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  • 1. BA 495, Section 9 Chapter One Strategic Management & Strategic Competitiveness
  • 2. Today’s Agenda • Defining Strategy & The Strategic Management Process • Competitive Landscape in the 21st Century • Assessing Strategic Inputs – External Environment: Industrial Organization Model – Internal Environment: Resource-Based Model – Developing a Vision & Mission • Role of Stakeholders • Wrap-up 1–2
  • 3. Defining Strategy and the Strategic Management Process 1–3
  • 4. Strategy: Definitions • Strategy is creating optimal value by finding the best match between a firm’s strengths and the environment’s opportunities – Consider the firm’s internal resources, skills and core competencies – Consider the opportunities and risks created by the firm’s external environment • Strategy formally defined: – An integrated and coordinated set of tactics that generate above-average returns and are designed to exploit a firm’s core competencies and gain a competitive advantage. 1–4
  • 5. Defining Strategy: SWOT Analysis Organizational Environmental analyses analyses Strengths Opportunities Weaknesses Threats Strategic choices How does a strategy allow us to exploit our strengths, avoid or fix our weaknesses, exploit our opportunities, and neutralize our threats? 1–5
  • 6. Defining Strategy: Other Key Concepts Value Creation Considerations: • Above-average Returns – Returns in excess of what an investor expects to earn from other investments with a similar amount of risk. • Average Returns – Returns equal to those an investor expects to earn from other investments with a similar amount of risk. • Risk – An investor’s uncertainty about the economic gains or losses that will result from a particular investment. 1–6
  • 7. Defining Strategy: Other Key Concepts • Competitive Advantage – When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate. • Strategic Management Process – The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. This is the manner in which strategy is developed and implemented. 1–7
  • 8. The Strategic Management Process 1–8
  • 9. Competitive Landscape in the 21st Century 1–9
  • 10. The 21st-Century Competitive Landscape • A Perilous Business World – Rapid changes in industry boundaries and markets – Conventional sources of competitive advantage losing effectiveness • Keys Areas of Impact – Globalization – Technology – Increasing Knowledge Intensity 1–10
  • 11. Globalization • Globalization defined: Increased economic interdependence among countries—the flow of goods and services, financial capital, and knowledge across country borders • Impact to a firm’s strategy: – Increased competition – Resources shared throughout the globe (raw materials, financial resources, human resources) • Results: – Improved efficiency which leads to even higher returns – Additional risks for global firms 1–11
  • 12. Technology and Technological Changes • Technology Diffusion: The speed at which new technologies become available • Perpetual Innovation: The rapidity and consistency with which new, information- intensive technologies replace older ones • Disruptive Technologies: Technologies that destroy the value of existing technology and create new markets 1–12
  • 13. Impact of Technological Changes • The ability to innovate, and for companies to reinvent themselves has become critical. • The ability to effectively and efficiently access and use information has become an important source of competitive advantage. What companies can you think of that perform well in light of the impact of today’s influence from technology? 1–13
  • 14. Increasing Knowledge Intensity • Knowledge is a critical organizational resource for creating an intangible competitive advantage – Strategic flexibility: the 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 – Organizational capacity to learn 1–14
  • 15. External Environment: The Industrial Organization Model 1–15
  • 16. I/O Model of Above-Average Returns • Dominance of the External Environment – 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 Determining Performance – Economies of scale – Barriers to market entry – Diversification – Product differentiation – Degree of concentration of firms in the industry 1–16
  • 17. I/O Model Focus Organizational Environmental analyses analyses Strengths Opportunities Weaknesses Threats 1–17
  • 18. Four Assumptions of the I/O Model External environment imposes pressures and constraints 1 that determine strategies leading to above-average returns. Most firms competing in an industry control similar 2 strategically relevant resources and pursue similar strategies. Resources used to implement strategies are highly 3 mobile across firms. Organizational decision makers are assumed to be rational 4 and committed to acting in the firm’s best interests (profit- maximizing). 1–18
  • 19. Industrial Organization Model The External Environment 1. Study the external environment, especially the industry environment: • General environment • Industry environment • Competitive environment 1–19
  • 20. Industrial Organization Model The External Environment Attractive Industry 2. Locate an attractive industry with a high potential for above- average returns. Attractive industry: One whose structural characteristics suggest above-average returns. 1–20
  • 21. Industrial Organization Model The External Environment Attractive Industry Strategy Formulation 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. 1–21
  • 22. Industrial Organization Model The External Environment Attractive Industry Strategy Formulation Assets and Skills 4. Develop or acquire assets and skills needed to implement a chosen strategy. Assets and skills: those assets and skills required to implement a chosen strategy. 1–22
  • 23. Industrial Organization Model The External Environment Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy. Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy. 1–23
  • 24. Industrial Organization (I/O) Model The External Environment Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns Superior returns: earning above-average returns 1–24
  • 25. Internal Environment: The Resource-Based Model 1–25
  • 26. The Resource-Based Model of Above- Average Returns • Model Assumptions – 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 must be developed and managed dynamically. – Differences in firms’ performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry. – Core competencies are generally not transferable across firms and are the basis of competitive advantage. 1–26
  • 27. Resource-Based Model Focus Organizational Environmental analyses analyses Strengths Opportunities Weaknesses Threats 1–27
  • 28. Resource-Based Model 1. Identify the firm’s resources— Resources strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process 1–28
  • 29. Resource-Based Model (cont’d) Resources 2. Determine the firm’s Capability capabilities—what it can do better than its competitors. Capability: capacity of an integrated set of resources to integratively perform a task or activity. 1–29
  • 30. Resource-Based Model (cont’d) Resources Capability 3. Determine the potential of Competitive Advantage the firm’s resources and capabilities in terms of a Competitive advantage: competitive advantage. ability of a firm to outperform its rivals. 1–30
  • 31. Resource-Based Model (cont’d) Resources Capability Competitive Advantage Attractive Industry 4. Locate an attractive industry. Attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities. 1–31
  • 32. Resource-Based Model (cont’d) Resources Capability Competitive Advantage Attractive Industry Strategy Formulation 5. Select a strategy that best and Implementation allows the firm to utilize its resources and capabilities Strategy formulation and relative to opportunities in implementation: strategic the external environment. actions taken to earn above average returns. 1–32
  • 33. Resource-Based Model (cont’d) Resources Capability Competitive Advantage Attractive Industry Strategy Formulation and Implementation Superior Returns Superior returns: earning above-average returns 1–33
  • 34. 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 1–34
  • 35. Developing a Vision & Mission 1–35
  • 36. Vision and Mission • Vision – A enduring picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. • Stretches and challenges people and evokes emotions and dreams. • Effective vision statements are: – Developed by a host of people from across the organization. – Clearly tied to external and internal environmental conditions. – Consistent with strategic leaders’ decisions and actions. 1–36
  • 37. Vision and Mission (cont’d) • Mission – Specifies the business or businesses in which the firm intends to compete and the customers it intends to serve. – Is more concrete than the firm’s vision. – Is more effective when it fosters strong ethical standards. • Above-average returns are the fruits of the firm’s efforts to achieve its vision and mission. 1–37
  • 38. Examples “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” “The mission of Nike is to bring inspiration and innovation to every athlete in the world. If you have a body, you are an athlete.” ―At Knowledge Learning Corporation, we are committed to enhancing the educational opportunities for children, families, and the dedicated professionals who serve them.‖ 1–38
  • 39. From Mission to Action Mission/Intent Fundamental purposes Objectives Measurable performance targets Strategies Means to accomplish objectives Tactics/Policies Actions to implement strategies 1–39
  • 40. Stakeholders 1–40
  • 41. Three Stakeholder Groups 1–41
  • 42. Stakeholders Capital Market Capital Market Stakeholders Stakeholders Shareholders Major suppliers of capital • Banks • Private lenders • Venture capitalists 1–42
  • 43. Capital Market Stakeholders • Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it. – Want the return on their investment (and, hence, their wealth) to be maximized. – Expect returns to be commensurate with the degree of risk to the shareholder. • Management must balance the interests of shareholders and lenders with its concerns for the firm’s future competitive ability. 1–43
  • 44. Stakeholders (cont’d) Capital Market Stakeholders Product Market Product Market Stakeholders Stakeholders • Customers • Suppliers • Host communities • Unions 1–44
  • 45. 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 1–45
  • 46. Stakeholders (cont’d) Capital Market Stakeholders Product Market Stakeholders Organizational Organizational Stakeholders Stakeholders • Employees • Managers • Nonmanagers 1–46
  • 47. Organizational Stakeholders • Employees – Expect a dynamic, stimulating and rewarding work environment. – Are satisfied by a company that is growing and actively developing their skills. 1–47
  • 48. Review of Key Concepts 1–49
  • 49. Review of Key Concepts • Defining Strategy & The Strategic Management Process • Competitive Landscape in the 21st Century • Assessing Strategic Inputs – External Environment: Industrial Organization Model – Internal Environment: Resource-Based Model – Developing a Vision & Mission • Role of Stakeholders • Questions 1–50

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