Strategic Management Chapter One: © 2 0 0 9 Chapter One: Strategic Management & Strategic Competitiveness Chapter Three: The External Environment Chapter Three: The External Environment Hitt, Ireland, Hoskission, Rowe & Sheppard Strategic Management N o t e s Competitiveness & Globalization

Strategic Management & Competitiveness Knowledge Objectives Define and list preferred Strategic Outcomes. See how Industrial Organization & Resource-Based models show how firms earn above average returns. Discuss the value of strategic vision & mission. Discuss the the 21st Century Environment. Describe stakeholders ability to influence firms. Know how ‘Business Models’ differ from Strategies.

Desired Strategic Outcomes Strategic Competitiveness Achieved when a firm successfully formulates & implements a value-creating strategy. Occurs when a firm develops a strategy that competitors are not simultaneously implementing. Sustained Competitive Advantage 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. Outcomes & Basic Definitions

Important Definitions Risk An investor’s uncertainty about the economic gains or losses resulting from a particular investment. Returns equal to what an investor expects from other investments with similar amount of risk. Average returns Strategic management process The full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness & earn above average returns. Outcomes & Basic Definitions

The Strategic Management Process Ch. 1: Strat. Mgmt. & Com-petitiveness Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Strategic Vision & Intent / Mission Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Inputs Strategic Actions Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Formulation Implementation The Strategic Mgmt. Process

What is Strategy? “A unified, comprehensive & integrated plan designed to ensure that the basic objectives of the enterprise are achieved.” (Glueck, 1980:9) “The pattern or plan that integrates an organization’s major goals, policies, & action sequences into a cohesive whole.” (Quinn, 1980) “A pattern of resource allocation that enables firms to maintain or improve their performance. … A good strategy… exploits opportunities & neutralizes threats while capitalizing on strengths & avoiding or fixing weaknesses.” (Barney, 1997:17) An integrated & coordinated set of commitments & actions designed to exploit core competencies and gain a competitive advantage. What is Strategy?

Intended, Emergent & Realized Strategies Deliberate Strategies Unrealized Strategies Emergent Strategies What is Strategy?

Intended, Emergent & Realized Strategies Example 1: _________ & 2: __________ Break into the Market Break into the Market New Ads & channels Got into the Market New Customers Sell to current types of customers Break into the Market Build Mfg. & Dist. Op.s New Ads & channels Got into the Market Got into the Market Sell to current types of customers Sell to through current channels New Customers New Channels Thus, strategy can emerge from “a Pattern in the stream of decisions or actions” What is Strategy?

Alternative Models of Superior Returns I O O Resource-Based Model Industrial Organization Model The External Environment An Attractive Industry Resources Capabilities Competitive Advantage Strategy Formulation Assets and Skills An Attractive Industry Strategy Implementation Strategy Implementation Superior Returns Superior Returns Competing Approaches

Four Attributes that Create Competitive Advantage Resources and Capabilities Valuable Allow firm to offset threats or exploit opportunities in its external environment. Core Competencies Rare Held by few, or no, current and potential competitors. Costly to When other firms either can- Imitate not obtain them or must obtain at a much higher cost. Are a basis for: Competitive advantage; Strategic competitiveness; Ability to earn above-average returns. Organized Supported by the appropriate to be structure, controls & rewards. Exploited Competing Approaches

The 21st Century Environment Values Flexibility Innovation Integration Speed to market Hypercompetition Handling constant change Globalization Global Economy: One where goods, services, people, skills & ideas move freely across geographic borders. Technology Increasing rate of tech. change & diffusion; Increasing knowledge intensity; The information age. Strategy & the 21st Century

Strategic Intent / Mission Strategic Vision Strategic Vision Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. Together, strategic vision & strategic mission yield the insights required to formulate and implement strategies. The mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve. Strategic Intent / Mission Mission & Vision

Tim Horton’s Strategic Vision “Our vision is to be the quality leader in everything we do.” Tim Horton’s Strategic Mission “Our guiding mission is to deliver superior quality products and services for our customers and communities through leadership, innovation and partnerships.” Mission & Vision

Groups who are affected by firm’s performance & have claims on its performance Stakeholders Firm Capital Market Stock market/Investors Debt suppliers/Banks Organizational Employees Managers Nonmanagers Product Market Primary Customers Host Communities Unions Suppliers The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders. Stakeholders

What are Business Models? B O N U S What are Business Models? Business models are at heart, stories that explain how enterprises work. They allow us to think about customer value creation and corp. value capture separately. Who, What, When, Where, Why, How, and Are-you-sure. They answer the critical questions of: The Razor & Blade Model King Gillette practically gave razors away & made money on the blades. & Xerox & Standard Oil. © 2009 by J. Sheppard Business Models

What are Business Models? B O N U S What are Business Models? Today’s version of the Razor & Blade Model. Neuman Who are the customers What is the value proposition Why When Are-you-sure Price sensitive buyers. Low to no investment. Attract the most buyers. New product purchases. Lower buyer investment. Business Models

What are Business Models? B O N U S What are Business Models? How do Business Models Differ from Strategies? Porter notes 3 main differences between business models and strategies: Business models address a series of broad functions that create value for the customer, rather than activities; Business models do not show how an organization’s activities are related, but the strategic value chain does; Unlike the strategic value chain, business models do not address competitive advantage. More importantly: Business models separate out the notion of: Value creation (for customers) versus, Value capture (for the organization). © 2009 by J. Sheppard Business Models

The Strategic Management Process Ch. 1: Strat. Mgmt. & Com-petitiveness Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Strategic Competitiveness Strategic Vision & Intent / Mission Chapter 1: Strategic Management Strategic Competitiveness Strategic Vision & Intent / Mission Chapter 1: Strategic Management Strategic Competitiveness Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Actions Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation