Strategic Management and Strategic Competitiveness 1

The Strategic Management Process Decisions Involves the full set of: Commitments Actions which are required for firms to achieve: Strategic Competitiveness Sustained Competitive Advantage Above-Average Returns 9

Important Definitions Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Sustained Competitive Advantage Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk 4

The Strategic Management Process Strategy Formulation Strategic Intent External Environment Internal Environment Strategic Mission The Strategic Management Process Strategic Outcomes Actions Strategic Inputs Strategy Formulation Strategy Implementation Business-level Strategy Competitive Dynamics Corporate-Level Strategy International Strategy Corporate Governance Structure & Control Strategic Competitiveness Above Average Returns Feedback 10

Today’s Context Challenge of Strategic Management Changing Competitive Landscape Two Perspectives of Superior Profitability Industrial Organization Model Resource-Based Model 20

Challenge of Strategic Management Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed Competitive success is transient...unless care is taken to preserve competitive position 22

Challenge of Strategic Management Best Stocks of the Decade The goals of achieving strategic competitiveness and earning above-average returns are challenging The performance of some companies more than meets strategic management's challenge

21st Century Competitive Landscape Rapid technological changes Rapid technology diffusions Dramatic changes in information and communication technologies Increasing importance of knowledge Fundamental nature of competition is changing The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as... Computers Telecommunications 25

21st Century Competitive Landscape In the Global Economy People, goods, services and ideas move freely across geographic boundaries New opportunities emerge in multiple global markets Markets and industries become more internationalized Traditional sources of competitive advantage no longer guarantee success New keys to success include: Flexibility Innovation Speed Integration 30

21st Century Competitive Landscape A country’s competitiveness is achieved through the accumulation of individual firms’ strategic competitiveness in the global economy Achieving improved competitiveness allows a country's citizens to have a higher standard of living Country Competitiveness Rankings 2002 (1) USA 1 (29) MALAYSIA 26 (3) FINLAND 2 (28) KOREA 27 (4) LUXEMBOURG 3 (27) HUNGARY 28 (5) NETHERLANDS 4 (35) CZECH REPUBLIC 29 (2) SINGAPORE 5 (26) JAPAN 30 (15) DENMARK 6 (33) CHINA MAINLAND 31 (10) SWITZERLAND 7 (32) ITALY 32 (9) CANADA 8 (34) PORTUGAL 33 (6) HONG KONG 9 (38) THAILAND 34 (7) IRELAND 10 (31) BRAZIL 35 (13) ICELAND 12 (30) GREECE 36 (14) AUSTRIA 13 (37) SLOVAK REPUBLIC 37 (11) AUSTRALIA 14 (39) SLOVENIA 38 (12) GERMANY 15 (42) SOUTH AFRICA 39 (19) UNITED KINGDOM 16 (40) PHILIPPINES 40 (20) NORWAY 17 (36) MEXICO 41 (17) BELGIUM 18 (41) INDIA 42 (21) NEW ZEALAND 19 (45) RUSSIA 43 (24) CHILE 20 (46) COLOMBIA 44 (22) ESTONIA 21 (44) TURKEY 46 (25) FRANCE 22 (49) INDONESIA 47 (23) SPAIN 23 (48) VENEZUELA 48 (18) TAIWAN 24 (43) ARGENTINA 49 (16) ISRAEL 25 (2001 rankings are in brackets)

Alternative Perspectives for Superior Returns Industrial Organization Perspective Resource-Based Perspective The External Environment Resources An Attractive Industry Capability Strategy Formulation Competitive Advantage Assets and Skills An Attractive Industry Strategy Implementation Strategy Implementation Superior Returns Superior Returns 31

I/O Model of Superior Returns The Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm. 33

Resource-Based Model of Superior Returns The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate. 41

Integration of Perspectives: External and Internal Analyses General Environment Sociocultural Global Technological Political/Legal Demographic Economic Industry Competitor By studying the external environment, firms identify what they might choose to do Opportunities and threats

Integration of Perspectives: External and Internal Analyses The Firm By studying the internal environment, firms identify what they can do Unique resources, capabilities, and core competencies (sustainable competitive advantage)

This Integration Accumulates Into Strategic Intent and Mission Statements External Environment Internal Environment Strategic Intent Strategic Mission

Who Am I and What is My Purpose? Mission statements are sometimes called value statements, credos, or principles They are operational, ethical, and financial guiding lights of companies Mission statements articulate goals, dreams, behavior, culture, and strategies of companies more than any other document

Who’s Served? Stakeholders are the individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a firm’s performance Stakeholders include those individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it

Relationships with Stakeholders Organizations have dependency relationships with stakeholders Firms are not equally dependent on all stakeholders Not every stakeholder has the same level of influence An effective organization strategy requires consensus from a plurality of key stakeholders about what it should be doing and how these things should be done

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 maintain the participation of key stakeholders Capital Market Stock market/Investors Debt suppliers/Banks Firm Product Market Primary Customers Suppliers Organizational Employees Managers Non-Managers 59

Stakeholder Involvement Each of the key stakeholders wants a piece of the same pie 1 How do you divide the pie in order to keep all of the stakeholders involved? 2 How do you increase the size of the pie so that there is more to go around? 62