• Like
Chapter1
Upcoming SlideShare
Loading in...5
×

Chapter1

  • 252 views
Uploaded on

 

  • 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
252
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
11
Comments
0
Likes
2

Embeds 0

No embeds

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

Transcript

  • 1. PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West AlabamaStrategic ManagementStrategic ManagementCompetitiveness and Globalization:Competitiveness and Globalization:Concepts and CasesConcepts and CasesMichael A. HittMichael A. Hitt •• R. Duane IrelandR. Duane Ireland •• Robert E. HoskissonRobert E. HoskissonSeventh editionSeventh editionSTRATEGICMANAGEMENTINPUTS© 2007 Thomson/South-Western.© 2007 Thomson/South-Western.All rights reserved.All rights reserved.CHAPTER 1CHAPTER 1Strategic Management andStrategic Management andStrategic CompetitivenessStrategic Competitiveness
  • 2. © 2007 Thomson/South-Western. All rights reserved. 1–2KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES1. Define strategic competitiveness, strategy, competitiveadvantage, above-average returns, and the strategicmanagement process.2. Describe the 21st-century competitive landscape andexplain how globalization and technological changesshape it.3. Use the industrial organization (I/O) model to explainhow firms can earn above-average returns.4. Use the resource-based model to explain how firmscan earn above-average returns.Studying this chapter should provide you with the strategicmanagement knowledge needed to:
  • 3. © 2007 Thomson/South-Western. All rights reserved. 1–3KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES (cont’d)(cont’d)5. Describe vision and mission and discuss their value.6. Define stakeholders and describe their ability toinfluence organizations.7. Describe the work of strategic leaders.8. Explain the strategic management process.Studying this chapter should provide you with the strategicmanagement knowledge needed to:
  • 4. © 2007 Thomson/South-Western. All rights reserved. 1–4Important DefinitionsImportant Definitions• Strategic CompetitivenessStrategic Competitiveness– When a firm successfully formulates and implementsWhen a firm successfully formulates and implementsa value-creating strategy.a value-creating strategy.• StrategyStrategy– An integrated and coordinated set of commitmentsAn integrated and coordinated set of commitmentsand actions designed to exploit core competenciesand actions designed to exploit core competenciesand gain a competitive advantage.and gain a competitive advantage.• Competitive AdvantageCompetitive Advantage– When a firm implements a strategy that itsWhen a firm implements a strategy that itscompetitors are unable to duplicate or find too costlycompetitors are unable to duplicate or find too costlyto try to imitate.to try to imitate.
  • 5. © 2007 Thomson/South-Western. All rights reserved. 1–5Important Definitions (cont’d)Important Definitions (cont’d)• RiskRisk– An investor’s uncertainty about the economic gainsAn investor’s uncertainty about the economic gainsor losses that will result from a particularor losses that will result from a particularinvestment.investment.• Average ReturnsAverage Returns– Returns equal to those an investor expects to earnReturns equal to those an investor expects to earnfrom other investments with a similar amount of risk.from other investments with a similar amount of risk.• Above-average ReturnsAbove-average Returns– Returns in excess of what an investor expects toReturns in excess of what an investor expects toearn from other investments with a similar amountearn from other investments with a similar amountof risk.of risk.
  • 6. © 2007 Thomson/South-Western. All rights reserved. 1–6Important Definitions (cont’d)Important Definitions (cont’d)• Strategic Management ProcessStrategic Management Process– The full set of commitments, decisions, and actionsThe full set of commitments, decisions, and actionsrequired for a firm to achieve strategicrequired for a firm to achieve strategiccompetitiveness and earn above-average returns.competitiveness and earn above-average returns.
  • 7. © 2007 Thomson/South-Western. All rights reserved. 1–7FIGUREFIGURE 1.11.1The StrategicThe StrategicManagementManagementProcessProcess
  • 8. © 2007 Thomson/South-Western. All rights reserved. 1–8The 21st-Century Competitive LandscapeThe 21st-Century Competitive Landscape• A Perilous Business WorldA Perilous Business World– Rapid changes in industry boundaries and marketsRapid changes in industry boundaries and markets– Conventional sources of competitive advantage losingConventional sources of competitive advantage losingeffectivenesseffectiveness– Enormous investments required to compete globallyEnormous investments required to compete globally– Severe consequences for failureSevere consequences for failure• DevelopingDeveloping and Iand Implementingmplementing StrategyStrategy– Allows for planned actions rather than reactionsAllows for planned actions rather than reactions– Helps coordinate business unit strategiesHelps coordinate business unit strategies
  • 9. © 2007 Thomson/South-Western. All rights reserved. 1–9DynamicDynamicGlobal EconomyGlobal EconomyRapid technologicalRapid technologicalchangechangeStrategic maneuveringStrategic maneuveringamong global and innovativeamong global and innovativecombatantscombatantsThe Competitive LandscapeThe Competitive LandscapeHypercompetitionHypercompetitionA condition of rapidly escalatingA condition of rapidly escalatingcompetition based on:competition based on:• Price-quality positioningPrice-quality positioning• Competition to createCompetition to createnew know-how andnew know-how andestablish first-moverestablish first-moveradvantageadvantage• Competition to protect orCompetition to protect orinvade establishedinvade establishedproduct or geographicproduct or geographicmarketsmarkets
  • 10. © 2007 Thomson/South-Western. All rights reserved. 1–10Global EconomyGlobal Economy• The Global EconomyThe Global Economy– Goods, people, skills, and ideas move freely acrossGoods, people, skills, and ideas move freely acrossgeographic borders.geographic borders.– Movement is relatively unfettered by artificialMovement is relatively unfettered by artificialconstraints.constraints.– Expansion into global arena complicates a firm’sExpansion into global arena complicates a firm’scompetitive environment.competitive environment.• Short-term: Where is the fastest growth likely to occur?Short-term: Where is the fastest growth likely to occur?• Long-term: Where will sustainable growth occur?Long-term: Where will sustainable growth occur?
  • 11. © 2007 Thomson/South-Western. All rights reserved. 1–11Global Economy (cont’d)Global Economy (cont’d)• The March of GlobalizationThe March of Globalization– Increased economic interdependence amongIncreased economic interdependence amongcountriescountries——the flow of goods and services, financialthe flow of goods and services, financialcapital, and knowledge across country borderscapital, and knowledge across country borders• Higher performance levelsHigher performance levels—q—quality, cost, productivity,uality, cost, productivity,product introduction time, and operational efficiencyproduct introduction time, and operational efficiency– Increased range of opportunities for companiesIncreased range of opportunities for companiescompeting in the 21st-century competitive landscapecompeting in the 21st-century competitive landscape• Liability of foreignnessLiability of foreignness—the risks of participating outside of a—the risks of participating outside of afirm’s domestic country in the global economyfirm’s domestic country in the global economy• The amount of time required for firms to learn how toThe amount of time required for firms to learn how tocompete in markets that are new to them.compete in markets that are new to them.
  • 12. © 2007 Thomson/South-Western. All rights reserved. 1–12Technology and Technological ChangesTechnology and Technological Changes• Technology DiffusionTechnology Diffusion– The speed at which new technologies becomeThe speed at which new technologies becomeavailableavailable• Disruptive TechnologiesDisruptive Technologies– Technologies that destroy the value of existingTechnologies that destroy the value of existingtechnology and create new marketstechnology and create new markets• Perpetual InnovationPerpetual Innovation– The rapidity and consistency with which new,The rapidity and consistency with which new,information-intensive technologies replace older onesinformation-intensive technologies replace older ones
  • 13. © 2007 Thomson/South-Western. All rights reserved. 1–13Technological ChangesTechnological Changes• The Information AgeThe Information Age– The ability to effectively and efficiently access andThe ability to effectively and efficiently access anduse information has become an important source ofuse information has become an important source ofcompetitive advantage.competitive advantage.– Technology includes personal computers, cellularTechnology includes personal computers, cellularphones, artificial intelligence, virtual reality, massivephones, artificial intelligence, virtual reality, massivedatabases, electronic networks, internet trade.databases, electronic networks, internet trade.
  • 14. © 2007 Thomson/South-Western. All rights reserved. 1–14Technological Changes (cont’d)Technological Changes (cont’d)• Increasing Knowledge IntensityIncreasing Knowledge Intensity– Knowledge as a critical organizational resource forKnowledge as a critical organizational resource forcreating an intangible competitive advantagecreating an intangible competitive advantage– Strategic flexibility:Strategic flexibility: the set of capabilities used tothe set of capabilities used torespond to various demands and opportunities inrespond to various demands and opportunities indynamic and uncertain competitive environmentsdynamic and uncertain competitive environments– Organizational slack:Organizational slack: slack resources that allow theslack resources that allow thefirm flexibility to respond to environmental changesfirm flexibility to respond to environmental changes– Organizational capacity to learnOrganizational capacity to learn
  • 15. © 2007 Thomson/South-Western. All rights reserved. 1–15I/O Model of Above-Average ReturnsI/O Model of Above-Average Returns• Dominance of the External EnvironmentDominance of the External Environment– The industry in which a firm competes has a strongerThe industry in which a firm competes has a strongerinfluence on the firm’s performance than do theinfluence on the firm’s performance than do thechoices managers make inside their organizations.choices managers make inside their organizations.• Industry Properties Determining PerformanceIndustry Properties Determining Performance– Economies of scaleEconomies of scale– Barriers to market entryBarriers to market entry– DiversificationDiversification– Product differentiationProduct differentiation– Degree of concentration of firms in the industryDegree of concentration of firms in the industry
  • 16. © 2007 Thomson/South-Western. All rights reserved. 1–16Four Assumptions of the I/O ModelFour Assumptions of the I/O ModelExternal environment imposes pressures and constraintsExternal environment imposes pressures and constraintsthat determine strategies leading to above-average returns.that determine strategies leading to above-average returns.1122Most firms competing in an industry control similar strategicallyMost firms competing in an industry control similar strategicallyrelevant resources and pursue similar strategies.relevant resources and pursue similar strategies.Resources used to implement strategies are highlyResources used to implement strategies are highlymobile across firms.mobile across firms.3344Organizational decision makers are assumed to be rationalOrganizational decision makers are assumed to be rationaland committed to acting in the firm’s best interests (profit-and committed to acting in the firm’s best interests (profit-maximizing).maximizing).
  • 17. © 2007 Thomson/South-Western. All rights reserved. 1–17FIGUREFIGURE 1.21.2The I/O Model ofThe I/O Model ofAbove-AverageAbove-AverageReturnsReturns
  • 18. © 2007 Thomson/South-Western. All rights reserved. 1–18GlobalGlobalTechnologicalTechnologicalEconomicEconomicDemographicDemographicSocioculturalSocioculturalPolitical/LegalPolitical/LegalIndustryIndustryEnvironmentEnvironmentCompetitorCompetitorEnvironmentEnvironmentGeneralGeneralEnvironmentEnvironmentI/O Model of Above-Average ReturnsI/O Model of Above-Average Returns1.1. Strategy is dictated byStrategy is dictated bythe external environmentthe external environmentof the firmof the firm——whatwhatopportunities exist inopportunities exist inthese environments?these environments?2.2. Firm develops internalFirm develops internalskills required byskills required byexternal environmentexternal environment——what can the firm dowhat can the firm doabout the opportunities?about the opportunities?External Environments
  • 19. © 2007 Thomson/South-Western. All rights reserved. 1–19Industrial Organization ModelIndustrial Organization Model1.1. Study the externalStudy the externalenvironment, especially theenvironment, especially theindustry environment:industry environment:• Economies of scaleEconomies of scale• Barriers to market entryBarriers to market entry• DiversificationDiversification• Product differentiationProduct differentiation• Degree of concentration ofDegree of concentration offirms in the industryfirms in the industryThe External EnvironmentThe External Environment
  • 20. © 2007 Thomson/South-Western. All rights reserved. 1–20Industrial Organization ModelIndustrial Organization Model2.2. Locate an attractiveLocate an attractiveindustry with a highindustry with a highpotential for above-potential for above-average returns.average returns.Attractive industry:Attractive industry:One whose structuralOne whose structuralcharacteristics suggestcharacteristics suggestabove-average returns.above-average returns.The External EnvironmentThe External EnvironmentAttractive IndustryAttractive Industry
  • 21. © 2007 Thomson/South-Western. All rights reserved. 1–21Industrial Organization ModelIndustrial Organization Model3.3. Identify the strategy called forIdentify the strategy called forby the attractive industry toby the attractive industry toearn above-average returns.earn above-average returns.Strategy formulation: SelectionStrategy formulation: Selectionof a strategy linked with above-of a strategy linked with above-average returns in a particularaverage returns in a particularindustry.industry.The External EnvironmentThe External EnvironmentAttractive IndustryAttractive IndustryStrategy FormulationStrategy Formulation
  • 22. © 2007 Thomson/South-Western. All rights reserved. 1–22Industrial Organization ModelIndustrial Organization Model4.4. Develop or acquireDevelop or acquire assets andassets andskillsskills needed to implement aneeded to implement achosen strategy.chosen strategy.Assets and skills: those assetsAssets and skills: those assetsand skills required toand skills required toimplement a chosen strategy.implement a chosen strategy.The External EnvironmentThe External EnvironmentAttractive IndustryAttractive IndustryStrategy FormulationStrategy FormulationAssets and SkillsAssets and Skills
  • 23. © 2007 Thomson/South-Western. All rights reserved. 1–23Industrial Organization ModelIndustrial Organization Model5. Use the firm’s strengths (its5. Use the firm’s strengths (itsdeveloped or acquired assetsdeveloped or acquired assetsand skills) to implement theand skills) to implement thestrategy.strategy.Strategy implementation: selectStrategy implementation: selectstrategic actions linked withstrategic actions linked witheffective implementation of theeffective implementation of thechosen strategy.chosen strategy.The External EnvironmentThe External EnvironmentAttractive IndustryAttractive IndustryStrategy FormulationStrategy FormulationAssets and SkillsAssets and SkillsStrategy ImplementationStrategy Implementation
  • 24. © 2007 Thomson/South-Western. All rights reserved. 1–24Industrial Organization (I/O) ModelIndustrial Organization (I/O) ModelThe External EnvironmentThe External EnvironmentAttractive IndustryAttractive IndustryStrategy FormulationStrategy FormulationAssets and SkillsAssets and SkillsStrategy ImplementationStrategy ImplementationSuperior returns: earningSuperior returns: earningabove-average returnsabove-average returnsSuperior ReturnsSuperior Returns
  • 25. © 2007 Thomson/South-Western. All rights reserved. 1–25Five Forces Model of CompetitionFive Forces Model of Competition• Industry ProfitabilityIndustry Profitability– The industry’s rate of return on invested capitalThe industry’s rate of return on invested capitalrelative to its cost of capitalrelative to its cost of capital• An industry’s profitability results from interactionAn industry’s profitability results from interactionamong:among:– SuppliersSuppliers– BuyersBuyers– Competitive rivalry among firms currently in theCompetitive rivalry among firms currently in theindustryindustry– Product substitutesProduct substitutes– Potential entrants to the industryPotential entrants to the industry
  • 26. © 2007 Thomson/South-Western. All rights reserved. 1–26Five Forces Model of Competition (cont’d)Five Forces Model of Competition (cont’d)• Firms earn above-average returns by:Firms earn above-average returns by:– Cost leadershipCost leadership• Producing standardized products or servicesProducing standardized products or services– DifferentiationDifferentiation• Manufacturing differentiated products for whichManufacturing differentiated products for whichcustomers are willing to pay a price premiumcustomers are willing to pay a price premium
  • 27. © 2007 Thomson/South-Western. All rights reserved. 1–27The Resource-Based Model of Above-The Resource-Based Model of Above-Average ReturnsAverage Returns• Model AssumptionsModel Assumptions– Each organization is a collection of unique resourcesEach organization is a collection of unique resourcesand capabilities that provides the basis for its strategyand capabilities that provides the basis for its strategyand that is the primary source of its returns.and that is the primary source of its returns.– Capabilities evolve and must be managedCapabilities evolve and must be manageddynamically.dynamically.– Differences in firms’ performances are due primarilyDifferences in firms’ performances are due primarilyto their unique resources and capabilities rather thanto their unique resources and capabilities rather thanstructural characteristics of the industry.structural characteristics of the industry.– Firms acquire different resources and develop uniqueFirms acquire different resources and develop uniquecapabilities.capabilities.
  • 28. © 2007 Thomson/South-Western. All rights reserved. 1–28FIGUREFIGURE 1.31.3The Resource-The Resource-Based Model ofBased Model ofAbove-AverageAbove-AverageReturnsReturns
  • 29. © 2007 Thomson/South-Western. All rights reserved. 1–29EnvironmentEnvironmentEnvironmentEnvironmentResource-Based Model of Above-AverageResource-Based Model of Above-AverageReturns (cont’d)Returns (cont’d)1.1. Strategy is dictated by theStrategy is dictated by thefirm’s unique resourcesfirm’s unique resourcesand capabilities.and capabilities.2.2. Find an environment inFind an environment inwhich to exploit thesewhich to exploit theseassets (where are the bestassets (where are the bestopportunities?)opportunities?)Strategy:Strategy:Competitive AdvantageCompetitive AdvantageCore CompetenciesCore CompetenciesCapabilitiesCapabilitiesResourcesResources
  • 30. © 2007 Thomson/South-Western. All rights reserved. 1–30Resources and CapabilitiesResources and Capabilities• ResourcesResources– Inputs into a firm’sInputs into a firm’sproduction process:production process:• Capital equipmentCapital equipment• Skills of individualSkills of individualemployeesemployees• PatentsPatents• FinancesFinances• Talented managersTalented managers• CapabilitiesCapabilities– Capacity of a set ofCapacity of a set ofresources to performresources to performin an integrativein an integrativemannermanner– A capability shouldA capability should notnotbe:be:• So simple that it isSo simple that it ishighly imitable.highly imitable.• So complex that itSo complex that itdefies internaldefies internalsteering and control.steering and control.
  • 31. © 2007 Thomson/South-Western. All rights reserved. 1–31Resource-Based Model (cont’d)Resource-Based Model (cont’d)1.1. Identify the firm’s resourcesIdentify the firm’s resources——strengths and weaknessesstrengths and weaknessescompared with competitorscompared with competitorsResourcesResourcesResources: inputs into aResources: inputs into afirm’s production processfirm’s production process
  • 32. © 2007 Thomson/South-Western. All rights reserved. 1–32Resource-Based Model (cont’d)Resource-Based Model (cont’d)2.2. Determine the firm’sDetermine the firm’scapabilitiescapabilities——what it can dowhat it can dobetter than its competitors.better than its competitors.ResourcesResourcesCapabilityCapabilityCapability: capacity of anCapability: capacity of anintegrated set of resources tointegrated set of resources tointegratively perform a task orintegratively perform a task oractivity.activity.
  • 33. © 2007 Thomson/South-Western. All rights reserved. 1–33Resource-Based Model (cont’d)Resource-Based Model (cont’d)3.3. Determine the potential ofDetermine the potential ofthe firm’s resources andthe firm’s resources andcapabilities in terms of acapabilities in terms of acompetitive advantage.competitive advantage.ResourcesResourcesCapabilityCapabilityCompetitive AdvantageCompetitive AdvantageCompetitive advantage:Competitive advantage:ability of a firm to outperformability of a firm to outperformits rivals.its rivals.
  • 34. © 2007 Thomson/South-Western. All rights reserved. 1–34Resource-Based Model (cont’d)Resource-Based Model (cont’d)4.4. Locate an attractive industry.Locate an attractive industry.ResourcesResourcesCapabilityCapabilityCompetitive AdvantageCompetitive AdvantageAttractive IndustryAttractive IndustryAttractive industry: an industryAttractive industry: an industrywith opportunities that can bewith opportunities that can beexploited by the firm’s resourcesexploited by the firm’s resourcesand capabilities.and capabilities.
  • 35. © 2007 Thomson/South-Western. All rights reserved. 1–35Resource-Based Model (cont’d)Resource-Based Model (cont’d)5.5. Select a strategy that bestSelect a strategy that bestallows the firm to utilize itsallows the firm to utilize itsresources and capabilitiesresources and capabilitiesrelative to opportunities inrelative to opportunities inthe external environment.the external environment.ResourcesResourcesCapabilityCapabilityCompetitive AdvantageCompetitive AdvantageAttractive IndustryAttractive IndustryStrategy FormulationStrategy Formulationand Implementationand ImplementationStrategy formulation andStrategy formulation andimplementation: strategicimplementation: strategicactions taken to earnactions taken to earnabove average returns.above average returns.
  • 36. © 2007 Thomson/South-Western. All rights reserved. 1–36Resource-Based Model (cont’d)Resource-Based Model (cont’d)ResourcesResourcesCapabilityCapabilityCompetitive AdvantageCompetitive AdvantageAttractive IndustryAttractive IndustryStrategy FormulationStrategy Formulationand Implementationand ImplementationSuperior ReturnsSuperior ReturnsSuperior returns: earningSuperior returns: earningabove-average returnsabove-average returns
  • 37. © 2007 Thomson/South-Western. All rights reserved. 1–37Criteria for Resources and Capabilities ThatCriteria for Resources and Capabilities ThatBecome Core CompetenciesBecome Core CompetenciesCoreCoreCompetenciesCompetenciesCoreCoreCompetenciesCompetenciesValuableValuableValuableValuable RareRareRareRareCostly to ImitateCostly to ImitateCostly to ImitateCostly to ImitateNonsubstitutableNonsubstitutableNonsubstitutableNonsubstitutable
  • 38. © 2007 Thomson/South-Western. All rights reserved. 1–38How Resources and Capabilities ProvideHow Resources and Capabilities ProvideCompetitive AdvantageCompetitive AdvantageThe firm is organized appropriately to obtainThe firm is organized appropriately to obtainthe full benefits of the resources in order tothe full benefits of the resources in order torealize a competitive advantagerealize a competitive advantageValuableValuable Allow the firm to exploit opportunities orAllow the firm to exploit opportunities orneutralize threats in its external environmentneutralize threats in its external environmentRareRare Possessed by few, if any, current andPossessed by few, if any, current andpotential competitorspotential competitorsCostly toCostly toimitateimitateWhen other firms cannot obtain them orWhen other firms cannot obtain them ormust obtain them at a much higher costmust obtain them at a much higher costNonsubstitutablNonsubstitutablee
  • 39. © 2007 Thomson/South-Western. All rights reserved. 1–39Core CompetenciesCore Competencies• When the four key criteria of resources andWhen the four key criteria of resources andcapabilities are met, they become corecapabilities are met, they become corecompetencies.competencies.• Managerial competencies are especiallyManagerial competencies are especiallyimportant.important.• Core competencies serve as a source ofCore competencies serve as a source ofcompetitive advantage, create value, andcompetitive advantage, create value, andprovide the opportunity for above-averageprovide the opportunity for above-averagereturns.returns.
  • 40. © 2007 Thomson/South-Western. All rights reserved. 1–40Why Two Models?Why Two Models?• Industrial OrganizationIndustrial Organization(I/O) Model(I/O) Model– Focuses on theFocuses on theenvironment outsideenvironment outsidethe firm.the firm.• Resource-BasedResource-BasedModelModel– Focuses on the insideFocuses on the insideof the firmof the firmSuccessful strategy formulation and implementationSuccessful strategy formulation and implementationactions result only when the firm properly uses bothactions result only when the firm properly uses bothmodels.models.
  • 41. © 2007 Thomson/South-Western. All rights reserved. 1–41Vision and MissionVision and Mission• VisionVision– A enduring picture of what the firm wants to be and, inA enduring picture of what the firm wants to be and, inbroad terms, what it wants to ultimately achieve.broad terms, what it wants to ultimately achieve.• Stretches and challenges people and evokesStretches and challenges people and evokesemotions and dreams.emotions and dreams.• Effective vision statements are:Effective vision statements are:– Developed by a host of people from across theDeveloped by a host of people from across theorganization.organization.– Clearly tied to external and internal environmentalClearly tied to external and internal environmentalconditions.conditions.– Consistent with strategic leaders’ decisions andConsistent with strategic leaders’ decisions andactions.actions.
  • 42. © 2007 Thomson/South-Western. All rights reserved. 1–42Vision and Mission (cont’d)Vision and Mission (cont’d)• MissionMission– Specifies the business or businesses in which the firmSpecifies the business or businesses in which the firmintends to compete and the customers it intends tointends to compete and the customers it intends toserve.serve.– Is more concrete than the firm’s vision.Is more concrete than the firm’s vision.– Is more effective when it fosters strong ethicalIs more effective when it fosters strong ethicalstandards.standards.• Above-average returns are the fruits of the firm’sAbove-average returns are the fruits of the firm’sefforts to achieve its vision and mission.efforts to achieve its vision and mission.
  • 43. © 2007 Thomson/South-Western. All rights reserved. 1–43StakeholdersStakeholders• Individuals and groups who can affect, and areIndividuals and groups who can affect, and areaffected by, the strategic outcomes achieved andaffected by, the strategic outcomes achieved andwho have enforceable claims on a firm’swho have enforceable claims on a firm’sperformance.performance.– Claims on the firm’s performance are enforced by theClaims on the firm’s performance are enforced by thestakeholder’s ability to withhold participation essentialstakeholder’s ability to withhold participation essentialto the firm’s survival.to the firm’s survival.– The more critical and valued a stakeholder’sThe more critical and valued a stakeholder’sparticipation, the greater a firm’s dependency on it.participation, the greater a firm’s dependency on it.– Managers must find ways to either accommodate orManagers must find ways to either accommodate orinsulate the organization from the demands ofinsulate the organization from the demands ofstakeholders controlling critical resources.stakeholders controlling critical resources.
  • 44. © 2007 Thomson/South-Western. All rights reserved. 1–44Stakeholder InvolvementStakeholder Involvement• Two issues affect the extent of stakeholderTwo issues affect the extent of stakeholderinvolvement in the firm:involvement in the firm:– How to divide returnsHow to divide returnsto keep stakeholdersto keep stakeholdersinvolved?involved?– How to increaseHow to increasereturns so everyonereturns so everyonehas more to share?has more to share?
  • 45. © 2007 Thomson/South-Western. All rights reserved. 1–45FIGUREFIGURE 1.41.4 The Three Stakeholder GroupsThe Three Stakeholder Groups
  • 46. © 2007 Thomson/South-Western. All rights reserved. 1–46Capital MarketCapital MarketStakeholdersStakeholdersShareholdersShareholdersMajor suppliers of capitalMajor suppliers of capital• BanksBanks• Private lendersPrivate lenders• Venture capitalistsVenture capitalistsStakeholdersStakeholdersCapital MarketCapital MarketStakeholdersStakeholders
  • 47. © 2007 Thomson/South-Western. All rights reserved. 1–47Capital Market StakeholdersCapital Market Stakeholders• Shareholders and lenders expect the firm toShareholders and lenders expect the firm topreserve and enhance the wealth they havepreserve and enhance the wealth they haveentrusted to it.entrusted to it.– Want the return on their investment (and, hence, theirWant the return on their investment (and, hence, theirwealth) to be maximized.wealth) to be maximized.– Expect returns to be commensurate with the degreeExpect returns to be commensurate with the degreeof risk to the shareholder.of risk to the shareholder.• Management must balance the interests ofManagement must balance the interests ofshareholders and lenders with its concerns forshareholders and lenders with its concerns forthe firm’s future competitive ability.the firm’s future competitive ability.
  • 48. © 2007 Thomson/South-Western. All rights reserved. 1–48Stakeholders (cont’d)Stakeholders (cont’d)Capital MarketCapital MarketStakeholdersStakeholdersProduct MarketProduct MarketStakeholdersStakeholdersProduct MarketProduct MarketStakeholdersStakeholders• CustomersCustomers• SuppliersSuppliers• Host communitiesHost communities• UnionsUnions
  • 49. © 2007 Thomson/South-Western. All rights reserved. 1–49Product Market StakeholdersProduct Market Stakeholders• CustomersCustomers– Demand reliable products at low pricesDemand reliable products at low prices• SuppliersSuppliers– Seek loyal customers willing to pay highestSeek loyal customers willing to pay highestsustainable prices for goods and servicessustainable prices for goods and services• Host communitiesHost communities– Want companies willing to be long-term employersWant companies willing to be long-term employersand providers of tax revenues while minimizingand providers of tax revenues while minimizingdemands on public support servicesdemands on public support services• Union officialsUnion officials– Want secure jobs and desirable working conditionsWant secure jobs and desirable working conditions
  • 50. © 2007 Thomson/South-Western. All rights reserved. 1–50Stakeholders (cont’d)Stakeholders (cont’d)Capital MarketCapital MarketStakeholdersStakeholdersProduct MarketProduct MarketStakeholdersStakeholdersOrganizationalOrganizationalStakeholdersStakeholdersOrganizationalOrganizationalStakeholdersStakeholders•EmployeesEmployees•ManagersManagers•NonmanagersNonmanagers
  • 51. © 2007 Thomson/South-Western. All rights reserved. 1–51Organizational StakeholdersOrganizational Stakeholders• EmployeesEmployees– Expect a dynamic, stimulating and rewarding workExpect a dynamic, stimulating and rewarding workenvironment.environment.– Are satisfied by a company that is growing andAre satisfied by a company that is growing andactively developing their skills.actively developing their skills.
  • 52. © 2007 Thomson/South-Western. All rights reserved. 1–52Strategic LeadersStrategic Leaders• Strategic LeadersStrategic Leaders– People located in different parts of the firm who arePeople located in different parts of the firm who areusing the strategic management process to help theusing the strategic management process to help thefirm reach its vision and mission.firm reach its vision and mission.• Prerequisites for Effective Strategic LeadershipPrerequisites for Effective Strategic Leadership– Hard workHard work– Thorough analysesThorough analyses– HonestyHonesty– Desire for accomplishmentDesire for accomplishment– Common senseCommon sense
  • 53. © 2007 Thomson/South-Western. All rights reserved. 1–53Strategic Leaders (cont’d)Strategic Leaders (cont’d)• Organizational CultureOrganizational Culture– The complex set of ideologies, symbols, and coreThe complex set of ideologies, symbols, and corevalues that are shared throughout the firm and thatvalues that are shared throughout the firm and thatinfluence how the firm conducts business.influence how the firm conducts business.• The Value of a Functional Organizational CultureThe Value of a Functional Organizational Culture– Supports effective delegation of strategicSupports effective delegation of strategicresponsibilitiesresponsibilities– Provides support for strategic leadersProvides support for strategic leaders– Encourages social energyEncourages social energy– Fosters of respect for othersFosters of respect for others
  • 54. © 2007 Thomson/South-Western. All rights reserved. 1–54Predicting Outcomes of Strategic Decisions:Predicting Outcomes of Strategic Decisions:Profit PoolsProfit Pools• Profit PoolProfit Pool– The total profits earned in an industry at all pointsThe total profits earned in an industry at all pointsalong the value chainalong the value chain• Identifying the components of a profit pool:Identifying the components of a profit pool:– Define the pool’s boundaries.Define the pool’s boundaries.– Estimate the pool’s overall size.Estimate the pool’s overall size.– Estimate size of each value-chain activity in the pool.Estimate size of each value-chain activity in the pool.– Reconcile the calculationsReconcile the calculations—which activity provides—which activity providesthe most profit potential?the most profit potential?
  • 55. © 2007 Thomson/South-Western. All rights reserved. 1–55Strategic Management ProcessStrategic Management Process• Study the external and internal environments.Study the external and internal environments.• Identify marketplace opportunities and threats.Identify marketplace opportunities and threats.• Determine how to use core competencies.Determine how to use core competencies.• Use strategic intent to leverage resources,Use strategic intent to leverage resources,capabilities and core competencies and wincapabilities and core competencies and wincompetitive battles.competitive battles.• Integrate formulation and implementation ofIntegrate formulation and implementation ofstrategies.strategies.• Seek feedback to improve strategies.Seek feedback to improve strategies.