Ch01 Review of Strategic Management

8/2/2019 Ch01 Review of Strategic Management

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Ch1-1

Chapter 1

Review of Strategic Management

Strategic Competitiveness

Prof. Vidhu Shekhar JhaAdapted from Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson



Ch1-2

Sustained Competitive Advantage

Above-Average Returns

Returns in excess of what an investor expects to

earn from other investments with similar risk

Occurs when a firm develops a strategy thatcompetitors are not simultaneously implementing

Provides benefits which current and potentialcompetitors are unable to duplicate


Achieved when a firm successfully formulates

and implements a value-creating strategy



Ch1-3

which are required for firms to achieve:

Above-Average Returns


Sustained Competitive Advantage

The Strategic Management Process

Involves the full set of:

ActionsCommitments Decisions



Ch1-4

The Strategic

Management

Process

Chapter 3

Internal

Environment

Chapter 2

External

EnvironmentStrategic Intent

Strategic Mission

Strategy Formulation Strategy Implementation

Chapter 4

Business-Level

Strategy

Chapter 5

Competitive

Dynamics

Chapter 6

Corporate-Level

Strategy

Chapter 8

International

Strategy

Chapter 9

Cooperative

Strategies

Chapter 7

Acquisitions &

Restructuring

Chapter 10

Corporate

Governance

Chapter 11

Structure

& Control

Chapter 12

Strategic

Leadership

Chapter 13

Entrepreneurship

& Innovation

S t r a t e g i c

I n p u t s

Feedback S t r a t e g i c

O u t c o m e s

S t r a t e g i c

A c t i o n s

Strategic

Competitiveness

Above Average

Returns



Ch1-5

Chapter One: Key Themes

• Industrial Organization Model

• Resource-Based Model

Challenge of Strategic Management

Changing Competitive Landscape

Two Models of Superior Profitability

Key Stakeholder Groups



Ch1-6

Competitive success is transient...unless care is

taken to preserve competitive position

Only 16 of the 100 largest U.S. companies atthe start of the 20th century are still

identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

Challenge of Strategic Management


http://slidepdf.com/reader/full/ch01-review-of-strategic-management 7/29Ch1-7

• Rapid technological changes

• Rapid technology diffusions

• Dramatic changes in

information and

communication technologies

• Increasing importance of

knowledge

Fundamental nature of

competition is changingThe pace of change

is relentless....

and increasing

Traditional industry

boundaries are

blurring, such as...• Computers

• Telecommunications

21st Century Competitive Landscape



The global economy is

changing

•

People, goods, services andideas move freely across

geographic boundaries

• New opportunities emerge

in multiple global markets

• Markets and industries

become more

internationalized

Traditional sources of

competitive advantage

no longer guarantee

success

New keys to success

include:

•Flexibility

• Innovation

• Speed

• Integration

21st Century Competitive Landscape



Alternative Models of Superior Returns

Resource-Based

Model

Industrial Organization

Model

The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation

Superior Returns

Resources

Capability

Competitive Advantage

An Attractive Industry


Superior Returns



I/O Model of Superior Returns

The Industrial Organization modelsuggests that above-average returns

for any firm are largely determined

by characteristics outside the firm.

This model largely focuses on industry

structure or attractiveness of the

external environment rather than

internal characteristics of the firm.



Action required:External

Environment

General Environment

Industry Environment

Competitive

Environment

Study the externalenvironment, especially

the industry environment.




External

Environment

General Environment


Competitive

Environment

An Attractive

Industry

An industry whose

structural characteristics

suggest above-average

returns are possible

Action required:

Locate an industry withhigh potential for above-

average returns.




External

Environment

General Environment


Competitive

Environment

Attractive

Industry

An industry whose




Action required:

Identify strategy called forby the industry to earn

above-average returns.

Selection of a strategy

linked with above-

average returns in a

particular industry

Strategy

Formulation




External

Environment

General Environment


Competitive

Environment

Attractive

Industry

An industry whose




Strategy

Formulation


linked with above-


particular industry

Action required:

Develop or acquire assetsand skills needed to

implement the strategy.

Assets and Skills

Assets and skills

required to implement

a chosen strategy




External

Environment

General Environment


Competitive

Environment

Attractive

Industry

An industry whose




Strategy

Formulation


linked with above-


particular industry

Assets and Skills

Assets and skills


a chosen strategy

Action required:

Use the firm’s strengths(its assets or skills) to

implement the strategy.

Strategy

Implementation

Selection of strategic

actions linked with

effective implementation

of the chosen strategy




External

Environment

General Environment


Competitive

Environment

Attractive

Industry

An industry whose




Strategy

Formulation


linked with above-


particular industry

Assets and Skills

Assets and skills


a chosen strategy

Action required:

Strategy

Implementation

Selection of strategic

actions linked with

effective implementation

of the chosen strategy

Superior Returns

Earning of above-

average returns

Maintain selected strategyin order to outperform

industry rivals.




The Resource-Based model suggeststhat above-average returns for any

firm are largely determined by

characteristics inside the firm.

This model focuses on developing or

obtaining valuable resources and

capabilities which are difficult or

impossible for rivals to imitate.

Resource-Based Model of Superior Returns



Resources

Inputs to a firm’s

production process.

Action required:

Identify firm resources.Study strengths and weak-

nesses relative to rivals.




Resources


production process.

Action required:

Determine what firmcapabilities allow it to do

better than rivals.

Capability

Capacity for an integrated

set of resources to perform

a task or activity.




Resources


production process.

Capability


set of resources to

integratively perform atask or activity.

Competitive

Advantage

Ability of a firm to

outperform its rivals

Action required:

Determine how firm’sresources and capabilities

may create competitive

advantage.




Resources


production process.

Capability


set of resources to


Competitive

Advantage



An AttractiveIndustry

Location of an industry

with opportunities that

can be exploited by the

firm’s resources andcapabilities

Action required:

Locate an attractiveindustry.




Ch1-22

Resources


production process.

Capability


set of resources to


Competitive

Advantage








Action required:

Select strategy that bestexploits resources and

capabilities relative to

opportunities in environs.

Strategy

Formulation and

Implementation

Strategic actions taken to

earn above-average

returns




Ch1-23

Resources


production process.

Capability


set of resources to


Competitive

Advantage








Action required:

Maintain selected strategyin order to outperform

industry rivals.

Strategy

Formulation and

Implementation

Strategic actions taken to

earn above-average

returns

Superior Returns

Earning of above-

average returns




Ch1-24

Nonsubstitutable the firm must be organized appropriately toobtain the full benefits of the resources inorder to realize a competitive advantage

Valuable allow the firm to exploit opportunities orneutralize threats in its externalenvironment

Rare possessed by few, if any, current andpotential competitors

Costly to Imitate when other firms either cannot obtain themor must obtain them at a much higher cost

Resources and capabilities lead to

Competitive Advantage when they are:



Ch1-25

Core Competencies

When these four

criteria are met,

Resources andCapabilities

become:

Core Competencies are resources and capabilitiesthat can serve as a source of Competitive Advantage.

The Resource-Based model argues that CoreCompetencies are the basis for a firm’s Competitive

Advantage, Strategic Competitiveness and Ability to

Earn Above-average Returns.



Ch1-26

Winning competitive battles through deciding

how to leverage internal resources, capabilities,

and core competencies.

Strategic Intent

An application of strategic intent in terms of

products to be offered and markets to be served.

Strategic Mission



Ch1-27

Stakeholders: Groups who are affected by a firm’sperformance and who have claims on itswealth

The firm must maintainperformance at an adequate level inorder to maintain the participationof key stakeholders

Organizational

EmployeesManagers

Non-Managers

Firm

Capital Market

Stock market/Investors

Debt suppliers/Banks

Product Market

Primary CustomersSuppliers



Ch1-28

Stakeholder InvolvementEach of the key stakeholderswants a piece of the same pie

1 How do you divide the pie in order to keep all of the

stakeholders involved?

2

How do you increase thesize of the pie so that thereis more to go around?

Chapter 2



Chapter 3

InternalEnvironment

Chapter 2

External

EnvironmentThe Strategic

Management

Process

Strategic Intent

Strategic Mission

Strategic

Competitiveness

Above Average

Returns Feedback

Strategy Formulation

Chapter 4Business-LevelStrategy

Chapter 5CompetitiveDynamics

Chapter 6 Corporate-LevelStrategy

Chapter 8

International

Strategy

Chapter 9

CooperativeStrategies

Chapter 7

Acquisitions &

Restructuring


Chapter 10CorporateGovernance

Chapter 11Structure

& Control

Chapter 12

Strategic

Leadership

Chapter 13Entrepreneurship

& Innovation

S t r a t e g i c

I n p u t s

S t r a t e g i c

A c t i o n s

S t r a t e g i c

O u t c o m e s

Ch01 Review of Strategic Management

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