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Introduction to Strategic Management

Introduction to Strategic Management. HCAD 5390. What is Strategy?. Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver. Characteristics of strategic decisions… Important

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Introduction to Strategic Management

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  1. Introduction to Strategic Management HCAD 5390

  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 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

  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 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  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. 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

  23. 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

  24. 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

  25. 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

  26. 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

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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. 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.

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

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

  36. 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

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

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

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

  40. 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.

  41. 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

  42. Functional Business Corporate Global Levels of Strategy

  43. Functional-Level Strategy • Manufacturing • Marketing • Materials Management • Research and Development • Human Resources

  44. Business-Level Strategy • Cost Leadership • Differentiation • Market Niche Focus

  45. Global Strategies • Multidomestic • International • Global • Transnational

  46. Corporate-Level Strategy • Vertical Integration • Diversification • Strategic Alliances • Acquisitions • New Ventures • Business PortfolioRestructuring

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