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CHAPTER 1
Strategic Management: Creating
Competitive Advantages

MGT499: Business Policy & Strategy

Dr. Leah Z.B. Ndanga

Thursday, August 29, 2019

Learning Objectives
After reading this chapter, you should have a good understanding of:
1-1 The definition of strategic management and its four key attributes.
1-2 The strategic management process and its three interrelated and
principal activities.
1-3 The vital role of corporate governance and stakeholder management as
well as how “symbiosis” can be achieved among an organization’s
stakeholders.
1-4 The importance of social responsibility, including environmental
sustainability, and how it can enhance a corporation’s innovation strategy.
1-5 The need for greater empowerment throughout the organization.
1-6 How an awareness of a hierarchy of strategic goals can help an
organization achieve coherence in its strategic direction.

A set of goal-directed actions a firm takes

to gain and sustain superior performance
What Is Strategy, and relative to competitors
Why Is It Important?

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What Strategy Is: Gaining and Sustaining

Competitive Advantage
A GOOD STRATEGY CONSISTS OF:

ANALYSIS:
• Diagnosis of the competitive advantage

FORMULATION:
• Guiding policy to address the competitive challenge

IMPLEMENTATION:
• Set of coherent actions to implement the firm’s guiding
policy

Defining Strategic Management

• Strategic management involves:
Analysis
 Strategic goals (vision, mission, strategic objectives)
 Internal and external environment

Formulation - Decisions
 What industries should we compete in?
 How should we compete in those industries?

Implementation of strategy –Actions

 Allocate necessary resources.
 Design the organization to bring intended strategies to reality.

Two Fundamental Questions

1. How should we compete in order to create a competitive
advantage in the marketplace?
Competitive Advantage:
• Superior performance relative to other competitors in the same industry or the
industry average
✓ Key terms here – Superior and Relative
Sustainable Competitive Advantage:
• Outperforming over a prolonged period

2. How can we create competitive advantages in the marketplace

that are unique, valuable, and difficult for rivals to copy or
substitute?

• NOTE: Operational effectiveness is not enough to sustain a competitive

advantage.

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Strategic Management
• Key attributes of strategic management:
Directs the organization toward overall goals and
objectives.
Includes multiple stakeholders in decision making.
Needs to incorporate short-term and long-term
perspectives.
Recognizes trade-offs between efficiency and
effectiveness.

Strategic Management Trade-offs

• Managers need to be ambidextrous.
• Focus on long-term effectiveness.
 Expand product-market scope by proactively exploring new
opportunities.
• At the same time:
 Focus on short-term efficiency.
 Align resources to take advantage of existing product markets.
• Strategic Positioning
 Trade-offs are required
▪ Walmart versus Nordstrom

What Strategy is NOT

• Grandiose statements
• Failure to face competitive challenges
• Operational
effectiveness, competitive
benchmarking, or other tactical tools

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Intended vs. Realized Strategies

• The business environment is far from predictable.

• Intended strategy
 Organizational decisions are determined only by analysis.
 Intended strategies rarely survive in the original form.
VERSUS
• Realized strategy
 Decisions are determined by both analysis (deliberate) and unforeseen
environmental developments, unanticipated resource constraints,
and/or changes in managerial preferences (emergent).

Strategic
Management
Process

Exhibit 1.3 The Strategic Management

Process

Strategy Analysis (1 of 3)
• Strategy analysis
is the starting point in the strategic
management process.
• The analysis needs to be done to effectively formulate and
implement strategies.
• It involves careful analysis of the overarching goals of the
organization.
• It requires a thorough analysis of the organization’s
external and internal environment.

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Strategy Analysis (2 of 3)
• Analyzing organizational goals & objectives
 Establish a hierarchy of goals.
 Vision
 Mission
 Strategic Objectives

• Analyzing the external environment of the firm

 Managers must monitor and scan the environment as well as
analyze competitors.
 General environment
 Industry environment

Strategy Analysis (3 of 3)
• Assessing the internal environment of the firm
 Analyze strengths & relationships among activities that
constitute a firm’s value chain.
 Analysis can uncover potential sources of competitive advantage.

• Assessing a firm’s intellectual assets

 Knowledge workers & other intellectual assets drive competitive
advantage & wealth creation.
 Networks & relationships plus technology enhance collaboration,
accumulates & stores knowledge.

Strategy Formulation (1 of 3)
• Based on
strategy analysis, strategy formulation is
developed at several levels.
 Business-level strategy  how to compete in a given business to
attain competitive advantage
 Corporate-level strategy  what businesses to compete in; how
businesses can be managed to achieve synergy
 International strategy  what strategies are needed as the
business ventures beyond its national boundaries
 Entrepreneurial initiatives  how can businesses create new
value

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Strategy Formulation (2 of 3)
• Formulating business-level strategy
 Successful firms develop bases for sustainable competitive
advantage through:
 Cost leadership and/or
 Differentiation, as well as
 Focusing on a narrow or industrywide market segment.

• Formulating corporate-level strategy

 Addresses a firm’s portfolio (or group) of businesses
 What business or businesses should we compete in?
 How can we manage this portfolio of businesses to create synergies?

Strategy Formulation (3 of 3)
 Formulating international strategy
 What is the appropriate entry strategy?
 How do we go about attaining competitive advantage in
international markets?

 Entrepreneurial strategy and competitive dynamics

 How do we recognize viable opportunities?
 How do we formulate effective strategies?

Strategy Implementation (1 of 5)
 Strategy implementation takes action to implement the
formulated strategy.
 Ensure proper strategic control systems.
 Establish an appropriate organizational design, coordinating &
integrating activities within the firm.
 Coordinate activities with suppliers, customers, alliance partners.
 Leadership ensures organizational commitment to excellence & ethical
behavior.
 Promote learning & continuous improvement.
 Act entrepreneurially in creating new opportunities.

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Strategy Implementation (2 of 5)
 Strategic control & corporate governance
Informational control
 Monitor & scan the environment
 Respond effectively to threats & opportunities
Behavioral control
 Proper balance of rewards & incentives
 Appropriate cultures & boundaries (or constraints)
Effective corporate governance

Strategy Implementation (3 of 5)

 Creating effective organizational designs

Organizational structures must be consistent with
strategy.
Organizational boundaries must be flexible &
permeable.
Strategic alliances must capitalize on capabilities of
other organizations.

Strategy Implementation (4 of 5)
 Creating a learning organization & an ethical
organization
Effective leaders
 Set a direction.
 Design the organization.
 Develop an organization committed to excellence & ethical
behavior.
Create a “learning organization”
 Benefit from individual & collective talents

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Strategy Implementation (5 of 5)

 Fostering corporate entrepreneurship

Firms must continually improve & grow.
Firms must find new ways to renew
themselves.
Entrepreneurship & innovation provide for
new opportunities enhance a firm’s innovative
capacity.

Corporate Governance & Stakeholder

Management
• Appropriate strategic management requires an effective
& appropriate corporate structure.
• Corporate governance is the relationship among various
participants in determining the direction and
performance of corporations.
• Primary participants:
 Shareholders
 Management (led by the Chief Executive Officer)
 The Board of Directors (BOD)

Stakeholders and Competitive

Advantage
There is an important relationship between:
Strategic management
Role of business in society

Superior performance drives reinvestments

Fulfilling careers
Shareholder value
Value for society

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Corporate Governance
• Board of Directors
Elected representatives of the
owners
Ensure interests & motives of
management are aligned with
those of the owners:
 Create an effective and engaged
board.
 Address shareholder activism.
 Provide proper managerial rewards
& incentives.
 Establish external control Exhibit 1.4 The Key Elements
mechanisms. of Corporate Governance

Internal and External Stakeholders in an

Exchange Relationship with the Firm

Stakeholder Management
Exhibit 1.5 An Organization’s Key Stakeholders & the Nature of Their Claims

Stakeholder Group Nature of Claim

Employees Wages, benefits, safe working environment, job
security
Suppliers Payment on time, assurance of continued
relationship
Creditors Payment of interest, repayment of principal

Customers Value, warranties

Government Taxes, compliance with regulations

Community Good citizenship behavior such as charities,

employment, not polluting the environment

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Two Views of Stakeholder

Management
• Two views of stakeholder management
• Zero sum
• Stakeholders compete for attention & resources.
• The gain of one is a loss to the other.
• OR
• Symbiosis
• Stakeholders are dependent upon each other for success & well-
being.
• Stakeholders receive mutual benefits.

Stakeholder Strategy
• An integrative approach to managing a diverse set
of stakeholders effectively in order to gain and
sustain competitive advantage

• Concerned with how the firm exchanges with

various stakeholders to create and trade value

Stakeholder Strategy
Effective stakeholder management can benefit firm
performance:
 Satisfied stakeholders are more cooperative
 Increased trust lowers transaction costs
 Effective management leads to greater adaptability and
flexibility
 Avoidance of negative outcomes
 Reduction of risk exposure
 Strong reputations rewarded in the marketplace

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Social Responsibility &

Environmental Sustainability
Firms have multiple stakeholders and must go
beyond a focus solely on financial results.
• Socialresponsibility is the expectation that businesses or
individuals will strive to improve the overall welfare of society.

• Firms can measure a triple bottom line, assessing financial, social,

AND environmental performance.

• Sustainability projects can yield substantial benefits even when

they are difficult to quantify.

Corporate Social Responsibility (CSR)

• A framework that helps firms recognize and address the
economic, legal, social, and philanthropic expectations
that society has toward business.

CSR has four components of responsibility:

 Economic
 Legal
 Ethical
 Philanthropic

Pyramid of Corporate Social

Responsibility

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Empowered Strategic Management

• Strategic management requires an integrative view of
the organization.
• ALL functional areas & activities must fit together to
achieve goals & objectives.
• Leaders are needed throughout.
 Local line leaders – have profit & loss responsibility
 Executive leaders – champion & guide ideas
 Internal networkers – hold little positional power, but have
conviction & clarity of ideas

Coherence in Strategic Direction (1 of 5)

• Organizations express priorities best through stated
goals & objectives that form a hierarchy of goals.
Vision evokes powerful & compelling mental images of a
shared future.
Mission encompasses the organization’s current
purpose, basis of competition, & competitive advantage.
Strategic objectives operationalize the mission
statement with specific yardsticks.

Coherence in Strategic Direction (2 of 5)

Exhibit 1.6 A Hierarchy of Goals

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Coherence in Strategic Direction (3 of 5)

 Organizational vision
A “massively inspiring” goal, overarching, long term
A destination driven by & evoking passion
Developed & implemented by leadership
A fundamental statement of an organization’s
values, aspirations, and goals
Captures both the minds & hearts of employees
BUT can backfire and erode a company’s credibility

Coherence in Strategic Direction (4 of 5)

 Mission statement
Encompasses both the purpose of the company and the
basis of competition and competitive advantage
More specific than the vision
Focuses on the means by which the firm will compete
Incorporates stakeholder management
Communicates why an organization is special & different
Can & should change when competitive conditions
change

Coherence in Strategic Direction (5 of 5)

• Strategic objectives
Used to operationalize the mission statement
Provide guidance on how to fulfill mission & vision
Measurable, specific, appropriate, realistic & timely
Channel all employees’ efforts toward common goals
Can be both financial and nonfinancial
Should be challenging, yet help resolve conflicts
Provide a yardstick for rewards & incentives
BUT too many objectives can result in lack of focus

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The Importance of Leadership

Consider…

• Maintaining competitive success or even

surviving over long periods of time is difficult for
companies of any size.

• SO how much credit (or blame) does a leader

deserve?

Two Perspectives of Leadership

• External control perspective:
• External forces determine the organization’s success.
 Economic downturns

• OR

• Romantic view:
• A leader is the key force in the organization’s success.
 Steve Jobs

Leaders Can Make a Difference

• Be proactive - anticipate change.

• Refine strategies continually.

• Be aware of external opportunities and threats.

• Understand thoroughly the firm’s resources and
capabilities.
• Make strategicmanagement both a process and a way of
thinking throughout the organization.

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Implications for the Strategist

STRATEGY is the SCIENCE of SUCCESS and FAILURE.
• Strategists are challenged by competition,
complexity, uncertainty and volatility.
• The strategist is empowered by:
 The universality of strategic management principles.
 Knowledge that the actions they create have more
influence on firm performance than does the external
environment.
 Following the 3-step AFI framework.

Thank You!

Questions?
Wednesday, January 24, 2018

Thursday, August 29, 2019

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