Unformatted text preview: Chapter 1
Strategic Management and
Strategic Competitiveness PART 1 STRATEGIC MANAGEMENT INPUTS Twenty-First Century Competition Globalization The global
economy Rapid
technological
change Today’s
Competitive
Markets Increasing
importance of
knowledge
and people 1–2 Strategic Competitiveness
Formulation and
implementation of
a superior valuecreating strategy Commitments and actions to achieve
above-average performance and returns What the firm
will do Competitive
advantage What the firm
will not do 1–3 Figure 1.1
Process The Strategic Management 1–4 Increasing
Increasing The Global Competitive Landscape
• Market volatility and instability due to
the rapid pace of change in markets
• Blurring of market boundaries
• Globalized flow of financial capital
• Need for flexibility, speed, innovation,
and integration in the use of technology
• Strategic and operational complexity
of global-scale competition
• Rising product quality standards Decreasing
Decreasing • Traditional time for adapting to change
• Traditional sources of competitive advantage
• Traditional managerial mindset 1–5 Hypercompetition Global
economy Use of
price-quality
positioning to
build market
presence Strategic options in
hypercompetitive
environments Creation of new
know-how and
use of first-mover
advantage Technology Protection or
invasion of
established
geographic or
product markets 1–6 Competitive Success Factors
Are market/
customer-needs
oriented Have an
entrepreneurial/
opportunistic
mindset Make effective
use of valuable
competencies Top
Corporate
Performers Offer new
and innovative
products and
services 1–7 Technology and Technological Changes
Increasing rate of technology
diffusion and the emergence
of disruptive technologies Technology trends
impacting the
global competitive
environment The information age: Internet
and the global proliferation of
low-cost computing power
Increasing knowledge intensity
as an intangible source of
competitive advantage 1–8 Strategic Flexibility
• Strategic Flexibility
– involves coping with the uncertainty and risks of
hypercompetitive environments.
– must first overcome built-up organizational inertia.
– requires developing the capacity for continuous
learning and applying the new and updated skills
sets and competencies to the firm’s competitive
advantage. 1–9 The Industry Organization (I/O) Model
of Above-Average Returns
Diversification Product
differentiation Barriers to
market entry Economies
of scale Industry
concentration The Firm’s
Strategic
Choices Market
frictions 1–10 Figure 1.2
The I/O Model of
Above-Average
Returns 1–11 I/O Model Assumptions
1. The external environment imposes pressures and constraints that
determine strategic choices.
2. Similarity in strategically relevant resources causes competitors
to pursue similar strategies.
3. Resource differences among competitors are short-lived due to
resource mobility across firms.
4. Strategic decision makers are rational and engage in profitmaximizing behaviors. 1–12 Five Forces Model of Competition
Substitutes
Substitutes Suppliers
Suppliers Industry
Industry
Rivalry
Rivalry Buyers
Buyers Potential
Potential
Entrants
Entrants 1–13 Five Forces Model Assumptions
• Industry profitability (i.e., rate of return on invested capital relative
to cost of capital) is a function of interactions among the five
forces.
• Industry attractiveness equates to its profitability potential for
earning above-average returns by:
– Producing standardized goods or services at costs below competitor costs
(a cost leadership strategy).
– Producing differentiated goods or services for which customers are willing
to pay a price premium (a differentiation strategy). 1–14 The Resource-Based Model
of Above-Average Returns e
g
a
t
n
a
v
d
a
e
v
i
t
i
t
e
p
m
o
Core
c
g
n
i
competence
d
l
Capability
i
A source of
Bu
Resources An integrated
set of resources competitive
advantage Physical, human, and
organizational capital
(tangible and intangible)
1–15 Resource-Based Model Assumptions
1. Firms acquire different resources.
2. Firms develop unique capabilities based
on how they combine and use resources.
3. Resources and certain capabilities are
not highly mobile across firms.
4. Differences in resources and capabilities
are the bases of competitive advantage
and a firm’s performance rather than its
industry’s structural characteristics. 1–16 Resources As Core Competencies
Costly to imitate Rare How resources
become core
competencies Valuable Nonsubstitutable 1–17 Figure 1.3
The Resource-Based
Model of Above-Average
Returns 1–18 Strategic Decision Making
Industry Organization
(I/O) Model Resource-Based
Model Competitive
Strategy
Decision 1–19 Vision Statement
• A Successful Vision
– is an enduring word picture of what the firm
wants to be and expects to achieve in the future.
– stretches and challenges its people.
– reflects the firm’s values and aspirations.
– is most effective when its development includes
all stakeholders.
– recognizes the firm’s internal and external
competitive environments.
– is supported by upper management decisions
and actions.
1–20 Mission Statement
• An Effective Mission
– specifies the present business or businesses in which the firm intends to
compete and customers it intends to serve.
– has a more concrete, near-term focus on current product markets and
customers than the firm’s vision.
– should be inspiring and relevant to all stakeholders. 1–21 Stakeholders
Can affect development of the
firm’s vision and mission Primary
stakeholders
(individuals,
groups, and
organizations) Are affected by the strategic
outcomes achieved by the firm
Can have enforceable claims
on the firm’s performance
Are influential when in control
of critical or valued resources 1–22 Classification of Stakeholders Categories of
stakeholders Capital Market
Stakeholders Product Market
Stakeholders Organizational
Stakeholders 1–23 Figure 1.4
The Three
Stakeholder
Groups 1–24 Capital Market Stakeholders
Preservation
of investment Influence Conflicting
expectations of
shareholders
and lenders Risk/return Enhanced wealth 1–25 Product Market Stakeholders Types of product
market stakeholders Suppliers Customers Host
communities Unions 1–26 Organizational Stakeholders
Responsibilities of strategic leaders for development
and effective use of the firm’s human capital Education
and skills of
employees Organizational
culture and
ethical work
environment Strategic goals
and global
standards International
assignments 1–27 The Work of Effective Strategic Leaders
• Strategic Leaders
– have a strong strategic orientation that relies on thorough analysis when
taking action.
– are located at various levels throughout the firm.
– want the firm and its people to accomplish more.
– are innovative thinkers who promote innovation.
– can leverage relationships with external parties while simultaneously
promoting exploratory learning.
– have an ambicultural (global mindset) approach to management. 1–28 Predicting Outcomes of Strategic Decisions: Profit Pools
• Profit Pool
– entails the total profits earned in an industry at all points along the value
chain.
– helps a firm see what others do not see and to understand primary
sources of profits in an industry. • Identifying profit pools:
1.
2.
3.
4. Define the pool’s boundaries
Estimate the pool’s overall size
Estimate the size of the pool’s value-chain activity
Reconcile the calculations 1–29 The Strategic Management Process:
The ASP Process
• Analyses
– C2: The external environment
– C3: The internal organization • Strategies
– C4: Business-level strategies
– C5: Marketplace competition
– C6: Corporate-level strategies • Strategies (cont’d)
– C7: Diversified portfolio management
– C8: International strategies
– C9: Cooperative strategies • Performance
–
–
–
– C10: Governance mechanisms
C11: Organizational structure
C12: Strategic leadership
C13: Strategic entrepreneurship 1–30 Chapter 1
Strategic Management and
Strategic Competitiveness PART 1 STRATEGIC MANAGEMENT INPUTS Twenty-First Century Competition Globalization The global
economy Rapid
technological
change Today’s
Competitive
Markets Increasing
importance of
knowledge
and people 1–32 Strategic Competitiveness
Formulation and
implementation of
a superior valuecreating strategy Commitments and actions to achieve
above-average performance and returns What the firm
will do Competitive
advantage What the firm
will not do 1–33 Figure 1.1
Process The Strategic Management 1–34 Increasing
Increasing The Global Competitive Landscape
• Market volatility and instability due to
the rapid pace of change in markets
• Blurring of market boundaries
• Globalized flow of financial capital
• Need for flexibility, speed, innovation,
and integration in the use of technology
• Strategic and operational complexity
of global-scale competition
• Rising product quality standards Decreasing
Decreasing • Traditional time for adapting to change
• Traditional sources of competitive advantage
• Traditional managerial mindset 1–35 Hypercompetition Global
economy Use of
price-quality
positioning to
build market
presence Strategic options in
hypercompetitive
environments Creation of new
know-how and
use of first-mover
advantage Technology Protection or
invasion of
established
geographic or
product markets 1–36 Competitive Success Factors
Are market/
customer-needs
oriented Have an
entrepreneurial/
opportunistic
mindset Make effective
use of valuable
competencies Top
Corporate
Performers Offer new
and innovative
products and
services 1–37 Technology and Technological Changes
Increasing rate of technology
diffusion and the emergence
of disruptive technologies Technology trends
impacting the
global competitive
environment The information age: Internet
and the global proliferation of
low-cost computing power
Increasing knowledge intensity
as an intangible source of
competitive advantage 1–38 Strategic Flexibility
• Strategic Flexibility
– involves coping with the uncertainty and risks of
hypercompetitive environments.
– must first overcome built-up organizational inertia.
– requires developing the capacity for continuous
learning and applying the new and updated skills
sets and competencies to the firm’s competitive
advantage. 1–39 The Industry Organization (I/O) Model
of Above-Average Returns
Diversification Product
differentiation Barriers to
market entry Economies
of scale Industry
concentration The Firm’s
Strategic
Choices Market
frictions 1–40 Figure 1.2
The I/O Model of
Above-Average
Returns 1–41 I/O Model Assumptions
1. The external environment imposes pressures and constraints that
determine strategic choices.
2. Similarity in strategically relevant resources causes competitors
to pursue similar strategies.
3. Resource differences among competitors are short-lived due to
resource mobility across firms.
4. Strategic decision makers are rational and engage in profitmaximizing behaviors. 1–42 Five Forces Model of Competition
Substitutes
Substitutes Suppliers
Suppliers Industry
Industry
Rivalry
Rivalry Buyers
Buyers Potential
Potential
Entrants
Entrants 1–43 Five Forces Model Assumptions
• Industry profitability (i.e., rate of return on invested capital relative
to cost of capital) is a function of interactions among the five
forces.
• Industry attractiveness equates to its profitability potential for
earning above-average returns by:
– Producing standardized goods or services at costs below competitor costs
(a cost leadership strategy).
– Producing differentiated goods or services for which customers are willing
to pay a price premium (a differentiation strategy). 1–44 The Resource-Based Model
of Above-Average Returns e
g
a
t
n
a
v
d
a
e
v
i
t
i
t
e
p
m
o
Core
c
g
n
i
competence
d
l
Capability
i
A source of
Bu
Resources An integrated
set of resources competitive
advantage Physical, human, and
organizational capital
(tangible and intangible)
1–45 Resource-Based Model Assumptions
1. Firms acquire different resources.
2. Firms develop unique capabilities based
on how they combine and use resources.
3. Resources and certain capabilities are
not highly mobile across firms.
4. Differences in resources and capabilities
are the bases of competitive advantage
and a firm’s performance rather than its
industry’s structural characteristics. 1–46 Resources As Core Competencies
Costly to imitate Rare How resources
become core
competencies Valuable Nonsubstitutable 1–47 Figure 1.3
The Resource-Based
Model of Above-Average
Returns 1–48 Strategic Decision Making
Industry Organization
(I/O) Model Resource-Based
Model Competitive
Strategy
Decision 1–49 Vision Statement
• A Successful Vision
– is an enduring word picture of what the firm
wants to be and expects to achieve in the future.
– stretches and challenges its people.
– reflects the firm’s values and aspirations.
– is most effective when its development includes
all stakeholders.
– recognizes the firm’s internal and external
competitive environments.
– is supported by upper management decisions
and actions.
1–50 Mission Statement
• An Effective Mission
– specifies the present business or businesses in which the firm intends to
compete and customers it intends to serve.
– has a more concrete, near-term focus on current product markets and
customers than the firm’s vision.
– should be inspiring and relevant to all stakeholders. 1–51 Stakeholders
Can affect development of the
firm’s vision and mission Primary
stakeholders
(individuals,
groups, and
organizations) Are affected by the strategic
outcomes achieved by the firm
Can have enforceable claims
on the firm’s performance
Are influential when in control
of critical or valued resources 1–52 Classification of Stakeholders Categories of
stakeholders Capital Market
Stakeholders Product Market
Stakeholders Organizational
Stakeholders 1–53 Figure 1.4
The Three
Stakeholder
Groups 1–54 Capital Market Stakeholders
Preservation
of investment Influence Conflicting
expectations of
shareholders
and lenders Risk/return Enhanced wealth 1–55 Product Market Stakeholders Types of product
market stakeholders Suppliers Customers Host
communities Unions 1–56 Organizational Stakeholders
Responsibilities of strategic leaders for development
and effective use of the firm’s human capital Education
and skills of
employees Organizational
culture and
ethical work
environment Strategic goals
and global
standards International
assignments 1–57 The Work of Effective Strategic Leaders
• Strategic Leaders
– have a strong strategic orientation that relies on thorough analysis when
taking action.
– are located at various levels throughout the firm.
– want the firm and its people to accomplish more.
– are innovative thinkers who promote innovation.
– can leverage relationships with external parties while simultaneously
promoting exploratory learning.
– have an ambicultural (global mindset) approach to management. 1–58 Predicting Outcomes of Strategic Decisions: Profit Pools
• Profit Pool
– entails the total profits earned in an industry at all points along the value
chain.
– helps a firm see what others do not see and to understand primary
sources of profits in an industry. • Identifying profit pools:
1.
2.
3.
4. Define the pool’s boundaries
Estimate the pool’s overall size
Estimate the size of the pool’s value-chain activity
Reconcile the calculations 1–59 The Strategic Management Process:
The ASP Process
• Analyses
– C2: The external environment
– C3: The internal organization • Strategies
– C4: Business-level strategies
– C5: Marketplace competition
– C6: Corporate-level strategies • Strategies (cont’d)
– C7: Diversified portfolio management
– C8: International strategies
– C9: Cooperative strategies • Performance
–
–
–
– C10: Governance mechanisms
C11: Organizational structure
C12: Strategic leadership
C13: Strategic entrepreneurship 1–60 ...
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