Business Administration CapstoneBUS499The External Environme.docx

Business Administration Capstone
BUS499
The External Environment: Opportunities, Threats, Industry
Competition, and Competitor Analysis
Welcome to the Business Administration Capstone.
In this lesson we will discuss the external environment:
opportunities, threats, industry competition, and competitor
analysis.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Identify how the six segments of the general environment
affects an industry and its firms
Identify the five forces of competition that impacts an industry
Analyze the external environment for opportunities and threats
that impact the firm
When you complete this lesson you will be able to:
Identify how the six segments of the general environment
affects an industry and its firms;
Identify the five forces of competition; and
Analyze the external environment for opportunities and threats
that impact the firm.

Supporting Topics
The General, Industry, and Competitive Environments
External Environment Analysis
Segments of the General Environment
Industry Environment Analysis
Interpreting Industry Analysis
Strategic Groups
Competitor Analysis
Ethical Considerations
In order to achieve this objective, the following supporting
topics will be covered:
The general, industry, and competitive environments;
External environment analysis;
Segments of the general environment;
Industry environment analysis;
Interpreting industry analysis;
Strategic groups;
Competitor analysis; and
Ethical considerations.

General, Industry, and Competitor Environments
Six Dimensions of Environmental Segments
An integrated understanding of the external and internal
environments is essential for firms to understand the present
and predict the future. As shown on the figure on the slide, a
firm’s external environment is divided into three major
categories: the general, industry, and competitor environments.
The general environment is composed of dimensions in the
broader society that influence an industry and the firms within
it. We group these dimensions into six environmental segments:
Demographic;
Economic;
Political/legal;
Sociocultural;
Technological, and
Global.
The industry environment is the set of factors that directly
influences a firm and its competitive actions and competitive
responses:
The threat of new entrants;
The power of suppliers;
The power of buyers;
The threat of product substitutes; and
The intensity of rivalry among competitors.
How companies gather and interpret information about their
competitors is called competitor analysis. Understanding the

firm’s competitor environment complements the insights
provided by studying the general and industry environments.
External Environmental Analysis
Opportunities
Threats
Scanning
Monitoring
Forecasting
Assessing
Most firms face external environments that are highly turbulent,
complex, and global conditions that make interpreting those
environments increasingly difficult. To cope with often
ambiguous and incomplete environmental data and to increase
understanding of the general environment, firms engage in
external environmental analysis. The continuous process
included four activities:
Scanning;
Monitoring;
Forecasting; and
Assessing.
An important objective of studying the general environment is
identifying opportunities and threats. An opportunity is a
condition in the general environment that, if exploited, helps a
company achieve strategic competitiveness. A threat is a
condition in the general environment that may hinder a
company’s efforts to achieve strategic competitiveness.
Scanning entails the study of all segments in the general

environment. Through scanning, firms identify early signals of
potential changes in the general environment and detect changes
that are already underway. Scanning often reveals ambiguous,
incomplete, or unconnected data and information.
When monitoring, analysts observe environmental changes to
see if an important trend is emerging from among those spotted
by scanning. Critical to successful monitoring is the firm’s
ability to detect meaning in different environmental events and
trends.
Scanning and monitoring are concerned with events and trends
in the general environment at a point in time. When forecasting,
analysts develop feasible projections of what might happen, and
how quickly, as a result of the changes and trends detected
through scanning and monitoring.
The objective of assessing is to determine the timing and
significance of the effects of environmental changes and trends
on the strategic management of the firm. Through scanning,
monitoring, and forecasting, analysts are able to understand the
general environment. Going a step further, the intent of
assessment is to specify the implications of that understanding
for the organization.
Check Your Understanding

6
Demographic Segment
Economic Environment
Political/Legal Segment
Sociocultural Segment
Technological Segment
Global Segment
The general environment is composed of segments that are
external to the firm. Although the degree of impact varies, these
environmental segments affect each industry and its firms. The
challenge to the firm is to scan, monitor, forecast, and assess
those elements in each segment that are of the greatest
importance. These efforts should result in recognition of
environmental changes, trends, opportunities, and threats.
Opportunities are then matched with a firm’s core
competencies.
The demographic segment is concerned with a population size,
age structure, geographic distribution, ethnic mix, and income
distribution. Often demographic segments are analyzed on a
global basis because of their potential effects across countries’
borders and because many firms compete in global markets.
The health of a nation’s economy affects individual firms and
industries. For this reason, companies study the economic
environment to identify changes, trends, and their strategic
implications. The economic environment refers to the nature
and direction of the economy in which a firm competes or may
compete. Because nations are interconnected as a result of the
global economy, firms must scan, monitor, forecast, and assess
the health of economies outside their host nation.

The political/legal segment is the arena in which organizations
and interest groups compete for attention, resources, and a voice
in overseeing the body of laws and regulations guiding the
interactions among nations. Essentially, this segment represents
how organizations try to influence government and how
governments influence them. As the politics of regulations
change, this segment influences the nature of competition
through changing the rules.
The sociocultural segment is concerned with a society’s
attitudes and cultural values. Because attitudes and values form
the cornerstone of a society, they often drive demographic,
economic, political/legal, and technological conditions and
changes.
Pervasive and diversified in scope, technological changes affect
many parts of societies. These effects occur primarily through
new products, processes, and materials. The technological
segment includes the institutions and activities involved with
creating new knowledge and translating that knowledge into
new outputs, products, processes, and materials.
The global segment includes relevant new global markets,
existing markets that are changing, important international
political events, and critical cultural and institutional
characteristics of global markets. Globalization of business
markets creates both opportunities and challenges for firms.
Segments of the General Environment, continued
Physical Environment Segment
Deals with potential and actual changes in the physical
environment
Business Practices

Environmental sustainability
Energy Consumption
Reduction of Environmental Footprints
The physical environment segment deals with potential and
actual changes in the physical environment. This also includes
business practices that are put in place to positively respond to
and deal with these various changes. In today’s world, firms are
recognizing that ecological, social, and economic systems have
a heavy influence on what occurs in the physical environment
segment. There are areas of the physical environment that firms
consider when trying to identify trends within in this segment.
Some people argue that global warming is a trend that firms and
nations should look into to predict outcomes on society and
business ventures. This trend is called green alpha, and it has a
goal of trying to increase environmental sustainability.
Another part of the physical environment is energy
consumption. An example of this takes place in Canada. The
electricity sector right now in Canada is close to seventy five
percent clean, and they have the overall goal of having a ninety
percent clean electricity sector. Most of this clean power
generation comes from hydroelectric produced electricity. Since
many companies are looking to increase awareness about
sustaining the quality of the physical environment, many of
these companies are developing environmentally friendly
policies.
We discussed the fact that firms are making efforts to reduce
their environmental footprints. Firms that focus on the future
can help identify opportunities and possible threats. To achieve
this goal, a highly capable management team with a sufficient
amount of experience, knowledge, and sensitivity is required to
effectively analyze this segment of the environment. It is also
critical that a firm chooses its strategic actions wisely, as it can

have an effect on the industry environment and its competitors.
8
Industry
Group of firms producing products that are close substitutes
Five Forces of Competition
An industry is a group of firms producing products that are
close substitutes. In the course of competition, these firms
influence one another. Typically, industries include a rich
mixture of competitive strategies that companies use in
pursuing above-average returns. In part, these strategies are
chosen because of the influence of an industry’s characteristics.
Compared with the general environment, the industry
environment often has a more direct effect on the firm’s
strategic competitiveness and above-average returns. The
intensity of industry competition and an industry’s profit
potential are functions of five forces of competition:
The threats posed by new entrants;
The power of suppliers;
The power of buyers;
Product substitutes; and
The intensity of rivalry among competitors.
The five forces model of competition expands the arena for
competitive analysis.

Interpreting Industry Analyses
Effective Industry Analyses
End result of careful studying and interpretation of data
Multiple sources
Unattractive Industry Characteristics
Attractive Industry Characteristics
Effective industry analyses are the end result of careful
studying and interpretation of data from multiple sources. There
is a lot of industry-specific data available to individual
countries that is able to be analyzed. Due to globalization,
international markets and rivalries must beincluded in the firm’s
analyses. It has been shown that research in some industries
shows international variables that serve as determinants of
strategic competitiveness. Furthermore, because of the
development of global markets, a country’s borders no longer
restrict industry structures. We see that movement into
international markets enhances the chances of established firms
being successfulwith new business ventures.
Analyzing thefive forces in the industry allows firms to
determine the industry’s attractiveness based on the potential to
earn adequate or superior returns. The stronger the competitive
forces are, the lower the profit potential for an industry’s firms.
Anunattractive industrymay have the following characteristics:
Low entry barriers;
Suppliers and buyers with strong bargaining positions;
Strong competitive threats from product substitutes; and
Intense rivalry among competitors.

Having these industry characteristics makes it difficult for firms
to achieve strategic competitiveness and earn above- average
returns.
Looking at an attractive industry, the following
characteristicsare exhibited:
High entry barriers;
Suppliers and buyers with little bargaining power; and
Few competitive threats from product substitutes; and
Relatively moderate rivalry.
10
Strategic Groups
What is a Strategic Group
A set firms that emphasize similar strategic dimensions
Use similar strategies
Strategic Dimensions in a Strategic Group
Limitations of Forming Strategic Groups
Strategic Groups Implications
A set of firms that emphasize similar strategic dimensions and
use a similar strategy is called a strategic group. We see that the
competition between firms within a strategic group is greater
than the competition between a member of a strategic group and
companies outside that strategic group. As a result of this,
intrastrategic group competition is deemed more intense
thaninterstrategic group competition.

The strategies performed by performance leaders within groups
are very similar to those of other firms in the group. It is
important to note that these groups still maintain strategic
distinctiveness to gain and sustain a competitive advantage.
Some examples of strategic dimensions in a strategic group
include the following:
The extent of technological leadership;
Product quality;
Pricing policies;
Distribution channels; and
Customer service.
Thus, membership in a particular strategic group defines the
essential characteristics of the firm’s strategy.
The notion of strategic groups can be useful for analyzing an
industry’s competitive structure. These analyses can be helpful
in diagnosing competition, positioning, and the profitability of
firms within an industry. Things that may limit the formation of
strategic groups include the following:
High mobility barriers;
High rivalry; and
Low resources.
Research suggests however that after strategic groups are
formed, their membership remains relatively stable over time.
To use strategic groups to understand an industry’s competitive
structure, the firm must plot the companies’ competitive actions
and competitive responses. They must factor in the following
strategic dimensions:
Pricing decisions;
Product quality; and

Distribution channels.
This type of analysis tellsfirms how other companies are
competing similarly in terms of strategic dimensions.
Strategic groups have severalimplications, which include the
following:
First, since firms within a group offer similar products to the
same customers, the competitive rivalry among them can be
intense. The more intense the rivalry, the greater the threat to
each firm’s profitability;
Secondly, the strengths of the five industry forces differ across
strategic groups.
Lastly, the closer the strategic groups are in terms of their
strategies, the greater is the likelihood of rivalry between the
groups.
11
Threat of New Entrants
Barriers to Entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected Retaliation

Identifying new entrants is important because they can threaten
the market share of existing competitors. One reason new
entrants pose such a threat is that they bring additional
production capacity. Unless demand for a good or service is
increasing, additional capacity holds consumers’ costs down,
resulting in less revenue and lower returns for competing firms.
Often, new entrants have a keen interest in gaining a large
market share. As a result, new competitors may force existing
firms to be more efficient and to learn how to compete on new
dimensions.
The likelihood that firms will enter an industry is a function of
two factors: barriers to entry and the retaliation expected from
current industry participants.
Existing competitors try to develop barriers to entry. Several
kinds of potentially significant entry barriers may discourage
competitors:
Economies of scale;
Product Differentiation;
Capital requirements;
Switching costs;
Access to distribution channels;
Cost disadvantages independent of scale; and
Government policy.
Firms seeking to enter an industry also anticipate the reactions
of firms in the industry. An expectation of swift and vigorous
competitive response reduces the likelihood of entry.
Bargaining Power of Suppliers

Supplier Group Powerful
Dominated by a few large companies
Substitutes not available
Industry firms not a significant customer
Suppliers’ goods are critical to success
High switching costs
Credible threat to integrate forward
Increasing prices and reducing the quality of their products are
potential means used by suppliers to exert power over firms
competing within an industry. If a firm is unable to recover cost
increases by its suppliers through its own pricing structure, its
profitability is reduced by its suppliers’ actions.
A supplier group is powerful when:
It is dominated by a few large companies and is more
concentrated that the industry to which it sells;
Satisfactory substitute products are not available to industry
firms;
Industry firms are not a significant customer for the supplier
group;
Suppliers’ goods are critical to buyers’ marketplace success;
The effectiveness of suppliers’ products has created high
switching costs for industry firms; and
It posed a credible threat to integrate forward into the buyers’
industry.

Bargaining Power of Buyers
Customers Powerful
Large portion of industry’s total output
Sales account for significant portion
Switch to another product
Products are standardized
Firms seek to maximize the return on their invested capital.
Alternatively, buyers want to buy products at the lowest
possible price, the point at which the industry earns the lowest
acceptable rate of return on its invested capital. To reduce their
costs, buyers bargain for higher quality, greater levels of
service, and lower prices. These outcomes are achieved by
encouraging competitive battles among the industry’s firms.
Customers are powerful when:
They purchase a large portion of an industry’s total output;
The sales of the product being purchased account for a
significant portion of the seller’s annual revenues;
They could switch to another product at little, if any, cost; and
The industry’s products are undifferentiated or standardized,
and the buyers pose a credible threat if they were to integrate
backward into the sellers’ industry.
Threat of Substitute Products
Perform similar or the same functions as a product that the
industry produces
Strong Threat

Prices may be lower
Performance capabilities are equal or greater
Substitute products are goods or services from outside a given
industry that perform similar or the same functions as a product
that the industry produces. Product substitutes present a strong
threat to a firm when customers face few, if any, switching
costs and when the substitute product’s price is lower or its
quality and performance capabilities are equal to or greater than
those of the competing product.
Intensity of Rivalry Among Competitors
Factors to Affect Intensity
Numerous or equally balanced competitors
Slow industry growth
High fixed costs or high storage costs
Lack of differentiation or low switching costs
High strategic stakes
High exit barriers
Because an industry’s firms are mutually dependent, actions
taken by one company usually invite competitive responses. In
may industries, firms actively compete against one another.
Competitive rivalry intensifies when a firm is challenged by a
competitor’s actions or when a company recognizes an
opportunity to improve its market position.
The most prominent factors that experience shows to affect the
intensity of firm’s rivalries are as follows:

Numerous or equally balanced competitors;
Slow industry growth;
High fixed costs or high storage costs;
Lack of differentiation or low switching costs;
High strategic stakes; and
High exit barriers.
Competitor Analysis
Future Objectives
Current Strategy
Assumptions
Strengths and Weaknesses
The competitor environment is the final part of the external
environment requiring study. Competitor analysis focuses on
each company against which a firm directly competes. Intense
rivalry creates a strong need to understand competitors. In a
competitor analysis, the firm seeks to understand the following:
What drives the competitor, as shown by its future objectives;
What the competitor is doing and can do, as revealed by its
current strategy;
What the competitor believes about the industry, as shown by
its assumptions; and

What the competitor’s capabilities are, as shown by its strengths
and weaknesses.
The results help a firm to understand, interpret, and predict its
competitors’ actions and responses. Useful data and information
combine to form competitor intelligence.
In competitor analysis, the firm gathers intelligence not only
about its competitors, but also regarding public policies in
countries around the world. In addition, pay close attention to
the complementors of its product and strategy.
Following Laws and Regulations
The line between legal and ethical practices can be difficult to
determine
Practices Considered Legal and Ethical
Respect the principles of common morality and the right of
competitors
Appropriate Guidelines
Firms must follow relevant laws and regulations as well as
carefully articulated ethical guidelines when gathering
competitor intelligence.
Practices considered both legal and ethical include:
Obtaining publicly available information; and
Attending trade fairs and shows to obtain competitors’

brochures, view their exhibits, and listen to discussions about
their products.
Some competitor intelligence practice may be legal, but firm
must decide whether they are also ethical, given the image it
desires as a corporate citizen. The line between legal and ethical
practices can be difficult to determine.
An appropriate guideline for competitor intelligence practices is
to respect the principles of common morality and the right of
competitors not to reveal certain information about their
products, operations, and strategic intentions.
18
Summary
The General, Industry, and Competitive Environments
External Environment Analysis
Interpreting Industry Analysis
Strategic Groups
Competitor Analysis
We have reached the end of this lesson. Let’s take a look at
what we have covered.
First, we discussed external environment. Most firms face
external environments that are highly turbulent and complex,
and global conditions that make interpreting those environments
increasingly difficult. To cope with often ambiguous and
incomplete environmental data and to increase understanding of

the general environment, firms engage in external
environmental analysis. The continuous process included four
activities:
Scanning;
Monitoring;
Forecasting; and
Assessing.
Next, we went over general environment. The general
environment is composed of segments that are external to the
firm. Although the degree of impact varies, these environmental
segments affect each industry and its firms. The challenge to the
firm is to scan, monitor, forecast, and assess those elements in
each segment that are of the greatest importance. These efforts
should result in recognition of environmental changes, trends,
opportunities, and threats. Opportunities are then matched with
a firm’s core competencies.
We then talked about industry environment. An industry is a
group of firms producing products that are close substitutes. In
the course of competition, these firms influence one another.
Typically, industries include a rich mixture of competitive
strategies that companies use in pursuing above-average returns.
Later we discussed interpreting industry analyses. We saw that
effective industry analyses are the end result of careful studying
and interpretation of data from multiple sources. We examined
the effect of globalization and how a country’s borders no
longer restrict industry structures. We also gained a better
understanding of the five forces in the industry that allow firms
to determine the industry’s attractiveness. We also looked at the
characteristics of unattractive and attractive industries.
Next we talked about strategic groups. We learned that a set of
firms that emphasize similar strategic dimensions and use a

similar strategy is called a strategic group. We then focused on
several examples of strategic dimensions in a strategic group.
As our discussion continued, we looked at various factors that
can hinder the formation of strategic groups. We also gained an
understanding of the industry’s competitive structures and
strategic group implications.
We also discussedcompetitor environment. Competitor analysis
focuses on each company against which a firm directly
competes. Intense rivalry creates a strong need to understand
competitors.
We concluded the lesson with a discussion on legal and ethical
considerations when gathering competitor intelligence.
This completes this lesson.
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Business Administration
BUS 499
The Internal Organization: Resources, Capabilities, Core
Competencies, and Competition Advantages
Welcome to the Business Administration Capstone.
In this lesson we will discuss The Internal Organization:
Resources, Capabilities, Core Competencies, and Competitive

Advantages
Next slide.
Objectives
Analyze the internal environment of a company for strengths
and weaknesses that impact the firm’s competitiveness.
Analyze the internal environment of a company for strengths
and weaknesses that impact the firm’s competitiveness; and
Use technology and information resources to research issues in
strategic management.
Topics
Analyzing the Internal Organization
Resources, Capabilities, and Core Competencies
Building Core Competencies
Outsourcing
Competencies, Strengths, Weaknesses, and Strategic Decisions
Analyzing the internal organization;
Resources, capabilities, and core competencies;
Building core competencies;
Outsourcing; and

Competencies, strengths, weaknesses, and strategic decisions.
Next slide.
Internal Analysis
Traditional Factors
Global Mind-set
Bundles
In the global economy, traditional factors such as labor costs,
access to financial resources and raw materials, and protected or
regulated markets remain sources of competitive advantage, but
to a lesser degree. On important reason is that competitors can
apply their resources to successfully use an international
strategy as a means of overcoming the advantages created by
these more traditional sources.
Increasingly, those who analyze their firm’s internal
organization should use a global mind-set to do so. A global
mind-set is the ability to study an internal organization in ways
that are not dependent on the assumptions of a single country,
culture, or context. Because they are able to span artificial
boundaries, those with a global mind-set recognize that their
firms must possess resources and capabilities that allow
understanding of and appropriate response to competitive
situations that are influenced by country-specific factors and
unique societal cultures.
Finally, analysis of the firm’s internal organization requires that
evaluators examine the firm’s portfolio of resources and the
bundles of heterogeneous resources and capabilities managers
have created. This perspective suggests that individual firms
possess at least some resources and capabilities that other
companies do not.

Creating Value
Value
Measured by characteristics and attributes
Offer Superior Value
Source of Above-Average Returns
By exploiting their core competencies or competitive
advantages to at least meet if not exceed the demanding
standards of global competition, firms create value for
customers. Value is measured by a product’s performance
characteristics and by its attributes for which customers are
willing to pay.
Firms with a competitive advantage offer value to customers
that is superior to the value competitors provide. Firms create
value by innovatively bundling and leveraging their resources
and capabilities. Firms unable to creatively bundle and leverage
their resources and capabilities in ways that create value for
customers suffer performance declines. Sometimes, it seems
that these declines may happen because firms fail to understand
what customers value.
Ultimately, creating value for customers is the source of above-
average returns for a firm. What the firm intends regarding
value creation affects its choice of business-level strategy and
its organizational structure.
Resources

Tangible
Intangible
Capabilities
Competitive
Advantage
Strategic
Competiti
-veness
Core
Competencies
Discovering
Core
Competencies
Value
Chain
Analysis
Four Criteria
of Sustainable
Advantages
- Outsource
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Resources, capabilities, and core competencies are the
foundation of competitive advantage. Resources are bundled to
create organizational capabilities. In turn, capabilities are the
source of a firm’s core competencies, which are the basis of
competitive advantages.
Resources
Tangible Resources

Financial
Organizational
Physical
Technological
Intangible Resources
Human
Innovation
Reputational
Broad in scope, resources cover a spectrum of individual,
social, and organizational phenomena. Typically, resources
alone do not yield a competitive advantage. In fact, a
competitive advantage is generally based on the unique
bundling of several resources.
Some of a firm’s resources are tangible while others are
intangible. Tangible resources are assets that can be seen and
quantified. Production equipment, manufacturing facilities,
distribution centers, and formal reporting structures are
examples of tangible resources.
Intangible resources are assets that are rooted deeply in the
firm’s history and have accumulated over time. Because they
are embedded in unique patterns of routines, intangible
resources are relatively difficult for competitors to analyze and
imitate.
The four types of tangible resources are financial,
organizational, physical, and technological. The three types of
intangible resources are human, innovation, and reputational.
Capabilities
Resources purposely integrated

Critical to the building of competitive advantage
Evolve and develop over time
Capabilities exist when resources have been purposely
integrated to achieve a specific task or set of tasks. These tasks
range from human resources selection to product marketing and
research and development activities.
Critical to the building of competitive advantages, capabilities
are often based on developing, carrying, and exchanging
information and knowledge through the firm’s human capital.
Client-specific capabilities often develop from repeated
interactions with clients and the learning about their needs that
occurs.
As a result, capabilities often evolve and develop over time.
The foundation of many capabilities lies in the unique skills and
knowledge of a firm’s employees and, often, their functional
expertise. Hence, the value of human capital in developing and
using capabilities and, ultimately, core competencies cannot be
overstated.
Core Competencies
Value Capabilities
Rare Capabilities
Costly-to-Imitate Capabilities
Unique historical conditions
Causally ambiguous
Social complexity
Nonsubstitutable Capabilities
Core competencies are capabilities that serve as a source of

competitive advantage for a firm over it rivals. Core
competencies distinguish a company competitively and reflect
its personality. Core competencies emerge over time through an
organizational process of accumulating and learning how to
deploy different resources and capabilities. As the capacity to
take action, core competencies are crown jewels of a company,
the activities the company performs especially well compared
with competitors and through which the firm adds unique value
to its goods or services over a long period of time.
Capabilities that are valuable, rare, costly to imitate, and
nonsubstitutable are core competencies.
Value capabilities allow the firm to exploit opportunities or
neutralize threats in its external environment. By effectively
using capabilities to exploit opportunities, a firm creates value
for customers.
Rare capabilities are capabilities that few, if any, competitors
possess. Capabilities possessed by many rivals are unlikely to
be sources of competitive advantage for any one of them.
Instead, valuable but common resources and capabilities are
sources of competitive parity. Competitive advantage results
only when firms develop and exploit valuable capabilities that
differ from those shared with competitors.
Costly-to-imitate capabilities are capabilities that other firms
cannot easily develop. Capabilities that are costly to imitate are
created because of one reason or a combination of three reasons.
First, a firm sometimes is able to develop capabilities because
of unique historical conditions. A second condition occurs when
the link between the firm’s capabilities and its competitive
advantage is causally ambiguous. Social complexity is the third
reason that capabilities can be costly to imitate.
Nonsubstitutable capabilities are capabilities that do not have

strategic equivalents. This final criterion for a capability to be a
source of competitive advantage is that there must be no
strategically equivalent valuable resources that are themselves
either not rare or imitable.
10
Value Chain
Understand the Parts
Template
Primary Activities
Support Activities
Value chain analysis allows the firm to understand the parts of
its operations that create value and those that do not.
Understanding these issues is important because the firm earns
above-average returns only when the value it creates is greater
that the costs incurred to create that value.
The value chain is a template that firms use to understand their
cost position and to identify the multiple means that might be
used to facilitate implementation of a chose business-level
strategy. Today’s competitive landscape demands that firms
examine their value chains in global, rather than a domestic-
only context. In particular, activities associated with supply

chains should be studied within a global context.
A firm’s value chain is segmented into primary and support
activities. Primary activities are involved with a product’s
physical creation, its sale and distribution to buyers, and its
service after the sale. Support activities provide the assistance
necessary for the primary activities to take place.
Outsourcing
What is Outsourcing
Purchase of a value-creating activity from an external supplier
Few organizations possess
Resources and capabilities
Concerned with how components, finished goods, or services
will be obtained, outsourcing is the purchase of a value-creating
activity from an external supplier. Not-for-profit agencies as
well as for-profit organizations actively engage in outsourcing.
Firms engaging in effective outsourcing increase their
flexibility, mitigate risks, and reduce their capital investments.
In multiple global industries, the trend toward outsourcing
continues at a rapid pace.
Outsourcing can be effective because few, if any, organizations
possess the resources and capabilities required to achieve
competitive superiority in all primary and support activities.
Why Analyze the Internal Organization
Identify strengths and weaknesses

Resources
Capabilities
Core Competencies
Having the Right Resources
Example of External Environment Affecting Competitive
Advantage
Borders Group Incorporated
When firms analyze the internal organization, they are able to
identify their strengths and weaknesses in resources,
capabilities, and core competencies. An example of this would
be when a firm has weak capabilities or does not have core
competencies in areas required to achieve a competitive
advantage. On the other hand, the firm could decide to
outsource a function or activity where it is weak in order to
improve its ability to use its remaining resources to create
value.
After looking over the results of the examination dealing with a
firm’s internal organization, managers should understand that
having a significant quantity of resources is not the same as
having the right resources. When we talk about the right
resources, we refer to them as resources that have the potential
to be formed into core competencies. These core competencies
will then serve as the foundation for creating value for
customers and developing competitive advantages.
Decision-makers sometimes become more focused and
productive when looking to find the right resources, especially
when the firm has constrained resources. Using tools like
outsourcing can help a firm focus on its core competencies and
use those as its source of competitive advantage. It is important
to note that the value-creating abilities of core competencies
should not be taken advantage of or relied on as a permanent
competitive advantage. This is due to all core competencies

having the potential to become core rigidities. Usually, events
occurring in the firm’s external environment create conditions
where core competencies can become core rigidities, generate
inertia, and stifle innovation. The bad news about core
capabilities deals with the external events that can take away
the competitive advantage. This can occur when new
competitors figure out a better way to serve the firm’s
customers, when new technologies emerge, or when political or
social events stir things up.
An example of external environment affecting a competitive
advantage involves the Borders Group Incorporated. This
company relied on its large storefronts that drew customers into
their stores to browse through books and magazines in a
pleasant atmosphere as sources of its competitive success. Over
the years, however, digital technologies have rapidly changed
customers’ shopping patterns for reading materials. We saw
earlier that Amazon. com’s use of the Internet has significantly
changed the competitive landscape for Borders and similar
competitors. As a result, it is possible that Borders’ core
competencies of store locations and a desirable physical
environment for customers became core rigidities for this firm.
This change eventually lead to Borders filing for bankruptcy in
early 2011 and subsequent liquidation.
It is important that managers who are studying the firm’s
internal organization take responsibility for making sure that
core competencies do not become core rigidities.
Next slide.
13
Summary
Analyzing the Internal Organization

Building Core Competencies
Outsourcing
First, we discussed value. Value is measured by a product’s
performance characteristics and by its attributes for which
customers are willing to pay.
Next, we went over resources. Tangible resources are assets that
can be seen and quantified. Intangible resources are assets that
are rooted deeply in the firm’s history and have accumulated
over time.
We then talked about capabilities. Capabilities exist when
resources have been purposely integrated to achieve a specific
task or set of tasks.
Next, we discussed competencies. Core competencies are
capabilities that serve as a source of competitive advantage for
a firm over it rivals.
We then went over value chain. Value chain analysis allows the
firm to understand the parts of its operations that create value
and those that do not.
Later in the lesson with a discussion on outsourcing. Concerned
with how components, finished goods, or services will be
obtained, outsourcing is the purchase of a value-creating
activity from an external supplier.
Finally, to conclude the lesson we discussed competencies,
strengths, weaknesses, and strategic decisions. We talked about

the importance of having the right resources and considering the
external environment. We also looked at the concept of core
competencies and used the example of Borders Group
Incorporated to illustrate the big picture.
PROPERTIES
Senior Seminar in Business Administration
BUS499
Strategic Management and Strategic Competitiveness
Welcome to the Government Contract Law.
In this lesson we will discuss Strategic Management and
Strategic Competitiveness.
Objectives
Identify the vision, mission, and stakeholders of a firm
When you complete this lesson you will be able to:
Identify the vision, mission, and stakeholders of a firm.

Supporting Topics
The Competitive Landscape
The I/O Model of Above Average-Returns
The Resource-Based Model of Above Average-Returns
Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
The competitive landscape;
The I/O model of above average-returns;
The resource-based model of above average-returns;
Vision and mission;
Stakeholders;
Strategic leaders; and
The strategic management process.
Competition is Changing
Money is scare
Markets are becoming volatile

Firms effectively using the strategic management process
Hypercompetition
Challenge competitors
Competition between many of the world’s industries is
changing. Many of these industries are competing due to money
being scare and markets becoming volatile. Boundaries that
once seemed drawn between industries are becoming blurred.
An example of this challenge would be the advances in
interactive computer networks and telecommunications. These
advancements have entered into the realm of the entertainment
industry. We also see that many partnerships in the
entertainment industry further blur the boundaries of the
industry. In order to be successful and maintain a competitive
edge, managers must adopt new strategies to stay current with
the evolving conditions.
Many firms effectively use the strategic management process to
help reduce the likelihood of failure with various challenges
they may encounter.
Hypercompetition is a term often used to illustrate the
competitive landscape. The conditions of hypercompetition
assume that market stability is replaced by notions of inherent
instability and change.
Hypercompetition results from the dynamics of strategic
maneuvering among global and innovative combatants. It is a
condition of rapidly escalating competition based on the
following:
Price quality positioning;

Competition to create new know-how and establish first mover
advantage; and
Competition to protect or invade established product or
geographic markets.
In a hypercompetitive market, firms will want to challenge their
competitors with the end goal of improving their competitive
position and performance. The emergence of a global economy
and technology along with specifically rapid technological
changes are the two primary elements of hypercompetitive
environments and help create today’s competitive landscape.
4
The Competitive Landscape, continued
Global Economy
Helps create opportunities and challenges
Examples
European Union
700,000,000 potential customers
China
Seen as a low competition market and low cost producer
Now is an extremely competitive market
A global economy refers to the goods, services, people, skills,
and ideas that move freely across geographic borders. The
emergence of the global economy helps create interesting
opportunities and challenges. For example, the European Union
has become one of the world’s largest markets, with seven
hundred million potential customers. For several years China
was seen as a low competition market and a low cost producer.
Today, China is now an extremely competitive market, with

local markets seeking MNCs or multinational corporations. Now
these local markets must fiercely compete against other MNCs
and those local companies that are more cost effective and
faster with their product development.
5
Globalization
Seen as a product of large firms competing against each other
Can increase the range of opportunities for companies
Higher Performance Standards
Firms must exceed global standards to earn above average
returns
Overdiversification
Globalization refers to a growing interdependence among
countries and their organizations, as shown by the flow of goods
and services, financial capital, and knowledge across the
countries’ borders. Globalization can be seen as a product of
large numbers of firms competing against each other throughout
a number of global economies.
In some globalized markets and industries, financial capital can
be obtained in one national market and used to buy raw
materials in another. This goes to show that globalization can
increase the range of opportunities for companies competing in
the current competitive landscape. Firms must make culturally
sensitive decisions when engaging in globalization with their
operations. Overall, it is important to note that globalization has
led to higher performance standards in many competitive
dimensions, including the following:

Quality;
Cost;
Productivity;
Product introduction time; and
Operational efficiency.
Firms must understand that in order to compete in today’s
world, companies must exceed global standards to earn above
average returns. Globalization, while positive, does offer
potential risks. Risks of participating outside of the firm’s
domestic country in the global economy is referred to as a
liability of foreignness. One risk of entering the global market
is the amount of time required for firms to learn the proper
ways to be competitive in new markets. If a firm does not grasp
the concepts of being competitive, their performance can suffer
until this knowledge is grasped sufficiently.
Additionally, a firm’s performance may suffer with substantial
amounts of globalization. A firm may suffer from this principle
by overdiversifying internationally beyond their ability. As a
result of this, overdiversification negatively affects a firm’s
overall performance.
Due to all of these possible issues, it is best to effectively use
the strategic management process. While getting involved in
global markets is an attractive option for some companies, it is
not the only way a company can be strategically competitive.
6
Technology Related Trends and Conditions
Technology Diffusion

Has increased greatly over 15-20 years
Perceptual innovation
Imitation of Competitor Actions
Technology-related trends and conditions can be placed into the
following three categories:
Technology diffusion and disruptive technologies;
The information age; and
Increasing knowledge intensity.
These three categories illustrate several different ways that
technology is significantly altering competition and
contributing to unstable competitive environments.
The rate of technology diffusion has increased greatly over the
past fifteen to twenty years. A word often used along with
technology diffusion is perpetual innovation. This term refers to
the rapidly and consistently new technologies that replace older
ones. A competitive premium is placed on being able to produce
new innovative and creative products quickly. We see that
products which are somewhat indistinguishable because of the
growth of technology use the speed to market strategy. These
new innovative products derive from an understanding of global
standards and expectations of product functionality.
Another indicator of rapid technology diffusion is that it now
may take less time for firms to gather information about their
competitors’ research, development and product decisions. We
see that in the global economy, competitors will often imitate a
firm’s successful competitive actions within a few days. As a
result of methods like this, we see a reduction in the
competitive benefits of patents. However, we also see that

patents used today are an effective way of protecting
proprietary technology.
7
Changes in Information Technology
Technological Developments
Cell phones, computers, and social networking
Declining Costs of Information Technologies
Global proliferation
Availability of Information Technologies
Internet
Price changes from ISPs
Hypercompetition
Dramatic changes in information technology have occurred in
recent years. Everything we use in our daily live, such as
personal computers, cellular phones, and multiple social
networking sites, shows the end result of technological
developments. An important outcome of these changes is the
ability to effectively and efficiently access and use information.
These information technology advances have given small firms
more flexibility in competing with large firms. Using
technology efficiently will help promote and increase
technology diffusion.
The declining costs of information technologies and the
increased accessibility to these technologies further paints an
image of the current competitive landscape. We also see that
the global proliferation of relatively inexpensive computing
power and the ability to link on a global scale via computer

networks further supports the diffusion of information
technologies.
Due to this unification and diffusion, the competitive potential
of information technologies is now available to companies of all
sizes throughout the world. The Internet has really boomed, and
is a centerpiece in our everyday lives. The Internet has also
promoted hypercompetition amongst its users. Because the
Internet is available to people throughout the world, it allows
the delivery of information to computers in any location. Access
to the Internet on smaller devices such as cell phones is another
aspect that is having an impact on competition between
companies.
However, there is a possibility that changes to Internet
Management and Strategic Competitiveness Service Providers’
or ISPs’ pricing structures could affect the rate of growth for
Internet-based applications. Many users today are downloading
or streaming high definition movies, playing video games
online, and so forth. If these pricing changes were to be
implemented, the users would be affected the most by a pricing
structure based around total usage.
8
Knowledge
Basis of technology and its applications
Shift from hard assets to intangible resources
Today’s competitive landscape puts a huge value on intangible
resources
Capturing Intelligence
Turn intelligence into usable knowledge
Gaining of a competitive advantage

Develop and acquire knowledge to integrate into the
organization
Strategic Flexibility
The basis of technology and its applications is knowledge. In
today’s competitive world, knowledge is a critical
organizational resource and increasingly a very valuable source
of competitive advantage. We saw that starting in the 1980s, the
basis of competition shifted from hard assets to intangible
resources. An example of intangible resources would be
relationships with customers and suppliers. Intangible resources
build knowledge through experience, observation, and
inference. Today’s competitive landscape puts a huge value on
intangible resources, and they are expanding as a proportion of
total shareholder value.
To enhance the probability of achieving strategic
competitiveness, firms want to develop the ability to capture
intelligence. They then want to transform this intelligence into
usable knowledge, and then diffuse it rapidly throughout the
company. Therefore, to gain a competitive advantage, firms
must develop and acquire knowledge and then integrate it into
the organization. Innovations require a strong knowledge base.
Firms that lack the appropriate internal knowledge resources are
less likely to invest money into research and development.
Knowledge spillovers are common, so firms must continue to
keep current with their information. Due to this risk of
spillovers, firms try to use their knowledge in productive ways.
Firms will often build routines that facilitate the diffusion of
local knowledge throughout the organization.
Strategic flexibility allows firms to get better in areas in which
they may be lacking Using strategic flexibility allows for a set
of capabilities to respond to various demands and opportunities

that exist in today's dynamic and uncertain competitive
environments. Being strategically flexible sometimes means
coping with uncertainty and risks that may follow. Firms should
try to develop strategic flexibility in all areas of their
operations. However, it is important for firms to develop
strategic flexibility because inertia can build up over time. It is
also important to note that a firm’s focus and past core
competencies may actually slow change and affect strategic
flexibility.
9
The I/O Model of Above- Average Returns
Determining Strategies to Be a Successful Firm
External Environment
1960s-1980s
Industrial Organization Model of Above-Average Returns
Performance based on range of industry properties
Contains four assumptions
Challenges firms to find the best industry to thrive in
From the 1960s through the 1980s, the external environment
was thought to be the most important factor in determining
strategies firms need in order to be successful. The external
environment’s influence on a firm's strategic actions is shown
using the industrial organization model of above-average
returns. This model specifies that the industry or segment of an
industry that chooses to compete in the market has a stronger
influence on performance than the decisions mangers make
within the company. The firm’s performance is believed to be
determined primarily by a range of industry properties,
including the following:

Economies of scale;
Barriers to market entry;
Diversification;
Product differentiation; and
The degree of concentration of firms in the industry.
Based around economics, the I/ O model contains four
underlying assumptions. The first assumption is that the
external environment is assumed to impose pressures and
constraints that determine the strategies of above-average
returns. Secondly, it is assumed that most firms competing
within an industry are controlled using similar strategically
relevant resources. These firms then pursue similar strategies in
light of those resources. The third assumption is that resources
used to implement strategies are highly mobile across firms.
This would mean that any resource differences that might
develop between firms will be short-lived. Lastly, it is assumed
that organizational decision-makers are rational and committed
to acting in the firm’s best interests. This can be attributed to
their various profit maximizing behaviors.
The I/ O model challenges firms to find the best industry to
thrive in. Since most firms have similar valuable resources that
are mobile, performance can only increase if they operate in an
area of high profit potential. It is also important to use
resources wisely to implement a successful strategy.
10
The I/O Model of Above-Average Returns, continued
The Five Forces Model of Competition
Suppliers
Buyers
Competitive Rivalry Among Industry Firms

Product Substitutes
Potential Entrants to the Industry
Many firms use this model to identify the attractiveness of an
industry
The five forces model of competition is an analytical tool that
firms use to help find the most attractive area of operation. The
model encompasses several variables and tries to capture the
complexity of competition. The five forces model suggests that
the industry’s profitability results from the interactions among
five forces which include the following:
Suppliers;
Buyers;
Competitive rivalry among current industry firms;
Product substitutes; and
Potential entrants to the industry.
Many firms use the five forces model to help them identify the
attractiveness of an industry, as well as to find the best area to
set up operations. This model promotes the idea that firms can
earn above-average returns by producing either standardized
goods or services at costs below those of competitors. These
firms can also produce differentiated goods or services for
which customers will pay a price premium.
11

The Resource- Based Model of Above Average Returns
Assumes Organizations Consist of Unique Resources and
Capabilities
Three Categories of Resources
Physical
Human
Organizational Capital
Either Tangible or Intangible
Capacities
Core Competencies
The next model we will look at is the resource-based model.
This model assumes that each organization consists of a group
of unique resources and capabilities. The basis of a firm’s
strategy and its ability to earn above-average returns is based
around the diversity of its resources and capabilities. Resources
are inputs into a firm’s production process. A firm’s resources
are classified into three categories, which include:
Physical;
Human; and
Organizational capital.
As we described previously, resources are either tangible or
intangible in nature. Individual resources alone may not yield a
competitive advantage. Capacities are a source of competitive
advantage and stem from resources. A capability is the capacity
for a set of resources to perform a task or an activity in an
integrative manner. These capabilities can evolve over time, and
managing them in a dynamic manner can help promote above-
average returns. Resources and capabilities serve as another
source of competitive advantage and are referred to as core
competencies. These core competencies are often visible in the
form of organizational functions.

12
The Resource- Based Model of Above Average Returns,
continued
Basis of Competitive Advantage
Resources and capabilities not being mobile across firms
Capabilities
Become stronger and more difficult to imitate
When Resources and Capabilities Don’t Yield a Competitive
Advantage
Valuable
Rare
Costly to Imitate
No substitutable
This model also assumes that firms acquire different resources
and develop unique capabilities based on how they combine and
use resources. The basis of competitive advantage with this
model stems from resources and capabilities not being highly
mobile across firms. Through continued use, capabilities
become stronger and more difficult for competitors to
understand and imitate. It is important to note that a capability
should not be too easy or too hard.
Not all of a firm’s resources and capabilities have the potential
to be the foundation for a competitive advantage. This potential
is realized when resources and capabilities are the following:
Valuable;
Rare
Costly to imitate; and
Nonsubstitutable.

Resources are deemed valuable when they allow a firm to take
advantage of opportunities or neutralize threats in the external
environment. When resources are labeled as rare, they are
possessed by few current or potential competitors. Resources
that are costly to imitate are often non-obtainable or obtainable
only at a cost disadvantage. They are nonsubstitutable when
they have no structural equivalents. Many resources can either
be imitated or substituted over time. Due to this, it is hard to
achieve and maintain a competitive advantage based on
resources alone. Integration of individual resources is often
completed in the form of capabilities. These capabilities are
more likely to have the four attributes we reviewed.
When these four criteria are met, resources and capabilities
form core competencies. As noted previously, research shows
that both the industry environment and a firm’s internal assets
affect that firm’s performance over time.
13
Strategic Competitiveness & Competitive Advantage
Strategic Competitiveness
Value-creating strategy
Strategy
Competitive Advantage
Competitors do not duplicate
No competitive advantage is permanent
Strategic competitiveness is achieved when a firm successfully
formulates and implements a value-creating strategy. A strategy
is an integrated and coordinated set of commitments and actions

designed to exploit core competencies and gain a competitive
advantage. When choosing a strategy, firms make choices
among competing alternatives. In this sense, the chosen strategy
indicates what the firm intends to do, as well as what it does not
intend to do.
A firm has a competitive advantage when it implements a
strategy competitors are unable to duplicate or find too costly to
try to imitate. An organization can be confident that its strategy
has resulted in one or more useful competitive advantages only
after competitors’ efforts to duplicate its strategy have ceased
or failed. In addition, firms must understand that no competitive
advantage is permanent. The speed with which competitors are
able to acquire the skills needed to duplicate the benefits of a
firm’s value-creating strategy determines how long the
competitive advantage will last.
Above-Average Returns
Definition
Exploiting a competitive advantage
Average returns
Above-average returns are returns in excess of what an investor
expects to earn from other investments with a similar amount of
risk. Risk is an investor’s uncertainty about the economic gains
or losses that will result from a particular investment. Returns
are often measured in terms of accounting figures, such as
return on assets, return on equity, or return on sales.
Alternatively, returns can be measured on the basis of stock
market returns, such as monthly returns.
In smaller, new venture firms, performance is sometimes
measured in terms of the amount and speed of growth rather

than more traditional profitability measures, because new
ventures require time to earn acceptable returns on investors’
investments. Understanding how to exploit a competitive
advantage is important for firms that seek to earn above-average
returns.
Firms without a competitive advantage or that are not
competing in an attractive industry earn, at best, average
returns. Average returns are returns equal to those an investor
expects to earn from other investments with a similar amount of
risk. In the long run, an inability to earn at least average returns
results in failure. Failure occurs because investors withdraw
their investments from those firms earning less-than-average
returns.
Stakeholders
Affect the vision and mission
Affected by strategic outcomes achieved
Have enforceable claims
Not every stakeholder has the same level of influence
Every organization involves a system of primary stakeholder
groups with whom it establishes and manages relationships.
Stakeholders are the individuals and groups who can affect the
vision and mission of the firm, are affected by the strategic
outcomes achieved, and have enforceable claims on the firm’s
performance. Claims on a form’s performance are enforced
through the stakeholders’ ability to withhold participation
essential to the organization’s survival, competitiveness, and
profitability. Stakeholders continue to support an organization
when its performance meets or exceeds their expectations. Also,
recent research suggests that firms that effectively manage
stakeholder relationships outperform those that do not.

Stakeholder relationships can therefore be managed to be a
source of competitive advantage.
Although organizations have dependency relationships with
their stakeholders, they are not equally dependent on all
stakeholders at all times. As a consequence, not every
stakeholder has the same level of influence. The more critical
and valued a stakeholder’s participation, the greater a firm’s
dependency on it. Greater dependence, in turn, gives the
stakeholder more potential influence over a firm’s
commitments, decisions, and actions. Managers must find ways
to either accommodate or insulate the organization from the
demands of stakeholders controlling critical resources.
Stakeholders, continued
Capital market holders
Shareholders and major suppliers
Product market holders
Customers, suppliers, host communities, and unions
Organizational stakeholders
Employees
The parties involved with a firm’s operations can be separated
into at least three groups. These groups are the capital market
holders, the product market stakeholders, and the organizational
stakeholders.
Shareholders and the major suppliers of a firm’s capital
constitute the capital market holders. Shareholders and lenders
both expect a firm to preserve and enhance the wealth they have
entrusted to it. The returns they expect are commensurate with
the degree of risk accepted with those investments. Dissatisfied
lenders may impose stricter covenants on subsequent borrowing

of capital. Dissatisfied shareholders may reflect their concerns
through several means, including selling their stock.
Some might think that product market stakeholders, customers,
suppliers, host communities, and unions, share few common
interests. However, all four groups can benefit as firms engage
in competitive battles. For example, depending on product and
industry characteristics, marketplace competition may result in
lower product prices being charged to a firm’s customers and
higher prices being paid to its suppliers.
Employees, the firm’s organizational stakeholders, expect the
firm to provide a dynamic, stimulating, and rewarding work
environment. As employees, we are usually satisfied working
for a company that is growing and actively developing our
skills, especially those skills required to be effective team
members and to meet or exceed global work standards. Workers
who learn how to use new knowledge productively are critical
to organizational success. In a collective sense, the education
and skills of a firm’s workforce are competitive weapons
affecting strategy implementation and firm performance.
Vision
Points the firm in the direction of where it would like to be
Reflect a firm’s values and aspirations
Enduring
Relatively short and concise
CEO is responsible for working with others to form the firm’s
vision
Vision is a picture of what the firm wants to be and, in broad
terms, what it wants to ultimately achieve. Thus, a vision
statement articulates the ideal description of an organization

and gives shape to its intended future. In other words, a vision
statement points the firm in the direction of where it would
eventually like to be in the years to come.
It is also important to note that vision statements reflect a
firm’s values and aspirations and are intended to capture the
heart and mind of each employee and, hopefully, many of its
other stakeholders.
A firm’s vision tends to be enduring while its mission can
change in light of changing environmental conditions.
A vision statement tends to be relatively short and concise,
making it easily remembered.
As a firm’s most important and prominent strategic leader, the
CEO is responsible for working with others to form the firm’s
vision. Experience shows that the most effective vision
statement results when the CEO involves a host of people to
develop it.
19
Mission
Vision is the foundation for the firm’s mission
Specifies businesses in which to compete and customers to

serve
Should establish a firm’s individuality
Should be inspiring and relevant to all stakeholders
Business ethics are a vital part
The vision is the foundation for the firm’s mission.
A mission specifies the business or businesses in which the firm
intends to compete and the customers it intends to serve. The
firm’s mission is more concrete than its vision.
However, like the vision, a mission should establish a firm’s
individuality and should be inspiring and relevant to all
stakeholders. Together, vision and mission provide the
foundation the firm needs to choose and implement one or more
strategies.
The probability of forming an effective mission increases when
employees have a strong sense of the ethical standards that will
guide their behaviors as they work to help the firm reach its
vision. Thus, business ethics are a vital part of the firm’s
discussions to decide what it wants to become as well as who it
intends to serve and how it desires to serve those individuals
and groups.
Strategic Leaders
Strategic Leaders
People located in different areas and levels of the firm
Qualities
Organizational Cultures
Force that drives or fails to drive the organization

We will now discuss strategic leaders. Strategic leaders are
defined as people located in different areas and levels of the
firm. These leaders use the strategic management process help
them select strategic actions that can help the firm achieve its
goals. There are several qualities that define a strategic leader
and they include the following:
Successful strategic leaders are decisive;
They are committed to nurturing those around them; and
These leaders are committed to helping the firm promote and
create value with all stakeholders.
CEOs and other high ranking mangers are often who we think of
when we talk about strategic leaders. These managers are indeed
looked upon as strategic leaders. CEOs have the responsibility
of making sure their firm uses the strategic management process
correctly. There is a lot of pressure and stress for CEOs to make
the best decisions involving their firm. There are however, other
members of a firm that aid in the determination of firm
decisions. Understanding how to effectively delegate strategic
responsibilities to people throughout the firm is very quality of
CEOs and top level managers. Delegation is very important
within a firm because it helps alleviate too much manager
control at the top of the firm.
We also see that the organizational culture of a firm has an
effect on strategic leaders and their work. Strategic leaders’
decisions and actions shape a firm’s culture. We defined
organizational culture as a set of complex ideologies, symbols,
and core values that are shared throughout the firm. These
ideologies in turn can influence how the firm conducts business.
The organizational culture is force that drives or fails to drive
the organization. It is important to understand that some
organizational cultures are a source of disadvantage. As a result
of this concept it is important for strategic leaders to understand
that regardless if the firm’s culture is functional or

dysfunctional; their effectiveness is influenced by that culture.
The relationship formed between the organizational culture and
strategic leaders’ help shape the leader’s leadership skills and
aids in the evolution of the organizational culture of the firm.
21
Strategic Leaders, continued
Characteristics
Strategic orientation
Promote innovation
Innovative thinking
Add ideas to a global mindset
Effective Strategic Leaders
Provide a vision as the foundation of the firm’s mission
Use one or more strategies
Strategic leaders must also have a strong strategic orientation
characteristic. They must be able to embrace change and deal
with it effectively. Strategic leaders can adapt to this
competitive landscape by promoting innovation and by
embracing innovative thinking. To promote innovation it must
be facilitated by a diverse management team that represents
different types of expertise and leveraging relationships.
Leveraging by strategic leaders can be completed when their
organizations are ambidextrous. This means that the
organization must promote exploratory and exploitative
learning. This process then allows incremental knowledge to be
added to existing knowledge bases. The end result is a better
understanding and use of existing products. To take this a step
further strategic leaders need to adapt these ideas in to a global
mindset and take on an ambicultural approach to management.

The most effective strategic leaders provide a vision as the
foundation for the firm’s mission and use of one or more
strategies.
22
Strategic Leaders, continued
Predicting of Outcomes Based on Decisions
Concerned with an uncertain future
Future plans
Mapping an industry’s profit pool
Analyzing the Profit Pool
Define pool boundaries
Estimate the pool’s overall size
Estimate the size of the value-chain activity
Reconcile the calculations
Strategic leaders attempt to predict the outcomes of their
decisions before taking efforts to implement them. Many
decisions made during the strategic management process are
concerned with an uncertain future and the firm’s future plans.
Managers try to combat uncertainty by trying to predict the
future effects on the firm’s profits as a result of strategic
decisions. Mapping an industry’s profit pool is something
strategic leaders can do to anticipate the possible outcomes of
different decisions and to focus on growth in profits rather than
strictly growth in revenues. A profit pool entails the total
profits earned in an industry at all points along the value chain.
Analyzing the profit pool in the industry may help a firm see
something others are unable to see and to understand the
primary sources of profits in an industry. There are four steps to

identifying profit pools which include the following:
Step one define the pool’s boundaries. A profit pool entails the
total profits earned in an industry at all points along the value;
Step two estimate the pool’s overall size;
Step three estimate the size of the value- chain activity in the
pool; and
Step four reconcile the calculations.
Profit pools are a potentially useful tool that can assist in the
actions being taken increase the likelihood of increasing profits.
It is important to note that profits made by a firm and in an
industry can be partially interdependent on the profits earned in
adjacent industries. An example of this would be the, profits
earned in the energy industry and how they can affect profits in
other industries. When oil prices are high, it can reduce the
profits earned in industries that must use a lot of energy to
provide their goods or services.
23
Strategic Management Process
Analyze external and internal environments
Develop mission and vision
Continuously evolving strategies
The strategic management process is the full set of
commitments, decisions, and actions required for a firm to
achieve strategic competitiveness and earn above-average

returns. The firm’s first step in the process is to analyze its
external and internal environments to determine its resources,
capabilities, and core competencies, the source of its strategic
inputs.
With this information, the firm develops its vision and mission
and formulates its strategy. To implement this strategy, the firm
takes actions toward achieving strategic competiveness and
above-average returns. Effective strategic actions that take
place in the context of carefully integrated strategy formulation
and implementation actions result in desired strategic outcomes.
It is a dynamic process, as ever-changing markets and
competitive structures are coordinated with a firm’s
continuously evolving strategic inputs.
Summary
The I/O Model of Above Average-Returns
The Resource-Based Model of Above Average-Returns
Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
First, we discussed strategic competitiveness and competitive
advantage. Strategic competitiveness is achieved when a firm
successfully formulates and implements a value-creating
strategy. A firm has a competitive advantage when it
implements a strategy competitors are unable to duplicate or

find too costly to try to imitate.
Next, we went over above-average returns. Above-average
returns are returns in excess of what an investor expects to earn
from other investments with a similar amount of risk.
We then discussed stakeholders. Stakeholders are the
individuals and groups who can affect the vision and mission of
the firm, are affected by the strategic outcomes achieved, and
have enforceable claims on the firm’s performance.
Next, we talked about a firm’s vision and mission. Vision is a
picture of what the firm wants to be and, in broad terms, what it
wants to ultimately achieve. A mission specifies the business or
businesses in which the firm intends to compete and the
customers it intends to serve.
We concluded the lesson with a discussion on the strategic
management process. The strategic management process is the
full set of commitments, decisions, and actions required for a
firm to achieve strategic competitiveness and earn above-
average returns.
PROPERTIES
PRACTICE
Use the internet or the Strayer Library to research an industry
with a significant impact on your local economy (e.g., autos in
Michigan or oil in Louisiana). Be prepared to discuss.

Use the internet or the Strayer Library to research a business
failure. Be prepared to discuss.
Identify an organization that could benefit from the application
of the I/O Model of Above-Average Returns (Figure 1.2 page 15
in the text). Follow the five steps to justify your answer. Do not
use Apple or Walmart in this exercise, nor should the
organization you select be the same as another post.
PRACTICE
Use the internet or the Strayer Library to research a company of
your choice with a focus on the company’s internal
environment. Be prepared to discuss.
EACH BULLET POINT ANSWER SHOULD BE ABOUT 75-80
WORDS, WITH EACH DISCUSSION BEING ABOUT 150-160
WORDS TOTAL WITH REFERENCES.
Week 1 Discussion
Top of Form
"Strategic Competitiveness" Please respond to the following:
Before starting this activity, review the Week 1 LEARN activity
videos and read Chapter 1 in the course text book. Doing this
will give you the Why to include in your response to the
following:
1. From the LEARN, determine which of the two primary
drivers of the competitive landscape is more influential.
a. Explain your rationale.
2. From the PRACTICE activity, identify an organization that
could benefit from the application of the I/O Model of Above-
Average Returns (Figure 1.2 page 15 in the textbook).
a. Follow the five steps to justify your answer.
b. Do not use Apple or Walmart in this exercise, nor should the

organization you select be the same as another post.
Week 2 DiscussionTop of Form
"Union Pacific Corporation" Please respond to the following:
Before starting this activity, review the Week 2 LEARN (e-
Activity) and read Chapter 2 in the course text book. Doing this
will give you the Why to include in your response to the
following:
Research Union Pacific Railroad (you are encouraged to use a
myriad of reputable sources, including the company's website.)
Perform an analysis of the social/demographic, technological,
economic, environmental/geographic, and
political/legal/governmental segments (as discussed in the
textbook) to understand the general environment facing Union
Pacific. Describe how Union Pacific will be affected by each of
these external factors.
1. Perform an analysis of the social/demographic, technological,
economic, environmental/geographic, and
political/legal/governmental segments to understand the general
environment facing Union Pacific.
2. Describe how Union Pacific will be affected by each of these
external factors.
3. Bottom of Form
Bottom of Form
Week 3 Discussion
Top of Form
"Strong Brands" Please respond to the following:
Before starting this activity, review the Week 3 LEARN (e-
Activity) (there are several) and read Chapter 3 in the course
text book. Doing this will give you the Why to include in your
response to the following:
1) Many companies use their brand as a competitive
advantage. Given your knowledge about the global economy,
identify three brands you believe have the strongest likelihood
of remaining a source of advantage in the 21st century.
a. Explain why.
2) Explain the effects you believe the internet’s capabilities

will have on the brands you identified in the previous
discussion and what the owner of the brand should do in light of
them.
3) From the LEARN (e-Activity), analyze the internal
environment of the company you researched to determine that
company’s strengths and weaknesses. Based on the strengths
and weaknesses you discovered, determine what steps the
company could take to positively impact the company’s
competitiveness.
a. Explain your rationale.
Bottom of Form

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