2-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall The Context of Managing Strategically Chapter 2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Two Learning Objectives 2.1 Describe the different perspectives on competitive advantage. 2.2 explain the driving forces, implications, and critical success factors of the business environment. 2.3Discuss two organizational elements that guide strategic decision makers in managing strategically in today’s context. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-3 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 2.1 Describe the Different Perspectives on Competitive Advantage Managing strategically – Formulating and implementing strategies that allow and organization to develop and maintain competitive advantage Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-4 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 2.1 – cont’d Competitive advantage – Sets a company apart from others in the industry – Refers to what a company has or can do that others do not or can not – To possess it can mean survival and long term success – It is the purpose of strategic management – Requires understanding and capitalizing on the environment Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-5 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-6 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall The I/O View Proposes analyzing the external environment – Developed by Michael Porter – Focuses on the structural forces within an industry, as a means to determine in which industry to compete – Includes the competitive environment of firms and how they influence competitive advantage – Weakness is that the view ignores the characteristics of individual companies Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-7 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Resource Based View (RBV) Views firm resources as essential to competitiveness – Organizations are a collection of assets and capabilities – Uniqueness is the basis for competitive advantage – Need to have a match between resources and opportunities offered by the industry Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-8 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall RBV: Organizational Resources Financial – Cash, reserves, debt, equity, earnings Physical – Equipment, buildings, facilities, raw materials Human – Knowledge, skills, experience, competencies Intangible – Brand names, reputation, trademarks, patents Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-9 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall RBV: Organizational Resources Structural/cultural – Organizational history, culture, work systems, policies, trust, relationships, formal organizational structure All organizations have resources – How they match to the environment and whether they are unique will determine their effectiveness and whether they can contribute to competitive advantage Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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2-11 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall What Makes Resources Important? Value Resources are not valuable by themselves, but within the context of the external environment – Can they exploit external circumstances to generate revenues? – Can they neutralize negative external situations to keep revenue flow? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-12 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall RBV: What Makes Resources Important – cont’d Rare Valuable, but uncommon resources Not generally possessed by competitors Hard to Imitate/Substitute Resources that do not have easy alternatives Examples: culture, trust, reputation

2-13 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall RBV: What Makes Resources Important – cont’d Ability to exploit More than mere possession of resources Requires opportunity, capabilities Resources are not static RBV focuses on continually building and maintaining resources

2-14 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Guerrilla View Competitive advantage is temporary – Environment changes continually – Unpredictable events challenge managers Some changes are revolutionary – Disruptions in technology – Market instabilities Guerrilla view argues success depends on adapting and responding to competition

2-15 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Which View is Best? Competitive advantage is important to how a company performs and each view offers a unique perspective – I/O looks at the external environment, particularly the industry and competitors – RBV looks inside the organization for unique resources and capabilities to be exploited – Guerrilla View recognizes the dynamic environment makes competitive advantage temporary

2-16 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 2.1 Review Define competitive advantage and explain why it’s important. Describe the different perspectives on competitive advantage. Explain what makes a resource unique

2-17 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 2.2 Explain the Driving Forces, Implications, and Critical Success Factors of the Business Environment The business context is different today – Dynamic, ever-changing environment has altered the way organizations operate – Even not-for-profit organizations feel impact – Challenge is to gain access to resources: labor, technology, funding

2-18 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-19 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Drivers of the New Business Environment The three critical driving forces in the new business environment are – The information revolution – Technology – Globalization These raise questions about what it takes to be successful and the implications for organizations

2-20 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall The Information Revolution This driver is the most influential and it is accelerating – All the information being saved in the past year would equal 500,000 libraries the size of the Library of Congress – The amount of digital information available is 3 million times are the books ever written – The growth rate of digital information is 57 percent a year

2-21 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall The Information Revolution – cont’d The instant availability of information has radically changed the nature of the business environment and the context of strategic management – Information is no longer simply part of the process used to develop goods and services – Information is the resource of production – No longer a way to efficiently use resources, it must be exploited

2-22 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Technology All organizations use some form of technology to do their work Technology includes: – Equipment – Materials – Knowledge – Experience

2-23 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Technology – cont’d High performance companies are leaders in technology – Southwest Airlines – Wal-Mart – McDonald’s – Toyota – Samsung – IKEA

2-24 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Globalization It has long been recognized that globalization and the global economy impact strategic management – Yet, globalization continues to transform the business environment – Seeking to improve, companies must continue to strategically manage global issues

2-25 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Implications of the Three Driving Forces There are four major implications of these driving forces – Continual change – Reduced need for physical assets – Vanishing distance and compressed time – Increased vulnerability

2-26 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Continual Change Change has become the natural order of business Environmental change is occurring, both external and internal The result is organizational change – A structured transition in what an organization does and how it does it

2-27 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Reduced Need for Physical Assets The old business environment valued physical assets, such as: – Manufacturing facilities – Office buildings – Equipment – inventory

2-28 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Reduced Need for Physical Assets – cont’d New measure of value in today’s companies is intangible assets – Information – People – Ideas – Knowledge

2-29 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Vanishing Distance and Compressed Time Geography no longer limits businesses as it once did The result is that new markets and customers can be found anywhere Technology has improved the ability to interact and react This also means advantages are temporary

2-30 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Vulnerability With technological improvements come vulnerabilities – Computer viruses – Terrorist attacks – Biological attacks Strategic managers must protect all forms of assets – Information, facilities, and people

2-31 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Critical Success Factors Three critical success factors in today’s new business environment – Ability to embrace change – Creativity and innovation capabilities – Being a world-class organization

2-32 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Ability to Embrace Change Change is the essence of today’s business environment and is necessary because of: – Technological advances – Resource vulnerability – Information availability

2-33 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Ability to Embrace Change – cont’d To be successful in today’s environment, businesses must: – Be tolerant of change – Seek out change – Be able to exploit the opportunities

2-34 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Creativity and Innovation Capabilities The most critical of factors, it is believe that organizations must “create and innovate or fail” To complete successfully, companies must – Create new products and services – Adopt state-of-art technology

2-35 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Being a World-Class Organization Creating competitive advantage in today’s environment is important – Ensures success and survival A world-class organization is one in which strategic decision makers take actions designed to make their organization the best in the world at what it does

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2-37 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Review: Learning Outcome 2.2 Describe the three major driving forces of the business environment Explain the four major implications of these driving forces Discuss the three critical factors for succeeding in the business environment

2-38 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 2.3 Discuss Two Organizational Elements That Guide Strategic Decision Makers in Managing Strategically in Today’s Context – Organizational vision and mission – Corporate social responsibility and ethics

2-39 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Organizational Vision and Mission Organizations need both a vision and mission – Viewed as the same, they are very different Vision A broad, comprehensive picture of what a leader wants the organization to become – It is a single statement of what it stands for, believes in and why it exists – It contributes to increased levels of effort

2-40 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Four Components of an Effective Vision Vision is built on the foundation of the organization’s values and beliefs – Those things that are fundamentally important – Examples: customer service, emphasis on quality, focus on integrity and ethics Vision elaborates a purpose Vision explains what the organization does Vision specifies goals and guides actions

2-41 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Organizational Mission Mission A statement of what the organizational units actually do and what they hope to accomplish – Each unit within the larger organization can have a mission statement – Through stated purpose and goals, it provides focus for employees to make and implement strategic decisions – Must be aligned with vision statement

2-42 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall CSR and Ethics CSR is corporate social responsibility Is the obligation of organizational decision makers to make decisions and act in ways that recognize the interrelatedness of business and society CSR recognizes the organizations various stakeholders and how they are dealt with

2-43 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Corporate Social Responsibility Traditional view held that corporations existed solely to serve the interests of shareholders – It was largely an economic view, with costs and profitability as the key focus – Most notable proponent, Milton Friedman, argued that the extent of CSR was to maximize shareholder returns

2-44 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Corporate Social Responsibility – cont’d The current view of CSR recognizes are larger societal role and broader constituency – More than just stockholders, understanding and balancing stakeholders has become the focus – Demands an understanding of a wider range of needs and conflicting expectations

2-45 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Corporate Social Responsibility – cont’d Stakeholders These are individuals or groups that have a stake in or are influenced by the organization’s decisions and actions They can, in turn, influence the organization

2-46 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

2-47 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall CSR and Ethics Ethics Involves the principles that define right and wrong decisions and behavior – Refers to both organizations and individuals Corporate scandals of elevated the discussion about the extent of business ethics

2-48 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Review: Learning Outcome 2.3 Discuss organizational vision and mission statements Define corporate social responsibility Explain who stakeholders are and why they are important to managing strategically Discuss why ethics are important to strategic decision makers

2-49 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall