Creating competitive advantage


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Creating competitive advantage

  1. 1. Strategic management Creating competitive advantage
  2. 2. Who cares? <ul><li>Why should anyone care about the strategic direction of firms? </li></ul><ul><li>Understand direction of </li></ul><ul><ul><li>your company, competitors, other companies </li></ul></ul>
  3. 3. Who cares? <ul><li>Integration and coordination </li></ul><ul><ul><li>Across time and across organization </li></ul></ul><ul><li>Assess the organization’s performance and adjust to a changing environment </li></ul>
  4. 4. Two perspectives of organizational leadership: Do managers matter? <ul><li>Romantic (or internal): Organizational leader as key force in determining organizational success or failure </li></ul><ul><ul><li>Success creates CEO superheroes </li></ul></ul><ul><ul><li>Failure creates CEO scapegoats </li></ul></ul>
  5. 5. Two perspectives of organizational leadership <ul><li>External factors: changes in external factors </li></ul><ul><ul><li>Shifts in customer tastes, preferences </li></ul></ul><ul><ul><li>International competition </li></ul></ul><ul><ul><li>Rising material costs </li></ul></ul><ul><ul><li>Price erosion </li></ul></ul><ul><li>External conditions determine contexts in which organizational leaders create or lose organizational value </li></ul>
  6. 6. Strategic management process
  7. 7. Strategic management <ul><li>Analyses, decisions, and actions for creating and sustaining competitive advantage </li></ul>
  8. 8. Analysis <ul><li>Analysis of strategic inputs </li></ul><ul><li>Internal and external environment </li></ul><ul><li>Strategic goals: vision, mission, objectives </li></ul>
  9. 9. Decisions <ul><li>Two broad decisions of strategic management </li></ul><ul><ul><li>Industries in which to compete </li></ul></ul><ul><ul><li>How to compete in those industries </li></ul></ul><ul><li>Encompasses both domestic and international operations </li></ul>
  10. 10. Actions <ul><li>Resource allocation: where to focus resources </li></ul><ul><li>Organizational design: how to group people and tasks </li></ul>
  11. 11. Competitive advantage <ul><li>Some firms outperform others over a long period </li></ul><ul><li>Competitive advantage with respect to the marketplace </li></ul><ul><ul><li>Meeting present and future demand </li></ul></ul><ul><ul><li>Doing so in ways that customers regard as unique and valuable and that competitors find difficult to im itate or substitute </li></ul></ul>
  12. 12. 4 key attributes of strategic management <ul><li>Directed at overall organizational goals </li></ul><ul><li>Includes multiple stakeholders </li></ul><ul><li>Incorporates short-term and long-term perspectives </li></ul><ul><li>Recognizes trade-offs between effectiveness and efficiency </li></ul>
  13. 13. Three major steps of the strategic management processes <ul><li>Strategy analysis </li></ul><ul><li>Strategy formulation (decisions) </li></ul><ul><li>Strategy implementation (actions) </li></ul>
  14. 14. Strategy analysis <ul><li>Understanding conditions in external environment </li></ul><ul><ul><li>Opportunities for creating value </li></ul></ul><ul><ul><li>Threats to competitive advantage </li></ul></ul><ul><li>Understand firm strengths and weaknesses </li></ul><ul><ul><li>Activities in value chain (click on the link) </li></ul></ul><ul><ul><li>Firm’s resource base </li></ul></ul>
  15. 15. Strategy formulation (decisions) <ul><li>Competing in specific product markets </li></ul><ul><ul><li>Cost leadership or differentiation </li></ul></ul><ul><ul><li>Maintain advantage through different stages of industry life cycle </li></ul></ul><ul><li>Business portfolio </li></ul><ul><ul><li>Choosing the business(es) in which to compete </li></ul></ul><ul><ul><li>Creating synergies among businesses </li></ul></ul>
  16. 16. International strategy <ul><li>Modes of entry </li></ul><ul><li>Creating and sustaining competitive advantage internationally </li></ul>
  17. 17. Strategy implementation (actions) <ul><li>Corporate governance </li></ul><ul><li>Organizational design </li></ul>
  18. 18. Corporate governance <ul><li>Systems that ensure managers operate in shareholders’ interests </li></ul><ul><li>Internal control: Primary participants </li></ul><ul><ul><li>Shareholders </li></ul></ul><ul><ul><li>Strategic managers </li></ul></ul><ul><ul><li>Board of directors </li></ul></ul><ul><li>External control: financial markets, regulators, press </li></ul>
  19. 19. Organizational stakeholders <ul><li>Capital markets </li></ul><ul><ul><li>Owners (shareholders) </li></ul></ul><ul><ul><li>Lenders </li></ul></ul><ul><li>Product markets </li></ul><ul><ul><li>Suppliers (goods, services, capital, labor) </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Community </li></ul></ul><ul><li>Organization: Employees and managers </li></ul>
  20. 20. Corporate social responsibility <ul><li>Firm as citizen </li></ul><ul><li>Customers evaluate both a firm’s products/services and its practices in producing those products </li></ul><ul><li>Business involves environmental and social considerations in addition to economic ones </li></ul><ul><li>Social innovation: society’s needs may create business opportunities </li></ul>
  21. 21. Organizational design <ul><li>Structures consistent with strategy </li></ul><ul><li>Organizational forms </li></ul>
  22. 22. Key drivers of strategy <ul><li>Globalization: flow of goods, services, capital, people, information, knowledge across borders </li></ul><ul><li>Technology: new knowledge about products and production and distribution </li></ul><ul><li>Intellectual capital: human knowledge as source of competitive advantage </li></ul>
  23. 23. Coherence in strategic direction <ul><li>Goal hierarchy </li></ul><ul><ul><li>Vision: destination driven by passion </li></ul></ul><ul><ul><li>Mission </li></ul></ul><ul><ul><ul><li>Statement purpose and basis of competition </li></ul></ul></ul><ul><ul><ul><li>Communicates to stakeholders </li></ul></ul></ul><ul><ul><ul><li>Value-focused </li></ul></ul></ul><ul><ul><li>Objectives: yardstick for measuring goal attainment </li></ul></ul><ul><li>Each must be consistent with one another </li></ul>
  24. 24. Summary <ul><li>Strategic management </li></ul><ul><ul><li>Firm direction for creating and sustaining competitive advantage </li></ul></ul><ul><ul><li>Encompasses entire organization and its internal and external participants </li></ul></ul><ul><li>Three major steps: analysis, decisions, actions </li></ul>
  25. 25. Summary (cont’d) <ul><li>Forms of external control </li></ul><ul><ul><li>Corporate governance systems </li></ul></ul><ul><ul><li>Stakeholders </li></ul></ul><ul><li>Key drivers of strategy: globalization, technology, intellectual capital </li></ul><ul><li>Consistency among goal hierarchy </li></ul>