Download PART I. STRATEGIC MANAGEMENT INPUTS

Chapter 1
Strategic Management and Strategic
Competitiveness
Diane M. Sullivan, Ph.D., 2012
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


Sustainable Competitive Advantage


Can be achieved when a firm formulates and implements a value-creating strategy
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
Above-average
returns
2)
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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


These changes in the landscape often referred to as hypercompetition



Partnerships created by mergers and acquisitions, joint ventures, alliances
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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SWOT
Headline, January 31, 2012:
SWOT is Dead!
SWOT
SWOT
Internal Environment
External Environment
Then: Strengths & Weaknesses
Opportunities & Threats
Now: 1) Resources
2) Capabilities
3) Core Competencies
4) Competitive Advantage
5) V.R.I.O.
1) General Environment
2) Industry Environment
3) Competitive Environment
SWOT
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 AboveAverage 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
Step 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
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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

Firms require
participation
from each of
these
stakeholders
in order to
operate
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
Moving Forward…next 2 classes

Chapter 2: The External
Environment

I/O Model

Please read Chapter 2 before
next class

Practice Round 2 decisions to be
completed by Thursday
(February, 2, 2012 at 7:00pm)
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