1. McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. What is Strategic Management?
Chapter 1
What is Strategic Management?

3. Two Perspectives of Leadership
Romantic view
Leader is the key force in organization’s success
External control perspective
Focus is on external factors that affect an organization’s success
Leaders can make a difference
Must be aware of opportunities and threats faced in external environment
Must have thorough understanding of the firm’s resources and capabilities
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4. The Nature of Strategic Management
Today must do more than set long-term strategies and hope for the best
Must go beyond “incremental management”
Making minor changes
Today’s pace of change is accelerating
Manager’s must make major and minor changes in strategic direction
Leaders must be:
Proactive
Anticipate change
Continually refine and make strategic changes
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5. Strategic Management
Strategic Management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages
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6. Strategic Management Analysis Strategic decisions Actions
Strategic goals (vision, mission, strategic objectives)
Internal and external environment of the firm
Strategic decisions
What industries should we compete in?
How should we compete in those industries?
Actions
Allocate necessary resources
Design the organization to bring intended strategies to reality
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7. Strategic Management
Strategic management is the study of why some firms outperform others
How to compete in order to create competitive advantages in the marketplace
How to create competitive advantages in the market place
Unique and valuable
Difficult for competitors to copy or substitute
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8. Key Attributes Key Attributes of strategic management:
Directs the organization toward overall goals and objectives
Includes multiple stakeholders in decision making
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9. Key Attributes Key Attributes of strategic management:
Needs to incorporate short-term and long-term perspectives
Peter Senge refers to this needs as a “creative tension”
Must maintain a vision for the future of the organization and focus on its present operating needs
Recognizes trade-offs between efficiency and effectiveness
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10. Strategic Management Process
Henry Mintzberg, management scholar at McGill University
Business environment far from predictable
Decisions seldom based on optimal rationality alone
Decisions following analysis constitute intended strategy
Final realized strategy of any firm is a combination of deliberate and emergent strategies
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11. Strategic Management Process
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12. Strategic Analysis Starting point in the strategic management process
Precedes effective formulation and implementation of strategies
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13. Strategic Analysis (cont.)
Frameworks for analyzing a firm’s internal environment
Strengths
Weaknesses
Analyzing strengths can uncover potential sources of competitive advantage
Analyzing external environments
Competitors
General environment
Industry environment
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14. Strategy Formulation Business level strategy:
Successful firms develop bases for competitive advantage
Cost leadership
Differentiation
Focusing on narrow or industry-wide market segments
Sustainability
Industry life cycle
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15. Strategy Formulation (cont.)
Corporate-level strategy addresses:
Firm’s portfolio or group of businesses
What business(es) should we be in?
How can we create synergies among the businesses?
Diversification
Related
Unrelated
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16. Resource-Based View of the Firm
Resource-based view -- helpful perspective for understanding strategic management and its activities
Two perspectives
The internal analysis of phenomena within a company
An external analysis of the industry and its competitive environment
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17. Resource-Based View of the Firm
Firm’s resources must be evaluated in terms of how valuable, rare, and hard they are for competitors to duplicate
Three key types of resources
Tangible resources
Intangible resources
Organizational capabilities
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18. Resource-Based View of the Firm
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19. Types of Resources: Tangible Resources
Relatively easy to identify
Financial resources
Firm’s cash accounts
Firm’s capacity to raise equity
Firm’s borrowing capacity
Physical resources
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment
Relatively easy to identify, and include physical and financial assets used to create value for customers
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20. Types of Resources: Tangible Resources
Technological resources
Trade secrets
Innovative production processes
Patents, copyrights, trademarks
Organizational resources
Effective strategic planning processes
Excellent evaluation and control systems
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21. Types of Resources: Intangible Resources
Difficult for competitors (and the firm itself) to account for or imitate
Human
Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures
Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time
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22. Types of Resources: Intangible Resources
Innovation and creativity
Technical and scientific skills
Innovation capacities
Reputation
Brand name
Reputation with customers
Reputation with suppliers
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23. Types of Resources: Organizational Capabilities
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end
Outstanding customer service
Excellent product development capabilities
Innovativeness of products and services
Ability to hire, motivate, and retain human capital
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24. Firm Resources and Sustainable Competitive Advantages
Resources alone are not basis for competitive advantages, nor are advantages sustainable over time
Resources or capabilities may help firm to increase revenue or lower costs
Only temporary advantage
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25. Firm Resources and Sustainable Competitive Advantages
Implications
Is the resource or capability…
Valuable
Rare
Difficult to imitate
Difficult to substitute
Neutralize threats and exploit opportunities
Not many firms possess
Physically unique
Path dependency
Causal ambiguity
Social complexity
No equivalent strategic resources or capabilities
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26. Firm Resources and Sustainable Competitive Advantages
Is the Resource Valuable?
Resources are valuable when they enable a firm to formulate and implement strategies that improve its efficiency or effectiveness
SWOT matrix suggests firms improve performance only when they exploit opportunities or neutralize threats
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27. Firm Resources and Sustainable Competitive Advantages
Is the Resource Rare?
If competitors possess same valuable resource, not source of competitive advantage
Common strategies based on a resources is not an advantage
Some strategies require mix of resources – tangible assets, intangible assets, and organizational capabilities
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28. Firm Resources and Sustainable Competitive Advantages
Can the Resource Be Imitated Easily?
Inimitability is key to value creation
Constrains competition
Competitors will eventually find a way to copy valuable resources
Advantage based on inimitability won’t last forever
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29. Firm Resources and Sustainable Competitive Advantages
Can the Resource Be Imitated Easily?
Managers can develop strategies around resources that have one or more of the following four characteristics:
Physical Uniqueness
Path dependency
Causal ambiguity
Social complexity
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30. Firm Resources and Sustainable Competitive Advantages
Are Substitutes Readily Available?
Must be no strategically equivalent valuable resources that are themselves not rare or inimitable
Substitutability takes two forms:
Substitute similar resource to implement same strategy
Very different resources can become strategic substitutes
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31. Criteria for Sustainable Competitive Advantages
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