Post on 14-Dec-2015
Chapter 1
Strategic Management and Strategic Competitiveness
Diane M. Sullivan, Ph.D., 2013
Sections modified from Hitt, Ireland, and Hoskisson, Copyright © 2008 Cengage
Setting the Stage: Definitions and Goals Strategy Defined
Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage
Integrated and coordinated commitments and actions must be to pursue a long-term mission and vision
Must involve multiple functional areas Must have impact on long-term profitability
Goals of Strategy (e.g., what we are trying to achieve): Strategic Competitiveness
Can be achieved when a firm formulates and implements a value-creating strategy
Sustainable Competitive Advantage Implemented strategy that competitors are unable to duplicate or find too costly to imitate
Above-Average Returns Returns above of what investor expects in comparison to other investments with similar risk
Examples Example 1: Boeing vs. Airbus
Airbus Won competitive battle 2001 - 2005 Responded to customer demands after 2005 with A-380 aircraft
Offered 550-plus seats; Could only serve 35 large airports
Boeing Regained supremacy in 2006 Changed strategy
Focused on smaller planes, serving more airports Different production process
Example 2: McDonald’s A Change of Strategy? Then: profitability driven by market saturation growth via
new stores Now: profitability and growth driven by existing stores
Strategic Management Process The full set of
commitments, decisions, and actions required for a firm to achieve firm performance in terms of:
1) Strategic competitiveness
2) Above-average returns
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The 21st Century Context for Strategy:The New Competitive Landscape
The old competitive landscape was characterized by market stability The new competitive landscape is characterized by
Rapid change Economies of scale, advertising budgets not as effective as before, change in managerial mind-set
from “traditional” to more flexible and innovative New organizational forms/relationships needed to be successful
Partnerships created by mergers and acquisitions, joint ventures, alliances
These changes in the landscape often referred to as hypercompetition Extremely intense rivalry among competing firms, characterized by
Escalating and increasingly aggressive competitive moves Inherent market instability and change
Two primary drivers of the competitive landscape: The global economy (e.g., globalization) Technology
This landscape has created the need for “new ways” to develop/implement strategies
AND Developing and implementing strategy is more important to firm success in this landscape
Strategic Management Process
Step 1: Collect information/knowledge to help you determine what type of strategy would be effective and how it could best be implemented
How do we do that?
What tools should we use?
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SWOTHeadline, January 30, 2013:
SWOT is Dead!
SWOT
SWOT
SWOT
Now: 1) Resources 1) General Environment2) Capabilities 2) Industry Environment3) Core Competencies 3) Competitive Environment4) Competitive Advantage5) V.R.I.O.
Internal Environment External Environment
Then: Strengths & Weaknesses Opportunities & Threats
2 Models to Help with Strategy Development and Implementation
Industrial organization (I/O) model External environment is
primary determinant of a firm’s strategic actions
Model focuses on the firm’s external environment
Resource-based model A firm’s unique resources and
capabilities are the critical determinants of strategic competitiveness
Model focuses on the firm’s internal environment
I/O Model of Firm Performance
I/O Model says The industry in which a
firm chooses to compete has a stronger influence on firm performance than do the choices managers make inside their organizations
I/O Model Strategies In general, firms may earn above-average returns by
pursuing one of the following strategies: Cost leadership: operations streamlined for efficiency
(e.g., low cost operations); offering relatively standardized products/services (e.g., Wal-Mart)
Differentiation: create an industry-wide perception of unique value for which customers will pay a premium (e.g., Tiffany jewelry; Intel)
More on these, and others, in Chapter 4
Resource-based Model of Firm Performance
Assumes each firm is a collection of unique resources and capabilities The uniqueness of the
resources/capabilities is the basis for a firm’s strategy and ability to earn above-average returns
Insert Figure 1.3 The Resource-Based Model of Above-Average Returns
Resource-based Model of Firm Performance
According to the resource-based model a firm may earn above-average returns when it Chooses to enter an industry in which it has competitive
advantages based on its resources/capabilities To become a competitive advantage, a resource or
capability must be Valuable Rare Costly to imitate Not substitutable
More on this in Chapter 3
Strategic Management Process
Insert figure 1.1 graphicStep 2: After studying the external and internal environments, the firm has the information it needs to form vision and mission
Purpose 1: articulate the goal the firm is trying to accomplish
Purpose 2: inform stakeholders what that goal is
Vision and Mission Vision
Picture of what the firm ultimately wants to be/achieve An effective vision statement is the responsibility of the leader who should work
with others to form it The vision is the foundation for the mission
Ford’s vision: To become the world’s leading consumer company for automotive products and services
Mission Specific business(es) in which firm intends to compete and customers it intends
to serve More concrete than the vision Deals more with product markets and customers
Ford’s mission: We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve people’s lives.
Vision, Mission and Stakeholders Research suggests that an effective vision and mission is related to firm
performance Firm performance helps firm’s satisfy stakeholders Stakeholders are individuals and groups
They can affect, and are affected by, the strategic outcomes/performance a firm achieves
Stakeholders have conflicting interests, so it is difficult to adequately satisfy all of them without achieving at least average returns
Three classifications of stakeholders Capital Market (shareholders, banks, etc.)
Expect returns commiserate with risk accepted by investments
Higher the dependency relationship, the more direct and significant firm’s response
Product Market (customers, suppliers, communities, unions) All benefit due to competitive battles
Organizational Employees
Firms require participation from each of
these stakeholders in order to
operate
Moving Forward…next 2 classes
Insert figure 1.1 graphic Chapter 2: The External
Environment
I/O Model
Please read Chapter 2 before next class
Practice Round 2 decisions to be completed by Monday (February 4, 2013 at 7:00pm)