Strategic Management and Strategic Competitiveness Chapter 1 Strategic Management and Strategic Competitiveness Diane M. Sullivan, Ph.D., 2012 Sections modified from Hitt, Ireland, and Hoskisson, Copyright © 2008 Cengage

Setting the Stage: Definitions and Goals Strategy Defined Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage Integrated and coordinated commitments and actions must be to pursue a long-term mission and vision Must involve multiple functional areas Must have impact on long-term profitability Goals of Strategy (e.g., what we are trying to achieve): Strategic Competitiveness Can be achieved when a firm formulates and implements a value-creating strategy Sustainable Competitive Advantage Implemented strategy that competitors are unable to duplicate or find too costly to imitate Above-Average Returns Returns above of what investor expects in comparison to other investments with similar risk

Examples Example 1: Boeing vs. Airbus Won competitive battle 2001 - 2005 Responded to customer demands after 2005 with A-380 aircraft Offered 550-plus seats; Could only serve 35 large airports Boeing Regained supremacy in 2006 Changed strategy Focused on smaller planes, serving more airports Different production process Example 2: McDonald’s  A Change of Strategy? Then: profitability driven by market saturation  growth via new stores Now: profitability and growth driven by existing stores

Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve firm performance in terms of: Strategic competitiveness Above-average returns Insert figure 1.1 graphic

The 21st Century Context for Strategy: The New Competitive Landscape The old competitive landscape was characterized by market stability The new competitive landscape is characterized by Rapid change Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovative New organizational forms/relationships needed to be successful Partnerships created by mergers and acquisitions, joint ventures, alliances These changes in the landscape often referred to as hypercompetition Extremely intense rivalry among competing firms, characterized by Escalating and increasingly aggressive competitive moves Inherent market instability and change Two primary drivers of the competitive landscape: The global economy (e.g., globalization) Technology This landscape has created the need for “new ways” to develop/implement strategies AND Developing and implementing strategy is more important to firm success in this landscape

Strategic Management Process Step 1: Collect information/knowledge to help you determine what type of strategy would be effective and how it could best be implemented How do we do that? What tools should we use? Insert figure 1.1 graphic

SWOT Headline, January 31, 2012: SWOT is Dead! SWOT

SWOT Internal Environment External Environment Then: Strengths & Weaknesses Opportunities & Threats Now: 1) Resources 1) General Environment 2) Capabilities 2) Industry Environment 3) Core Competencies 3) Competitive Environment 4) Competitive Advantage 5) V.R.I.O. SWOT

2 Models to Help with Strategy Development and Implementation Industrial organization (I/O) model External environment is primary determinant of a firm’s strategic actions Model focuses on the firm’s external environment Resource-based model A firm’s unique resources and capabilities are the critical determinants of strategic competitiveness Model focuses on the firm’s internal environment

I/O Model of Firm Performance I/O Model says The industry in which a firm chooses to compete has a stronger influence on firm performance than do the choices managers make inside their organizations

I/O Model Strategies In general, firms may earn above-average returns by pursuing one of the following strategies: Cost leadership: operations streamlined for efficiency (e.g., low cost operations); offering relatively standardized products/services (e.g., Wal-Mart) Differentiation: create an industry-wide perception of unique value for which customers will pay a premium (e.g., Tiffany jewelry; Intel) More on these, and others, in Chapter 4

Resource-based Model of Firm Performance Assumes each firm is a collection of unique resources and capabilities The uniqueness of the resources/capabilities is the basis for a firm’s strategy and ability to earn above-average returns Insert Figure 1.3 The Resource-Based Model of Above-Average Returns

Resource-based Model of Firm Performance According to the resource-based model a firm may earn above-average returns when it Chooses to enter an industry in which it has competitive advantages based on its resources/capabilities To become a competitive advantage, a resource or capability must be Valuable Rare Costly to imitate Not substitutable More on this in Chapter 3

Strategic Management Process Step 2: After studying the external and internal environments, the firm has the information it needs to form vision and mission Purpose 1: articulate the goal the firm is trying to accomplish Purpose 2: inform stakeholders what that goal is Insert figure 1.1 graphic

Vision and Mission Vision Mission Picture of what the firm ultimately wants to be/achieve An effective vision statement is the responsibility of the leader who should work with others to form it The vision is the foundation for the mission Ford’s vision: To become the world’s leading consumer company for automotive products and services Mission Specific business(es) in which firm intends to compete and customers it intends to serve More concrete than the vision Deals more with product markets and customers Ford’s mission: We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve people’s lives.

Vision, Mission and Stakeholders Research suggests that an effective vision and mission is related to firm performance Firm performance helps firm’s satisfy stakeholders Stakeholders are individuals and groups They can affect, and are affected by, the strategic outcomes/performance a firm achieves Stakeholders have conflicting interests, so it is difficult to adequately satisfy all of them without achieving at least average returns Three classifications of stakeholders Capital Market (shareholders, banks, etc.) Expect returns commiserate with risk accepted by investments Higher the dependency relationship, the more direct and significant firm’s response Product Market (customers, suppliers, communities, unions) All benefit due to competitive battles Organizational Employees Firms require participation from each of these stakeholders in order to operate

Moving Forward…next 2 classes Chapter 2: The External Environment I/O Model Please read Chapter 2 before next class Practice Round 2 decisions to be completed by Thursday (February, 2, 2012 at 7:00pm) Insert figure 1.1 graphic