Introduction to Strategic Management

1. Introduction to Strategic Management MANA 5336

2. What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver.

3. Characteristics of strategic decisions… • Important • Involve a significant commitment of resources • Not easily reversible

4. Basic Framework External Environment Competitors Customers Suppliers etc The firm Goals & Values Resources & Capabilities Structures & Systems Strategy

5. 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.

6. 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

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

8. 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

9. 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

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

11. 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

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

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

14. Four Assumptions of the I/O Model • The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns • 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

15. Four Assumptions of the I/O Model • Resources used to implement strategies are highly mobile across firms • 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

16. The External Environment I/O Model of Above-Average Returns Industrial Organization Model • 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

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

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

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

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

21. 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

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

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

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

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

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

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

28. 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

29. 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

30. Emergent and Deliberate Strategies IntendedStrategy DeliberateStrategy RealizedStrategy EmergentStrategy UnrealizedStrategy From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly, Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.

31. Strategic Management Process for Intended Strategies Missionsand Goals InternalAnalysis Strategic Choice ExternalAnalysis INTENDED STRATEGY Organizing forImplementation

32. InternalAnalysis ExternalAnalysis Missionsand Goals Strategic Choice Does It Fit? EMERGENT STRATEGY OrganizationalGrassroots Strategic Management Process for Emergent Strategies

33. 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

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

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

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

37. Values • Johnson & Johnson’s credosets its responsibilities to: • J&J product users. • J&J employees. • Communities in which J&Jemployees live and work. • J&J stockholders. Source: Courtesy of Johnson & Johnson.

38. Johnson & Johnson Credo* • First Responsibility Is to Those Who Use J&J Products • Next Come Its Employees • Next, the Communities in Which the Employees Live and Work • Its Final Responsibility Is to Its Stockholders

39. Functional Business Corporate Global Levels of Strategy