Strategic Management Concepts and Cases

About the AuthorsMichael A. Hitt is a Distinguished Professor and holds the Joseph Foster Chair in BusinessLeadership and the C. W. and Dorothy Conn Chair in New Ventures at TexasA&M University. He received his Ph.D. from the University of Colorado. He has coauthored or coedited 25 books and 130 journal articles.Some of his books are: Downscoping: How to Tame the Diversified

R. Duane Ireland holds the Foreman R. and Ruby S. Bennett Chair in Business in the Mays Business School, Texas A&M University. He also serves as the head of the management department in the Mays School. He teaches strategic management courses at all levels (undergraduate, masters, doctoral, and executive). His research, which focuses ondiversification, innovation, corporate entrepreneurship, and strategic entrepreneurship,has been published in a number of journals, including Academy of Management Journal, Academy of Management Review, Academy of Management Executive, Administrative Science Quarterly, Strategic Management Journal, Journal of Management, Human Relations, and Journal of Management Studies, among others.

Robert E. Hoskisson holds the W. P. Carey Chair in the Department of Management atthe W. P. Carey School of Business at Arizona State University. He received his Ph.D. from the University of California–Irvine. His research topics focus on international diversification, privatization and cooperative strategy, product diversification, corporategovernance, and acquisitions and divestitures. He teaches courses in corporate andinternational strategic management, cooperative strategy, and strategy consulting,among others.

• What is strategic management?

Studying this chapter should provide you with the strategic management knowledge needed to:

• 1. Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.

• 2. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it.

• 3. Use the industrial organization (I/O) model to explain how firms can earn above-average returns.

• 4. Use the resource-based model to explain how firms can earn above-average returns.

• 5. Describe vision and mission and discuss their value.• 6. Define stakeholders and describe their ability to influence

organizations.• 7. Describe the work of strategic leaders.• 8. Explain the strategic management process.

Sustained Competitive AdvantageSustained Competitive Advantage

Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects to Returns in excess of what an investor expects to earn from other investments with similar riskearn from other investments with similar risk

Occurs when a firm develops a strategy that Occurs when a firm develops a strategy that competitors are not simultaneously implementingcompetitors are not simultaneously implementing

Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulates Achieved when a firm successfully formulates and implements a value-creating strategyand implements a value-creating strategy

which are required for firms to achieve:which are required for firms to achieve:

Above-Average ReturnsAbove-Average Returns

Strategic CompetitivenessStrategic Competitiveness

Sustained Competitive AdvantageSustained Competitive Advantage

The Strategic Management ProcessThe Strategic Management Process

Involves the full set of:Involves the full set of:

ActionsActionsCommitmentsCommitments DecisionsDecisions

Figure1.1 The Strategic Management Process

• The strategic management process (see Figure 1.1) is the full set of commitments,

decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.

Best Stocks of the DecadeBest Stocks of the Decade

Challenge of Strategic ManagementChallenge of Strategic Management

The goals of achieving The goals of achieving strategic competitiveness strategic competitiveness and earning above-and earning above-average returns are average returns are challenging challenging

The performance of The performance of some companies more some companies more than meets strategic than meets strategic management's management's challenge challenge

21st Century Competitive Landscape21st Century Competitive Landscape

Fundamental nature of competition is changing

Rapid technological changes

Rapid technology diffusions• Dramatic changes in

information and communication technologies

• Increasing importance of knowledge

Fundamental nature of competition is changing

Rapid technological changes

Rapid technology diffusions• Dramatic changes in

information and communication technologies

• Increasing importance of knowledge

The pace of change is relentless.... and increasing

Traditional industry boundaries are blurring, such as...

ComputersTelecommunications

The pace of change is relentless.... and increasing

Traditional industry boundaries are blurring, such as...

ComputersTelecommunications

21st Century Competitive Landscape21st Century Competitive Landscape• The global economy is

changing• People, goods, services

and ideas move freely across geographic boundaries

• New opportunities emerge in multiple global markets

• Markets and industries become more internationalized

• The global economy is changing

• People, goods, services and ideas 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

Traditional sources of competitive advantage no longer guarantee success

New keys to success include:• Flexibility• Innovation• Speed• Integration

1999 1998 Country CompetitivenessIndex 1999

CompetitivenessIndex 1998

1 1 Singapore 2.12 2.162 3 United States 1.58 1.413 2 Hong Kong 1.41 1.914 6 Taiwan 1.38 1.195 5 Canada 1.33 1.276 8 Switzerland 1.27 1.107 10 Luxembourg 1.25 1.058 4 United Kingdom 1.17 1.299 7 Netherlands 1.13 1.13

10 11 Ireland 1.11 1.0511 15 Finland 1.11 0.7012 14 Australia 1.04 0.7913 13 New Zealand 10.1 0.8414 12 Japan 1.00 0.9715 9 Norway 0.92 1.0916 17 Malaysia 0.86 0.5917 16 Denmark 0.85 0.6118 30 Iceland 0.59 -0.1819 23 Sweden 0.58 0.2520 20 Austria 0.37 0.3721 18 Chile 0.57 0.5722 19 Korea 0.46 0.3923 22 France 0.44 0.2524 27 Belgium 0.39 -0.0325 24 Germany 0.37 0.1526 25 Spain 0.16 0.02

Country Competitiveness RankingsCountry Competitiveness RankingsA country’s A country’s competitiveness is competitiveness is achieved through the achieved through the accumulation of accumulation of individual firms’ individual firms’ strategic strategic competitiveness in competitiveness in the global economythe global economy

Achieving improved Achieving improved competitiveness competitiveness allows a country's allows a country's citizens to have a citizens to have a higher standard of higher standard of living living

21st Century Competitive Landscape21st Century Competitive Landscape

The Global Economy

• A global economy is one in which goods, services, people, skills, and ideas move freely across geographic borders.

GE is moving boldly into China and other emerging markets.

The March of Globalization

• Globalization is the increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders. Globalization is a product of a larger number of firms competing against one another in an increasing number of global economies.

Technology and Technological Changes

• There are three categories of trends and conditions—technology diffusion and disruptive

technologies, the information age, and increasing knowledge intensity—through which technology is significantly altering the nature of competition and contributing to unstable competitive environments as a result of doing so.

• Strategic flexibility is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment.

Alternative Models of Superior ReturnsAlternative Models of Superior Returns

Resource-BasedResource-BasedModelModel

Industrial Organization Industrial Organization ModelModel

The External EnvironmentThe External Environment

An Attractive IndustryAn Attractive Industry

Strategy FormulationStrategy Formulation

Assets and SkillsAssets and Skills

Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

ResourcesResources

CapabilityCapability

Competitive AdvantageCompetitive Advantage

An Attractive IndustryAn Attractive Industry

Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

• The industrial organization (I/O) model of above-average returns explains the external environment’s dominant influence on a firm’s strategic actions. The model specifies that the industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their organizations.

The I/O Model of Above-average Returns

• The first model (industrial organization or I/O) suggests that the external environment is the primary determinant of a firm’s strategic actions.

• The second model (resource based) suggests that a firm’s unique resources and capabilities are the critical link to strategic competitiveness.

The Resource-Based Model of Above-Average Returns

• Resources are inputs into a firm’s production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers.

• A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner.

• Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.

Stakeholders:Stakeholders:Groups who are affected by a firm’s Groups who are affected by a firm’s performance and who have claims on its performance and who have claims on its wealthwealth

The firm must maintain The firm must maintain performance at an adequate level in performance at an adequate level in order to maintain the participation order to maintain the participation of key stakeholdersof key stakeholders

OrganizationalOrganizationalOrganizationalOrganizational

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

FirmFirmFirmFirm

Capital MarketCapital MarketCapital MarketCapital Market

Stock market/InvestorsStock market/InvestorsStock market/InvestorsStock market/Investors

Debt suppliers/BanksDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/Banks

Product MarketProduct MarketProduct MarketProduct Market

Primary Customers Primary Customers SuppliersSuppliersPrimary Customers Primary Customers SuppliersSuppliers

Strategic Leaders• Strategic leaders are people located in

different parts of the firm using the strategic management process to help the

firm reach its vision and mission.

Southwest Airlines has built a unique corporate culture.

Stakeholder InvolvementStakeholder Involvement

Each of the key stakeholders Each of the key stakeholders wants a piece of the same piewants a piece of the same pie

1111 How do you How do you divide divide the piethe pie in order to in order to keep all of the keep all of the stakeholders stakeholders involved?involved?

How do you How do you divide divide the piethe pie in order to in order to keep all of the keep all of the stakeholders stakeholders involved?involved?2222

How do you How do you increase increase the sizethe size of the pie so of the pie so that there is more to that there is more to go around?go around?

How do you How do you increase increase the sizethe size of the pie so of the pie so that there is more to that there is more to go around?go around?

Chapter 3Chapter 3InternalInternal

EnvironmentEnvironment

Chapter 2Chapter 2ExternalExternal

EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement

ProcessProcess

The StrategicThe StrategicManagementManagement

ProcessProcess

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average

ReturnsReturnsFeedback

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 9Chapter 9CooperativeCooperative

StrategiesStrategies

Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring

Strategy ImplementationStrategy Implementation

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure& Control& Control

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation

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• 1. What are strategic competitiveness, strategy, competitive advantage,above-average returns, and the strategic management process?

• 2. What are the characteristics of the 21st-century landscape? What two factors are the primary drivers of this landscape?

• 3. According to the I/O model, what should a firm do to earn above-average returns?• 4. What does the resource-based model suggest a firm should do to earn above-average returns?• 5. What are vision and mission? What is their value for the strategic management process?• 6. What are stakeholders? How do the three primary stakeholder groups influence organizations?• 7. How would you describe the work of strategic leaders?• 8. What are the elements of the strategic management process? How are they interrelated?

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