Strategic Management & Strategic Competitiveness Chapter One BA 495, Section 9.

Strategic Management &

Strategic Competitivene

ss

Strategic Management &

Strategic Competitivene

ss

Chapter OneChapter One

BA 495, Section 9

BA 495, Section 9

1–2

Today’s AgendaToday’s Agenda

• Defining Strategy & The Strategic Management Defining Strategy & The Strategic Management ProcessProcess

• Competitive Landscape in the 21Competitive Landscape in the 21stst Century Century• Assessing Strategic InputsAssessing Strategic Inputs

– External Environment: Industrial Organization ModelExternal Environment: Industrial Organization Model– Internal Environment: Resource-Based ModelInternal Environment: Resource-Based Model– Developing a Vision & MissionDeveloping a Vision & Mission

• Role of StakeholdersRole of Stakeholders• Wrap-upWrap-up

1–3

Defining Strategy and theStrategic Management Process

1–4

Strategy: DefinitionsStrategy: Definitions

• Strategy is creating optimal value by finding the Strategy is creating optimal value by finding the best match between a firm’s strengths and the best match between a firm’s strengths and the environment’s opportunitiesenvironment’s opportunities– Consider the firm’s internal resources, skills and Consider the firm’s internal resources, skills and

core competenciescore competencies– Consider the Consider the opportunities and risksopportunities and risks created by the created by the

firm’s external environmentfirm’s external environment

• Strategy formally defined:Strategy formally defined:– An integrated and coordinated set of tactics that An integrated and coordinated set of tactics that

generate above-average returns and are designed generate above-average returns and are designed to exploit a firm’s core competencies and gain a to exploit a firm’s core competencies and gain a competitive advantage.competitive advantage.

1–5

Defining Strategy: SWOT AnalysisDefining Strategy: SWOT Analysis

Strategic choicesStrategic choices

StrengthsStrengths

WeaknessesWeaknesses

OrganizationalOrganizationalanalysesanalyses

OpportunitiesOpportunities

ThreatsThreats

EnvironmentalEnvironmentalanalysesanalyses

How does a strategy allow us to exploit our strengths, avoid or fix our weaknesses, exploit our opportunities, and neutralize our threats?

1–6

Defining Strategy: Other Key ConceptsDefining Strategy: Other Key Concepts

Value Creation Considerations:Value Creation Considerations:• Above-average ReturnsAbove-average Returns

– Returns in excess of what an investor expects to earn Returns in excess of what an investor expects to earn from other investments with a similar amount of risk.from other investments with a similar amount of risk.

• Average ReturnsAverage Returns– Returns equal to those an investor expects to earn Returns equal to those an investor expects to earn

from other investments with a similar amount of risk.from other investments with a similar amount of risk.

• RiskRisk– An investor’s uncertainty about the economic gains or An investor’s uncertainty about the economic gains or

losses that will result from a particular investment.losses that will result from a particular investment.

1–7

Defining Strategy: Other Key ConceptsDefining Strategy: Other Key Concepts

• Competitive AdvantageCompetitive Advantage– When a firm implements a strategy that its When a firm implements a strategy that its

competitors are unable to duplicate or find too costly competitors are unable to duplicate or find too costly to try to imitate.to try to imitate.

• Strategic Management ProcessStrategic Management Process– The full set of commitments, decisions, and actions The full set of commitments, decisions, and actions

required for a firm to achieve strategic required for a firm to achieve strategic competitiveness and earn above-average returns. competitiveness and earn above-average returns. This is the manner in which strategy is developed This is the manner in which strategy is developed and implemented.and implemented.

1–8

The Strategic Management ProcessThe Strategic Management Process

1–9

Competitive Landscape in the 21st Century

1–10

The 21st-Century Competitive The 21st-Century Competitive LandscapeLandscape• A Perilous Business WorldA Perilous Business World

– Rapid changes in industry boundaries and marketsRapid changes in industry boundaries and markets

– Conventional sources of competitive advantage losing Conventional sources of competitive advantage losing effectivenesseffectiveness

• Keys Areas of ImpactKeys Areas of Impact– GlobalizationGlobalization

– TechnologyTechnology

– Increasing Knowledge IntensityIncreasing Knowledge Intensity

1–11

GlobalizationGlobalization

• Globalization defined: Increased economic Globalization defined: Increased economic interdependence among countriesinterdependence among countries——the flow of goods and the flow of goods and services, financial capital, and knowledge across country services, financial capital, and knowledge across country bordersborders

• Impact to a firm’s strategy:Impact to a firm’s strategy:

– Increased competitionIncreased competition

– Resources shared throughout the globe (raw materials, financial Resources shared throughout the globe (raw materials, financial resources, human resources)resources, human resources)

• Results:Results:

– Improved efficiency which leads to even higher returnsImproved efficiency which leads to even higher returns

– Additional risks for global firmsAdditional risks for global firms

1–12

Technology and Technological Technology and Technological ChangesChanges• Technology Diffusion: The speed at which new : The speed at which new

technologies become availabletechnologies become available• Perpetual InnovationPerpetual Innovation: The rapidity and : The rapidity and

consistency with which new, information-consistency with which new, information-intensive technologies replace older onesintensive technologies replace older ones

• Disruptive TechnologiesDisruptive Technologies: Technologies that : Technologies that destroy the value of existing technology and destroy the value of existing technology and create new marketscreate new markets

1–13

Impact of Technological ChangesImpact of Technological Changes

• The ability to innovate, and for companies to The ability to innovate, and for companies to reinvent themselves has become critical. reinvent themselves has become critical.

• The ability to effectively and efficiently access The ability to effectively and efficiently access and use information has become an important and use information has become an important source of competitive advantage.source of competitive advantage.

What companies can you think of that perform What companies can you think of that perform well in light of the impact of today’s influence well in light of the impact of today’s influence from technology?from technology?

1–14

Increasing Knowledge IntensityIncreasing Knowledge Intensity

• Knowledge is a critical organizational resource Knowledge is a critical organizational resource for creating an intangible competitive advantagefor creating an intangible competitive advantage

– Strategic flexibility:Strategic flexibility: the set of capabilities used to the set of capabilities used to respond to various demands and opportunities in respond to various demands and opportunities in dynamic and uncertain competitive environmentsdynamic and uncertain competitive environments

– Organizational slack:Organizational slack: slack resources that allow the slack resources that allow the firm flexibility to respond to environmental changesfirm flexibility to respond to environmental changes

– Organizational capacity to learnOrganizational capacity to learn

1–15

External Environment:The Industrial Organization Model

1–16

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

• Dominance of the External EnvironmentDominance of the External Environment– The industry in which a firm competes has a stronger The industry in which a firm competes has a stronger

influence on the firm’s performance than do the influence on the firm’s performance than do the choices managers make inside their organizations.choices managers make inside their organizations.

• Industry Properties Determining PerformanceIndustry Properties Determining Performance– Economies of scaleEconomies of scale– Barriers to market entryBarriers to market entry– DiversificationDiversification– Product differentiationProduct differentiation– Degree of concentration of firms in the industryDegree of concentration of firms in the industry

1–17

I/O Model FocusI/O Model Focus

StrengthsStrengths




ThreatsThreats


1–18

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

External environment imposes pressures and constraints External environment imposes pressures and constraints that determine strategies leading to above-average returns.that determine strategies leading to above-average returns.11

22 Most firms competing in an industry control similar Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies.strategically relevant resources and pursue similar strategies.

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

33

44Organizational decision makers are assumed to be rational Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit-and committed to acting in the firm’s best interests (profit-maximizing).maximizing).

1–19

Industrial Organization ModelIndustrial Organization Model

1.1. Study the external Study the external environment, especially the environment, especially the industry environment:industry environment:• General environmentGeneral environment• Industry environmentIndustry environment• Competitive environmentCompetitive environment

The External EnvironmentThe External Environment

1–20


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

Attractive industry:Attractive industry:One whose structural One whose structural characteristics suggest characteristics suggest above-average returns.above-average returns.


Attractive IndustryAttractive Industry

1–21


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

Strategy formulation: Strategy formulation: Selection of a strategy Selection of a strategy linked with above-average linked with above-average returns in a particular returns in a particular industry.industry.



Strategy FormulationStrategy Formulation

1–22


4.4. Develop or acquire Develop or acquire assets and assets and skillsskills needed to implement a needed to implement a chosen strategy.chosen strategy.

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




Assets and SkillsAssets and Skills

1–23


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 strategy.strategy.

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





Strategy ImplementationStrategy Implementation

1–24

Industrial Organization (I/O) ModelIndustrial Organization (I/O) Model





Strategy ImplementationStrategy Implementation

Superior returns: earning Superior returns: earning above-average returnsabove-average returns

Superior ReturnsSuperior Returns

1–25

Internal Environment:The Resource-Based Model

1–26

The Resource-Based Model of Above-The Resource-Based Model of Above-Average ReturnsAverage Returns

• Model AssumptionsModel Assumptions– Each organization is a collection of unique resources Each organization is a collection of unique resources

and capabilities that provides the basis for its strategy and capabilities that provides the basis for its strategy and that is the primary source of its returns.and that is the primary source of its returns.

– Capabilities must be developed and managed Capabilities must be developed and managed dynamically.dynamically.

– Differences in firms’ performances are due primarily Differences in firms’ performances are due primarily to their unique resources and capabilities rather than to their unique resources and capabilities rather than structural characteristics of the industry.structural characteristics of the industry.

– Core competencies are generally not transferable Core competencies are generally not transferable across firms and are the basis of competitive across firms and are the basis of competitive advantage. advantage.

1–27

Resource-Based Model FocusResource-Based Model Focus

StrengthsStrengths




ThreatsThreats


1–28

Resource-Based ModelResource-Based Model

1.1. Identify the firm’s resourcesIdentify the firm’s resources——strengths and weaknesses strengths and weaknesses compared with competitorscompared with competitors

ResourcesResources

Resources: inputs into a Resources: inputs into a firm’s production processfirm’s production process

1–29

Resource-Based Model (cont’d)Resource-Based Model (cont’d)

2.2. Determine the firm’s Determine the firm’s capabilitiescapabilities——what it can do what it can do better than its competitors.better than its competitors.

ResourcesResources

CapabilityCapability

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

1–30


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

ResourcesResources


Competitive AdvantageCompetitive Advantage

Competitive advantage: Competitive advantage: ability of a firm to ability of a firm to outperform its rivals.outperform its rivals.

1–31


4.4. Locate an attractive industry.Locate an attractive industry.

ResourcesResources




Attractive industry: an Attractive industry: an industry with opportunities industry with opportunities that can be exploited by the that can be exploited by the firm’s resources and firm’s resources and capabilities.capabilities.

1–32


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 environment.the external environment.

ResourcesResources




Strategy Formulation Strategy Formulation and Implementationand Implementation

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

1–33


ResourcesResources




Strategy FormulationStrategy Formulationand Implementationand Implementation

Superior ReturnsSuperior Returns

Superior returns: earning Superior returns: earning above-average returnsabove-average returns

1–34

How Resources and Capabilities How Resources and Capabilities Provide Competitive AdvantageProvide Competitive Advantage

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

ValuableValuable Allow the firm to exploit opportunities Allow the firm to exploit opportunities or neutralize threats in its external or 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 Costly to imitateimitate

When other firms cannot obtain them When other firms cannot obtain them or must obtain them at a much higher or must obtain them at a much higher costcost

NonsubstitutaNonsubstitutableble

1–35

Developing a Vision & Mission

1–36

Vision and MissionVision and Mission

• VisionVision– A enduring picture of what the firm wants to be and, in A enduring picture of what the firm wants to be and, in

broad terms, what it wants to ultimately achieve.broad terms, what it wants to ultimately achieve.• Stretches and challenges people and evokes Stretches and challenges people and evokes

emotions and dreams.emotions and dreams.

• Effective vision statements are:Effective vision statements are:– Developed by a host of people from across the Developed by a host of people from across the

organization.organization.– Clearly tied to external and internal environmental Clearly tied to external and internal environmental

conditions.conditions.– Consistent with strategic leaders’ decisions and Consistent with strategic leaders’ decisions and

actions.actions.

1–37

Vision and Mission (cont’d)Vision and Mission (cont’d)

• MissionMission– Specifies the business or businesses in which the firm Specifies the business or businesses in which the firm

intends to compete and the customers it intends to intends to compete and the customers it intends to serve.serve.

– Is more concrete than the firm’s vision.Is more concrete than the firm’s vision.– Is more effective when it fosters strong ethical Is more effective when it fosters strong ethical

standards.standards.

• Above-average returns are the fruits of the firm’s Above-average returns are the fruits of the firm’s efforts to achieve its vision and mission.efforts to achieve its vision and mission.

1–38

ExamplesExamples

“The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.”

“The mission of Nike is to bring inspiration and innovation to every athlete in the world. If you have a body, you are an athlete.”

“Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.”

“At Knowledge Learning Corporation, we are committed to enhancing the educational opportunities for children, families, and the dedicated professionals who serve them.”

1–39

From Mission to ActionFrom Mission to Action

Mission/IntentMission/Intent Fundamental purposes

ObjectivesObjectives Measurable performance targets

StrategiesStrategies Means to accomplish objectives

Tactics/PoliciesTactics/Policies Actions to implement strategies

1–40

Stakeholders

1–41

Three Stakeholder GroupsThree Stakeholder Groups

1–42

Capital Market Capital Market StakeholdersStakeholders

ShareholdersShareholdersMajor suppliers of Major suppliers of capitalcapital

• BanksBanks

• Private lendersPrivate lenders

• Venture capitalistsVenture capitalists

StakeholdersStakeholders


1–43

Capital Market StakeholdersCapital Market Stakeholders

• Shareholders and lenders expect the firm to Shareholders and lenders expect the firm to preserve and enhance the wealth they have preserve and enhance the wealth they have entrusted to it.entrusted to it.– Want the return on their investment (and, hence, their Want the return on their investment (and, hence, their

wealth) to be maximized.wealth) to be maximized.– Expect returns to be commensurate with the degree Expect returns to be commensurate with the degree

of risk to the shareholder.of risk to the shareholder.

• Management must balance the interests of Management must balance the interests of shareholders and lenders with its concerns for shareholders and lenders with its concerns for the firm’s future competitive ability.the firm’s future competitive ability.

1–44

Stakeholders (cont’d)Stakeholders (cont’d)


Product Market Product Market StakeholdersStakeholders


• CustomersCustomers

• SuppliersSuppliers

• Host communitiesHost communities

• UnionsUnions

1–45

Product Market StakeholdersProduct Market Stakeholders

• CustomersCustomers– Demand reliable products at low pricesDemand reliable products at low prices

• SuppliersSuppliers– Seek loyal customers willing to pay highest Seek loyal customers willing to pay highest

sustainable prices for goods and servicessustainable prices for goods and services

• Host communitiesHost communities– Want companies willing to be long-term employers Want companies willing to be long-term employers

and providers of tax revenues while minimizing and providers of tax revenues while minimizing demands on public support servicesdemands on public support services

• Union officialsUnion officials– Want secure jobs and desirable working conditionsWant secure jobs and desirable working conditions

1–46

Stakeholders (cont’d)Stakeholders (cont’d)



Organizational Organizational StakeholdersStakeholders

Organizational Organizational StakeholdersStakeholders

•EmployeesEmployees•ManagersManagers•NonmanagersNonmanagers

1–47

Organizational StakeholdersOrganizational Stakeholders

• Employees Employees – Expect a dynamic, stimulating and rewarding work Expect a dynamic, stimulating and rewarding work

environment.environment.– Are satisfied by a company that is growing and Are satisfied by a company that is growing and

actively developing their skills.actively developing their skills.

1–49

Review of Key Concepts

1–50

Review of Key ConceptsReview of Key Concepts

• Defining Strategy & The Strategic Management Defining Strategy & The Strategic Management ProcessProcess

• Competitive Landscape in the 21Competitive Landscape in the 21stst Century Century• Assessing Strategic InputsAssessing Strategic Inputs

– External Environment: Industrial Organization ModelExternal Environment: Industrial Organization Model– Internal Environment: Resource-Based ModelInternal Environment: Resource-Based Model– Developing a Vision & MissionDeveloping a Vision & Mission

• Role of StakeholdersRole of Stakeholders• QuestionsQuestions

Strategic Management & Strategic Competitiveness Chapter One BA 495, Section 9.

Documents

definitions strategy

century slide

knowledge intensity

firms strengths

century competitive

average returnsaverage

globalization globalization

firms core competencies