Competing For Advantage

1. Competing For Advantage Part I – Strategic Thinking Chapter 1 – Introduction to Strategic Management

2. The Competitive Landscape- An Illustration • U.S. Automobile Industry Conditions in 1970s • Increase in gas prices • Dramatic increase in quality of Japanese-made vehicles • Negative Impact to U.S. Automakers • Slow response to global forces • Inability to compete against new entrants to US market • Failure to make technological improvements to stay competitive

3. Globalization of Markets and Industries • Key Terms • Globalization – increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders • Hypercompetition – extremely intense rivalry among competing firms, characterized by escalating and increasingly aggressive competitive moves

4. Globalization of Markets and Industries • Reduced restraints on business transactions across national boundaries (such as tariffs) • Difficulty in recognizing or determining boundaries of an industry (for example, the blur among television, telephone, and computer service providers) • Greatly increased range of opportunities for acquiring resources (such as equipment, capital, raw material, or even employees) and for selling goods and services

5. Globalization of Markets and Industries • Hypercompetition resulting from the dynamics of strategic maneuvering among global and innovative competitors • Increased performance standards in many areas, including quality, cost, productivity, product introduction time, and operational efficiency • Continuous improvement in all areas is necessary for continued survival

6. Technological Advances • Key Terms • Strategic Flexibility – set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment

7. Technological Trends • Increasing rate of technological change and diffusion, and increasing speed at which technologies become available and are used • Dramatic information technology changes of recent years, and different ways that information is being used • Increasing knowledge intensity, the basis for technology and its application

8. Changes in the Competitive Landscape

9. Changes in the Competitive Landscape • Quick competitive information needs • Shorter product life cycles • Indistinguishable products • Rapid technology replacement • Availability of inexpensive information • New business culture from electronic-business models • Continuous learning is necessary

10. Sources of Competitive Advantage • Speed to market • Access and use of information • Rapid diffusion of new, transformed knowledge throughout the company • Innovation • Integration of new conditions into organization mind set • Global standard achievement • Strategic flexibility

11. Disruptive Technologies • Value of existing technologies is destroyed • Creative destruction process replaces existing technologies with new ones • New markets are created

12. Early Influences on the Strategy Concept • Key Terms • Agency Theory – the idea that agency problems exist when managers take actions that are in their own best interests rather than those of shareholders • Transactions Costs Economics – examination of the efficiency of economic activity that instructs firms to buy required resources through a market transaction, unless certain conditions exist that efficiently allow firms to create them internally

13. Foundational Concepts • The need to establish goals, formulate strategies to achieve them, and set implementation (resource-allocation) plans to meet them • The integration of external market factors into business planning • The wisdom of balancing the conflicting needs of internal and external stakeholders • The importance of an economic approach to identifying market opportunities • The importance of having or acquiring the resources and capabilities to achieve organizational objectives

14. Foundational Concepts (cont.) • The idea that political strategies should be used in addition to rational-deductive strategy development to address stakeholder interests and facilitate the achievement of organizational goals • The use of organizational learning processes to achieve strategic success • The use of Agency Theory to focus on shareholder returns as a primary criterion for firm success • The use of Transactions Costs Economics to determine whether a business should produce or acquire the resources needed

15. Modern Strategic Management • Key Terms • Deterministic Perspective – the argument that a firm should adapt to its environment, establishing "fit“ (environmental situation determines the most effective strategies for achieving success) • Enactment – the principle that recognizes the potential of influencing the environment through human action (environmental forces do not entirely determine strategic moves to create a competitive advantage)

16. Three Perspectives on Value Creation • Industrial/Organization (I/O) Economic Model • Resource-Based View • Stakeholder Approach

17. The Industrial/Organization (I/O) Model of Above-Average Returns • Basic Premise of the I/O Model– to explain the dominant influence of the external environment on a firm's strategic actions and performance

18. The Industrial/Organization (I/O) Model of Above-Average Returns • Underlying Assumptions • That the external environment imposes pressures and constraints that determine the strategies resulting in above-average returns • That most firms competing within a particular industry or industry segment control similar strategically relevant resources and pursue similarstrategies in light of those resources

19. The Industrial/Organization (I/O) Model of Above-Average Returns • Underlying Assumptions (cont.) • That resources for implementing strategies are highly mobile across firms, and that due to this mobility any resource differences between firms will be short lived • That organizational decision makers are rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors

20. The Industrial/ Organization (I/O) Model of Above-Average Returns

21. The Industrial/Organization (I/O) Model of Above-Average Returns • Michael Porter’s Five-Forces Model • Reinforces the importance of economic theory • Offers an analytical approach that was previously lacking in the field of strategy • Describes the forces that determine the nature/level of competition and profit potential in an industry • Suggests how an organization can use the analysis to establish a competitive advantage

22. The Industrial/Organization (I/O) Model of Above-Average Returns • Limitations • Only two strategies are suggested: • Cost Leadership • Differentiation • Internal resources and capabilities are not considered

23. The Resource-Based Model of Above-Average Returns • Key Terms • Distinctive Competencies – attributes that allow a firm to pursue a certain strategy more efficiently than other firms • Resources – inputs into a firm's production process, such as capital equipment, employee skills, patents, high-quality managers, financial condition, etc. • Capability – capacity for a set of resources to perform a task or activity in an integrative manner

24. The Resource-Based Model of Above-Average Returns • Key Terms (cont.) • Core Competencies – a firm’s resources and capabilities that serve as sources of competitive advantage over its rivals • Competitive Advantage – the successful formulation and execution of strategies that are different from and produce more value than the strategies of competitors • Sustainable Competitive Advantage (referred to as "Competitive Advantage" in text) – competitive advantage that is possible only after competitors' efforts to duplicate the value-creating strategy have ceased or failed

25. The Resource-Based Model of Above-Average Returns • Basic Premise of the Resource-Based Model– to propose that a firm's unique resources and capabilities should define its strategic actions and be used effectively to exploit opportunities in the external environment to ensure successful performance

26. The Resource-Based Model of Above-Average Returns • Three Categories of Resources • Physical • Human • Organizational capital

27. The Resource-Based Model of Above-Average Returns • Types of resources that become a competitive advantage • Valuable • Rare • Costly to imitate • Nonsubstitutable

28. The Resource-Based Model of Above-Average Returns • Two types of core competencies • Managerial competencies • Product-related competencies

29. The Resource-Based Model of Above-Average Returns

30. The Stakeholder Model of Responsible Firm Behavior and Firm Performance • Key Terms • Stakeholders – individuals and groups that can affect (and are affected by) the strategic outcomes a firm achieves, and that have enforceable claims on a firm's performance • Strategic Intelligence – information that firms collect from their network of stakeholders and use to deal with diverse and cognitively complex competitive situations

31. The Stakeholder Model of Responsible Firm Behavior and Firm Performance • Basic Premise of the Stakeholder Model– to propose that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors

32. The Three Stakeholder Groups

33. Secondary Stakeholders • Government entities and administrators • Activists and advocacy groups • Religious organizations • Other nongovernmental organizations

34. The Stakeholder Model of Responsible Firm Behavior and Firm Performance

35. Ways Stakeholder Relationships Contribute to Competitive Advantage • Timely and high quality strategic intelligence is gathered to improve a firm's strategic decisions • A trustworthy reputation draws valuable customers, suppliers, and business partners to acquire or develop competitive resources • A trustworthy reputation attracts investors to offer financial resources • Firms that have fair and respectful treatment of employee relationships attract high-quality human resources

36. Ways Stakeholder Relationships Contribute to Competitive Advantage • Transactions costs associated with making and enforcing agreements can be reduced • Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions • Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulations, legal suits and penalties, consumer dissatisfaction, employee work outages, or bad press)

37. Strategic Thinking and the Strategic Management Process • Key Terms • Strategic Management Process – full set of commitments, decisions, and actions required for a firm to create value and earn returns that are higher than those of competitors

38. Strategic Thinking • Key Terms • Strategic Intent – organizational term used for a vision that challenges and energizes a company; the leveraging of a firm's resources, capabilities, and core competencies to accomplish a firm's goals in its competitive environment • Resources – inputs into a firm's production process, such as capital equipment, employee skills, patents, high-quality managers, financial condition, etc. (Described in Chapter 4)

39. Strategic Thinking • Key Terms • Capability – capacity for a set of resources to perform a task or activity in an integrative manner • Core Competencies – resources and capabilities that serve as a source of competitive advantage for a firm over its rivals

40. Effective Formation of Strategic Intent • When all levels of a firm are committed to the pursuit of specific, significant performance criterion • When employees believe fervently in their company's product • When employees are entirely focused on the firm's ability to outperform its competitors

41. Elements of Strategic Thinking • Takes advantage of unanticipated opportunities as they arise • Recognizes all time frames (learning from past experiences, exploiting current competitive advantages, and considering long-term implications of decisions and actions) • Is a sequential process of hypothesis testing (evaluating creative ideas from their generation, to trial market assessment, to full-blown market implementation)

42. Encouraging Strategic Thinking • Employ top managers who are champions of change • Put in place systems and processes to find innovative ideas for operating ("front line") areas of an organization • Train managers and employees in strategic thinking methods and processes • Provide flexibility in strategic management processes to allow incorporation of new ideas that have potential

43. The Strategic Management Process

44. Ethical Questions What is the relationship between ethics and the firm’s stakeholders? For example, from an ethical perspective, how much information should the firm reveal to each of its stakeholders, and how should that vary among stakeholders?

45. Ethical Questions Do firms face ethical challenges—perhaps even ethical dilemmas—when trying to satisfy both short-term and long-term expectations of capital market stakeholders?

46. Ethical Questions What types of ethical issues and challenges do firms encounter when competing internationally?

47. Ethical Questions What ethical responsibilities does the firm have when it earns above-average returns? Who should make decisions regarding these issues, and why?

48. Ethical Questions How should ethical considerations be included in analyses of the firm’s external environment and internal organization?

49. Ethical Questions What should top-level managers do to ensure that a firm’s strategic management process leads to outcomes that are consistent with the firm’s values?