategy formulation: selection of a strategy linked with of a strategy linked with above-average returns in a above-average returns in a particular industryparticular industry

Strategy FormulationStrategy Formulation

4.4. Develop or acquire assets and Develop or acquire assets and skills needed to implement skills needed to implement the strategythe strategy

Assets and skills: those assets Assets and skills: those assets and skills required to and skills required to implement a chosen strategyimplement a chosen strategy

Assets and SkillsAssets and Skills

5. Use the firm’s strengths (its 5. Use the firm’s strengths (its developed or acquired assets developed or acquired assets and skills) to implement the and skills) to implement the strategystrategy

Strategy implementation: Strategy implementation: select strategic actions linked select strategic actions linked with effective implementation with effective implementation of the chosen strategyof the chosen strategy

Strategy ImplementationStrategy Implementation

Industrial Organization Model

Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

Superior returns: earning of above-average returns

1.1. Strategy dictated by the Strategy dictated by the firm’s unique resources firm’s unique resources and capabilitiesand capabilities

2.2. Find an environment in Find an environment in which to exploit these which to exploit these assets (where are the best assets (where are the best opportunities?)opportunities?)

Resource-based Model of Above Resource-based Model of Above Average ReturnsAverage Returns

1. Firm’s Resources1. Firm’s Resources

1.1. Identify the firm’s Identify the firm’s resources-- strengths and resources-- strengths and weaknesses compared with weaknesses compared with competitorscompetitorsResources: inputs into a firm’s Resources: inputs into a firm’s production processproduction process

Resource-based Resource-based ModelModel

ResourcesResources

2.2. Determine the firm’s Determine the firm’s capabilities--what it can do capabilities--what it can do better than its competitorsbetter than its competitors

Capability: capacity of an Capability: capacity of an integrated set of resources to integrated set of resources to integratively perform a task or integratively perform a task or activityactivity

ResourcesResources

CapabilityCapability

Four Attributes of Resources and Four Attributes of Resources and Capabilities (Competitive Advantage)Capabilities (Competitive Advantage)

the firm is organized appropriately to the firm is organized appropriately to obtain the full benefits of the resources in obtain the full benefits of the resources in order to realize a competitive advantage order to realize a competitive advantage

ValuableValuable allow the firm to exploit opportunities or allow the firm to exploit opportunities or neutralize threats in its external neutralize threats in its external environmentenvironment

RareRare possessed by few, if any, current and possessed by few, if any, current and potential competitorspotential competitors

Costly to imitateCostly to imitate when other firms cannot obtain them or when other firms cannot obtain them or must obtain them at a much higher costmust obtain them at a much higher cost

NonsubstitutableNonsubstitutable

Core CompetenciesCore Competencies

Resources and capabilities that meet these four criteria become a source of:

ValuableValuable

RareRare

Costly to imitateCostly to imitate

NonsubstitutableNonsubstitutable

Core Competencies are the basis for a firm’s

Competitive Competitive advantageadvantage

Value CreationValue Creation

Ability to earn Ability to earn above-average above-average

returnsreturns

3.3. Determine the potential of the Determine the potential of the firm’s resources and firm’s resources and capabilities in terms of a capabilities in terms of a competitive advantagecompetitive advantage

Competitive advantage: ability Competitive advantage: ability of a firm to outperform its of a firm to outperform its rivalsrivals

ResourcesResources

Competitive AdvantageCompetitive Advantage

4.4. Locate an attractive industryLocate an attractive industry

An attractive industry: an An attractive industry: an industry with opportunities that industry with opportunities that can be exploited by the firm’s can be exploited by the firm’s resources and capabilitiesresources and capabilities

ResourcesResources

5.5. Select a strategy that best Select a strategy that best allows the firm to utilize its allows the firm to utilize its resources and capabilities resources and capabilities relative to opportunities in relative to opportunities in the external environmentthe external environment

Strategy formulation and Strategy formulation and implementation: strategic implementation: strategic actions taken to earn above actions taken to earn above average returnsaverage returns

ResourcesResources

Strategy Form/ImplStrategy Form/Impl

ResourcesResources

Strategy Form/ImplStrategy Form/Impl

Superior ReturnsSuperior Returns

Superior returns: earning Superior returns: earning of above-average returnsof above-average returns

Strategic Intent & MissionStrategic Intent & MissionStrategic IntentStrategic Intent

Winning competitive battles by leveraging the Winning competitive battles by leveraging the firm’s resources, capabilities, and core firm’s resources, capabilities, and core competenciescompetencies

Strategic MissionStrategic Mission An application of strategic intent in terms of An application of strategic intent in terms of

products to be offered and markets to be products to be offered and markets to be servedserved

Groups who are affected by a Groups who are affected by a firm’s performance and who firm’s performance and who have claims on its wealthhave claims on its wealth

The firm must maintain The firm must maintain performance at an adequate performance at an adequate level in order to retain the level in order to retain the participation of key participation of key stakeholdersstakeholders

The Firm and Its StakeholdersThe Firm and Its Stakeholders

StakeholdersStakeholders

Capital Market StakeholdersCapital Market Stakeholders

ShareholdersShareholdersMajor suppliers of capitalMajor suppliers of capital

•BanksBanks•Private lendersPrivate lenders•Venture capitalistsVenture capitalists

Product Market StakeholdersProduct Market Stakeholders

Primary customersPrimary customersSuppliersSuppliersHost communitiesHost communitiesUnionsUnions

Product Market StakeholdersProduct Market Stakeholders

Organizational StakeholdersOrganizational Stakeholders

EmployeesEmployeesManagersManagersNonmanagersNonmanagers

Stakeholder InvolvementStakeholder Involvement

Two issues affect the Two issues affect the extent of stakeholder extent of stakeholder involvement in the firminvolvement in the firm

How do you divide the How do you divide the returns to keep returns to keep stakeholders involved?stakeholders involved?

Capital Capital MarketMarket

Product Product MarketMarket

OrganizationalOrganizational

Stakeholder InvolvementStakeholder Involvement

Two issues affect the Two issues affect the extent of stakeholder extent of stakeholder involvement in the firminvolvement in the firm

How do you increase the How do you increase the returns so everyone has returns so everyone has more to share?more to share?

Capital Capital MarketMarket

Product Product MarketMarket

OrganizationalOrganizational

Organizational StrategistsOrganizational StrategistsServe as a major source of

competitive advantageAre held responsible by stakeholdersMake decisions regarding

development, acquisition, cost and use of resources

Assess risks of strategic actions

1 Competing for Advantage Robert E. Hoskisson Michael A. Hitt R. Duane Ireland The PowerPoint slides for this textbook were prepared by: R. Dennis Middlemist.

strategic leadershipchapter

strategic flexibilitya

international strategychapter

cooperative strategychapter

average returns1

economic gains

set of commitments

internal skills

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