Ch01 Discussion Light
Upcoming SlideShare
Loading in...5
×

Like this? Share it with your network

Share
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
No Downloads

Views

Total Views
4,340
On Slideshare
4,337
From Embeds
3
Number of Embeds
1

Actions

Shares
Downloads
238
Comments
0
Likes
1

Embeds 3

http://www.slideshare.net 3

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide
  • Note to Instructors We have included extra discussion notes for the I/O Model of Above-Average Returns. These notes include additional materials that cover McDonalds and Starbucks and their strategies. These notes are spread over the first few lecture notes pages where the model is first presented. We have also included extra discussion notes for the Resource-Based Model of Above-Average Returns. These notes include additional material that discusses two axiomatic assumptions. First, resources are distributed heterogeneously across firms, and second, these resources cannot be transferred between firms without cost. Research references are included and extensive discussion here may help you present this concept. There is also discussion regarding “inventions” as an example of a resource that is valuable, rare, hard to imitate and not substitutable. The notes are spread over the first few lecture notes pages, beginning where the model is first presented.
  • I/O Model: McDonalds and Starbucks Respectively, in both cases the CEOs Ray Crock and Howard Schultz were examining the industry in which they worked. Crock was a sales rep for a firm that built malted milkshake machines. Schultz was a sales rep for a company that made home espresso machine accessories. Both noticed that there was a customer that was purchasing a large volume of these machines. They made trips to the locations of these stores and noticed that each was in an emerging industry that had high-growth potential and higher-than-average profit margins. McDonalds is in fast-food and drive-thru restaurants and Starbucks is in specialty coffee retail.
  • Four Assumptions of the I/O Model Both Crock and Schultz identified the strategy that allowed their companies to achieve high profits: McDonalds through the “assembly line” of their burgers  and Starbucks with product marketing that created ambiance and consistency, a value perception that allowed them to charge high premium for their coffee.
  • Four Assumptions of the I/O Model (cont.) Both McDonalds and Starbucks then spent time and capital to acquire and develop the skills needed to implement the business strategy. Crock became a business partner of the McDonald brothers and sold franchise agreements for them. Schultz took a position in the marketing department of Starbucks. Each later purchased the firm and used what they had learned to rapidly expand the company. Crock was able to use McDonalds quality, consistency, rapid assembly system, and drive-thru concepts to continue to realize high profits. Schultz was able to use the Starbucks image, ambiance concept, and marketing strengths to rapidly expand. One interesting note: Initially, Schultz started a Seattle coffeehouse chain (Il Giorande) that competed with Starbucks. His marketing manager was so adamant that Starbucks was a better concept capable of “going global” that Schultz sold his original coffeehouse chain and purchased Starbucks.
  • Resource-based model: Patents and Inventions The resource-based view (RBV) of the firm is hedged on two axiomatic assumptions. First, resources are distributed heterogeneously across firms, and second, these resources cannot be transferred between firms without cost. These axioms lend themselves to two additional tenets (cf., Barney, 1991): (a) Resources that simultaneously enhance a firm’s market effectiveness (valuable) and are not widely dispersed (rare) can produce competitive advantage; and (b) when such resources are concurrently expensive to imitate (inimitable) and costly to substitute (nonsubstitutable), the competitive advantage is sustainable. Thus, value and rarity are each necessary before inimitability and nonsubstitutability might yield a sustainable competitive advantage (Priem & Butler, 2001).
  • Resource-based model: Patents and Inventions (cont.) Despite its face validity and rapid diffusion throughout the management literature, there have only been limited empirical tests of RBV’s tenets (cf., Priem & Butler, 2001). To echo Miller and Shamsie (1996, p. 519), “the concept of resources remains an amorphous one that is rarely operationally defined or tested for its performance implications in different competitive environments.” Many managers use RBV’s terms with little specificity or attention to causal relationships. Researchers have identified several types of valuable and rare resources that could generate rents. Some examples include information technology (Powell, 1997), strategic planning (Powell, 1992), organizational alignment (Powell, 1992a), human resources management (Lado & Wilson, 1994; Wright & McMahan, 1992), trust (Barney & Hansen, 1994), organizational culture (Oliver, 1997), administrative skills (Powell, 1993), expertise of top management (Castanias & Helfat, 1991), and even Guanxicomplex networks (Tsang, 1998).
  • Resource-based model: Patents and Inventions (cont.) The degree to which RBV is likely to help managers depends on the extent to which it can be used to achieve competitive advantage. Hence, recently, Markman and his colleagues have attempted to clarify three basic questions: (1) Can a single resource be simultaneously valuable, rare, inimitable, and nonsubstitutable? (2) Can an inimitable and nonsubstitutable resource be measured? And (3) To what extent is an inimitable and nonsubstitutable resource associated with competitive advantage? Using five-year data from 85 large, publicly traded pharmaceutical companies, Markman and his colleagues advance the view that a single resource-patented invention could qualify as simultaneously valuable, rare, hard to imitate, and difficult to substitute. In other words, the answer to the first question is yes; some patents are valuable, rare, inimitable, and nonsubstitutable resources. The answers to the second and third questions are “yes” as well. That is, controlling for assets, sales, and investment in R&D, they found that a patent’s quality and scope are significantly related to competitive advantage as captured by new products and, to some extent, to profitability.
  • Four Attributes of Resources and Capabilities (Competitive Advantage) Despite these findings and the intuitive appeal of RBV, challenges remain. Priem and Butler (2001) noted that a resource that is valuable, rare, hard to imitate, and not substitutable is also difficult to assess, manipulate, or deploy, and therefore difficult to exploit. Their analytical assessment spurred an important debate regarding RBV’s practical utility. For example, tacit knowledge, organizational learning, workflow, time, interorganizational ties, communications, and human interactions might be seen as hard to imitate and nonsubstitutable resources, but such resources are neither necessarily rare nor inevitably valuable. Thus, while many “things” might be classified as resources, intangibles are less amenable to managerial manipulation, rendering their associations with competitive advantage tenuous. For example, tacit knowledge is frequently conceptualized as a source of competitive advantage, yet we don’t know how (and at what rate) managers create and use that which is inherently unknowable. Personnel, machinery, land, technical procedures, and financial capital are relatively easy to quantify resources. Brand names, however, and organizational knowledge, learning, and culture are extremely difficult to craft, use, measure, and manage. In sum, the practical utility of RBV to managers remains weak as long as we fail to explicitly parameterize and measure the extent to which certain resources are valuable, rare, inimitable, and nonsubstitutable.

Transcript

  • 1. Introduction to Strategic Management Robert E. Hoskisson Michael A. Hitt R. Duane Ireland ©2004 by South-Western/Thomson Learning Chapter 1
  • 2. Chapter 2 Strategic Leadership Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 1 Introduction to Strategic Management Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process
  • 3. Discussion Questions
    • What is strategy?
    • What is happening in the strategic environment?
    • What is strategic flexibility and why is there a need for it?
    • What is the Industrial Organization (IO) Model of Strategy?
    • What is the Resource-Based Model of Strategy?
    Click Here Click Here Click Here Click Here Click Here Click Here More discussion questions
  • 4. Discussion Questions (cont.)
    • What is strategic intent and how is it related to strategic mission?
    • How do stakeholders affect strategy?
    • What is the role of the strategist (top executive)?
    Click Here Click Here Click Here
  • 5. Discussion Question 1
    • What is strategy?
  • 6. Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns Value Creation What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate.
  • 7. Definitions Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk Above-Average Returns Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Average Returns
  • 8. Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment Click Here Return to Discussion Questions
  • 9. Discussion Question 2
    • What is happening in the strategic environment?
  • 10. Competitive Landscape Fundamental nature of competition is changing Hypercompetitive environments Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new know-how, first mover Protect or invade established product or geographic markets
  • 11. Competitive Landscape Fundamental nature of competition is changing Hypercompetitive environments Emergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders Spread of economic innovations around the world Political and cultural adjustments are required
  • 12. Competitive Landscape Hypercompetitive environments Emergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Increasing knowledge intensity Fundamental nature of competition is changing Click Here Return to Discussion Questions
  • 13. Discussion Question 3
    • What is strategic flexibility and why is there a need for it?
  • 14. Strategic Flexibility A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks
  • 15. Strategic Flexibility Strategic Flexibility Strategic Flexibility Strategic flexibility Click Here Return to Discussion Questions Strategic reorientation Capacity to learn Organizational slack
  • 16. Discussion Question 4
    • What is the Industrial Organization (IO) Model of Strategy?
  • 17. I/O Model of Above-Average Returns 1. Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?) 1. External Environments Industry Environment Competitor Environment General Environment Global Technological Economic Sociocultural Political/Legal Demographic
  • 18. Four Assumptions of the I/O Model
    • 1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns
    • 2. Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources
  • 19. Four Assumptions of the I/O Model
    • 3. Resources used to implement strategies are highly mobile across firms
    • 4. Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors
  • 20. Industrial Organization Model I/O Model of Above-Average Returns
    • 1. Study the external environment, especially the industry environment
      • economies of scale
      • barriers to market entry
      • diversification
      • product differentiation
      • degree of concentration of firms in the industry
    The External Environment
  • 21. I/O Model of Above-Average Returns 2. Locate an attractive industry with a high potential for above-average returns Attractive industry: one whose structural characteristics suggest above-average returns Industrial Organization Model The External Environment An Attractive Industry
  • 22. I/O Model of Above-Average Returns 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 Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation
  • 23. I/O Model of Above-Average Returns 4. Develop or acquire assets and skills needed to implement the strategy Assets and skills: those assets and skills required to implement a chosen strategy Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills
  • 24. I/O Model of Above-Average Returns 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 Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation
  • 25. I/O Model of Above-Average Returns Industrial Organization Model Superior returns: earning of above-average returns Click Here Return to Discussion Questions The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns
  • 26. Discussion Question 5
    • What is the Resource-Based Model of Strategy?
  • 27. Resource-based Model of Above Average Returns 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?) 1. Firm’s Resources The Firm
  • 28. 1. Identify the firm’s resources-- strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process Resource-based Model of Above Average Returns Resource-based Model Resources
  • 29. 2. Determine the firm’s capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity Resource-based Model of Above Average Returns Resource-based Model Resources Capability
  • 30. Four Attributes of Resources and Capabilities (Competitive Advantage) the firm is organized appropriately to obtain the full benefits of the resources in order to realize a 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 Resources and Capabilities
  • 31. Resources and capabilities that meet these four criteria become a source of: Core Competencies Valuable Rare Costly to imitate Nonsubstitutable Core Competencies Resources and Capabilities
  • 32. Core Competencies are the basis for a firm’s Competitive advantage Value Creation Ability to earn above-average returns Core Competencies
  • 33. 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 Resource-based Model of Above Average Returns Resource-based Model Resources Capability Competitive Advantage
  • 34. 4. Locate an attractive industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities Resource-based Model of Above Average Returns Resource-based Model Resources Capability Competitive Advantage An Attractive Industry
  • 35. 5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Strategy formulation and implementation: strategic actions taken to earn above average returns Resource-based Model of Above Average Returns Resource-based Model Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl
  • 36. Resource-based Model of Above Average Returns Resource-based Model Superior returns: earning of above-average returns Click Here Return to Discussion Questions Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns
  • 37. Discussion Question 6
    • What is strategic intent and how is it related to strategic mission?
  • 38. Strategic Intent & Mission
    • Strategic Intent
      • Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies
    • Strategic Mission
      • An application of strategic intent in terms of products to be offered and markets to be served
    Click Here Return to Discussion Questions
  • 39. Discussion Question 7
    • How do stakeholders affect strategy?
  • 40. The Firm and Its Stakeholders Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders Stakeholders THE FIRM
  • 41. The Firm and Its Stakeholders Capital Market Stakeholders
    • Shareholders
    • Major suppliers of capital
      • Banks
      • Private lenders
      • Venture capitalists
    Stakeholders
  • 42. Capital Market Stakeholders Product Market Stakeholders The Firm and Its Stakeholders Primary customers Suppliers Host communities Unions Stakeholders
  • 43. Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders The Firm and Its Stakeholders Employees Managers Nonmanagers Stakeholders
  • 44. Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm How do you divide the returns to keep stakeholders involved? 1 Capital Market Product Market Organizational
  • 45. Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm How do you increase the returns so everyone has more to share? 2 Capital Market Product Market Organizational Click Here Return to Discussion Questions
  • 46. Discussion Question 8
    • What is the role of the strategist (top executive)?
  • 47. Organizational Strategists
    • Serve as a major source of competitive advantage
    • Are held responsible by stakeholders
    • Make decisions regarding development, acquisition, cost and use of resources
    • Assess risks of strategic actions