1. Strategic Management and Strategic Competitiveness
Chapter 1
Strategic Management and Strategic Competitiveness
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2. Knowledge Objectives
Studying this chapter should provide you with the strategic management knowledge needed to:
Define strategic competitiveness competitive advantage, and above-average returns.
Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it.
Use the industrial organization (I/O) model to explain how firms can earn above-average returns.
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3. Knowledge Objectives (cont’d)
Studying this chapter should provide you with the strategic management knowledge needed to:
Use the resource-based model to explain how firms can earn above-average returns.
Describe strategic intent and strategic mission and discuss their value.
Define stakeholders and describe their ability to influence organizations.
Describe the work of strategic leaders.
Explain the strategic management process.
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4. Definitions Strategic Competitiveness
When a firm successfully formulates and implements a value-creating strategy
Sustainable Competitive Advantage
When competitors are unable to duplicate a company’s value-creating strategy
Strategic Management Process
The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns
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5. Definitions (cont’d) Risk Average Returns Above-average Returns
An investor’s uncertainty about the economic gains or losses that will result from a particular investment
Average Returns
Returns equal to those an investor expects to earn from other investments with a similar amount of risk
Above-average Returns
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk
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6. The Strategic Management Process
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Figure 1.1
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7. Current Competitive Landscape
A Perilous Business World
Investments required to compete on a global scale are enormous
Consequences of failure are severe
Important Elements of Success
Developing strategy
Implementing strategy
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8. Competitive Landscape
Strategic maneuvering among global and innovative combatants
Global economy
Rapid technological change
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9. Competitive Landscape: Hypercompetition
Hypercompetition A condition of rapidly escalating competition based on
Hypercompetition
Price-quality positioning
Competition to create new know-how and establish first-mover advantage
Competition to protect or invade established product or geographic markets
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10. Global Economy Global Economy
Goods, people, skills, and ideas move freely across geographic borders
Movement is relatively unfettered by artificial constraints
Expansion into global arena complicates a firm’s competitive environment
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11. Global Economy (cont’d)
Globalization
Increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders
Increased range of opportunities for companies competing in the 21st-century competitive landscape
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12. Country Competitiveness Rankings (Population over 20 Million)
United States 1 2
Australia 2 3
Canada 3 2
Malaysia 4 6
Germany 5 4
Taiwan 6 7
United Kingdom 7 5
France 8 9
Spain 9 8
Thailand 10 10
Japan 11 11
China 12 12
Brazil 13 0
China 14 0
Korea 15 10
Country
Colombia 16 20
Italy 17 14
South Africa 18 16
India 19 0
India 20 17
Brazil 21 15
Philippines 22 18
Romania 23 0
Mexico 24 19
Turkey 25 23
Russia 26 21
Poland 27 22
Indonesia 28 25
Argentina 29 26
Venezuela 30 24
SOURCE: From World Competitiveness Yearbook 2003, IMD, Switzerland. April. Reprinted by permission.
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Table 1.1

13. Technology and Technological Changes
Rate of change of technology and speed at which new technologies become available
Perpetual innovation—how rapidly and consistently new, information-intensive technologies replace older ones
The development of disruptive technologies that destroy the value of existing technology and create new markets
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14. Technological Change The Information Age
The ability to effectively and efficiently access and use information has become an important source of competitive advantage
Technology includes personal computers, cellular phones, artificial intelligence, virtual reality, massive databases, electronic networks, internet trade
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15. Technological Changes
Increasing Knowledge Intensity
Strategic flexibility: set of capabilities used to respond to various demands and opportunities in dynamic and uncertain competitive environments
Organizational slack: slack resources that allow the firm flexibility to respond to environmental changes
Capacity to learn
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16. I/O Model of Above-Average Returns
The industry in which a firm competes has a stronger influence on the firm’s performance than do the choices managers make inside their organizations
Industry properties include
economies of scale
barriers to market entry
diversification
product differentiation
degree of concentration of firms in the industry
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17. Four Assumptions of the I/O Model
External environment imposes pressures and constraints that determine strategies leading to above-average returns 1
Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies 2 3
Resources used to implement strategies are highly mobile across firms
Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit-maximizing) 4
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18. I/O Model of Above-Average Returns
External Environments
Strategy dictated by the external environment of the firm (what opportunities exist in these environments?)
Firm develops internal skills required by external environment (what can the firm do about the opportunities?)
General
Environment
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19. The I/O Model of Above-Average Returns
The External Environment
Study the external environment, especially the industry environment
The general environment
The industry environment
The competitor environment
Adapted from Figure 1.2
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20. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
2. Locate an attractive industry with a high potential for above-average returns
An industry whose structural characteristics suggest above-average returns
Adapted from Figure 1.2
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21. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
3. Identify the strategy called for by the attractive industry to earn above-average returns
Strategy Formulation
Selection of a strategy linked with above-average returns in a particular industry
Adapted from Figure 1.2
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22. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
4. Develop or acquire assets and skills needed to implement the strategy
Strategy Formulation
Assets and skills required to implement a chosen strategy
Assets and Skills
Adapted from Figure 1.2
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23. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy
Strategy Formulation
Selection of strategic actions linked with effective implementation of the chosen strategy
Assets and Skills
Strategy Implementation
Adapted from Figure 1.2
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24. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Superior returns: earning of above-average returns
Strategy Implementation
Superior Returns
Adapted from Figure 1.2
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25. Five Forces Model of Competition
An industry’s profitability results from interaction among
Suppliers
Buyers
Competitive rivalry among firms currently in the industry
Product substitutes
Potential entrants to the industry
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26. Five Forces Model of Competition (cont’d)
Firms earn above average returns by
Producing standardized products or services
Manufacturing differentiated products for which customers are willing to pay a price premium
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27. Resource-Based Model of Above-Average Returns
Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and that is the primary source of its returns
Capabilities evolve and must be managed dynamically
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28. Resource-Based Model of Above-Average Returns (cont’d)
Differences in firms’ performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry
Firms acquire different resources and develop unique capabilities
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29. Resource-Based Model of Above-Average Returns (cont’d)
Firm’s Resources
1. Strategy dictated by the firm’s unique resources and capabilities
2. Find an environment in which to exploit these assets (where are the best opportunities?)
The Firm
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30. Resources and Capabilities
Inputs into a firm’s production process
Capital equipment
Skills of individual employees
Patents
Finances
Talented managers
Capabilities
Capacity of a set of resources to perform in an integrative manner
A capability should not be
So simple that it is highly imitable
So complex that it defies internal steering and control
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31. The Resource-Based Model of Above-Average Returns
Resources
Identify the firm’s resources. Study its strengths and weaknesses compared with those of competitors
Inputs into a firm’s production process
Adapted from Figure 1.3
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32. The Resource-Based Model of Above-Average Returns
Resources
Capability
2. Determine the firm’s capabilities. What do the capabilities allow the firm to do better than its competitors.
Capacity of an integrated set of resources to integratively perform a task or activity
Adapted from Figure 1.3
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33. The Resource-Based Model of Above-Average Returns
Resources
Capability
3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage.
Competitive Advantage
Ability of a firm to outperform its rivals
Adapted from Figure 1.3
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34. The Resource-Based Model of Above-Average Returns
Resources
Capability
4. Locate an attractive industry.
Competitive Advantage
An industry with opportunities that can be exploited by the firm’s resources and capabilities
An Attractive Industry
Adapted from Figure 1.3
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35. The Resource-Based Model of Above-Average Returns
Resources
Capability
5. Select a strategy that best allow the firm to utilize its resources and capabilities relative to opportunities in the external environment.
Competitive Advantage
An Attractive Industry
Strategic actions taken to earn above-average returns
Strategy Implementation
Adapted from Figure 1.3
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36. The Resource-Based Model of Above-Average Returns
Resources
Capability
Competitive Advantage
An Attractive Industry
Superior returns: earning of above-average returns
Strategy Implementation
Superior Returns
Adapted from Figure 1.3
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37. Key Criteria of Resources and Capabilities
Valuable
Resources and capabilities are valuable when they allow a firm to take advantage of opportunities or neutralize threats in external environment
Rare
Resources and capabilities are rare when possessed by few, if any, current and potential competitors
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38. Key Criteria of Resources and Capabilities
Costly to Imitate
Resources and capabilities are costly to imitate when other firms either cannot obtain them or are at a cost disadvantage in obtaining them
Nonsubstitutable
Resources and capabilities are nonsubstitutable when they have no structural equivalents
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39. Core Competencies
When the four key criteria of resources and capabilities are met, they become core competencies
Core competencies serve as a source of competitive advantage
Managerial competencies are especially important
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40. How Resources and Capabilities Provide Competitive Advantage
Valuable
Allow the firm to exploit opportunities or neutralize threats in its external environment
Rare
Possessed by few, if any, current and potential competitors
Costly to imitate
When other firms cannot obtain them or must obtain them at a much higher cost
Nonsubstitutable
The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage
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41. Resources and Capabilities, Core Competencies, and Outcomes
Valuable
Core Competencies
Rare
Competitive Advantage
Costly to Imitate
Value Creation
Nonsubstitutable
Above Average Returns
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42. Strategic Intent Internally focused
The leveraging of a firm’s resources, capabilities and core competencies to accomplish the firm’s goals
Exists when all employees and levels of a firm are committed to the pursuit of a specific, significant performance criterion
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43. Strategic Mission Externally focused
A statement of a firm’s unique purpose and the scope of its operations in product and market terms
Establishes a firm’s individuality and is inspiring and relevant to all stakeholders
Provides general descriptions of the firm’s intended products and its markets
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44. Stakeholders
Individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance
Claims are enforced by the stakeholder’s ability to withhold essential participation
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45. The Three Stakeholder Groups
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Figure 1.4

46. Capital Market Stakeholders
Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it
Returns should be commensurate with the degree of risk to the shareholder
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47. Product Market Stakeholders
Customers
Demand reliable products at low prices
Suppliers
Seek loyal customers willing to pay highest sustainable prices for goods and services
Host communities
Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services
Union officials
Want secure jobs and desirable working conditions
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48. Organizational Stakeholders
Employees
Expect a dynamic, stimulating and rewarding work environment
Are satisfied by a company that is growing and actively developing their skills
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49. Stakeholder Involvement
Two issues affect the extent of stakeholder involvement in the firm
How to divide returns to keep stakeholders involved?
How to increase returns so everyone has more to share?
Capital Market
Organizational
Product Market
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50. Strategic Leaders
People responsible for the design and execution of strategic management processes
Decisions they make include
How resources will be developed or acquired
At what price resources will be obtained
How resources will be used
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51. Organizational Culture
The complex set of
Ideologies
Symbols
Core values
that are shared throughout the firm,
that influence how the firm conducts business
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52. Mapping an Industry’s Profit Pools
Define the pool’s boundaries
Estimate the pool’s overall size
Estimate the size of the value-chain activity in the pool
Reconcile the calculations
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53. Strategic Management Process
Study the external and internal environments
Identify marketplace opportunities and threats
Determine how to use core competencies
Use strategic intent to leverage resources, capabilities and core competencies and win competitive battles
Integrate formulation and implementation of strategies
Seek feedback to improve strategies
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