12/2/2015Strategic Management -Session One 1 Strategic Management Session - One

12/2/2015Strategic Management -Session One 2 Nature of Competition: Boeing vs. Airbus Boeing –Historically a global leader in airplane manufacturing –Revenue from commercial aircraft division & gov’t contracts –Regained supremacy in 2006: more 787 super jumbo orders vs. Airbus’s more efficient A-380 –Changed strategy and design Different production process Smaller plane (787 Dreamliner) Airbus –EU Government owned and subsidized –Won competitor battle with Boeing between 2001 & 2005 –Responded to customer demands with more efficient A-380 aircraft

12/2/2015Strategic Management -Session One 3 Nature of Competition: Basic concepts Strategic Competitiveness –Achieved when a firm formulate & implements a value-creating strategy Strategy –Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

12/2/2015Strategic Management -Session One 4 Nature of Competition: Basic concepts Competitive Advantage (CA) –Implemented strategy that competitors are unable to duplicate or find too costly to imitate Above Average Returns –Returns in excess of what investor expects in comparison to other investments with similar risk

12/2/2015Strategic Management -Session One 5 Nature of Competition: Basic concepts Risk –Investor’s uncertainty about economic gains/losses resulting from a particular investment Average Returns –Returns equal to what investor expects in comparison to other investments with similar risk Strategic Management Process (SMP) –Full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average returns

12/2/2015Strategic Management -Session One 6 Stakeholders Basic Premise – a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors Stakeholders are individuals and groupsStakeholders –They can affect, and are affected by, the strategic outcomes/performance a firm achieves –Three (3) classifications

12/2/2015Strategic Management -Session One 7 The Three Stakeholder Groups

12/2/2015Strategic Management -Session One 8 Stakeholders (Cont ’ d) Classifications of Stakeholders –Capital Market Expect returns commiserate with risk accepted by investments Higher the dependency relationship, the more direct and significant firm’s response –Product Market The 4 groups benefit due to competitive battles –Organizational The employees- Managers, Non Managers

12/2/2015Strategic Management -Session One 9 21 st Century Competitive Landscape Introduction: The Competitive Landscape (CL) –Pace of change is rapid –Partnerships created by mergers & acquisitions (M&As) –Other CL characteristics: Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovative

12/2/2015Strategic Management -Session One st Century Competitive Landscape Introduction: The Competitive Landscape (CL) –Hypercompetition – extremely intense rivalry among competing firms, characterized by Escalating & increasingly aggressive competitive moves Assumptions of market stability replaced with notion of Instability and change –Two primary drivers of the competitive landscape: The global economy Technology

12/2/2015Strategic Management -Session One st Century Competitive Landscape (Cont ’ d) The Global Economy –Goods, services, people, skills and ideas move freely across geographic borders –Europe, through the European Union (EU) is the world’s largest single market EU vs U.S. GDP: 35% higher –Emerging major competitive forces: China & India –In summary: globalization increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders

12/2/2015Strategic Management -Session One st Century Competitive Landscape (Cont ’ d) Technology and Technological Changes –3 categories: 1. Technology diffusion & disruptive technologies 2. The information age 3. Increasing knowledge intensity

12/2/2015Strategic Management -Session One 13 Industrial Organizational (I/O) Model of Above-Average Returns (AAR)

12/2/2015Strategic Management -Session One 14 Industrial Organizational (I/O) Model of Above-Average Returns (AAR) Basic Premise – to explain the dominant influence of the external environment on a firm's strategic actions and performance

12/2/2015Strategic Management -Session One 15 Industrial Organizational (I/O) Model of Above-Average Returns (AAR) Underlying Assumptions –External environment imposes pressures and constraints that determine the strategies resulting in AAR –Most firms compete within a particular industry/segment Control similar strategically relevant resources Pursue similar strategies in light of those resources

12/2/2015Strategic Management -Session One 16 Industrial Organizational (I/O) Model of Above-Average Returns (AAR) Underlying Assumptions –Resources for implementing strategies are highly mobile across firms Therefore any resource differences between firms will be short-lived –Organizational decision makers are rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors

12/2/2015Strategic Management -Session One 17 Industrial Organizational (I/O) Model of Above-Average Returns (AAR) Five-Forces Model (Michael Porter) –The 5 Forces includes Suppliers, buyers, competitive rivalry, product substitutes and potential entrants –Reinforces the importance of economic theory –Analytical tool previously lacking in the field of strategy –Determines the nature/level of competition and profit potential in an industry Suggests an industry’s profitability is an interaction between these 5 forces

12/2/2015Strategic Management -Session One 18 Industrial Organizational (I/O) Model of Above-Average Returns (AAR) (Cont ’ d) Limitations –Only two strategies are suggested: Cost Leadership –THE low-cost leader Differentiation –Customer willing to pay the premium price for ‘being different’ –Internal resources & capabilities not considered

12/2/2015Strategic Management -Session One 19 The Resource- Based Model of AAR

12/2/2015Strategic Management -Session One 20 The Resource-Based Model of AAR (Cont ’ d) Basic Premise - a firm's unique [internal] resources & capabilities, in combination, is the basis for firm strategy and AAR –Each firm’s performance difference across time emerges (vs industry’s structural characteristics) –Combined uniqueness should define the firms’ strategic actions –Resources are tangible and intangible

12/2/2015Strategic Management -Session One 21 The Resource-Based Model of AAR (Cont ’ d) Resources –Inputs into a firm's production process Includes capital equipment, employee skills, patents, high-quality managers, financial condition, etc. –Basis for competitive advantage: When resources are valuable, rare, costly to imitate and nonsubsitutable

12/2/2015Strategic Management -Session One 22 The Resource-Based Model of AAR –Resources Internal/firm-specific resources (N=3) Physical –Things you can touch/feel = tangible Human –People / employees Organizational capital –Relative to the firm itself

12/2/2015Strategic Management -Session One 23 The Resource-Based Model of AAR (Cont ’ d) Capability –Capacity for a set of resources to perform a task or activity in an integrative manner Core Competency –A firm’s resources and capabilities that serve as sources of competitive advantage over its rival Summary – A firm has superior performance because of Unique resources and capabilities, and the combination makes them different, and better, than their competition – driving the competitive advantage

12/2/2015Strategic Management -Session One 24 Vision and Mission Vision –Picture of what the firm wants to be –What the firm ultimately wants to achieve –An effective vision statement is the responsibility of the leader who should work with others to form it –Foundation for the mission Mission –Specifics business(es) in which firm intends to compete and customers it intends to serve –More specific than the vision

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26 What Makes a Successful Strategy? Long-term, simple and agreed objectives Objective appraisal of resources EFFECTIVE IMPLEMENTATION Successful strategy Profound understanding of the competitive environment © 2010 Robert M. Grant

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28 The Basic Framework Strategy: the Link between the Firm and its Environment THE FIRM Goals & Values Resources & Capabilities Structure & Systems THE FIRM Goals & Values Resources & Capabilities Structure & Systems THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY © 2010 Robert M. Grant

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30 Distinguishing strategy from tactics : –Strategy is the overall plan for deploying resources to establish a favorable position. –Tactic is a scheme for a specific maneuver. What is Strategy? Characteristics of strategic decisions: –Important. –Involve a significant commitment of resources. –Not easily reversible. © 2010 Robert M. Grant

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32 Describing Strategy: Competing for the Present; Preparing for the Future. STATIC Where are we competing? - Product market scope - Geographical scope - Vertical scope How are we competing? - What is the basis of our competitive advantage?) DYNAMIC What do we want to become? - Vision statement What do we want to achieve? - Mission statement - Performance goals How will we get there? - Guidelines for development - Priorities for capital expenditure, R&D - Growth modes: organic growth, M&A, alliances COMPETING FOR THE PRESENT PREPARING FOR THE FUTURE © 2010 Robert M. Grant

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