2. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e 1 Strategic Management: Creating Competitive Advantages

3. 1 - 3 Learning Objectives After reading this chapter, you should have a good understanding of:  The definition of strategic management and its four key attributes.  The strategic management process and its three interrelated and principal activities.  The significance of strategic issues  The vital role of corporate governance and stakeholder management as well as how “symbiosis” can be achieved among an organization’s stakeholders.  The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.  The need for greater empowerment throughout the organization.  How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction.

4. 1 - 4 Two Perspectives of Leadership Romantic view ‾ Leader is the key force in organization’s success External control perspective ‾ Focus is on external factors that affect an organization’s success Leaders can make a difference ‾ Must be aware of opportunities and threats faced in external environment ‾ Must have thorough understanding of the firm’s resources and capabilities

5. 1 - 5 Analysis ‾ Strategic goals (vision, mission, strategic objectives) ‾ Internal and external environment of the firm Strategic decisions – Strategy Formulation ‾ What industries should we compete in? ‾ How should we compete in those industries? Actions – Strategy Implementation ‾ Allocate necessary resources ‾ Design the organization to bring intended strategies to reality Strategic Management

6. 1 - 6 Strategic Management  Strategic management is the study of why some firms outperform others ‾ How to compete in order to create competitive advantages in the marketplace ‾ How to create competitive advantages in the market place oUnique and valuable oDifficult for competitors to copy or substitute  In short, strategic management is about how an organization adds value and competes in its environment.

7. 1 - 7 Key Attributes Key Attributes of strategic management: Directs the organization toward overall goals and objectives Includes multiple stakeholders in decision making Needs to incorporate short-term and long-term perspectives Recognizes trade-offs between efficiency and effectiveness

8. 1 - 8 Question The final realized strategy of a firm is a combination of: a)Intended and unrealized strategies b)Unrealized and emergent strategies c)Emergent and deliberate strategies d)Deliberate and unrealized strategies

9. 1 - 9 Strategic Management Process Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257- 72.

10. 1 - 10 Strategic Analysis Starting point in the strategic management process Precedes effective formulation and implementation of strategies

11. 1 - 11 Strategic Analysis (cont.) Clear goals and objectives permit effective allocation of resources Hierarchy of goals -Vision -Mission -Strategic objectives Analyzing external environments -Managers must scan the environment and analyze competitors -General environment -Industry environment

12. 1 - 12 Strategic Analysis (cont.) Frameworks for analyzing a firm’s internal environment -Strengths -Weaknesses Analyzing strengths can uncover potential sources of competitive advantage

13. 1 - 13 Strategic Analysis (cont.) Intellectual assets are drivers of -Competitive advantage -Wealth creation Networks and relationships among -Employees -Customers -Suppliers -Alliance partners

14. 1 - 14 Strategic Issues Results from Strategic Analysis Strategic issues require top-management decisions -Strategic decisions overarch several areas of a firm’s operations -Usually only top management has the perspective needed to understand their broad implications -Usually only top managers have the power to authorize necessary resource allocations

15. 1 - 15 Strategic Issues Strategic issues require large amounts of the firm’s resources -They involve substantial allocations of people, physical assets, and money -Strategic decisions commit the firm to actions over an extended period -In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm

16. 1 - 16 Strategic Issues Strategic issues often affect the firm’s long- term prosperity -Strategic decisions commit the firm for a long time, typically 5 years; however the impact lasts much longer -Once a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategy -Firms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.

17. 1 - 17 Strategic Issues Strategic issues are future-oriented -They are based on what managers forecast, rather than what they know -Emphasis is on the development of solid projections that will enable a firm to seek the most promising strategic options -A firm will succeed only if it takes a proactive (anticipatory) stance toward change

18. 1 - 18 Strategic Issues Strategic issues usually have multifunctional or multibusiness consequences. -Strategic decisions have complex implications for most areas of the firm -Decisions about customer mix, competitive emphasis, or organizational structure involve a number of the firm’s SBUs, divisions, or program units

19. 1 - 19 Strategic Issues Strategic issues require considering the firm’s external environment -All businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their control -Successful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do

20. 1 - 20 Strategy Formulation Business level strategy: -Successful firms develop bases for competitive advantage Cost leadership Differentiation Focusing on narrow or industry-wide market segments -Sustainability -Industry life cycle

21. 1 - 21 Strategy Formulation (cont.) Corporate-level strategy addresses: Firm’s portfolio, group, mix of businesses -What business(es) should we be in? -How can we create synergies among the businesses? Diversification -Related -Unrelated

22. 1 - 22 Strategy Formulation (cont.) International Strategy -Appropriate entry strategies for foreign markets -Sustain competitive advantage in global markets Effective strategies for entrepreneurial initiatives

23. 1 - 23 Strategy Implementation Informational control -Monitor and scan the environment -Respond effectively to threats and opportunities Behavioral control Effective corporate governance -Interests of managers and owners of the firm Organizational structure and design

24. 1 - 24 Strategy Implementation (cont.) Organizational boundaries -Flexible -Permeable Strategic Alliances Develop organization that is committed to -Excellence -Ethical behavior

25. 1 - 25 Strategy Implementation (cont.) Learning organization responsive to -Rapid and unpredictable change Corporate entrepreneurship and innovation -New opportunities -Enhance innovative capacity -Autonomous entrepreneurial behavior -Product champions

26. 1 - 26 Corporate Governance and Stakeholder Management Corporate governance: the relationship among various participants in determining the direction and performance of corporations -Shareholders -Management (led by the CEO) -Board of Directors

27. 1 - 27 Question Briefly describe the role of board of directors in corporate governance.

28. 1 - 28 Corporate Governance and Stakeholder Management (cont.) Board of Directors -Elected representatives of the owners -Ensure interests and motives of management are aligned with those of the owners Effective and engaged Board of Directors Shareholder activism Proper managerial rewards and incentives

29. 1 - 29 Example: New Rules for Directors In light of numerous corporate scandals, the role and rules for board of directors are being redefined. Few areas of focus : -Numbers Knowledge -Strategy Focus -Time & Understanding -Watchdog Source: Tipsheet, Business Week, January 22, 2007

30. 1 - 30 Stakeholder Management Two views of stakeholder management -Zero sum Stakeholders compete for attention and resources of the organization Gain of one is a loss to the other -Symbiosis Stakeholders are dependent upon each other Mutual benefits

31. 1 - 31 Social Responsibility Social responsibility: the expectation that businesses or individuals will strive to improve the overall welfare of society ‾ Managers must take active steps to make society better ‾ Socially responsible behavior changes over time ‾ Triple bottom line

32. 1 - 32 Example: Social Responsibility Starbucks Coffee Company  Corporate social responsibility is embedded throughout the organization.  The following are some of the commitments they have made to be socially responsible: Commitment to origins Helping protect the environment Starbucks in your community Commitment to partners Source: www.starbucks.com

33. 1 - 33 Strategic Management Perspective Integrative view of the organization Assess how functional areas and activities “fit together” to achieve goals and objectives All managers and employees must take an integrative, strategic perspective on issues facing the organization

34. 1 - 34 Enhancing Employee Involvement Have significant profit and loss responsibility Local Line Leaders

35. 1 - 35 Enhancing Employee Involvement Champion and guide ideas Create a learning infrastructure Establish a domain for taking action Executive Leaders Local Line Leaders

36. 1 - 36 Enhancing Employee Involvement Have little positional power and formal authority Generate their power through the conviction and clarity of their ideas Executive Leaders Local Line Leaders Internal Networkers

37. 1 - 37 Modern Flow of Strategic Management Top Management Subsidiary Functional Management Operating Management Employees

38. 1 - 38 Why Modern Flow of Strategic Management? Changes in and heightened competition driven by -Pressure for low cost products and services -Higher quality requirements -Globalization -Increasing rate of technological change and diffusion -Information technology -Knowledge as an organizational resource

39. 1 - 39 Coherence in Strategic Direction Company vision -Massively inspiring -Overarching -Long-term -Driven by and evokes passion -Fundamental statement of the organization’s Values Aspiration Goals Hierarchy of Goals Company vision

40. 1 - 40 Coherence in Strategic Direction Mission statements -Purpose of the company -Basis of competition and competitive advantages -More specific than vision -Focused on the means by which the firm will compete Hierarchy of Goals Company vision Mission statements

41. 1 - 41 Coherence in Strategic Direction Strategic objectives -Operationalize the mission statement -Provide guidance on how the organization can fulfill or move toward the “higher goals” -More specific -Cover a more well- defined time frame Hierarchy of Goals Company vision Mission statements Strategic objectives

42. 1 - 42 Coherence in Strategic Direction Strategic objectives -Measurable -Specific -Appropriate -Realistic -Timely -Challenging -Resolve conflicts that arise -Yardstick for rewards and incentives Hierarchy of Goals Company vision Mission statements Strategic objectives