Strategic Management and Strategic Competitiveness

1. Strategic competitiveness: Strategic competitiveness is achieved when a firm successfully

formulates and implements a value creating strategy.
Strategic competitiveness is achieved when a firm successfully formulates and implements a
value-creating strategy. A strategy is an integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain a competitive advantage. When
choosing a strategy, firms make choices among competing alternatives as the pathway for
deciding how they will pursue strategic competitiveness. In this sense, the chosen strategy
indicates what the firm will do as well as what the firm will not do.
A strategy is an integrated and coordinated set of commitments and actions designed to
exploit core competencies and gain a competitive advantage
2. Strategic Management Process: The full set of commitments, decisions, and actions
required for a firm to achieve strategic competitiveness and earn above-average returns
 Strategic Competitiveness: Achieved when a firm successfully formulates and implements
a value-creating strategy
 Above-Average Returns: Occurs when a firm develops a strategy that competitors are not
simultaneously implementing
Provides benefits which current and potential competitors are unable to duplicate
 Risk: An investor’s uncertainty about the economic gains or losses that will result from a
particular investment
 Average Returns: Returns that are equal to those an investor expects to earn from other
investments with a similar amount of risk
3. Competitive Landscape: The fundamental nature of competition in many of the world’s
industries is changing. Although financial capital is no longer scarce due to the deep
recession, markets are increasingly volatile. Because of this, the pace of change is relentless
and ever-increasing.
Even determining the boundaries of an industry has become challenging. Consider, for
example, how advances in interactive computer networks and telecommunications have
blurred the boundaries of the entertainment industry.
 Hypercompetitive environments: Hyper competition describes competition that is
excessive such that it creates inherent instability and necessitates constant disruptive change
for firms in the competitive landscape.
 Dynamics of strategic maneuvering among global and innovative combatants
 Price-quality positioning, new know-how, first mover
 Protect or invade established product or geographic markets
 Emergence of global economy: A global economy is one in which goods, services, people,
skills, and ideas move freely across geographic borders. Relatively unfettered by artificial
constraints, such as tariffs, the global economy significantly expands and complicates a
firm’s competitive environment.
 Goods, services, people, skills, and ideas move freely across geographic borders
  Spread of economic innovations around the world.
 Political and cultural adjustments are required
 Rapid technological change: Technology-related trends and conditions can be placed into
three categories: technology diffusion and disruptive technologies, the information age, and
increasing knowledge intensity. These categories are significantly altering the nature of
competition and as a result contributing to highly dynamic competitive environments
 Increasing rate of technological change and diffusion
 The information age
 Increasing knowledge intensity
4. Strategic Flexibility: A set of capabilities used to respond to various demands and
opportunities existing in a dynamic and uncertain competitive environment It involves
coping with uncertainty and the accompanying risks
 Strategic Flexibility
 Organizational slack
 Strategic Reorientation
 Capacity to learn
5. I/O Model of Above-Average Returns:
The implication of the I/O model for strategic management is that firms identify and seek to
operate in environments that provide the best opportunities for competitiveness and
profitability. The assumptions of I/O theory have been challenged by the opposing view of
strategy, the resource-based view of the firm.

 Strategy dictated by the external environments of the firm (what opportunities exist in these
environments?)
 Firm develops internal skills required by external environment (what can the firm do about
the opportunities?)
6. Four Assumptions of the I/O Model
a. The external environment is assumed to possess pressures and constraints that determine the
strategies that would result in above-average returns
b. Most firms competing within a particular or within a certain segment of it are assumed to
control similar strategically relevant resources and to pursue similar strategies in light of
those resources
c. Resources used to implement strategies are highly mobile across firms
d. Organizational decision makers are assumed to be rational and committed to acting in the
firm’s best interests, as shown by their profit-maximizing behaviors
7. I/O Model of Above-Average Returns
a) Study the external environment, especially the industry environment
 The External Environment
 economies of scale
 barriers to market entry
 diversification
 product differentiation
 degree of concentration of firms in the industry
b) Locate an attractive industry with a high potential for above-average returns.
 An Attractive Industry
An Attractive industry: one whose structural characteristics suggest above-average
returns
c) Identify the strategy called for by the attractive industry to earn above-average returns
 Strategy Formulation
Strategy formulation: selection of a strategy linked with above-average returns in a
particular industry
d) Develop or acquire assets and skills needed to implement the strategy
 Assets and Skills
Assets and skills: those assets and skills required to implement a chosen strategy
e) Use the firm’s strengths (its developed or acquired assets and skills) to implement the
strategy
 Strategy Implementation
Strategy implementation: select strategic actions linked with effective implementation
of the chosen strategy
Superior Returns: Superior returns: earning of above-average returns
8. Resources are inputs into a firm’s production process, such as capital equipment, the skills of
individual employees, patents, finances, and talented managers. In general, a firm’s resources
are classified into three categories: physical, human, and organizational capital. Described
fully in resources are either tangible or intangible in nature.
Note: A capability is the capacity for a set of resources to perform a task or an activity in an
integrative manner.
Four Attributes of Resources and Capabilities (Competitive Advantage)
 Valuable: allow the firm to exploit opportunities or neutralize threats in its external
environment
  Rare: possessed by few, if any, current and potential competitors
 Costly to imitate: when other firms cannot obtain them or must obtain them at a much
higher cost
 No substitutable: the firm is organized appropriately to obtain the full benefits of the
resources in order to realize a competitive advantage
Core Competencies are the basis for a firm’s: Competitive advantage, Strategic
competitiveness, Ability to earn above-average returns
9. Resource-based Model of above Average Returns: The resource-based model of above-
average returns assumes that each organization is a collection of unique resources and
capabilities. The uniqueness of its resources and capabilities is the basis of a firm’s strategy
and its ability to earn above-average returns.
 Strategy dictated by unique resources and capabilities of the firm (what can the firm
do best?)
 Find an environment in which to exploit these assets (where are the best
opportunities?)
a. Identify the firm’s resources-- strengths and weaknesses compared with competitors
 Resources
Resources: inputs into a firm’s production process
b. Determine the firm’s capabilities--what it can do better than its competitors
 Capability
Capability: capacity of an integrated set of resources to interactively perform a task or
activity
c. Determine the potential of the firm’s resources and capabilities in terms of a
competitive advantage
 Competitive Advantage
Competitive advantage: ability of a firm to outperform its rivals
d. Locate an attractive industry
 An Attractive Industry
An attractive industry: an industry with opportunities that can be exploited by the
firm’s resources and capabilities
e. Select a strategy that best allows the firm to utilize its resources and capabilities relative
to opportunities in the external environment
 Strategy Form/Impl
Strategy formulation and implementation: strategic actions taken to earn above
average returns
Superior Returns: Superior returns: earning of above-average returns
10. Strategic Intent & Mission
a. Vision: Vision is a picture of what the firm wants to be and, in broad terms, what it wants to
ultimately achieve. Thus, a vision statement articulates the ideal description of an
 organization and gives shape to its intended future. In other words, a vision statement points
the firm in the direction of where it would like to be in the years to come.
It is also important to recognize that vision statements reflect a firm’s values and aspirations
and are intended to capture the heart and mind of each employee and, hopefully, many of its
other stakeholders. A firm’s vision tends to be enduring while its mission can change with
new environmental conditions. A vision statement tends to be relatively short and concise,
making it easily remembered.
b. Mission: The vision is the foundation for the firm’s mission. A mission specifies the
businesses in which the film intends to compete and the customer it intends to serve. The
firm’s mission is more concrete than its vision. However, similar to the vision, a mission
should establish a firm’s individuality and should be inspiring and relevant to all
stakeholders. Together, the vision and mission provide the foundation that the firm needs to
choose and implement one or more strategies. The probability of forming an effective
mission increases when employees have a strong sense of the ethical standards that guide
their behaviors as they work to help the firm reach its vision. Thus, business ethics are a vital
part of the firm’s discussions to decide what it wants to become (its vision) as well as who it
intends to serve and how it desires to serve those individuals and groups (its mission).
 Strategic Intent: Winning competitive battles through deciding how to leverage internal
resources, capabilities, and core competencies
 Strategic Mission: An application of strategic intent in terms of products to be offered
and markets to be served
11. The Firm and Its Stakeholders
Stakeholders: Stakeholders are the individuals, groups, and organizations that can affect the
firm’s vision and mission, are affected by the strategic outcomes achieved, and have
enforceable claims on the firm’s performance
The firm must maintain performance at an adequate level in order to retain the participation
of key stakeholders
a. Capital Market Stakeholders: Shareholders Major suppliers of capital
Capital-market stakeholders are groups that affect the availability or cost of capital—
shareholders, venture capitalists, banks, and other financial intermediaries. Product-market
stakeholders include parties with whom the firm shares its industry, including suppliers and
customers
 Banks
 Private lenders
 Venture capitalists
b. Product Market Stakeholders:
Product-market stakeholders include parties with whom the firm shares its industry,
including suppliers and customers. Not all stakeholders are affected equally by strategic
decisions. Some effects may be rather mild, and any positive or negative effects may be
secondary and of minimal impact.
  Primary customers
 Suppliers
 Host communities
 Unions
c. Organizational Stakeholders
Organizational stakeholders refer to parties who have an interest in the company’s
performance. And they are directly affected by the company’s practices. They include
employees, managers, and staff.
 Employees
 Managers
 Nonmanagers
12. Stakeholder Involvement: Two issues affect the extent of stakeholder involvement in the
firm
 How do you divide the returns to keep stakeholders involved
 How do you increase the returns so everyone has more to share?

The External Environment: Opportunities, Threats, Industry Competition, and

Competitor Analysis
1. General environment: The general environment is composed of dimensions in the broader
society that influence an industry and the firms within it. We group these dimensions into
seven environmental segments: demographic, economic, political/legal, sociocultural,
technological, global, and sustainable physical.
2. Industry environment: The industry environment is the set of factors that directly
influences a firm and its competitive actions and responses: the threat of new entrants, the
power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of
rivalry among competing firms.
3. Components of the General Environment
Industry Environment
a. Demographic:
b. Economic
c. Sociocultural
Competitive Environment
a. Political/Legal:
b. Global:
4. The General Environment: Segments and Elements

5. External Environmental Analysis

Most firms face external environments that are turbulent, complex, and global conditions that
make interpreting those environments difficult. To cope with often ambiguous and
incomplete environmental data and to increase understanding of the general environment,
firms complete an external environmental analysis. This analysis has four parts: scanning,
monitoring, forecasting, and assessing

a. Scanning: Scanning entails the study of all segments in the general environment.
Although challenging, scanning is critically important to the firms’ efforts to understand
 trends in the general environment and to predict their implications. This is particularly the
case for companies competing in highly volatile environments
b. Monitoring: When monitoring, analysts observe environmental changes to see if an
important trend is emerging from among those spotted through scanning.20 Critical to
successful monitoring is the firm’s ability to detect meaning in environmental events and
trends
c. Forecasting: Scanning and monitoring are concerned with events and trends in the
general environment at a point in time. When forecasting, analysts develop feasible
projections of what might happen, and how quickly, as a result of the events and trends
detected through scanning and monitoring
d. Assessing: When assessing, the objective is to determine the timing and significance of
the effects of environmental changes and trends that have been identified. Through
scanning, monitoring, and forecasting, analysts are able to understand the general
environment.
Additionally, the intent of assessment is to specify the implications of that understanding.
Without assessment, the firm has data that may be interesting but of unknown
competitive relevance. Even if formal assessment is inadequate, the appropriate
interpretation of that information is important.
6. States in the top 10 of those that are trying to transform themselves to the realities and
needs of a digital economy may experience an influx of high-tech companies and skilled
workers as well as increases in tax revenues
Top 10 U.S. States Moving Toward Digital Economy

Porter’s Five Forces Model of Competition:

a. Threat of New Entrants: Identifying new entrants is important because they can threaten
the market share of existing competitors. One reason new entrants pose such a threat is that
they bring additional production capacity. Unless the demand for a good or service is
increasing, additional capacity holds consumers’ costs down, resulting in less revenue and
lower returns for competing firms.
 Barriers to Entry: Firms competing in an industry (and especially those earning above-
average returns) try to develop entry barriers to thwart potential competitors. In general,
more is known about entry barriers (with respect to how they are developed as well as paths
firms can pursue to overcome them) in industrialized countries such as those in North
America and Western Europe.
 Economies of Scale Economies of scale are derived from incremental efficiency
improvements through experience as a firm grows larger. Therefore, the cost of producing
each unit declines as the quantity of a product produced during a given period increases. A
new entrant is unlikely to quickly generate the level of demand for its product that in turn
would allow it to develop economies of scale.
 Product Differentiation Over time, customers may come to believe that a firm’s product is
unique. This belief can result from the firm’s service to the customer, effective advertising
campaigns, or being the first to market a good or service.101 Greater levels of perceived
product uniqueness create customers who consistently purchase a firm’s products.
 Capital Requirements Competing in a new industry requires a firm to have resource to invest.
In addition to physical facilities, capital is needed for inventories, marketing activities, and
other critical business functions.
 Switching Costs Switching costs are the one-time costs customers incur when they buy from
a different supplier. The costs of buying new ancillary equipment and of retraining
employees, and even the psychological costs of ending a relationship, may be incurred in
switching to a new supplier.
 Access to Distribution Channels Over time, industry participants commonly learns how to
effectively distribute their products. After building a relationship with its distributors, a firm
will nurture it, thus creating switching costs for the distributors. Access to distribution
channels can be a strong entry barrier for new entrants, particularly in consumer nondurable
goods industries
 Cost Disadvantages Independent of Scale Sometimes, established competitors have cost
advantages that new entrants cannot duplicate. Proprietary product technology favorable
access to raw materials, desirable locations, and government subsidies ar examples.
Successful competition requires new entrants to reduce the strategic relevance of these
factors.
 Government Policy Through their decisions about issues such as the granting of licenses and
permits, governments can also control entry into an industry. Liquor retailing, radio and TV
broadcasting, banking, and trucking are examples of industries in which government
decisions and actions affect entry possibilities.
 Expected Retaliation: Companies seeking to enter an industry also anticipate the reactions of
firms in the industry. An expectation of swift and vigorous competitive responses reduces the
likelihood of entry. Vigorous retaliation can be expected when the existing firm has a major
stake in the industry
 i. Bargaining Power of Suppliers: Increasing prices and reducing the quality of their products
are potential means suppliers use to exert power over firms competing within an industry. If a
firm is unable to recover cost increases by its suppliers through its own pricing structure, its
profitability is reduced by its suppliers’ actions. A supplier group is powerful when:
Suppliers are likely to be powerful if:
 Supplier industry is dominated by a few firms
 Suppliers’ products have few substitutes
 Buyer is not an important customer to supplier
 Suppliers’ product is an important input to buyers’ product
 Suppliers’ products are differentiated
 Suppliers’ products have high switching costs
 Supplier poses credible threat of forward integration
ii. Bargaining Power of Buyers: Firms seek to maximize the return on their invested capital.
Alternatively, buyers (customers of an industry or a firm) want to buy products at the lowest
possible price the point at which the industry earns the lowest acceptable rate of return on its
invested capital. To reduce their costs, buyers bargain for higher quality, greater levels of
service, and lower prices. Buyers compete with the supplying industry by
 Bargaining down prices
 Forcing higher quality
 Playing firms off of
Buyer groups are likely to be powerful if:
 Buyers are concentrated or purchases are large relative to seller’s sales
 Purchase accounts for a significant fraction of supplier’s sales
 Products are undifferentiated
 Buyers face few switching costs
 Buyers’ industry earns low profits
 Buyer presents a credible threat of backward integration
 Product unimportant to quality
 Buyer has full information
iii. Threat of Substitute Products: Substitute products are goods or services from outside a
given industry that perform similar or the same functions as a product that the industry
produces. Other product substitutes include e-mail and fax machines instead of overnight
deliveries, plastic containers rather than glass jars, and tea instead of coffee.
Keys to evaluate substitute products
Products with improving price/performance tradeoffs relative to present industry products
Example:
Electronic security systems in place of security guards
Fax machines in place of overnight mail delivery
Rivalry among Existing Competitors
 Intense rivalry often plays out in the following ways:
 Jockeying for strategic position
  Using price competition
 Staging advertising battles
 Increasing consumer warranties or service
 Making new product introductions
 Occurs when a firm is pressured or sees an opportunity
 Price competition often leaves the entire industry worse off
 Advertising battles may increase total industry demand, but may be costly to smaller
competitors
 Cutthroat competition is more likely to occur when:
 Numerous or equally balanced competitors
 Slow growth industry
 High fixed costs
 High storage costs
 Lack of differentiation or switching costs
 Capacity added in large increments
 Diverse competitors
 High strategic stakes
 High exit barriers
 High exit barriers are economic, strategic and emotional factors which cause companies
to remain in an industry even when future profitability is questionable.
 Specialized assets
 Fixed cost of exit (e.g., labor agreements)
 Strategic interrelationships
 Emotional barriers
 Government and social restrictions
7. Effects of Entry Barriers and Exit Barriers on Industry Profits

8. Competitor Analysis: The competitor environment is the final part of the external
environment requiring study. Competitor analysis focuses on each company against which a
firm competes directly. The Coca-Cola Company and PepsiCo, Home Depot and Lowe’s,
Carrefour SA and Tesco PLC, and Amazon and Google are examples of competitors that are
keenly interested in understanding each other’s objectives, strategies, assumptions, and
 capabilities. Indeed, intense rivalry creates a strong need to understand competitors. In a
competitor analysis, the firm seeks to understand the following:
 What drives the competitor, as shown by its future objectives?
 What the competitor is doing and can do, as revealed by its current strategy.
 What the competitor believes about the industry, as shown by its assumptions.
 What the competitor’s capabilities are, as shown by its strengths and weaknesses

Knowledge about these four dimensions helps the firm prepare an anticipated response profile
for each competitor The results of an effective competitor analysis help a firm understand,
interpret, and predict its competitors’ actions and responses. Understanding competitors’ actions
and responses clearly contributes to the firm’s ability to compete successfully within the
industry. Interestingly, research suggests that executives often fail to analyze competitors’
possible reactions to competitive actions their firm takes, placing their firm at a potential
competitive disadvantage as a result

Critical to an effective competitor analysis is gathering data and information that can help the
firm understand its competitors’ intentions and the strategic implications resulting from them.129
Useful data and information combine to form competitor intelligence which is the set of data and
information the firm gathers to better understand and anticipate competitors’ objectives,
strategies, assumptions, and capabilities. In competitor analysis, the firm gathers intelligence not
only about its competitors, but also regarding public policies in countries around the world. Such
intelligence facilitates an understanding of the strategic posture of foreign competitors. Through
effective competitive and public policy intelligence, the firm gains the insights needed to make
effective strategic decisions regarding how to compete against rivals..