Strategic Management

1. Strategic Management

2. BUSINESS the art of making irrevocable decisions based on insufficient knowledge

3. STRATEGY Insight into how to create value

4. STRATEGY Insight into how to create value

5. STRATEGIC MANAGEMENT managerial decisions and actions that determine the long-run performance of a corporation Emphasizes monitoring and evaluating environment (external) (external)

6. The Strategic Management Process Chapter 2 The External Environment Strategic Intent Strategic Mission Strategic Inputs Chapter 3 The Internal Environment Strategy Implementation Strategy Formulation Chapter 4 Business-Level Strategy Chapter 5 Competitive Rivalry and Competitive Dynamics Chapter 6 Corporate- Level Strategy Chapter 10 Corporate Governance Chapter 11 Organizational Structure and Controls Strategic Actions Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 9 Cooperative Strategy Chapter 12 Strategic Leadership Chapter 13 Strategic Entrepreneurship Strategic Competitiveness Above-Average Returns Strategic Outcomes Feedback

7. Important Definitions Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Sustained Competitive Advantage Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk

8. CHARACTERISTIC 20TH CENTURY 21ST CENTURY What a Difference a Century Can MakeContrasting views of the corporation: ORGANIZATION The Pyramid The Web or Network FOCUS Internal External STYLE Structured Flexible SOURCE OF STRENGHT Stability Change STRUCTURE Self-sufficiency Interdependencies RESOUCES Atoms-physical assets Bits-information OPERATIONS Vertical integration Virtual integration PRODUCTS Mass production Mass customization REACH Domestic Global DATA: BUSINESS WEEK

9. What a Difference a Century Can MakeContrasting views of the corporation: CHARACTERISTIC 20TH CENTURY 21ST CENTURY FININCIALS Quarterly Real time INVENTORIES Months Hours STRATEGY Top-down Bottom-up LEADERSHIP Dogmatic Inspirational WORKERS Employees Employees/free agents JOB EXPECTIONS Security Personal growth MOTIVATION To compete To build IMPROVEMENTS Incremental Revolutionary QYALITY Affordable best No compromise DATA: BUSINESS WEEK

10. 21st Century Competitive Landscape Fundamental nature of competition is changing The pace of change is relentless.... and increasing • Rapid technological changes Traditional industry boundaries are blurring, such as... • Rapid technology diffusions Dramatic changes in information and communication technologies • Computers • Telecommunications • Increasing importance of knowledge

11. 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

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

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

14. I/O Model The Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.

15. I/O Model of Above-Average Returns External Environments 1. Strategy dictated by the external environments 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?) General Global Industry Environment Political/Legal Demographic Competitor Environment Economic Sociocultural Technological

16. Resource-Based Model The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

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

18. Four Attributes of Resources and Capabilities (Competitive Advantage) allow the firm to exploit opportunities or neutralize threats in its external environment Valuable 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 other products can not accomplish the same function

19. Resources and capabilities that meet these four criteria become a source of: Strategic competitiveness Valuable Competitive advantage Rare Core Competencies Resources and Capabilities Costly to imitate Nonsubstitutable Ability to earn above-average returns

20. 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

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

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

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

24. Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm 1 How do you divide the returns to keep stakeholders involved? Capital Market Organizational 2 How do you increase the returns so everyone has more to share? Product Market Real Issue

25. Purpose of Strategy Value Creation One definition use core competence and synergy to provide increased benefits with lower costs paid.

26. Purpose of Strategy SYNERGY: when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone. CORE COMPETENCE: something the organization does especially well in comparison to its competitors

27. STRATEGY Insight into how to create value

28. Strategic Management Environmental Analysis

29. Identify • Strategic • Factors: • Opportunities • Threats Scan External Environment • Implement • Strategy via • Changes in: • Leadership • Culture • Human • Resources • Information • and Control • Systems • Formulate • Strategy: • Corporate • Business • Evaluate • Current: • Mission • Goals • Strategies • Define New: • Mission • Goals • Identify • Strategic • Factors: • Strengths • Weaknesses Scan Internal Environment

30. Strategic Management Process How are they doing? Are they reflective? Are they aspirational? Are they relevant? • Evaluate • Current: • Mission • Goals • Strategies

31. Scan External • Environment • Evaluate • Current: • Mission • Goals • Strategies

32. External Environmental Analysis A continuous process which includes • Scanning: Identifying early signals of environmental changes and trends • Monitoring: Detecting meaning through ongoing observations of environmental changes and trends • Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends • Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

33. The External Environment General Global Political/Legal Demographic Economic Sociocultural Technological

34. The External Environment General Global Political/Legal The layer of the external environment that affects the organization indirectly. Demographic Economic Sociocultural Technological

35. Sociocultural segment General Environment • Women in the workplace • Workforce diversity • Attitudes about quality of worklife • Concerns about environment • Shifts in work and career preferences • Shifts in product and service preferences

36. General Environment • Economic segment • Inflation rates • Interest rates • Trade deficits or surpluses • Budget deficits or surpluses • Personal savings rate • Business savings rates • Gross domestic product

37. Political/Legal Segment General Environment • Antitrust laws • Taxation laws • Deregulation philosophies • Labor training laws • Educational philosophies and policies

38. General Environment • Technological Segment • Product innovations • Applications of knowledge • Focus of private and government-supported R&D expenditures • New communication technologies

39. Global Segment General Environment • Important political events • Critical global markets • Newly industrialize countries • Different cultural and institutional attributes

40. General Environment • Demographic Segment • Population size • Age structure • Geographic distribution • Ethnic mix • Income distribution

41. The External Environment General Global Political/Legal Demographic Economic Sociocultural Technological

42. The External Environment General Global Industry Environment Political/Legal The layer of the external environment that affects the organization directly. Demographic Competitor Environment Economic Sociocultural Technological

43. Industry Environment • A set of factors that directly influences a company and its competitive actions and responses. • Interaction among these factors determine an industry’s profit potential.

44. Five Forces Model of Competition Five Forces of Competition Rivalry Among Competing Firms Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Buyers

45. Threat of New Entrants • Barriers to entry • Economies of scale • Product differentiation • Capital requirements • Switching costs • Access to distribution channels • Cost disadvantages independent of scale • Government policy • Expected retaliation

46. Bargaining Power of Suppliers • A supplier group is powerful when: • it is dominated by a few large companies • satisfactory substitute products are not available to industry firms • industry firms are not a significant customer for the supplier group • suppliers’ goods are critical to buyers’ marketplace success • effectiveness of suppliers’ products has created high switching costs • suppliers are a credible threat to integrate forward into the buyers’ industry

47. Bargaining Power of Buyers • Buyers (customers) are powerful when: • they purchase a large portion of an industry’s total output • the sales of the product being purchased account for a significant portion of the seller’s annual revenues • they could easily switch to another product • the industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the seller’s industry

48. Threat of Substitute Products • Product substitutes are strong threat when: • customers face few switching costs • substitute product’s price is lower • substitute product’s quality and performance capabilities are equal to or greater than those of the competing product

49. Intensity of Rivalry • Intensity of rivalry is stronger when competitors: • are numerous or equally balanced • experience slow industry growth • have high fixed costs or high storage costs • lack differentiation or low switching costs • experience high strategic stakes • have high exit barriers

50. High Exit Barriers • Common exit barriers include: • specialized assets (assets with values linked to a particular business or location) • fixed costs of exit such as labor agreements • strategic interrelationships (relationships of mutual dependence between one business and other parts of a company’s operation, such as shared facilities and access to financial markets) • emotional barriers (career concerns, loyalty to employees, etc.) • government and social restrictions