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Chapter 1: Strategic Management and Strategic Competitiveness

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

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Chapter 1: Strategic Management and Strategic Competitiveness

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  1. Chapter 1: Strategic Management and Strategic Competitiveness • Overview: Eight Topics • 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

  2. Nature of Competition: Basic concepts • Strategic Competitiveness • Achieved when a firm successfully formulates & 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

  3. Nature of Competition: Basic concepts • Above Average Returns • Returns in excess of what investor expects in comparison to other investments with similar risk • 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

  4. The Strategic Management Process

  5. 21st Century Competitive Landscape • The Global Economy • Goods, services, people, skills and ideas move freely across geographic borders • Globalization increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders • Technology and Technological Changes • 3 categories: • Technology diffusion & disruptive technologies • The information age • Increasing knowledge intensity • Changing nature of competition and contributing to unstable competitive environments

  6. 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 • Characteristics of and conditions present in the external environment determine the appropriateness of strategies that are formulated and implemented in order for a firm to earn above-average returns. • The choice of industries in which to compete has more influence on firm performance than the decisions made by managers inside their firm.

  7. 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 that compete within a particular industry: • 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

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

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

  10. The Resource-Based Model of AAR • Basic Premise - a firm's unique resources & capabilities 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

  11. The Resource-Based Model of AAR • 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

  12. The Resource-Based Model of AAR • 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

  13. The Resource-Based Model of AAR

  14. Vision and Mission • Purpose to inform stakeholders of what the firm is, what it seeks to accomplish, and who it seeks to serve • 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

  15. 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 • Must minimally meet the expectations of each stakeholder group • 3 stakeholder groups

  16. The Three Stakeholder Groups

  17. 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 firms’ efforts to achieve their desired strategic outcomes • Create and sustain organizational culture • Can exist at different organizational levels

  18. Strategic Leaders • The Work of Effective Strategic Leaders • Work long hours • Must be able to think strategically • ”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.” • Set ethical tone for organization • Try to predict the outcomes of their strategic decisions before they are implemented

  19. 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

  20. The Strategic Management Process

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