1. Strategic Management: Creating Competitive Advantages
Chapter One
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
After reading this chapter, you should have a good understanding of:
LO1.1 The definition of strategic management and its four key attributes.
LO1.2 The strategic management process and its three interrelated and principal activities.
LO1.3 The vital role of corporate governance and stakeholder management as well as how “symbiosis” can be achieved among an organization’s stakeholders.

3. Learning Objectives (cont.)
LO1.4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.
LO1.5 The need for greater empowerment throughout the organization.
LO1.6 How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction.

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 may 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. QUESTION External control Romantic Internal mechanism Operational
A CEO made a lot of mistakes such as committing errors in assessing the market and competitive conditions and improperly redesigning the organization into numerous business units. Such errors led to significant performance declines. This illustrates the __________ perspective of leadership. 
External control
Romantic
Internal mechanism
Operational
Answer: B - romantic
See previous slide

6. Example: 3M Elements of Buckley’s turnaround
Set clear business goals for the company
Wanted 3M to develop lower-cost products to compete in emerging markets
Became an outspoken champion for 3M labs

7. What is Strategic Management?
Strategic management must become both a process and a way of thinking throughout the organization
Leaders must be proactive, anticipate change, and continually refine changes to their strategies

8. Defining Strategic Management
Analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages
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
Unique and valuable
Difficult for competitors to copy or substitute

9. Defining Strategic Management
Analysis
Strategic goals
Internal and external environment of the firm
Strategic decisions
What industries should we compete in?
How should we compete in those industries?
Analysis
Strategic goals (vision, mission, strategic objectives)
Internal and external environment of the firm
Strategic decisions
What industries should we compete in?
How should we compete in those industries?

10. Defining Strategic Management
Actions
Allocate necessary resources
Design the organization to bring intended strategies to reality

11. Two Fundamental Questions
How should we compete in order to create competitive advantages in the marketplace?
How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute?
Operational effectiveness – performing similar activities better than rivals

12. Strategic Management Concepts
Exhibit 1.1

13. Key Attributes of Strategic Management
Stakeholders
those individuals, groups, and organizations who have a “stake” in the success of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, the community at large,
1-13

14. Key Attributes of Strategic Management
Ambidexterity
The challenge managers face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities
Ambidexterity - The challenge managers face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities

15. Ambidextrous Behaviors in Individuals
They take time and are alert to opportunities beyond the confines of their own jobs
They are brokers, always looking to build internal networks
They are cooperative and seek out opportunities to combine their efforts with others
They are multitaskers who are comfortable wearing more than one hat
They take time and are alert to opportunities beyond the confines of their own jobs
They are cooperative and seek out opportunities to combine their efforts with others
They are brokers, always looking to build internal networks
They are multi-taskers who are comfortable wearing more than one hat
How does one become a more ambidextrous leader?
Consider the following questions:
Do you meet your numbers?
Do you help others?
What do you do for your peers?
When you manage up, do you bring problems – or problems with possible solutions?
Are you transparent?
Are you developing a group of senior managers who know you and are willing to back your original ideas with resources?

16. Strategic Management Process
Intended strategy
Decisions are determined only by analysis
Realized strategy
Decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences

17. 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
Exhibit 1.2

18. Strategic Management Process
The Strategic Management Process
Exhibit 1.3
1-18

19. Strategic Analysis
Consists of “advance work” that must be done in order to effectively formulate and implement strategies
Starting point
Starting point in the strategic management process
Analyzing organizational goals and objectives – Ch 1
Analyzing the external environment of the firm – Ch 2
Assessing the internal environment of the firm – Ch 3
Assessing a firm’s intellectual assets – Ch 4

20. Strategy Formulation
A firm’s strategy formulation is developed at several levels:
Business-level
Corporate level
International
Entrepreneurial
Business level strategy
Addresses the issue of how to compete in a given business to attain competitive advantage
Corporate-level strategy
What businesses should we be in?
How can businesses be managed to achieve synergy?
International strategy
What is the appropriate entry strategy?
How do we go about attaining competitive advantage in international markets?
Entrepreneurial strategy
How do we recognize viable opportunities?
How do we formulate an effective strategy?
Formulating business level strategy – Ch 5
Formulating corporate level strategy – Ch 6
Formulating international strategy – Ch 7
Entrepreneurial strategy and competitive dynamics – Ch 8

21. Strategy Implementation
Ensuring proper strategic controls and organizational designs
Establishing effective means to coordinate and integrate activities within the firm as well as with suppliers, customers, and alliance partners
Strategic control and corporate governance – Ch 9
Creating effective organizational designs – Ch 10
Creating a learning organization and an ethical organization – Ch 11
Fostering corporate entrepreneurship – Ch 12

22. Corporate Governance and Stakeholder Management
The relationship among various participants in determining the direction and performance of corporations
Shareholders, management, board of directors
Corporate governance
The relationship among various participants in determining the direction and performance of corporations
Shareholders
Management (led by the CEO)
Board of Directors

23. 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
Exhibit 1.4

24. Corporate Governance
Three mechanisms ensure effective corporate governance:
An effective and engaged board of directors
Shared activism
Proper managerial rewards and incentives

25. Stakeholder Management
Zero sum view
Stakeholders compete for attention and resources of the organization
Gain of one is a loss to the other
Rooted in the traditional conflict between workers and management

26. Stakeholder Management
Stakeholder symbiosis view
Stakeholders are dependent upon each other for their success and well-being
Mutual benefits
1-26

27. QUESTION
Outback Steakhouse has developed a sophisticated quantitative model and found that there were positive relationships between employee satisfaction, customer satisfaction, and financial results. This is an example of __________.  A. Zero-sum relationship among stakeholders B. Stakeholder symbiosis C. Rewarding stakeholders D. Emphasizing financial returns
Answer: B – stakeholder symbiosis. See the previous slide

28. Crowdsourcing Crowdsourcing
practice wherein the Internet is used to tap a broad range of individuals and groups to generate ideas and solve problems.
Linux, Amazon, Wikipedia

29. Social Responsibility
The expectation that businesses or individuals will strive to improve the overall welfare of society
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

30. Social Responsibility
Triple bottom line
Assessment of a company’s performance in financial, social, and environmental dimensions
Triple bottom line
Assessment of a company’s performance in financial, social, and environmental dimensions
Failure to account for the environmental and social costs of doing business poses risks to the company and its community

31. Example: Social Responsibility
Starbucks Coffee Company defines CSR as:
Conducting business in ways that produce social, environmental and economic benefits for the communities in which we operate and for the company’s stakeholders, including shareholders.
Some tangible benefits include attracting and retaining our partners, customer loyalty, reducing operating costs, and creating a sustainable supply chain.
Starbucks Coffee Company
Managing CSR
Starbucks continues to evolve and strengthen the way CSR is managed internally. We have created structures to ensure that emerging issues are identified, prioritized and addressed in a more systematic and integrated manner throughout the company; and that company policies and procedures are upheld and followed. Our Emerging Issues Council, CSR Executive Committee and Policy Governance Council serve these functions respectively.
Throughout the company, there is a strong sense of shared accountability for CSR. In fiscal 2007, we took both a centralized and decentralized organizational approach to managing CSR. At the Starbucks Support Center, our global headquarters located in Seattle, there was a dedicated CSR group, reporting to the senior vice president of CSR, for the day-to-day management of specific CSR-related initiatives. This group often serves as the catalyst for new CSR programs, which may end up being managed and implemented at the business unit, division or department level. Once implemented, the CSR team provided broad oversight and served as an ongoing resource. Currently there is not a committee of the board dedicated to CSR.
Source:

32. Strategic Management Perspective
All managers and employees must:
Take an integrative, strategic perspective of issues facing the organization
Assess how functional areas and activities “fit together” to achieve goals and objectives
Managers must make a major effort to effect transformational change
Involves extensive communication, incentives, training and development

33. Three Types of Leaders Local line leaders Executive leaders
Have significant profit-and-loss responsibility
Executive leaders
Champion and guide ideas, create a learning infrastructure, establish a domain for taking action

34. Three Types of Leaders (cont.)
Internal networkers
Generate power through the conviction and clarity of their ideas

35. Coherence in Strategic Direction
Hierarchy of goals
organizational goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable.
Vision, mission statement, strategic objectives
Hierarchy of goals
Goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable
Vision, mission statement, strategic objectives

36. A Hierarchy of Goals
Exhibit 1.6

37. Coherence in Strategic Direction
Organizational vision
Goal that is “massively inspiring, overarching, and long term”
Represents a destination that is driven by and evokes passion

38. Why Do Visions Fail? The walk doesn’t match the talk Irrelevance
Too much focus leads to missed opportunities
Not the holy grail
An ideal future irreconciled with the present

39. Coherence in Strategic Direction
Mission statement
Set of goals that include both the purpose of the organization, its scope of operations, and the basis of its competitive advantage
Has the greatest impact when it reflects an organization’s enduring, overarching strategic priorities and competitive positioning
Mission statement
Set of goals that include both the purpose of the organization, its scope of operations, and the basis of its competitive advantage
Incorporates the concept of stakeholder management
Has the greatest impact when it reflects an organization’s enduring, overarching strategic priorities and competitive positioning

40. Coherence in Strategic Direction
Strategic objectives
A set of organizational goals that are used to operationalize the mission statement and that are specific and cover a well-defined time frame.
Help channel employees’ efforts toward common goals
Help inspire employees to higher levels of commitment and effort