1. Strategic Management and Strategic Competitiveness
Chapter 1
Strategic Management and Strategic Competitiveness
Diane M. Sullivan, Ph.D., 2014
Sections modified from Hitt, Ireland, and Hoskisson, Copyright © 2008 Cengage

2. 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

3. Examples Example 1: Boeing vs. Airbus
Won competitive battle
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

4. 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
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5. 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

6. 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?
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7. SWOT
Headline, January 29, 2014:
SWOT is Dead!
SWOT

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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
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15. 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.

16. 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

17. 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 Wednesday
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