Chapter 1 Strategic Management:  Creating Competitive Advantages: An Overview Part 1:   Strategic Analysis
Learning Objectives <ul><ul><ul><li>The essence and definitions of strategy, strategic management, and competitive advanta...
Learning Objectives <ul><li>After reading this chapter, you should have a good understanding of: </li></ul><ul><ul><li>The...
Two Perspectives on Leadership <ul><li>Romantic view </li></ul><ul><ul><li>Leader is the key force in organization’s succe...
Two Perspectives on Leadership <ul><li>Leaders can make a difference </li></ul><ul><ul><li>Must be aware of opportunities ...
Strategic Management <ul><li>Analysis  </li></ul><ul><ul><li>Strategic goals (vision, mission, strategic objectives) </li>...
Strategic Management <ul><li>Strategic management is the study of why some firms outperform others </li></ul><ul><ul><li>H...
Strategic Management Concepts <ul><li>Definition:  Strategic management consists of the analysis, decisions, and actions a...
Strategic Management Process Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same Source...
Strategic Analysis <ul><li>Starting point  in the strategic  management  process </li></ul><ul><li>Precedes effective form...
Strategic Analysis (cont.) <ul><li>Clear goals and objectives permit effective allocation of resources </li></ul><ul><li>H...
Strategic Analysis (cont.) <ul><li>Managers </li></ul><ul><ul><li>Scan the environment </li></ul></ul><ul><ul><li>Analyze ...
Strategic Analysis (cont.) <ul><li>Frameworks for analyzing a firm’s internal environment </li></ul><ul><ul><li>Strengths ...
Strategic Analysis (cont.) <ul><li>Intellectual assets are drivers of </li></ul><ul><ul><li>Competitive advantages </li></...
Strategic Formulation <ul><li>Successful firms develop bases for competitive advantage </li></ul><ul><ul><li>Cost leadersh...
Strategic Formulation (cont.) <ul><li>Firm’s portfolio or group of businesses </li></ul><ul><ul><li>What business(es) shou...
Strategic Formulation (cont.) <ul><li>Appropriate entry strategies </li></ul><ul><li>Sustain competitive advantage in glob...
Strategic Formulation (cont.) <ul><li>Digital technologies change the way business is conducted </li></ul><ul><ul><li>Adde...
Strategic Implementation <ul><li>Informational control </li></ul><ul><ul><li>Monitor and scan the environment </li></ul></...
Strategic Implementation (cont.) <ul><li>Organizational structure and design </li></ul><ul><li>Organizational boundaries <...
Strategic Implementation (cont.) <ul><li>Develop organization that is committed to </li></ul><ul><ul><li>Excellence  </li>...
Strategic Implementation (cont.) <ul><li>Corporate entrepreneurship and innovation </li></ul><ul><ul><li>New opportunities...
Strategic Implementation (cont.) <ul><li>New ventures and small businesses </li></ul><ul><ul><li>Major engine of economic ...
Corporate Governance and Stakeholder Management <ul><li>Corporate governance: the relationship among various participants ...
Corporate Governance and Stakeholder Management <ul><li>Board of directors </li></ul><ul><ul><li>Elected represent-   ativ...
Stakeholder Management <ul><li>Two views of stakeholder management </li></ul><ul><ul><li>Zero sum </li></ul></ul><ul><ul><...
Social Responsibility <ul><li>Social responsibility: the expectation that businesses or individuals will strive to improve...
Four Additional Types of Capital <ul><li>In addition to financial capital </li></ul>Type of Capital Description Ecological...
Strategic Management Perspective <ul><li>Integrative view of the organization </li></ul><ul><li>Assess how functional area...
Strategic Management Perspective <ul><li>Key driving forces increasing the need for strategic perspective and involvement ...
Enhancing Employee Involvement <ul><li>Have significant profit and loss responsibility </li></ul>Local Line Leaders
Enhancing Employee Involvement <ul><li>Champion and guide ideas </li></ul><ul><li>Create a learning infrastructure </li></...
Enhancing Employee Involvement <ul><li>Have little positional power and formal authority </li></ul><ul><li>Generate their ...
Coherence in Strategic Direction <ul><li>Company vision </li></ul><ul><li>Massively inspiring </li></ul><ul><li>Overarchin...
Coherence in Strategic Direction <ul><li>Mission statements </li></ul><ul><li>Purpose of the company </li></ul><ul><li>Bas...
Coherence in Strategic Direction <ul><li>Strategic objectives </li></ul><ul><li>Operationalize the mission statement </li>...
Coherence in Strategic Direction <ul><li>Measurable </li></ul><ul><li>Specific </li></ul><ul><li>Appropriate </li></ul><ul...
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McGraw-Hill Ryerson Copyright © 2006 by The McGraw-Hill ...

  1. 1. Chapter 1 Strategic Management: Creating Competitive Advantages: An Overview Part 1: Strategic Analysis
  2. 2. Learning Objectives <ul><ul><ul><li>The essence and definitions of strategy, strategic management, and competitive advantages. </li></ul></ul></ul><ul><ul><ul><li>The four key attributes of strategic management and the three principal and interrelated activities of the strategic management process. </li></ul></ul></ul><ul><ul><ul><li>The vital role of corporate governance and stakeholder management in the strategic management process and the long-term success of all organizations. </li></ul></ul></ul><ul><li>After reading this chapter, you should have a good understanding of: </li></ul>
  3. 3. Learning Objectives <ul><li>After reading this chapter, you should have a good understanding of: </li></ul><ul><ul><li>The key environmental forces that create unpredictable change and call for a greater strategic management perspective throughout the organization. </li></ul></ul><ul><ul><li>How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction. </li></ul></ul>
  4. 4. Two Perspectives on Leadership <ul><li>Romantic view </li></ul><ul><ul><li>Leader is the key force in organization’s success </li></ul></ul><ul><li>External control perspective </li></ul><ul><ul><li>Focus is on external factors that affect an organization’s success </li></ul></ul>
  5. 5. Two Perspectives on Leadership <ul><li>Leaders can make a difference </li></ul><ul><ul><li>Must be aware of opportunities and threats faced in external environment </li></ul></ul><ul><ul><li>Must have thorough understanding of the firm’s resources and capabilities </li></ul></ul>
  6. 6. Strategic Management <ul><li>Analysis </li></ul><ul><ul><li>Strategic goals (vision, mission, strategic objectives) </li></ul></ul><ul><ul><li>Internal and external environment of the firm </li></ul></ul><ul><li>Decisions </li></ul><ul><ul><li>What industries should we compete in? </li></ul></ul><ul><ul><li>How should we compete in those industries? </li></ul></ul><ul><li>Actions </li></ul><ul><ul><li>Allocate necessary resources </li></ul></ul><ul><ul><li>Design the organization to bring intended strategies to reality </li></ul></ul>
  7. 7. Strategic Management <ul><li>Strategic management is the study of why some firms outperform others </li></ul><ul><ul><li>How to compete in order to create competitive advantages in the marketplace </li></ul></ul><ul><ul><li>How to create competitive advantages in the market place </li></ul></ul><ul><ul><ul><li>Unique and valuable </li></ul></ul></ul><ul><ul><ul><li>Difficult for competitors to copy or substitute </li></ul></ul></ul>
  8. 8. Strategic Management Concepts <ul><li>Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. </li></ul><ul><li>Key attributes of strategic management </li></ul><ul><ul><li>Directs the organization toward overall goals and objectives. </li></ul></ul><ul><ul><li>Includes multiple stakeholders in decision making </li></ul></ul><ul><ul><li>Incorporates short-term and long-term perspectives </li></ul></ul><ul><ul><li>Recognizes trade-offs between efficiency and effectiveness </li></ul></ul>Adapted from Exhibit 1.1 Strategic Management Concepts
  9. 9. Strategic Management Process Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same Source:H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257-72.
  10. 10. Strategic Analysis <ul><li>Starting point in the strategic management process </li></ul><ul><li>Precedes effective formulation and implementation of strategies </li></ul>Exhibit 1.3 The Strategic Management Process
  11. 11. Strategic Analysis (cont.) <ul><li>Clear goals and objectives permit effective allocation of resources </li></ul><ul><li>Hierarchy of goals </li></ul><ul><ul><li>Vision </li></ul></ul><ul><ul><li>Mission </li></ul></ul><ul><ul><li>Strategic objectives </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  12. 12. Strategic Analysis (cont.) <ul><li>Managers </li></ul><ul><ul><li>Scan the environment </li></ul></ul><ul><ul><li>Analyze competitors </li></ul></ul><ul><li>General environment </li></ul><ul><li>Industry environment </li></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  13. 13. Strategic Analysis (cont.) <ul><li>Frameworks for analyzing a firm’s internal environment </li></ul><ul><ul><li>Strengths </li></ul></ul><ul><ul><li>Weaknesses </li></ul></ul><ul><li>Analyzing strengths can uncover potential sources of competitive advantage </li></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  14. 14. Strategic Analysis (cont.) <ul><li>Intellectual assets are drivers of </li></ul><ul><ul><li>Competitive advantages </li></ul></ul><ul><ul><li>Wealth creation </li></ul></ul><ul><li>Networks and relationships among </li></ul><ul><ul><li>Employees </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Suppliers </li></ul></ul><ul><ul><li>Alliance partners </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  15. 15. Strategic Formulation <ul><li>Successful firms develop bases for competitive advantage </li></ul><ul><ul><li>Cost leadership </li></ul></ul><ul><ul><li>Differentiation </li></ul></ul><ul><ul><li>Focusing on narrow or industry-wide market segments </li></ul></ul><ul><li>Sustainability </li></ul><ul><li>Industry life cycle </li></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  16. 16. Strategic Formulation (cont.) <ul><li>Firm’s portfolio or group of businesses </li></ul><ul><ul><li>What business(es) should we be in? </li></ul></ul><ul><ul><li>How can we create synergies among the businesses? </li></ul></ul><ul><li>Diversification </li></ul><ul><ul><li>Related </li></ul></ul><ul><ul><li>Unrelated </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  17. 17. Strategic Formulation (cont.) <ul><li>Appropriate entry strategies </li></ul><ul><li>Sustain competitive advantage in global markets </li></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  18. 18. Strategic Formulation (cont.) <ul><li>Digital technologies change the way business is conducted </li></ul><ul><ul><li>Added value </li></ul></ul><ul><ul><li>Impact on performance </li></ul></ul><ul><li>Digital technologies can enhance </li></ul><ul><ul><li>Cost leadership </li></ul></ul><ul><ul><li>Differentiation </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  19. 19. Strategic Implementation <ul><li>Informational control </li></ul><ul><ul><li>Monitor and scan the environment </li></ul></ul><ul><ul><li>Respond effectively to threats and opportunities </li></ul></ul><ul><li>behavioural control </li></ul><ul><li>Effective corporate governance </li></ul><ul><ul><li>Interests of managers and owners of the firm </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  20. 20. Strategic Implementation (cont.) <ul><li>Organizational structure and design </li></ul><ul><li>Organizational boundaries </li></ul><ul><ul><li>Flexible </li></ul></ul><ul><ul><li>Permeable </li></ul></ul><ul><li>Strategic Alliances </li></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  21. 21. Strategic Implementation (cont.) <ul><li>Develop organization that is committed to </li></ul><ul><ul><li>Excellence </li></ul></ul><ul><ul><li>Ethical behaviour </li></ul></ul><ul><li>Learning organization responsive to </li></ul><ul><ul><li>Rapid and unpredictable change in today’s competitive environments </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  22. 22. Strategic Implementation (cont.) <ul><li>Corporate entrepreneurship and innovation </li></ul><ul><ul><li>New opportunities </li></ul></ul><ul><ul><li>Enhance innovative capacity </li></ul></ul><ul><ul><li>Autonomous entrepreneurial behaviour </li></ul></ul><ul><ul><li>Product champions </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  23. 23. Strategic Implementation (cont.) <ul><li>New ventures and small businesses </li></ul><ul><ul><li>Major engine of economic growth </li></ul></ul><ul><ul><li>Recognize viable opportunities </li></ul></ul><ul><ul><li>Entrepreneurial leadership skills </li></ul></ul>Adapted from Exhibit 1.3 The Strategic Management Process
  24. 24. Corporate Governance and Stakeholder Management <ul><li>Corporate governance: the relationship among various participants in determining the direction and performance of corporations </li></ul><ul><ul><li>Shareholders </li></ul></ul><ul><ul><li>Management (led by the CEO) </li></ul></ul><ul><ul><li>Board of directors </li></ul></ul>
  25. 25. Corporate Governance and Stakeholder Management <ul><li>Board of directors </li></ul><ul><ul><li>Elected represent- atives of the owners </li></ul></ul><ul><ul><li>Ensure interests and motives of man- agement are aligned with those of the owners </li></ul></ul><ul><ul><ul><li>Effective and engaged board of directors </li></ul></ul></ul><ul><ul><ul><li>Shareholder activism </li></ul></ul></ul><ul><ul><ul><li>Proper managerial rewards and incentives </li></ul></ul></ul>
  26. 26. Stakeholder Management <ul><li>Two views of stakeholder management </li></ul><ul><ul><li>Zero sum </li></ul></ul><ul><ul><ul><li>Stakeholders compete for attention and resources of the organization </li></ul></ul></ul><ul><ul><ul><li>Gain of one is a loss to the other </li></ul></ul></ul><ul><ul><li>Symbiosis </li></ul></ul><ul><ul><ul><li>Stakeholders are dependent upon each other </li></ul></ul></ul><ul><ul><ul><li>Mutual benefits </li></ul></ul></ul>
  27. 27. Social Responsibility <ul><li>Social responsibility: the expectation that businesses or individuals will strive to improve the overall welfare of society </li></ul><ul><ul><li>Managers must take active steps to make society better </li></ul></ul><ul><ul><li>Socially responsible behaviour changes over time </li></ul></ul><ul><ul><li>Triple Bottom Line </li></ul></ul>
  28. 28. Four Additional Types of Capital <ul><li>In addition to financial capital </li></ul>Type of Capital Description Ecological Renewable resources generated by living systems, such as wood or animal by-products Material Nonrenewable or geological resources such as mineral ores and fossil fuels Human People’s knowledge, skills, health, nutrition, safety, security, and motivation Social Assets of civil society, such as social cohesion, trust, reciprocity, equity, and other values that provide mutual benefit
  29. 29. Strategic Management Perspective <ul><li>Integrative view of the organization </li></ul><ul><li>Assess how functional areas and activities “fit together” to achieve goals and objectives </li></ul><ul><li>All managers and employees must take and integrative, strategic perspective of issues facing the organization </li></ul>
  30. 30. Strategic Management Perspective <ul><li>Key driving forces increasing the need for strategic perspective and involvement </li></ul><ul><ul><li>Globalization </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Intellectual capital </li></ul></ul><ul><li>These forces are </li></ul><ul><ul><li>Interrelated </li></ul></ul><ul><ul><li>Accelerating the rate of change and uncertainty </li></ul></ul>
  31. 31. Enhancing Employee Involvement <ul><li>Have significant profit and loss responsibility </li></ul>Local Line Leaders
  32. 32. Enhancing Employee Involvement <ul><li>Champion and guide ideas </li></ul><ul><li>Create a learning infrastructure </li></ul><ul><li>Establish a domain for taking action </li></ul>Executive Leaders Local Line Leaders
  33. 33. Enhancing Employee Involvement <ul><li>Have little positional power and formal authority </li></ul><ul><li>Generate their power through the conviction and clarity of their ideas </li></ul>Internal Networkers Local Line Leaders Executive Leaders
  34. 34. Coherence in Strategic Direction <ul><li>Company vision </li></ul><ul><li>Massively inspiring </li></ul><ul><li>Overarching </li></ul><ul><li>Long-term </li></ul><ul><li>Driven by and evokes passion </li></ul><ul><li>Fundamental statement of the organization’s </li></ul><ul><ul><li>Values </li></ul></ul><ul><ul><li>Aspiration </li></ul></ul><ul><ul><li>Goals </li></ul></ul>Company vision Hierarchy of Goals
  35. 35. Coherence in Strategic Direction <ul><li>Mission statements </li></ul><ul><li>Purpose of the company </li></ul><ul><li>Basis of competition and competitive advantages </li></ul><ul><li>More specific than vision </li></ul><ul><li>Focused on the means by which the firm will compete </li></ul>Mission statements Hierarchy of Goals Company vision
  36. 36. Coherence in Strategic Direction <ul><li>Strategic objectives </li></ul><ul><li>Operationalize the mission statement </li></ul><ul><li>Provide guidance on how the organization can fulfill or move toward the “higher goals” </li></ul><ul><li>More specific </li></ul><ul><li>Cover a more well-defined time frame </li></ul>Strategic objectives Hierarchy of Goals Company vision Mission statements
  37. 37. Coherence in Strategic Direction <ul><li>Measurable </li></ul><ul><li>Specific </li></ul><ul><li>Appropriate </li></ul><ul><li>Realistic </li></ul><ul><li>Timely </li></ul><ul><li>Challenging </li></ul><ul><li>Resolve conflicts that arise </li></ul><ul><li>Yardstick for rewards and incentives </li></ul>Strategic objectives Hierarchy of Goals Company vision Mission statements Strategic objectives
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