1 Competing for Advantage Robert E. Hoskisson Michael A. Hitt R. Duane Ireland The PowerPoint slides for this textbook were prepared by: R. Dennis Middlemist Professor of Management Colorado State University If you have any concerns, contact me directly at This slide is informational only. Do not display in the classroom.

©2003 Southwestern Publishing Company 2 Introduction to Strategic Management Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 1

3 Chapter 2 Chapter 2 Strategic Leadership Strategic Leadership Chapter 4 Chapter 4 The Internal The Internal Organization Chapter 6 Chapter 6 Competitive Rivalry and Competitive Rivalry and Competitive Dynamics Competitive Dynamics Chapter 9 Chapter 9 International Strategy International Strategy Chapter 1 Chapter 1 Introduction to Introduction to Strategic Management Strategic Management Chapter 3 Chapter 3 The External The External Environment Chapter 5 Chapter 5 Business-Level Strategy Chapter 8 Chapter 8 Acquisition and Acquisition and Restructuring Strategies Restructuring Strategies Chapter 11 Chapter 11 Corporate Governance Corporate Governance Strategic Intent Strategic Intent Strategic Mission Strategic Mission Chapter 7 Chapter 7 Corporate-Level Strategy Corporate-Level Strategy Chapter 10 Chapter 10 Cooperative Strategy Cooperative Strategy Chapter 12 Chapter 12 Strategic Entrepreneurship Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process

4 Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns Value Creation What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate.

5 Definitions Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk Above-Average Returns Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Average Returns

6 Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment

7 Fundamental nature of competition is changing Competitive Landscape Hypercompetitive environments Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new know- how, first mover Protect or invade established product or geographic markets

8 Fundamental nature of competition is changing Hypercompetitive environments Competitive Landscape Emergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders Spread of economic innovations around the world Political and cultural adjustments are required

9 Hypercompetitive environments Competitive Landscape Emergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Increasing knowledge intensity Fundamental nature of competition is changing

10 Strategic Flexibility A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks

11 Strategic Flexibility Strategic Flexibility Strategic Flexibility Strategicflexibility Strategicreorientation Capacity to learn Organizationalslack

12 1.Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) 2.Firm develops internal skills required by external environment (what can the firm do about the opportunities?) GeneralEnvironment Global Technological Economic Sociocultural Political/Legal Demographic 1. External Environments Industry Environment Competitor Environment I/O Model of Above-Average Returns

13 Four Assumptions of the I/O Model 1.The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns 2.Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources

14 Four Assumptions of the I/O Model 3.Resources used to implement strategies are highly mobile across firms 4.Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors

15 Industrial Organization Model I/O Model of Above-Average Returns 1.Study the external environment, especially the industry environment economies of scaleeconomies of scale barriers to market entrybarriers to market entry diversificationdiversification product differentiationproduct differentiation degree of concentration of firms in the industrydegree of concentration of firms in the industry The External Environment

16 I/O Model of Above-Average Returns 2.Locate an attractive industry with a high potential for above-average returns Attractive industry: one whose structural characteristics suggest above-average returns Industrial Organization Model The External Environment An Attractive Industry

17 I/O Model of Above-Average Returns 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 Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation

18 I/O Model of Above-Average Returns 4.Develop or acquire assets and skills needed to implement the strategy Assets and skills: those assets and skills required to implement a chosen strategy Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills

19 I/O Model of Above-Average Returns 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 Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation

20 I/O Model of Above-Average Returns Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns Superior returns: earning of above-average returns

21 1.Strategy dictated by the firm’s unique resources and capabilities 2.Find an environment in which to exploit these assets (where are the best opportunities?) Resource-based Model of Above Average Returns 1. Firm’s Resources

22 1.Identify the firm’s resources-- strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process Resource-based Model of Above Average Returns Resource-basedModel Resources

23 2.Determine the firm’s capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity Resource-based Model of Above Average Returns Resource-basedModel Resources Capability

24 Four Attributes of Resources and Capabilities (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 Resources and Capabilities

25 Core Competencies Resources and capabilities that meet these four criteria become a source of: Valuable Rare Costly to imitate Nonsubstitutable Core Competencies Resources and Capabilities

26 Core Competencies are the basis for a firm’s Competitive advantage Value Creation Ability to earn above-average returns Core Competencies

27 3.Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Competitive advantage: ability of a firm to outperform its rivals Resource-based Model of Above Average Returns Resource-basedModel Resources Capability Competitive Advantage

28 4.Locate an attractive industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities Resource-based Model of Above Average Returns Resource-basedModel Resources Capability Competitive Advantage An Attractive Industry

29 5.Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Strategy formulation and implementation: strategic actions taken to earn above average returns Resource-based Model of Above Average Returns Resource-basedModel Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl

30 Resource-based Model of Above Average Returns Resource-basedModel Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns Superior returns: earning of above-average returns

31 Strategic Intent & Mission Strategic Intent Strategic Intent Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies Strategic Mission Strategic Mission An application of strategic intent in terms of products to be offered and markets to be served An application of strategic intent in terms of products to be offered and markets to be served

32 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 retain the participation of key stakeholders The Firm and Its Stakeholders Stakeholders

33 Capital Market Stakeholders The Firm and Its Stakeholders Shareholders Major suppliers of capital BanksBanks Private lendersPrivate lenders Venture capitalistsVenture capitalists Stakeholders

34 Capital Market Stakeholders Product Market Stakeholders The Firm and Its Stakeholders Primary customers Suppliers Host communities Unions Stakeholders

35 Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders The Firm and Its Stakeholders EmployeesManagersNonmanagers Stakeholders

36 Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm How do you divide the returns to keep stakeholders involved? 1 Capital Market Product Market Organizational

37 Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm How do you increase the returns so everyone has more to share? 2 Capital Market Product Market Organizational

38 Organizational Strategists Serve as a major source of competitive advantage Are held responsible by stakeholders Make decisions regarding development, acquisition, cost and use of resources Assess risks of strategic actions