This is Part 2 of the Summary for MG309, Chapter 1 to Chapter 5

1. Chapter 1: Summary
■ Firms use the strategic management process to achieve strategic competitiveness and earn
above-average returns. Firms analyse the external environment and their internal
organization, then formulate and implement a strategy to achieve a desired level of
performance (A-S-P). Performance is reflected by the firm’s level of strategic
competitiveness and the extent to which it earns above-average returns. Strategic
competitiveness is achieved when a firm develops and implements a value-creating strategy.
Above-average returns (in excess of what investors expect to earn from other investments
with similar levels of risk) provide the foundation needed to simultaneously satisfy all of a
firm’s stakeholders.
■ The fundamental nature of competition is different in the current competitive landscape.
As a result, those making strategic decisions must adopt a different mind-set, one that allows
them to learn how to compete in highly turbulent and chaotic environments that produce a
great deal of uncertainty. The globalization of industries and their markets along with rapid
and significant technological changes are the two primary factors contributing to the
turbulence of the competitive landscape.
■ Firms use two major models to help develop their vision and mission when choosing one
or more strategies in pursuit of strategic competitiveness and above-average returns. The
core assumption of the I/O model is that the firm’s external environment has a large
influence on the choice of strategies more than do the firm’s internal resources, capabilities,
and core competencies. Thus, the I/O model is used to understand the effects an industry’s
characteristics can have on a firm when deciding what strategy or strategies to use in
competing against rivals. The logic supporting the I/O model suggests that aboveaverage
returns are earned when the firm locates an attractive industry or part of an industry and
successfully implements the strategy dictated by that industry’s characteristics. The core
assumption of the resource-based model is that the firm’s unique resources, capabilities, and
core competencies have more of an influence on selecting and using strategies than does the
firm’s external environment. Above-average returns are earned when the firm uses its
valuable, rare, costly-toimitate, and non-substitutable resources and capabilities to compete
against its rivals in one or more industries. Evidence indicates that both models yield insights
that are linked to successfully selecting and using strategies. Thus, firms want to use their
unique resources, capabilities, and core competencies as the foundation to engage in one or
more strategies that allow them to effectively compete against rivals in their industry.
■ Vision and mission are formed to guide the selection of strategies based on the information
from the analyses of the firm’s internal organization and external environment. Vision is a
picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.
Flowing from the vision, the mission specifies the business or businesses in which the firm
intends to compete and the customers it intends to serve. Vision and mission provide
direction to the firm and signal important descriptive information to stakeholders.

2. ■ Stakeholders are those who can affect, and are affected by, a firm’s performance. Because
a firm is dependent on the continuing support of stakeholders (shareholders, customers,
suppliers, employees, host communities, etc.), they have enforceable claims on the
company’s performance. When earning above-average returns, a firm generally has the
resources it needs to satisfy the interests of all stakeholders. However, when earning only
average returns, the firm must carefully manage its stakeholders in order to retain their
support. A firm earning below-average returns must minimize the amount of support it loses
from unsatisfied stakeholders.
■ Strategic leaders are people located in different areas and levels of the firm using the
strategic management process to help the firm achieve its vision and fulfil its mission. In
general, CEOs are responsible for making certain that their firms properly use the strategic
management process. The effectiveness of the strategic management process is increased
when it is grounded in ethical intentions and behaviours. The strategic leader’s work
demands decision trade-offs, often among attractive alternatives. It is important for all
strategic leaders, especially the CEO and other members of the top-management team, to
conduct thorough analyses of conditions facing the firm, be brutally and consistently honest,
and work jointly to select and implement the correct strategies.
Chapter 2: Summary
■ The firm’s external environment is challenging and complex. Because of its effect on
performance, the firm must develop the skills required to identify opportunities and threats
that are a part of its external environment.
■ The external environment has three major parts: 1. The general environment (segments and
elements in the broader society that affect industries and the firms competing in them) 2. The
industry environment (factors that influence a firm, its competitive actions and responses,
and the industry’s profitability potential) 3. The competitor environment (in which the firm
analyzes each major competitor’s future objectives, current strategies, assumptions, and
capabilities).
■ Scanning, monitoring, forecasting, and assessing are the four parts of the external
environmental analysis process. Effectively using this process helps the firm in its efforts to
identify opportunities and threats.
■ The general environment has seven segments: demographic, economic, political/legal,
sociocultural, technological, global, and sustainable physical. For each segment, the firm has
to determine the strategic relevance of environmental changes and trends.
■ Compared with the general environment, the industry environment has a more direct effect
on the firm’s competitive actions and responses. The five forces model of competition
includes the threat of entry, the power of suppliers, the power of buyers, product substitutes,
and the intensity of rivalry among competitors. By studying these forces, the firm finds a

3. position in an industry where it can influence the forces in its favor or where it can buffer
itself from the power of the forces to achieve strategic competitiveness and earn above-
average returns.
■ Industries are populated with different strategic groups. A strategic group is a collection of
firms following similar strategies along similar dimensions. Competitive rivalry is greater
within a strategic group than between strategic groups.
■ Competitor analysis informs the firm about the future objectives, current strategies,
assumptions, and capabilities of the companies with which it competes directly. A thorough
competitor analysis examines complementors that support forming and implementing rivals’
strategies.
■ Different techniques are used to create competitor intelligence: the set of data, information,
and knowledge that allow the firm to better understand its competitors and thereby predict
their likely competitive actions and responses. Firms absolutely should use only legal and
ethical practices to gather intelligence. The Internet enhances firms’ ability to gather insights
about competitors and their strategic intentions.
Chapter 3: Summary
■ In the current competitive landscape, the most effective organizations recognize that
strategic competitiveness and above-average returns result only when core competencies
(identified by studying the firm’s internal organization) are matched with opportunities
(determined by studying the firm’s external environment).
■ No competitive advantage lasts forever. Over time, rivals use their own unique resources,
capabilities, and core competencies to form different value-creating propositions that
duplicate the focal firm’s ability to create value for customers. Because competitive
advantages are not permanently sustainable, firms must exploit their current advantages
while simultaneously using their resources and capabilities to form new advantages that can
lead to future competitive success.
■ Effectively managing core competencies requires careful analysis of the firm’s resources
(inputs to the production process) and capabilities (resources that have been purposely
integrated to achieve a specific task or set of tasks). The knowledge the firm’s human capital
possesses is among the most significant of an organization’s capabilities and ultimately
provides the base for most competitive advantages. The firm must create an organizational
culture that allows people to integrate their individual knowledge with that held by others so
that, collectively, the firm has a significant amount of value-creating organizational
knowledge.
■ Capabilities are a more likely source of core competence and subsequently of competitive
advantages than are individual resources. How a firm nurtures and supports its capabilities so

4. they can become core competencies is less visible to rivals, making efforts to understand and
imitate the focal firm’s capabilities difficult.
■ Only when a capability is valuable, rare, costly to imitate, and no substitutable is it a core
competence and a source of competitive advantage. Over time, core competencies must be
supported, but they cannot be allowed to become core rigidities. Core competencies are a
source of competitive advantage only when they allow the firm to create value by exploiting
opportunities in its external environment. When this is no longer possible, the company
shifts its attention to forming other capabilities that satisfy the four criteria of sustainable
competitive advantage.
■ Value chain analysis is used to identify and evaluate the competitive potential of resources
and capabilities. By studying their skills relative to those associated with value chain
activities and support functions, firms can understand their cost structure and identify the
activities through which they are able to create value.
■ When the firm cannot create value in either a value chain activity or a support function,
outsourcing is considered. Used commonly in the global economy, outsourcing is the
purchase of a value-creating activity from an external supplier. The firm should outsource
only to companies possessing a competitive advantage in terms of the particular value chain
activity or support function under consideration. In addition, the firm must continuously
verify that it is not outsourcing activities through which it could create value.
Chapter 4: Summary
■ A business-level strategy is an integrated and coordinated set of commitments and actions
the firm uses to gain a competitive advantage by exploiting core competencies in specific
product markets. Five business-level strategies (cost leadership, differentiation, focused cost
leadership, focused differentiation, and integrated cost leadership/differentiation) are
examined in the chapter.
■ Customers are the foundation of successful business-level strategies. When considering
customers, a firm simultaneously examines three issues: who, what, and how. These issues,
respectively, refer to the customer groups to be served, the needs those customers have that
the firm seeks to satisfy, and the core competencies the firm will use to satisfy customers’
needs. Increasing segmentation of markets throughout the global economy creates
opportunities for firms to identify more distinctive customer needs that they can serve with
one of the business-level strategies.
■ Firms seeking competitive advantage through the cost leadership strategy produce no-
frills, standardized products for an industry’s typical customer. However, these low-cost
products must be offered with competitive levels of differentiation. Above-average returns
are earned when firms continuously emphasize efficiency such that their costs are lower than

5. those of their competitors, while providing customers with products that have acceptable
levels of differentiated features.
■ Competitive risks associated with the cost leadership strategy include (1) a loss of
competitive advantage to newer technologies, (2) a failure to detect changes in customers’
needs, and (3) the ability of competitors to imitate the cost leader’s competitive advantage
through their own distinct strategic actions.
■ Through the differentiation strategy, firms provide customers with products that have
different (and valued) features. Differentiated products must be sold at a cost that customers
believe is competitive relative to the product’s features as compared to the cost/feature
combinations available from competitors’ goods. Because of their distinctiveness,
differentiated goods or services are sold at a premium price. Products can be differentiated
on any dimension that some customer group values. Firms using this strategy seek to
differentiate their products from competitors’ goods or services on as many dimensions as
possible. The less similarity to competitors’ products, the more buffered a firm is from
competition with its rivals.
■ Risks associated with the differentiation strategy include:
 a customer group’s decision that the unique features provided by the differentiated
product over the cost leader’s goods or services are no longer worth a premium price,
 the inability of a differentiated product to create the type of value for which customers
are willing to pay a premium price,
 the ability of competitors to provide customers with products that have features similar
to those of the differentiated product, but at a lower cost, and
 the threat of counterfeiting, whereby firms produce a cheap imitation of a
differentiated good or service.
■ Through the cost leadership and the differentiated focus strategies, firms serve the needs of
a narrow market segment (e.g., a buyer group, product segment, or geographic area). This
strategy is successful when firms have the core competencies required to provide value to a
specialized market segment that exceeds the value available from firms serving customers
across the total market (industry).
■ The competitive risks of focus strategies include:
 a competitor’s ability to use its core competencies to “out focus” the focuser by
serving an even more narrowly defined market segment
 decisions by industry-wide competitors to focus on a customer group’s specialized
needs, and
 a reduction in differences of the needs between customers in a narrow market
segment and the industry-wide market.

6. ■ Firms using the integrated cost leadership/differentiation strategy strive to provide
customers with relatively low-cost products that also have valued differentiated features.
Flexibility is required for firms to learn how to use primary value-chain activities and
support functions in ways that allow them to produce differentiated products at relatively low
costs. This flexibility is facilitated by flexible manufacturing systems and improvements and
interconnectedness in information systems within and between firms (buyers and suppliers).
The primary risk of this strategy is that a firm might produce products that do not offer
sufficient value in terms of either low cost or differentiation. In such cases, the company
becomes “stuck in the middle.” Firms stuck in the middle compete at a disadvantage and are
unable to earn more than average returns.
Chapter 5: Summary
■ Competitors are firms competing in the same market, offering similar products, and
targeting similar customers. Competitive rivalry is the ongoing set of competitive actions and
responses occurring between competitors as they compete against each other for an
advantageous market position. The outcomes of competitive rivalry influence the firm’s
ability to sustain its competitive advantages as well as the level (average, below average, or
above average) of its financial returns.
■ Competitive behaviour is the set of competitive actions and responses an individual firm
takes while engaged in competitive rivalry. Competitive dynamics is the set of actions and
responses taken by all firms that are competitors within a particular market.
■ Firms study competitive rivalry in order to predict the competitive actions and responses
each of their competitors are likely to take. Competitive actions are either strategic or tactical
in nature. The firm takes competitive actions to defend or build its competitive advantages or
to improve its market position. Competitive responses are taken to counter the effects of a
competitor’s competitive action. A strategic action or a strategic response requires a
significant commitment of organizational resources, is difficult to successfully implement,
and is difficult to reverse. In contrast, a tactical action or a tactical response requires fewer
organizational resources and is easier to implement and reverse. For example, for an airline
company, entering major new markets is an example of a strategic action or a strategic
response; changing its prices in a particular market is an example of a tactical action or a
tactical response.
■ A competitor analysis is the first step the firm takes to be able to predict its competitors’
actions and responses. In Chapter 2, we discussed what firms do to understand competitors.
This discussion was extended in this chapter to describe what the firm does to predict
competitors’ market-based actions. Thus, understanding precedes prediction. Market
commonality (the number of markets with which competitors are jointly involved and their
importance to each) and resource similarity (how comparable competitors’ resources are in
terms of type and amount) are studied to complete a competitor analysis. In general, the

7. greater the market commonality and resource similarity, the more firms acknowledge that
they are direct competitors.
■ Market commonality and resource similarity shape the firm’s awareness (the degree to
which it and its competitors understand their mutual interdependence), motivation (the firm’s
incentive to attack or respond), and ability (the quality of the resources available to the firm
to attack and respond). Having knowledge of these characteristics of a competitor increases
the quality of the firm’s predictions about that competitor’s actions and responses.
■ In addition to market commonality, resource similarity, awareness, motivation, and ability,
three more specific factors affect the likelihood a competitor will take competitive actions.
The first of these is first-mover benefits. First movers, those taking an initial competitive
action, often gain loyal customers and earn above-average returns until competitors can
successfully respond to their action. Not all firms can be first movers because they may lack
the awareness, motivation, or ability required to engage in this type of competitive
behaviour. Moreover, some firms prefer to be a second mover (the firm responding to the
first mover’s action). One reason for this is that second movers, especially those acting
quickly, often can successfully compete against the first mover. By evaluating the first
mover’s product, customers’ reactions to it, and the responses of other competitors to the
first mover, the second mover may be able to avoid the early entrant’s mistakes and find
ways to improve upon the value created for customers by the first mover’s goods or services.
Late movers (those that respond a long time after the original action was taken) commonly
are lower performers and are much less competitive.
■ Organizational size tends to reduce the variety of competitive actions that large firms
launch, while it increases the variety of actions undertaken by smaller competitors. Ideally, a
firm prefers to initiate a large number of diverse actions when engaged in competitive
rivalry. Another factor, quality, is a base denominator for competing successfully in the
global economy. It is a necessary prerequisite to achieving competitive parity. However, it is
a necessary but insufficient condition for establishing an advantage.
■ The type of action (strategic or tactical) the firm took, the competitor’s reputation for the
nature of its competitor behaviour, and that competitor’s dependence on the market in which
the action was taken are analysed to predict a competitor’s response to the firm’s action. In
general, the number of tactical responses taken exceeds the number of strategic responses.
Competitors respond more frequently to the actions taken by the firm with a reputation for
predictable and understandable competitive behaviour, especially if that firm is a market
leader. In general, the firm can predict that when its competitor is highly dependent on its
revenue and profitability in the market in which the firm took a competitive action, that
competitor is likely to launch a strong response. However, firms that are more diversified
across markets are less likely to respond to a particular action that affects only one of the
markets in which they compete.

8. ■ In slow-cycle markets, competitive advantages generally can be maintained for at least a
period of time, and competitive dynamics often include actions and responses intended to
protect, maintain, and extend the firm’s proprietary advantages. In fast-cycle markets,
competition is substantial as firms concentrate on developing a series of temporary
competitive advantages. This emphasis is necessary because firms’ advantages in fast-cycle
markets aren’t proprietary and, as such, are subject to rapid and relatively inexpensive
imitation. Standard-cycle markets have a level of competition between that in slow-cycle and
fast-cycle markets; firms often (but not always) are moderately shielded from competition in
these markets as they use capabilities that produce competitive advantages that are
moderately sustainable. Competitors in standard-cycle markets serve mass markets and try to
develop economies of scale to enhance their profitability. Innovation is vital to competitive
success in each of the three types of markets. Companies should recognize that the set of
competitive actions and responses taken by all firms differs by type of market.