Chapter 2: The Context of Managing Strategically

1. Chapter 2: The Context of Managing Strategically Moses Acquaah, Ph.D. 377 Bryan Building Phone: (336) 334-5305 Email: acquaah@uncg.edu

2. Managing Strategically & Competitive Advantage • Managing Strategically • Making decisions and implementing strategies that develop and maintain competitive advantage • Recognize the impact of dynamic external factors • Capitalize on organizational resources & capabilities

3. Managing Strategically & Competitive Advantage • What is Competitive Advantage (CA)? • Competitive advantage is what sets a company apart from rivals or a company’s competitive edge • CA is attained by: • Controlling or having something other rivals do not have; or • Doing something better than other organizations can do; or • Doing something that other organizations cannot do • CA is a necessary ingredient for an organization’s long-term success & survival • True for both for-profit, not-for-profit organizations and government agencies and departments

4. Perspectives on Competitive Advantage • Industrial Organization (I/O) View Proposed by Michael Porter -- Focus on impact of external environment (especially industry) • Structural forces within an industry • Size and growth of the market • Extent of integration (backward/forward) in industry • Capital requirements • Economies of scale, etc.

5. Perspectives on Competitive Advantage • Industrial Organization (I/O) View • The nature & intensity of competitive environment • Scope of competition – local, regional, national, global • Number of rivals and their relative sizes • Firm’s position within the industry • According to Michael Porter • The structure of an industry determines the appropriate organizational conduct (i.e., strategic decisions & actions). • The organizational conduct in turn determines the organization’s performance

6. Perspectives on Competitive Advantage • The Resource-Based View • Organizations have different collection of assets (resources) and capabilities • No two organizations will be alike because they’ve not had the same set of experiences, history, culture, or acquired the same assets & capabilities • Focus on developing & exploiting resources and capabilities to maintain and sustain CA • Differences in assets, capabilities, culture, & experiences • Link internal resources & capabilities to external factors

7. Perspectives on Competitive Advantage • The Resource-Based View • Key resources that may provide a sustainable CA • Financial assets: -- actual & potential debt & equity used by the organization; R/E & other financial holdings • Physical assets: – machines, buildings, raw materials, & other tangible materials the company has. • Human resources: – abilities, skills, knowledge, competencies of organization’s employees, etc • Intangible assets: – brand name, patents, reputation, databases, copyrights, trademarks, etc • Structural-cultural assets: – culture, history, work systems, organizational policies, structures, etc.

8. Perspectives on Competitive Advantage • The Resource-Based View • Uniqueness of resources • Valuable – can be used to exploit external opportunities & neutralize external threats • Rare – no other competing firm should possess the resource • Hard to imitate – should be difficult to duplicate & substitute • Ability to exploit – firm must have necessary structures, systems, policies, procedures to exploit it to its advantage

9. Uniqueness of Organizational Resources Is it rare? Does it add value? Org. Resources as Competitive Advantage Can the firm exploit it? Is it easily imitated?

10. Perspectives on Competitive Advantage • The Guerilla View • CA is only temporary & can be sustained through rapid radical surprises • Environment characterized by continual, radical, & revolutionary changes • Successful organizations must be adept at • Rapid & repeated disruptions of current situation • Radical surprises of strategic actions that keep rivals off balance • The successful organization will repeatedly form new CAs based on different rules & different asset combinations than the existing strategies being used

11. Perspectives on Competitive Advantage • All three views complement one another • Each brings a unique perspective to understanding CA • I/O view addresses the need to look at the external environment, particularly industry & competitors, and emphasizes competitive positioning • The RBV considers the need to look inside the firm for unique resources &capabilities that can be exploited • The Guerrilla view forces strategic decision makers to recognize that the chaotic nature of the external environment can affect what is considered a CA & how long that CA can last

12. The New Business Environment • DRIVERS OF THE NEW BUSINESS ENVIRONMENT • Information revolution • Technological advances & breakthroughs • Globalization • IMPLICATIONS • Continual Turbulence & change • Reduced need for physical assets • Vanishing distance • Compressed time • CRITICAL SUCCESS FACTORS • Ability to embrace change • Creativity & Innovation • Being a world-class org. • Org. mission, vision, & objectives • Corporate social responsibility • Organizational learning

13. Drivers of the New Business Environment (NBE) • Information Revolution • Information readily available to everyone • Information as the essential resource of production • Technological advances and breakthroughs • Technology defined: the performance of tasks with equipment, materials, knowledge, and experience

14. Drivers of the NBE • Technological advances and breakthroughs • Four major technological trends • Increasing rate of change and diffusion of technological advances • Increasing commercialization of innovations • Innovation is the process of taking a creative idea and turning it into a product or process that can be used or sold • Increasing dependence on knowledge intensity • Advent of increasing returns • the tendency for that which is ahead to get further ahead, & for that which losses advantage to lose further advantage

15. Drivers of the NBE • Globalization • The international linkage of economies and cultures that fosters business & competitive situations without national boundaries • Global Impact • Marketplace – opportunity to market their goods & services; & a critical source of resources • Competitors – competitors come from anywhere; competitors are not always a threat, they can be partners

16. Drivers of the NBE • Globalization • It’s more than producing, marketing & distributing goods & services worldwide • “It’s a new way of thinking” • Solves consumer needs • Segments markets on a global basis • Sourcing people, capital, technologies & ideas from anywhere in the world

17. Implications of Drivers of NBE • Continual turbulence and change • Change – Any alteration in • External environmental factors or • Internal organizational arrangements • Organizational change • Any alteration in what an organization does and how it does it due to changes in either the external or internal environment of the organization

18. Implications of Drivers of NBE • Reduced Need for Physical Assets • Traditionally, massing physical assets led to power • Manufacturing facilities, Office building, Equipment, Inventory, etc. • Today’s economy, physical assets impedes flexibility; Value in intangible assets (knowledge-based assets?) • Customer databases, online ordering systems, continual product & process innovation, employee knowledge sharing, etc.

19. Implications of Drivers of NBE • Vanishing Distance • Geography & political boundaries minimized • Customers and competitors are boundaryless • Compressed Time • Email & interactive Web sites instantly deliver information (marketing & product; customer inquiries & orders) • Instant interactivity (between customers & businesses, between employees, between companies & suppliers) creates a dynamic environment where competitive advantage is tentative

20. Critical Success Factors in the NBE • Ability to Embrace Change • To be successful in this turbulent environment • Tolerate change • Actively seek for change and embrace it with open arms • Change brings opportunities to exploit & challenges • Change agents are important • Individuals or groups who strategically manage the formulation, implementation, and evaluation of organizational change efforts

21. Critical Success Factors in the NBE • Creativity and Innovation Capabilities • Turbulent environment requires organizations to “Create & innovate or lose!” • Creativity – a unique capability-- the ability to combine ideas in a unique way or make unusual associations btn ideas • An innovative organization is x’terised by its ability to channel creativity into useful outcomes

22. Critical Success Factors in the NBE • Become a world-class organization • An organization that continually acquires & utilizes knowledge in its strategic decisions & actions in order to be best in the world at what it does • Characteristics of world-class organizations • Strong customer focus • Continual learning & improvement • Flexible organization structure • Creative human resource management policies • Egalitarian climate • Significant technological support

23. Determinants of a World-Class Organization (WCO) (1) Develop organizational strategic vision and objectives • Organizational Strategic Vision • A strategic vision includes a firm’s mission & vision • A strategic vision indicates the business activities an organization intends to pursue and where top management intends to take the company • Strategic visions are developed to: • set a company apart from its rivals in an industry • provide its unique identity in terms of type of business(es), scope of operation and path for future development

24. Determinants of a WCO • Organizational strategic vision • Four components of organizational vision • Should be built on a foundation of the organization’s core values & beliefs • A statement of what the various units do and what they hope to accomplish to support the strategic vision • The vision should elaborate on the purpose of the organization • It should include a brief summary of what the organization does • It should specify broad goals & where it wants to be in the future

25. Determinants of a WCO • A strategic vision is not to make profits because • profit is an objective • making a profit has nothing to do with the business arena • making a profit does not distinguish one type of profit-seeking company from another

26. Determinants of a WCO • Objectives • Converts a company’s strategic vision into specific measurable performance targets • Provides a set of benchmarks for evaluating the company’s performance and progress • For objectives to serve as benchmarks they: • Should spell out how much of what kind of performance • Should contain a time deadline for achievement • Objectives should be set to stretch a company to reach its full potential

27. Determinants of a WCO (2) Embark in organizational learning • It is the intentional and ongoing actions of an organization to continuously transform itself by • acquiring information & knowledge • incorporating the information & knowledge into organizational decisions and actions

28. Determinants of a WCO • An organization learns by • Competence acquisition: • Cultivating capabilities in teams or individuals • Experimentation: • Continuously trying new ideas & approaches • Continuous improvement: • Mastering each step in a process before moving on to the next step • Boundary spanning: • Continuously scanning what other companies are doing & compare it with yours

29. Determinants of a WCO • Characteristics of Learning Organizations (Table 2-3) • Learn continuously, collaboratively, and openly • Values how it learns as well as what it learns • Invests in staying on top of what’s happening in its industry • Rewards both “failure” learning as well as “success” learning • Takes risks but doesn’t jeopardize the organization’s basic security • Encourages organizational members to share information • Develops and exhibits and organizational culture that promotes learning • Uses what it learns in developing and implementing strategies

30. Determinants of a WCO (3) Become socially responsible and ethical as a corporation • See Lecture 2 notes