Chapter 1

Strategic
Strategic Management
Management and
and
Strategic
Strategic Competitiveness
Competitiveness
Strategic Competitiveness
Firm successfully formulates and implements a value-
creating strategy

Sustained Competitive Advantage

Firm develops a strategy that competitors are not
simultaneously implementing
Provides benefits which current and potential competitors
are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to earn from
other investments with similar risk
 Strategic Management Process

Involves the full set of:

Commitments Decisions Actions

required to achieve:

Strategic Competitiveness
Sustained Competitive Advantage
Above-Average Returns
 Chapter 2
Strategic External
Environment
The Strategic
Management
Inputs
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Process

Strategy Formulation Strategy Implementation

Chapter 4 Chapter 5 Chapter 6 Chapter 10 Chapter 11

Business-Level Competitive Corporate-Level Corporate Structure
Strategic
Actions

Strategy Dynamics Strategy Governance & Control

Chapter 7 Chapter 8 Chapter 9 Chapter 12 Chapter 13

Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic

Strategic
Competitiveness
Above Average
Feedback
Returns
 Chapter One: Key Themes

Challenge of Strategic Management

Changing Competitive Landscape

Two Models of Superior Profitability

Industrial Organization Model
Resource-Based Model

Key Stakeholder Groups

 Challenge of Strategic Management

Only 2 of the top 25 U.S. corporations in

1900 are still competitive today!

In a recent year, almost 150,000 U.S.

businesses failed or filed for bankruptcy

Competitive success is transient...unless care

is taken to preserve competitive position
 New 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
The pace of change
is relentless....
and increasing
Traditional industry
boundaries are
blurring...such as
Computers
Telecommunications
 New Competitive Landscape

The global economy is Traditional sources of

changing competitive advantage
no longer guarantee
People, goods, services and success
ideas move freely across
geographic boundaries New keys to success
New opportunities emerge in include:
multiple global markets Flexibility
Markets and industries become Innovation
more internationalized Speed
Integration
 Alternative Model of Superior Returns

1 Industrial Organization Model

2 Resource-Based Model
 I/O Model of Superior Returns

The Industrial Organization Model

suggests that above-average returns
for any firm are largely determined
by characteristics outside the firm.
The I/O model largely focuses on
industry structure or attractiveness of
the external environment rather than
internal characteristics of the firm.
 I/O Model of Superior Returns

External Action required:

Environment Study the external
General Environment environment, especially
Industry Environment the industry environment.
Competitive
Environment
 I/O Model of Superior Returns

External Action required:

Environment Locate an industry with
An Attractive high potential for above-
GeneralIndustry
Environment average returns.
Industry Environment
An industry whose
Competitive
structural characteristics
Environment
suggest above-average
returns are possible
 I/O Model of Superior Returns

External Action required:

Environment Identify strategy called for
Attractive by the industry to earn
GeneralIndustry
Environment above-average returns.
Strategy
Industry Environment
An industry whose
Competitive Formulation
structural characteristics
Environment Selection of a strategy
suggest above-average
returns are linked with above-
possible
average returns in a
particular industry
 I/O Model of Superior Returns

External Action required:

Environment Develop or acquire assets
Attractive and skills needed to
GeneralIndustry
Environment implement the strategy.
Strategy
Industry Environment
An industry whose
Competitive Formulation
structural characteristics
Environment Selection ofAssets
suggest above-average and Skills
a strategy
returns arelinked with above-
possible
Assetsinand
average returns a skills
required to implement
particular industry
a chosen strategy
 I/O Model of Superior Returns

External Action required:

Environment Use the firm’s strengths
Attractive (its assets or skills) to
GeneralIndustry
Environment implement the strategy.
Strategy
Industry Environment
An industry whose
Competitive Formulation
structural characteristics
Environment Selection ofAssets
suggest above-average and Skills
a strategy
returns arelinked with above-
possible
average returns a Strategy
Assetsinand skills
required to
particular industry Implementation
implement
a chosen strategy
Selection of strategic
actions linked with
effective implementation
of the chosen strategy
 I/O Model of Superior Returns

External Action required:

Environment Maintain selected strategy
Attractive in order to outperform
GeneralIndustry
Environment industry rivals.
Strategy
Industry Environment
An industry whose
Competitive Formulation
structural characteristics
Environment Selection ofAssets
suggest above-average and Skills
a strategy
returns arelinked with above-
possible
average returns a Strategy
Assetsinand skills
required to
particular industry Implementation
implement
a chosen strategy Superior Returns
Selection of strategic
actions linked with
Earning of above-
effective implementation
average
of the chosen returns
strategy
Resource-Based Model of Superior Returns

The Resource-Based Model suggests

that above-average returns for any
firm are largely determined by
characteristics inside the firm.
The Resource-Based view focuses on
developing or obtaining valuable
resources and capabilities which are
difficult or impossible for rivals to
imitate.
 Resource-Based Model of Superior Returns
Action required:
Resources Identify firm resources.
Study strengths and weak-
Inputs to a firm’s nesses relative to rivals.
production process.
 Resource-Based Model of Superior Returns
Action required:
Resources Determine what firm
Capability capabilities allow it to do
Inputs to a firm’s better than rivals.
production process.
Capacity for an integrated
set of resources to
integratively perform a
task or activity.
 Resource-Based Model of Superior Returns
Action required:
Resources Determine how firm’s
Capability resources and capabilities
Inputs to a firm’s may create competitive
production process.
Capacity Competitive
for an integrated advantage.
Advantage
set of resources to
integratively perform a
Ability of a firm to
task or activity.
outperform its rivals
 Resource-Based Model of Superior Returns
Action required:
Resources Locate an attractive
Capability industry.
Inputs to a firm’s
production process.
Capacity Competitive
for an integrated
Advantage
set of resources to
integratively perform An a Attractive
Ability of aIndustry
task or activity. firm to
outperform its rivals
Location of an
industry with
opportunities that can
be exploited by the
firm’s resources and
capabilities
 Resource-Based Model of Superior Returns
Action required:
Resources Select strategy that best
Capability exploits resources and
Inputs to a firm’s capabilities relative to
production process.
Capacity Competitive
for an integrated opportunities in environs.
Advantage
set of resources to
integratively perform An a Attractive
Ability of aIndustry
task or activity. firm to
outperform its rivalsStrategy
Location of an
Formulation and
industry with
Implementation
opportunities that can
be exploited by the
Strategic
firm’s resources andactions taken to
earn above-average
capabilities
returns
 Resource-Based Model of Superior Returns
Action required:
Resources Maintain selected strategy
Capability in order to outperform
Inputs to a firm’s industry rivals.
production process.
Capacity Competitive
for an integrated
Advantage
set of resources to
integratively perform An a Attractive
Ability of aIndustry
task or activity. firm to
outperform its rivalsStrategy
Location of an
Formulation and
industry with
opportunities Superior Returns
Implementation
that can
be exploited by the
Strategic
firm’s resources andactions
Earningtaken to
of above-
earn above-average
capabilities average returns
returns
 Resources and capabilities lead to
Competitive Advantage when they are:

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 when other firms either cannot obtain them

Imitate - or must obtain them at a much higher cost

Nonsubstitutable- the firm must be organized appropriately to

obtain the full benefits of the resources in
order to realize a competitive advantage
When these four
criteria are met,
Resources and Core Competencies
Capabilities
become:

Core Competencies are Resources and capabilities

that can serve as a source of Competitive Advantage

The Resource-Based Model argues that Core

Competencies are the basis for a firm’s Competitive
Advantage, Strategic Competitiveness and ability to
earn above-average returns.
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.
 Groups who are affected by a firm’s performance
Stakeholders and who have claims on its performance

The firm must maintain performance

at an adequate level in order to
maintain the participation of key Capital Market
stakeholders

Firm Stock market/Investors

Debt suppliers/Banks

Product Market
Organizational
Primary Customers
Suppliers Employees
Managers
Non-Managers
Stakeholder Involvement
Each of the key stakeholders involved
wants a piece of the same pie

1 How do you divide the pie

in order to keep all of the
stakeholders involved?

2
How do you increase the
size of the pie so that there
is more to go around?