Ch01 Hitt SM8e Lecture

8/14/2019 Ch01 Hitt SM8e Lecture

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Strategic Management:Concepts and Cases

Part I: Strategic Management Inputs

Chapter 1: Strategic Management and Strategic

Competitiveness


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Chapter 1: Strategic Management and

Strategic Competitiveness

Overview: Eight content areas

Nature of Competition

The 21st Century Competitive Landscape

I/O Model of Above-Average Returns (AAR)

Resource-Based Model of AAR

Strategic Vision and Mission

Stakeholders Strategic Leaders

The Strategic Management Process


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Nature of Competition: Boeing vs. Airbus

Boeing Historically a global leader in airplane manufacturing Revenue from commercial aircraft division & govt contracts Regained supremacy in 2006: more 787 super jumbo

orders vs. Airbuss more efficient A-380 Changed strategy and design

Different production process Smaller plane (787 Dreamliner)

Airbus EU Government owned and subsidized Won competitor battle with Boeing between 2001 & 2005 Responded to customer demands with more efficient A-380

aircraft


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Nature of Competition: Basic concepts (Contd)

Risk Investors uncertainty about economic gains/losses

resulting from a particular investment

Average Returns Returns equal to what investor expects in comparison to

other investments with similar risk

Strategic Management Process (SMP) Full set of commitments, decisions and actions required for

a firm to achieve strategic competitiveness and earn above

average returns


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The 21st Century Competitive Landscape

I/O Model of Above-Average Returns (AAR)

Resource-Based Model of AAR





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21st Century Competitive Landscape

Introduction: The Competitive Landscape (CL) Pace of change is rapid

Partnerships created by mergers & acquisitions (M&As)

Other CL characteristics: Economies of scale, advertisingbudgets not as effective as before, change in managerial

mind-set from traditional to more flexible and innovative


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21st Century Competitive Landscape (Contd)

Introduction: The Competitive Landscape (CL) Hypercompetition extremely intense rivalry among

competing firms, characterized by

Escalating & increasingly aggressive competitive moves Assumptions of market stability replaced with notion of

INstability and change

Two primary drivers of the competitive landscape:

The global economy Technology


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The Global Economy Goods, services, people, skills and ideas move freely

across geographic borders

Europe, through the European Union (EU) is the worldslargest single market

EU vs U.S. GDP: 35% higher

Emerging major competitive forces: China & India

In summary: globalization increased economicinterdependence among countries as reflected in the flow

of goods and services, financial capital, and knowledge

across country borders


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Technology and Technological Changes 3 categories:

1. Technology diffusion & disruptive

technologies

2. The information age

3. Increasing knowledge intensity


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Technology and Technology Changes (Contd) Technology diffusion

Perpetual innovation: describes how new information-

intensive technologies are replacing older forms Speed to market may be primary competitive advantage

12 18 month timeframe to gather info re: competitor R&D

Disruptive technologies Technologies that

Destroy value of existing technology

Create new markets


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Technology and Technology Changes (Contd) 1. Technology diffusion & disruptive technologies

2. The information age

3. Increasing knowledge intensity


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Technology and Technology Changes (Contd) The information age

Dramatic changes over last several years Major technological developments: computers, phones, artificial

intelligence, virtual reality Internet provides infrastructure for information anytime,

anywhere

Increasing knowledge intensity Defined as information, intelligence & expertise and is the basis

of technology and its application Gained through experience, observations and inferences Strategic Flexibility set of capabilities used to respond to

various demands and opportunities existing in a dynamic anduncertain competitive environment


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The 21st C Competitive Landscape

I/O Model of Above-Average Returns (AAR) Resource-Based Model of AAR





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Industrial

Organizational

(I/O) Model ofAbove-

Average

Returns (AAR)


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Industrial Organizational (I/O) Model of

Above-Average Returns (AAR)

Basic Premise to explain the dominant

influence of the external environmenton a

firm's strategic actions and performance


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Underlying Assumptions External environmentimposes pressures and constraints

that determine the strategies resulting in AAR Most firms compete within a particular industry/segment

Control similar strategically relevant resources Pursue similar strategies in light of those resources

Resources for implementing strategies are highly mobileacross firms Therefore any resource differences between firms will be short-

lived

Organizational decision makers are rational and committedto acting in the firm's best interests, as shown by their profit-maximizing behaviors


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Five-Forces Model (Michael Porter) The 5 Forces includes

Suppliers, buyers, competitive rivalry, product substitutes

and potential entrants

Reinforces the importance of economic theory

Analytical tool previously lacking in the field of strategy

Determines the nature/level of competition and profit

potential in an industry Suggests an industrys profitability is an interaction

between these 5 forces


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Above-Average Returns (AAR) (Contd)

Limitations Only two strategies are suggested:

Cost Leadership

THE low-cost leader

Differentiation

Customer willing to pay the premium price for being

different

Internal resources & capabilities not considered


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The

Resource-Based

Model of

AAR


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The Resource-Based Model of AAR(Contd)

Basic Premise - a firm's unique [internal]

resources & capabilities, in combination, is the

basis for firm strategy and AAR

Each firms performance difference across timeemerges (vs industrys structural characteristics)

Combined uniqueness should define the firms

strategic actions

Resources are tangible and intangible


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Resources Inputs into a firm's production process

Includes capital equipment, employee skills, patents,

high-quality managers, financial condition, etc.

Basis forcompetitive advantage: When resources are

valuable, rare, costly to imitate and nonsubsitutable

Internal/firm-specific resources (N=3) Physical

Things you can touch/feel = tangible

Human People / employees

Organizational capital

Relative to the firm itself


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Capability Capacity for a set of resources to perform a task or

activity in an integrative manner

Core Competency A firms resources and capabilities that serve as sources

of competitive advantage over its rival

Summary

A firm has superior performance because of Unique resources and capabilities, and the combination

makes them different, and better, than their competition

driving the competitive advantage


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Vision and Mission

Vision Picture of what the firm wants to be

What the firm ultimately wants to achieve

An effective vision statement is the responsibility of the leaderwho should work with others to form it

Foundation for the mission

Mission

Specifics business(es) in which firm intends to compete andcustomers it intends to serve

More specific than the vision


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Stakeholders

Basic Premise a firm can effectively manage

stakeholder relationships to create a competitive

advantage and outperform its competitors

Stakeholders are individuals and groups They can affect, and are affected by, the strategic

outcomes/performance a firm achieves

Three (3) classifications


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The Three Stakeholder Groups


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Stakeholders (Contd)

Classifications of Stakeholders Capital Market

Expect returns commiserate with risk accepted by

investments Higher the dependency relationship, the more direct

and significant firms response

Product Market The 4 groups benefit due to competitive battles

Organizational The employees


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Strategic Leaders

People located in different parts of the firm using

the strategic management process to help the firm

reach its vision and mission

Decisive and committed to nurturing those around them Create and sustain organizational culture

Organizational culture emerges from & sustained by

leaders

Complex set of ideologies, symbols and core valuesshared throughout the firm

Affects leaders/their work which in-turn shapes culture

Influences how the firm conducts business


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Strategic Leaders (Contd)

The Work of Effective Strategic Leaders Work long hours

Must be able to think seriously and deeplyabout

the purposes of the organizations they head orfunctions they perform, about strategies, tactics,

..and peopleand about the important questions

they need to ask.

Predicting Outcomes: Profit Pools (PP) Anticipates their decisions relative to the PP

Entails the total profits earned in an industry at all

points along the value chain


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Strategic Management Process

Rational approach used by firms to achieve

strategic competitiveness and earn above

average returns (AAR)

Figure 1.1 (Diagram of chapter relationships) Part 1: Strategic Mgmt Inputs

Part 2: Strategic Actions: Strategy Formulation

Part 3: Strategic Actions: Strategy Implementation Part 4: Cases

Ch01 Hitt SM8e Lecture

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Transcript of Ch01 Hitt SM8e Lecture