1. Strategic Management & Strategic Competitiveness Chapter One BA 495, Section 9

2. 1–2 Today’s Agenda Defining Strategy & The Strategic Management ProcessDefining Strategy & The Strategic Management Process Competitive Landscape in the 21 st CenturyCompetitive Landscape in the 21 st Century Assessing Strategic InputsAssessing Strategic Inputs –External Environment: Industrial Organization Model –Internal Environment: Resource-Based Model –Developing a Vision & Mission Role of StakeholdersRole of Stakeholders Wrap-upWrap-up

3. 1–3 Defining Strategy and the Strategic Management Process

4. 1–4 Strategy: Definitions Strategy is creating optimal value by finding the best match between a firm’s strengths and the environment’s opportunitiesStrategy is creating optimal value by finding the best match between a firm’s strengths and the environment’s opportunities –Consider the firm’s internal resources, skills and core competencies –Consider the opportunities and risks created by the firm’s external environment Strategy formally defined:Strategy formally defined: –An integrated and coordinated set of tactics that generate above-average returns and are designed to exploit a firm’s core competencies and gain a competitive advantage.

5. 1–5 Defining Strategy: SWOT Analysis Strategic choices Strengths Weaknesses Organizational analyses Opportunities Threats Environmental analyses How does a strategy allow us to exploit our strengths, avoid or fix our weaknesses, exploit our opportunities, and neutralize our threats?

6. 1–6 Defining Strategy: Other Key Concepts Value Creation Considerations: Above-average ReturnsAbove-average Returns –Returns in excess of what an investor expects to earn from other investments with a similar amount of risk. Average ReturnsAverage Returns –Returns equal to those an investor expects to earn from other investments with a similar amount of risk. RiskRisk –An investor’s uncertainty about the economic gains or losses that will result from a particular investment.

7. 1–7 Defining Strategy: Other Key Concepts Competitive AdvantageCompetitive Advantage –When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate. Strategic Management ProcessStrategic Management Process –The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. This is the manner in which strategy is developed and implemented.

8. 1–8 The Strategic Management Process

9. 1–9 Competitive Landscape in the 21 st Century

10. 1–10 The 21st-Century Competitive Landscape A Perilous Business WorldA Perilous Business World –Rapid changes in industry boundaries and markets –Conventional sources of competitive advantage losing effectiveness Keys Areas of ImpactKeys Areas of Impact –Globalization –Technology –Increasing Knowledge Intensity

11. 1–11 Globalization Globalization defined: Increased economic interdependence among countries—the flow of goods and services, financial capital, and knowledge across country bordersGlobalization defined: Increased economic interdependence among countries—the flow of goods and services, financial capital, and knowledge across country borders Impact to a firm’s strategy:Impact to a firm’s strategy: –Increased competition –Resources shared throughout the globe (raw materials, financial resources, human resources) Results:Results: –Improved efficiency which leads to even higher returns –Additional risks for global firms

12. 1–12 Technology and Technological Changes : The speed at which new technologies become availableTechnology Diffusion: The speed at which new technologies become available Perpetual Innovation: The rapidity and consistency with which new, information- intensive technologies replace older onesPerpetual Innovation: The rapidity and consistency with which new, information- intensive technologies replace older ones Disruptive Technologies: Technologies that destroy the value of existing technology and create new marketsDisruptive Technologies: Technologies that destroy the value of existing technology and create new markets

13. 1–13 Impact of Technological Changes The ability to innovate, and for companies to reinvent themselves has become critical.The ability to innovate, and for companies to reinvent themselves has become critical. The ability to effectively and efficiently access and use information has become an important source of competitive advantage.The ability to effectively and efficiently access and use information has become an important source of competitive advantage. What companies can you think of that perform well in light of the impact of today’s influence from technology?

14. 1–14 Increasing Knowledge Intensity Knowledge is a critical organizational resource for creating an intangible competitive advantageKnowledge is a critical organizational resource for creating an intangible competitive advantage –Strategic flexibility: the set of capabilities used to respond to various demands and opportunities in dynamic and uncertain competitive environments –Organizational slack: slack resources that allow the firm flexibility to respond to environmental changes –Organizational capacity to learn

15. 1–15 External Environment: The Industrial Organization Model

16. 1–16 I/O Model of Above-Average Returns Dominance of the External EnvironmentDominance of the External Environment –The industry in which a firm competes has a stronger influence on the firm’s performance than do the choices managers make inside their organizations. Industry Properties Determining PerformanceIndustry Properties Determining Performance –Economies of scale –Barriers to market entry –Diversification –Product differentiation –Degree of concentration of firms in the industry

17. 1–17 I/O Model Focus Strengths Weaknesses Organizational analyses Opportunities Threats Environmental analyses

18. 1–18 Four Assumptions of the I/O Model External environment imposes pressures and constraints that determine strategies leading to above-average returns. 1 2 Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies. Resources used to implement strategies are highly mobile across firms. 3 4 Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit- maximizing).

19. 1–19 Industrial Organization Model 1.Study the external environment, especially the industry environment: General environmentGeneral environment Industry environmentIndustry environment Competitive environmentCompetitive environment The External Environment

20. 1–20 Industrial Organization Model 2.Locate an attractive industry with a high potential for above- average returns. Attractive industry: One whose structural characteristics suggest above-average returns. The External Environment Attractive Industry

21. 1–21 Industrial Organization Model 3.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. The External Environment Attractive Industry Strategy Formulation

22. 1–22 Industrial Organization Model 4.Develop or acquire assets and skills needed to implement a chosen strategy. Assets and skills: those assets and skills required to implement a chosen strategy. The External Environment Attractive Industry Strategy Formulation Assets and Skills

23. 1–23 Industrial Organization Model 5. 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. The External Environment Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation

24. 1–24 Industrial Organization (I/O) Model The External Environment Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior returns: earning above-average returns Superior Returns

25. 1–25 Internal Environment: The Resource-Based Model

26. 1–26 The Resource-Based Model of Above- Average Returns Model AssumptionsModel Assumptions –Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and that is the primary source of its returns. –Capabilities must be developed and managed dynamically. –Differences in firms’ performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry. –Core competencies are generally not transferable across firms and are the basis of competitive advantage.

27. 1–27 Resource-Based Model Focus Strengths Weaknesses Organizational analyses Opportunities Threats Environmental analyses

28. 1–28 Resource-Based Model 1.Identify the firm’s resources— strengths and weaknesses compared with competitors Resources Resources: inputs into a firm’s production process

29. 1–29 Resource-Based Model (cont’d) 2.Determine the firm’s capabilities—what it can do better than its competitors. Resources Capability Capability: capacity of an integrated set of resources to integratively perform a task or activity.

30. 1–30 Resource-Based Model (cont’d) 3.Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage. Resources Capability Competitive Advantage Competitive advantage: ability of a firm to outperform its rivals.

31. 1–31 Resource-Based Model (cont’d) 4.Locate an attractive industry. Resources Capability Competitive Advantage Attractive Industry Attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities.

32. 1–32 Resource-Based Model (cont’d) 5.Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment. Resources Capability Competitive Advantage Attractive Industry Strategy Formulation and Implementation Strategy formulation and implementation: strategic actions taken to earn above average returns.

33. 1–33 Resource-Based Model (cont’d) Resources Capability Competitive Advantage Attractive Industry Strategy Formulation and Implementation Superior Returns Superior returns: earning above-average returns

34. 1–34 How Resources and Capabilities Provide Competitive Advantage The firm is organized appropriately to obtain the full benefits of the resources in order to realize a 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 Costly to imitate When other firms cannot obtain them or must obtain them at a much higher cost Nonsubstitutable

35. 1–35 Developing a Vision & Mission

36. 1–36 Vision and Mission VisionVision –A enduring picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. Stretches and challenges people and evokes emotions and dreams.Stretches and challenges people and evokes emotions and dreams. Effective vision statements are:Effective vision statements are: –Developed by a host of people from across the organization. –Clearly tied to external and internal environmental conditions. –Consistent with strategic leaders’ decisions and actions.

37. 1–37 Vision and Mission (cont’d) MissionMission –Specifies the business or businesses in which the firm intends to compete and the customers it intends to serve. –Is more concrete than the firm’s vision. –Is more effective when it fosters strong ethical standards. Above-average returns are the fruits of the firm’s efforts to achieve its vision and mission.Above-average returns are the fruits of the firm’s efforts to achieve its vision and mission.

38. 1–38 Examples “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” “The mission of Nike is to bring inspiration and innovation to every athlete in the world. If you have a body, you are an athlete.” “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” “At Knowledge Learning Corporation, we are committed to enhancing the educational opportunities for children, families, and the dedicated professionals who serve them.”

39. 1–39 From Mission to Action Mission/Intent Fundamental purposes Objectives Measurable performance targets Strategies Means to accomplish objectives Tactics/Policies Actions to implement strategies

40. 1–40 Stakeholders

41. 1–41 Three Stakeholder Groups

42. 1–42 Capital Market Stakeholders Shareholders Major suppliers of capital BanksBanks Private lendersPrivate lenders Venture capitalistsVenture capitalists Stakeholders Capital Market Stakeholders

43. 1–43 Capital Market Stakeholders Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it.Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it. –Want the return on their investment (and, hence, their wealth) to be maximized. –Expect returns to be commensurate with the degree of risk to the shareholder. Management must balance the interests of shareholders and lenders with its concerns for the firm’s future competitive ability.Management must balance the interests of shareholders and lenders with its concerns for the firm’s future competitive ability.

44. 1–44 Stakeholders (cont’d) Capital Market Stakeholders Product Market Stakeholders Customers Customers Suppliers Suppliers Host communities Host communities Unions Unions

45. 1–45 Product Market Stakeholders CustomersCustomers –Demand reliable products at low prices SuppliersSuppliers –Seek loyal customers willing to pay highest sustainable prices for goods and services Host communitiesHost communities –Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services Union officialsUnion officials –Want secure jobs and desirable working conditions

46. 1–46 Stakeholders (cont’d) Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders Employees Employees Managers Managers Nonmanagers Nonmanagers

47. 1–47 Organizational Stakeholders EmployeesEmployees –Expect a dynamic, stimulating and rewarding work environment. –Are satisfied by a company that is growing and actively developing their skills.

48. 1–48 Two issues affect the extent of stakeholder involvement in the firmTwo issues affect the extent of stakeholder involvement in the firm –How to divide returns to keep stakeholders involved? –How to increase returns so everyone has more to share? Stakeholder Involvement Capital Market Product Market Organizational

49. 1–49 Review of Key Concepts

50. 1–50 Review of Key Concepts Defining Strategy & The Strategic Management ProcessDefining Strategy & The Strategic Management Process Competitive Landscape in the 21 st CenturyCompetitive Landscape in the 21 st Century Assessing Strategic InputsAssessing Strategic Inputs –External Environment: Industrial Organization Model –Internal Environment: Resource-Based Model –Developing a Vision & Mission Role of StakeholdersRole of Stakeholders QuestionsQuestions