Competing for Advantage Robert E. Hoskisson Michael A. Hitt R. Duane Ireland

1. Competing for AdvantageRobert E. HoskissonMichael A. HittR. Duane Ireland The PowerPoint slides for this textbook were prepared by: R. Dennis Middlemist Professor of Management Colorado State University If you have any concerns, contact me directly at Dennis@Middlemist.com This slide is informational only. Do not display in the classroom.

2. Chapter 1 Introduction toStrategic Management Robert E. Hoskisson Michael A. Hitt R. Duane Ireland ©2004 by South-Western/Thomson Learning

3. The Strategic Management Process Chapter 1 Introduction to Strategic Management Chapter 2 Strategic Leadership Strategic Thinking Chapter 3 The External Environment Chapter 4 The Internal Organization Strategic Intent Strategic Mission Strategic Analysis Chapter 5 Business-Level Strategy Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 7 Corporate-Level Strategy Creating Competitive Advantage Chapter 8 Acquisition and Restructuring Strategies Chapter 9 International Strategy Chapter 10 Cooperative Strategy Monitoring And Creating Entrepreneurial Opportunities Chapter 11 Corporate Governance Chapter 12 Strategic Entrepreneurship

4. Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns Value Creation What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate.

5. Definitions Average Returns Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Above-Average Returns Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk

6. Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment

7. Competitive Landscape Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new know-how, first mover Hypercompetitive environments Protect or invade established product or geographic markets Fundamental nature of competition is changing

8. Competitive Landscape Goods, services, people, skills, and ideas move freely across geographic borders Emergence of global economy Spread of economic innovations around the world Hypercompetitive environments Political and cultural adjustments are required Fundamental nature of competition is changing

9. Competitive Landscape Increasing rate of technological change and diffusion Emergence of global economy Rapid technological change The information age Increasing knowledge intensity Hypercompetitive environments Fundamental nature of competition is changing

10. Strategic Flexibility A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks

11. Strategic reorientation Capacity to learn Organizational slack Strategic Flexibility Strategic Flexibility Strategic Flexibility Strategic flexibility

12. General Global Political/Legal Demographic Economic Sociocultural Technological Environment I/O Model of Above-Average Returns 1. External Environments 1. Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?) Industry Environment Competitor Environment

13. Four Assumptions of the I/O Model 1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns 2. Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources

14. Four Assumptions of the I/O Model 3. Resources used to implement strategies are highly mobile across firms 4. Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors

15. The External Environment I/O Model of Above-Average Returns • 1. Study the external environment, especially the industry environment • economies of scale • barriers to market entry • diversification • product differentiation • degree of concentration of firms in the industry Industrial Organization Model

16. The External Environment An Attractive Industry I/O Model of Above-Average Returns 2. Locate an attractive industry with a high potential for above-average returns Industrial Organization Model Attractive industry: one whose structural characteristics suggest above-average returns

17. The External Environment An Attractive Industry Strategy Formulation I/O Model of Above-Average Returns 3. Identify the strategy called for by the attractive industry to earn above-average returns Industrial Organization Model Strategy formulation: selection of a strategy linked with above-average returns in a particular industry

18. The External Environment An Attractive Industry Strategy Formulation Assets and Skills I/O Model of Above-Average Returns 4. Develop or acquire assets and skills needed to implement the strategy Industrial Organization Model Assets and skills: those assets and skills required to implement a chosen strategy

19. The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation I/O Model of Above-Average Returns 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy Industrial Organization Model Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy

20. The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns I/O Model of Above-Average Returns Industrial Organization Model Superior returns: earning of above-average returns

21. The Firm Resource-based Model of Above Average Returns 1. Strategy dictated by the firm’s unique resources and capabilities 2. Find an environment in which to exploit these assets (where are the best opportunities?) 1. Firm’s Resources

22. Resources Resource-based Model of Above Average Returns 1. Identify the firm’s resources-- strengths and weaknesses compared with competitors Resource-based Model Resources: inputs into a firm’s production process

23. Resources Capability Resource-based Model of Above Average Returns 2. Determine the firm’s capabilities--what it can do better than its competitors Resource-based Model Capability: capacity of an integrated set of resources to integratively perform a task or activity

24. Four Attributes of Resources and Capabilities (Competitive Advantage) Valuable allow the firm to exploit opportunities or neutralize threats in its external environment Rare possessed by few, if any, current and potential competitors Resources and Capabilities Costly to imitate when other firms cannot obtain them or must obtain them at a much higher cost Nonsubstitutable the firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage

25. Resources and capabilities that meet these four criteria become a source of: Valuable Rare Core Competencies Core Competencies Resources and Capabilities Costly to imitate Nonsubstitutable

26. Core Competencies are the basis for a firm’s Competitive advantage Value Creation Core Competencies Ability to earn above-average returns

27. Resources Capability Competitive Advantage Resource-based Model of Above Average Returns 3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Resource-based Model Competitive advantage: ability of a firm to outperform its rivals

28. Resources Capability Competitive Advantage An Attractive Industry Resource-based Model of Above Average Returns 4. Locate an attractive industry Resource-based Model An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities

29. Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Resource-based Model of Above Average Returns 5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Resource-based Model Strategy formulation and implementation: strategic actions taken to earn above average returns

30. Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns Resource-based Model of Above Average Returns Resource-based Model Superior returns: earning of above-average returns

31. Strategic Intent & Mission • Strategic Intent • Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies • Strategic Mission • An application of strategic intent in terms of products to be offered and markets to be served

32. THE FIRM The Firm and Its Stakeholders Stakeholders Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders

33. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders • Shareholders • Major suppliers of capital • Banks • Private lenders • Venture capitalists

34. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Product Market Stakeholders Primary customers Suppliers Host communities Unions

35. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders Employees Managers Nonmanagers

36. Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Capital Market Organizational 1 How do you divide the returns to keep stakeholders involved? Product Market

37. Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Capital Market Organizational 2 How do you increase the returns so everyone has more to share? Product Market

38. Organizational Strategists • Serve as a major source of competitive advantage • Are held responsible by stakeholders • Make decisions regarding development, acquisition, cost and use of resources • Assess risks of strategic actions