Strategic Management

1. Strategic Management

2. Contents • Strategic Management and Strategic Competitiveness • The External Environment: Opportunities, Threats, Industry Competition, & Competitor Analysis • The internal environment: resources & core competencies • Business-Level Strategy • Competitive rivalry and competitive dynamics • Corporate-Level Strategy • Merger and Acquisition Strategies • International Strategy • Cooperative Strategy • Corporate governance • Organizational structure and controls • Strategic leadership • Strategic entrepreneurship

4. 1. Strategic Management and Strategic Competitiveness

5. Step 1: Analyze strategic inputs • Evaluate competitive, global landscape • Challenging landscape created by an emerging global economy, its resulting globalization, and rapid changes in technology.

6. 2 models to analyze strategic inputs • Industrial organization (I/O) model • External environment is primary determinant of a firm’s strategic actions • Model focuses on the firm’s external environment • Resource-based model • A firm’s unique resources and capabilities are the critical link to strategic competitiveness. • Model focuses on the firm’s internal environment

7. Technology and technological changes • Technology significantly alters competition and contributes to unstable competitive environments. • 3 categories of technology trends and conditions • technology diffusion and disruptive technologies • the information age • increasing knowledge intensity

8. I/O model of above-average returns • According to the model, the industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their organizations.

9. I/O model suggests strategies • Firms may earn above-average returns by • manufacturing standardized products, or producing standardized services at costs below those of competitors (a cost leadership strategy), or • manufacturing differentiated products for which customers are willing to pay a price premium(a differentiation strategy).

10. Resource-based model • Assumes each organization is a collection of unique resources and capabilities, and uniqueness of its resources and capabilities is the basis for a firm’s strategy and ability to earn above-average returns.

11. Resource-based model • Using this model, a firm would choose to enter an industry in which it had competitive advantages • To become a competitive advantage, a resource or capability must be valuable, rare, costly to imitate, and not substitutable.

12. Step 2: Take strategic action • Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. • A mission specifies the business(es) in which the firm intends to compete and the customers it intends to serve.

13. Classifications of stakeholders Insert figure Figure 1.4 The Three Stakeholder Groups Stakeholders people who are affected by a firm*s performance • Capital Market Stakeholders • Shareholdres • Major suppliers of capital • Product Market Stakeholders • Primary customsers • Suppliers • Host communities • Unions • Organizational Stakeholders • Employcers • Managers • Nonmanagers

14. Step 3: Realize strategic outcomes • Strategic leaders must predict the potential outcomes of their strategic decisions. • To do so, they must first calculate profit pools in their industry that are linked to value chain activities. • A profit pool entails the total profits earned in an industry at all points along the value chain.

15. 2. The External Environment: Opportunities, Threats, Industry Competition, & Competitor Analysis

16. THE STRATEGIC MANAGEMENT PROCESS

17. IMPORTANT DEFINITIONS • General Enironment • Dimensions in the broader society that influence an industry and the firms within it • Industry Enironment • Set of factors that directly influences a firm andits competitive actions and response • Comptitor Enironment • Focuses on each company against which a firm directly competes

18. THE EXTERNAL ENVIRONMENT

19. OPENING CASE BRITISH PETROLEUM (BP) External environment affects a firm’s strategic actions ●BP seeks to expand its oil reserves after the Deepwater Horizon oil and gas drilling platform disaster in the Gulf of Mexico by forming joint ventures in Russia with Rosneft Corporation and in India with Reliance Industries. ●BP’s strategic actions are also affected by conditions in other segments of its general environment: e.g., the political/legal, social/cultural, and physical environment segments.

20. THE EXTERNAL ENVIRONMENT A firm’s external environment creates: ● OPPORTUNITIES e.g., the opportunity for BP to enter other global markets, and ● THREATS e.g., the possibility that additional regulations in its markets will reduce opportunities for BP to extract oil and gas Collectively, opportunities and threats affect a firm’s strategic actions

21. THE EXTERNAL ENVIRONMENT MATCHING

22. EXTERNAL ENVIRONMENTAL ANALYSIS External environments are: Turbulent Complex Global Uncertain Ambiguous Incomplete Firms engage in external environmental analysis to better understand and cope with their environments. This analysis has four parts: scanning, monitoring, forecasting, and assessing.

23. THE EXTERNAL ENVIRONMENT GENERAL ●The General Environment is grouped into seven environmental segments: [1] Demographic [2] Economic [3] Political/Legal [4] Sociocultural [5] Technological [6] Global [7] Physical ●To successfully deal with uncertainty in the external environment and achieve strategic competitiveness, firms must be aware of and understand these segments.

24. INDUSTRY ENVIRONMENT ANALYSIS FIGURE 2.2 The Five Forces of Competition Model

25. INDUSTRY ENVIRONMENT ANALYSIS • 1/5 THREAT OF NEW ENTRANTS: BARRIERS TO ENTRY THE FIVE FORCES OF COMPETITION MODEL • FUNCTION OF TWO FACTORS • 1 BARRIERS TO ENTRY • ● Economies of scale • ● Product differentiation • ● Capital requirements • ● Switching costs • ● Access to distribution channels • ● Cost disadvantages independent of scale • ● Government policy • 2 EXPECTED RETALIATION

26. INDUSTRY ENVIRONMENT ANALYSIS • 2/5 BARGAINING POWER OF SUPPLIERS THE FIVE FORCES OF COMPETITION MODEL SUPPLIER POWER INCREASES WHEN (cont’d): ● Suppliers’ products create high switching costs ● Suppliers have substantial resources and provide a highly differentiated product ● Suppliers pose a credible threat to integrate forward into the buyers’ industry

27. INDUSTRY ENVIRONMENT ANALYSIS • 3/5 BARGAINING POWER OF BUYERS THE FIVE FORCES OF COMPETITION MODEL • BUYER POWER INCREASES WHEN: • ● Buyers purchase a large portion of an industry’s total output • ● Buyers’ purchases are a significant portion of a seller’s annual revenues • ● Switching costs are low (to other industry product)

28. INDUSTRY ENVIRONMENT ANALYSIS • 4/5 THREAT OF SUBSTITUTE PRODUCTS THE FIVE FORCES OF COMPETITION MODEL • THREAT OF SUBSTITUTE PRODUCTS INCREASES WHEN: • ● Buyers face few switching costs • ● The substitute product’s price is lower • ● Substitute product’s quality and performance are equal to or greater than the existing product • ● Differentiated industry products that are valued by customers reduce this threat

29. INDUSTRY ENVIRONMENT ANALYSIS • 5/5 INTENSITY OF RIVALRY AMONG COMPETITORS THE FIVE FORCES OF COMPETITION MODEL • INDUSTRY RESTRUCTURED THROUGH COMPETITORS • STRATEGIC FOCUS: The Multi-Industry Battle for Mobile and Home Digital Computing and Entertainment • ● The process of new technology creation, utilization, and commercialization ultimately leads to changes in organizational patterns, and in particular, strategic alliances and mergers and acquisitions as firms restructure themselves around the opportunities being created.

30. INDUSTRY ENVIRONMENT ANALYSIS UnattractiveIndustry • INTERPRETING INDUSTRY ANALYSES THE FIVE FORCES OF COMPETITION MODEL Low entry barriers Suppliers and buyers have strong positions Strong threats from substitute products Intense rivalry among competitors LOW PROFIT POTENTIAL

31. INDUSTRY ENVIRONMENT ANALYSIS AttractiveIndustry • INTERPRETING INDUSTRY ANALYSES THE FIVE FORCES OF COMPETITION MODEL High entry barriers Suppliers and buyers have weak positions Few threats from substitute products Moderate rivalry among competitors HIGH PROFIT POTENTIAL

32. INDUSTRY ENVIRONMENT ANALYSIS: STRATEGIC GROUPS STRATEGIC GROUP DEFINED ● A set of firms emphasizing similar strategic dimensions and using similar strategies ● The competition within a strategic group is greater than the competition between strategic groups ● There is more heterogeneity in the performance of firms within strategic groups ■ Similar market positions ■ Similar products ■ Similar strategic actions

33. COMPETITOR ANALYSIS COMPETITOR INTELLIGENCE ■ Set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities ■ The ethical and legal gathering of needed information and data that provides insight into: ● What drives competitors ■ Shown by organization's future objectives ● What the competitor is doing and can do ■ Revealed in organization's current strategy ● What the competitor believes about the industry ■ Shown in organization's assumptions ● What the competitor’s capabilities are ■ Shown by organization's strengths and weaknesses

34. COMPETITOR ANALYSIS COMPONENTS FIGURE 2.3 Competitor Analysis Components

35. COMPETITOR ANALYSIS: COMPLEMENTORS Complementors:The network of companies that sell complementary products or services or are compatible with the focal firm’s own product or service. Complementors expand the set of competitors that firms must evaluate when completing a competitor analysis

36. COMPETITOR ANALYSIS: ETHICAL CONSIDERATIONS Unethical tactics can include:

37. 3. THE INTERNAL ENVIRONMENT: RESOURCES, CAPABILITIES, & CORE COMPETENCIES

38. THE STRATEGIC MANAGEMENT PROCESS FIGURE 1.1 The Startegic Management Process

39. EXTERNAL ANALYSES’ OUTCOMES Opportunities and Threats By studying the external environment, firms identify what they MIGHT CHOOSE TO DO

40. INTERNAL ANALYSES’ OUTCOMES Unique Resources, Capabilities, and Competencies(required for sustainable competitive advantage) By studying the internal environment, firms identify what they CAN DO

41. INTERNAL ORGANIZATION STRATEGIC COMPETITIVENESS AND ABOVE-AVERAGE RETURNS RESULT WHEN: • What a firm can do: • Function of resources, capabilities, and core competencies EXTERNAL ENVIRONMENT • What a firm might do: • Function of opportunities in the firm’s external environment MATCHES

42. ANALYZING THE INTERNAL ORGANIZATION • The Context of Internal Analysis • Global Economy • Traditional sources of advantages can be overcome by competitors’ international strategies and by the flow of resources throughout the global economy • Global Mindset • The ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture, or context • Analysis Outcome • Understanding how to leverage the firm’s bundle of heterogeneous resources and capabilities

43. COMPETITIVE ADVANTAGE Components of Internal Analysis Leading to Competitive Advantage and Strategic Competitiveness FIGURE 3.1 Components of an Internal Analysis

44. ANALYZING THE INTERNAL ORGANIZATION FIGURE 3.2 Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competences

45. ANALYZING THE INTERNAL ORGANIZATION • The Challenge of Analyzing the Internal Organization • Learning • ● Generated by making and correcting mistakes; can be important in creating new capabilities and core competencies • Judgment is required under these conditions • ● Decision makers often take intelligent risks • ● With good judgment, successful strategic leaders achieve strategic competitiveness

46. Core Competencies Capabilities • Resources • Tangible • Intangible RESOURCES, CAPABILITIES, AND CORE COMPETENCIES Resources and superior capabilities that are sources of competitive advantage over a firm’s rivals An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage Providing value to customers and gaining competitive advantage by exploiting core competencies in individual product markets

47. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES Core Competencies Capabilities • Resources • Tangible • Intangible • RESOURCES • Are the source of a firm’s capabilities • Are broad in scope • Cover a spectrum of individual, social, and organizational phenomena • Represent inputs into a firm’s production process • Alone, do not yield a competitive advantage, i.e., by themselves do not allow firms to create value that results in above-average returns

48. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES • TYPES OF RESOURCES • Tangible Resources • Assets that can be seen, touched, and quantified • Intangible Resources • Assets rooted deeply in the firm’s history, accumulated over time • In comparison to ‘tangible’ resources, usually can’t be seen or touched Compared to tangible resources, intangible resources are a superior source of core competencies

49. RESOURCES, CAPABILITIES AND, CORE COMPETENCIES TYPES OF RESOURCES • Intangible Resources • HUMAN RESOURCES - knowledge; trust; skills; collaborative abilities • INNOVATION RESOURCES - scientific capabilities; capacity to innovate • REPUTATIONAL RESOURCES - brand name; perceptions of product quality, durability, and reliability; positive reputation with stakeholders, e.g., suppliers/customers

50. Core Competencies Capabilities • Resources • Tangible • Intangible RESOURCES, CAPABILITIES, AND CORE COMPETENCIES • CAPABILITIES • ■ Emerge over time through complex interactions among tangible and intangible resources • ■ Stem from employees • Unique skills and knowledge • Functional expertise • ■ Are activities that a firm performs exceptionally well relative to rivals • ■ Are activities through which the firm adds unique value to its goods or services over an extended period of time