Strategic Management: Concepts and Cases

1. Strategic Management: Concepts and Cases Part I: Strategic Management Inputs Chapter 1: Strategic Management and Strategic Competitiveness

2. Chapter 1: Strategic Management and Strategic Competitiveness • Overview: Eight content areas • Nature of Competition • The 21st Century Competitive Landscape • I/O Model of Above-Average Returns (AAR) • Resource-Based Model of AAR • Strategic Vision and Mission • Stakeholders • Strategic Leaders • The Strategic Management Process

3. Nature of Competition: Boeing vs. Airbus • Boeing • Historically a global leader in airplane manufacturing • Revenue from commercial aircraft division & gov’t contracts • Regained supremacy in 2006: more 787 super jumbo orders vs. Airbus’s more efficient A-380 • Changed strategy and design • Different production process • Smaller plane (787 Dreamliner) • Airbus • EU Government owned and subsidized • Won competitor battle with Boeing between 2001 & 2005 • Responded to customer demands with more efficient A-380 aircraft

4. Nature of Competition: Basic concepts • Strategic Competitiveness • Achieved when a firm formulate & implements a value-creating strategy • Strategy • Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage • Competitive Advantage (CA) • Implemented strategy that competitors are unable to duplicate or find too costly to imitate • Above Average Returns • Returns in excess of what investor expects in comparison to other investments with similar risk

5. Nature of Competition: Basic concepts (Cont’d) • Risk • Investor’s uncertainty about economic gains/losses resulting from a particular investment • Average Returns • Returns equal to what investor expects in comparison to other investments with similar risk • Strategic Management Process (SMP) • Full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average returns

6. The Strategic Management Process

7. Chapter 1: Strategic Management and Strategic Competitiveness • Overview: Eight content areas • Nature of Competition • The 21st Century Competitive Landscape • I/O Model of Above-Average Returns (AAR) • Resource-Based Model of AAR • Strategic Vision and Mission • Stakeholders • Strategic Leaders • The Strategic Management Process

8. 21st Century Competitive Landscape • Introduction: The Competitive Landscape (CL) • Pace of change is rapid • Partnerships created by mergers & acquisitions (M&As) • Other CL characteristics: Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovative

9. 21st Century Competitive Landscape (Cont’d) • Introduction: The Competitive Landscape (CL) • Hypercompetition – extremely intense rivalry among competing firms, characterized by • Escalating & increasingly aggressive competitive moves • Assumptions of market stability replaced with notion of INstability and change • Two primary drivers of the competitive landscape: • The global economy • Technology

10. 21st Century Competitive Landscape (Cont’d) • The Global Economy • Goods, services, people, skills and ideas move freely across geographic borders • Europe, through the European Union (EU) is the world’s largest single market • EU vs U.S. GDP: 35% higher • Emerging major competitive forces: China & India • In summary: globalization increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders

11. 21st Century Competitive Landscape (Cont’d) • Technology and Technological Changes • 3 categories: • 1. Technology diffusion & disruptive technologies • 2. The information age • 3. Increasing knowledge intensity

12. 21st Century Competitive Landscape (Cont’d) • Technology and Technology Changes (Cont’d) • Technology diffusion • Perpetual innovation: describes how new information-intensive technologies are replacing older forms • Speed to market may be primary competitive advantage • 12 – 18 month timeframe to gather info re: competitor R&D • Disruptive technologies • Technologies that • Destroy value of existing technology • Create new markets

13. 21st Century Competitive Landscape (Cont’d) • Technology and Technology Changes (Cont’d) • 1. Technology diffusion & disruptive technologies • 2. The information age • 3. Increasing knowledge intensity

14. 21st Century Competitive Landscape (Cont’d) • Technology and Technology Changes (Cont’d) • The information age • Dramatic changes over last several years • Major technological developments: computers, phones, artificial intelligence, virtual reality • Internet provides infrastructure for information anytime, anywhere • Increasing knowledge intensity • Defined as information, intelligence & expertise and is the basis of technology and its application • Gained through experience, observations and inferences • Strategic Flexibility – set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment

15. Chapter 1: Strategic Management and Strategic Competitiveness • Overview: Eight content areas • Nature of Competition • The 21st C Competitive Landscape • I/O Model of Above-Average Returns (AAR) • Resource-Based Model of AAR • Strategic Vision and Mission • Stakeholders • Strategic Leaders • The Strategic Management Process

16. Industrial Organizational (I/O) Model of Above-Average Returns (AAR)

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

18. Industrial Organizational (I/O) Model of Above-Average Returns (AAR) • Underlying Assumptions • External environment imposes pressures and constraints that determine the strategies resulting in AAR • Most firms compete within a particular industry/segment • Control similar strategically relevant resources • Pursue similar strategies in light of those resources • Resources for implementing strategies are highly mobile across firms • Therefore any resource differences between firms will be short-lived • Organizational decision makers are rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors

19. Industrial Organizational (I/O) Model of Above-Average Returns (AAR) • Five-Forces Model (Michael Porter) • The 5 Forces includes • Suppliers, buyers, competitive rivalry, product substitutes and potential entrants • Reinforces the importance of economic theory • Analytical tool previously lacking in the field of strategy • Determines the nature/level of competition and profit potential in an industry • Suggests an industry’s profitability is an interaction between these 5 forces

20. Industrial Organizational (I/O) Model of Above-Average Returns (AAR) (Cont’d) • Limitations • Only two strategies are suggested: • Cost Leadership • THE low-cost leader • Differentiation • Customer willing to pay the premium price for ‘being different’ • Internal resources & capabilities not considered

21. The Resource-Based Model of AAR

22. The Resource-Based Model of AAR (Cont’d) • Basic Premise - a firm's unique [internal] resources & capabilities, in combination, is the basis for firm strategy and AAR • Each firm’s performance difference across time emerges (vs industry’s structural characteristics) • Combined uniqueness should define the firms’ strategic actions • Resources are tangible and intangible

23. The Resource-Based Model of AAR (Cont’d) • Resources • Inputs into a firm's production process • Includes capital equipment, employee skills, patents, high-quality managers, financial condition, etc. • Basis for competitive advantage: When resources are valuable, rare, costly to imitate and nonsubsitutable • Internal/firm-specific resources (N=3) • Physical • Things you can touch/feel = tangible • Human • People / employees • Organizational capital • Relative to the firm itself

24. The Resource-Based Model of AAR (Cont’d) • Capability • Capacity for a set of resources to perform a task or activity in an integrative manner • Core Competency • A firm’s resources and capabilities that serve as sources of competitive advantage over its rival • Summary • A firm has superior performance because of • Unique resources and capabilities, and the combination makes them different, and better, than their competition – driving the competitive advantage

25. Chapter 1: Strategic Management and Strategic Competitiveness • Overview: Eight content areas • Nature of Competition • The 21st C Competitive Landscape • I/O Model of Above-Average Returns (AAR) • Resource-Based Model of AAR • Strategic Vision and Mission • Stakeholders • Strategic Leaders • The Strategic Management Process

26. Vision and Mission • Vision • Picture of what the firm wants to be • What the firm ultimately wants to achieve • An effective vision statement is the responsibility of the leader who should work with others to form it • Foundation for the mission • Mission • Specifics business(es) in which firm intends to compete and customers it intends to serve • More specific than the vision

27. Stakeholders • Basic Premise – a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors • Stakeholders are individuals and groups • They can affect, and are affected by, the strategic outcomes/performance a firm achieves • Three (3) classifications

28. The Three Stakeholder Groups

29. Stakeholders (Cont’d) • Classifications of Stakeholders • Capital Market • Expect returns commiserate with risk accepted by investments • Higher the dependency relationship, the more direct and significant firm’s response • Product Market • The 4 groups benefit due to competitive battles • Organizational • The employees

30. Chapter 1: Strategic Management and Strategic Competitiveness • Overview: Eight content areas • Nature of Competition • The 21st C Competitive Landscape • I/O Model of Above-Average Returns (AAR) • Resource-Based Model of AAR • Strategic Vision and Mission • Stakeholders • Strategic Leaders • The Strategic Management Process

31. Strategic Leaders • People located in different parts of the firm using the strategic management process to help the firm reach its vision and mission • Decisive and committed to nurturing those around them • Create and sustain organizational culture • Organizational culture emerges from & sustained by leaders • Complex set of ideologies, symbols and core values shared throughout the firm • Affects leaders/their work which in-turn shapes culture • Influences how the firm conducts business

32. Strategic Leaders (Cont’d) • The Work of Effective Strategic Leaders • Work long hours • Must be able to “think seriously and deeply…about the purposes of the organizations they head or functions they perform, about strategies, tactics,…..and people…and about the important questions … they need to ask.” • Predicting Outcomes: Profit Pools (PP) • Anticipates their decisions relative to the PP • Entails the total profits earned in an industry at all points along the value chain

33. Strategic Management Process • Rational approach used by firms to achieve strategic competitiveness and earn above average returns (AAR) • Figure 1.1 (Diagram of chapter relationships) • Part 1: Strategic Mgmt Inputs • Part 2: Strategic Actions: Strategy Formulation • Part 3: Strategic Actions: Strategy Implementation • Part 4: Cases