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Competing for AdvantageCompeting for Advantage
Robert E. HoskissonRobert E. Hoskisson
Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland
The PowerPoint slides for this textbook were prepared by:
R. Dennis Middlemist
Professor of ManagementColorado State University
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Dennis@Middlemist.com
This slide is informational only. Do not display in the classroom.
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2003 Southwestern Publishing Company 2
Introduction toIntroduction to
Strategic ManagementStrategic Management
Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
Chapter 1Chapter 1
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Chapter 2Chapter 2
Strategic LeadershipStrategic Leadership
Chapter 4Chapter 4
The InternalThe Internal
OrganizationOrganization
Chapter 6Chapter 6
Competitive Rivalry andCompetitive Rivalry and
Competitive DynamicsCompetitive Dynamics
Chapter 9Chapter 9
International StrategyInternational Strategy
Chapter 1Chapter 1
Introduction toIntroduction to
Strategic ManagementStrategic Management
Chapter 3Chapter 3
The ExternalThe External
EnvironmentEnvironment
Chapter 5Chapter 5
Business-LevelBusiness-Level
StrategyStrategy
Chapter 8Chapter 8Acquisition andAcquisition and
Restructuring StrategiesRestructuring Strategies
Chapter 11Chapter 11
Corporate GovernanceCorporate Governance
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
Chapter 7Chapter 7
Corporate-Level StrategyCorporate-Level Strategy
Chapter 10Chapter 10
Cooperative StrategyCooperative Strategy
Chapter 12Chapter 12
Strategic EntrepreneurshipStrategic Entrepreneurship
Strategic
Analysis
Strategic
Thinking
Creating
Competitive
Advantage
Monitoring
And Creating
EntrepreneurialOpportunities
The Strategic Management ProcessThe Strategic Management Process
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Discussion QuestionsDiscussion Questions
1. What is strategy?
2. What is happening in the strategic
environment?
3. What is strategic flexibility and why
is there a need for it?
4. What is the Industrial Organization
(IO) Model of Strategy?
5. What is the Resource-Based Model
of Strategy?
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Discussion Questions (cont.)Discussion Questions (cont.)
6. What is strategic intent and how is
it related to strategic mission?
7. How do stakeholders affect
strategy?
8. What is the role of the strategist
(top executive)?
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Discussion Question 1Discussion Question 1
What is strategy?
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DefinitionsDefinitions
Strategic Management ProcessStrategic Management ProcessThe full set of commitments, decisions,The full set of commitments, decisions,
and actions required for a firm to createand actions required for a firm to create
value and earn above-average returnsvalue and earn above-average returns
Value CreationValue Creation
What is achieved when a firmWhat is achieved when a firmsuccessfully formulates and implements asuccessfully formulates and implements a
strategy that other companies are unablestrategy that other companies are unable
to duplicate or find too costly to imitate.to duplicate or find too costly to imitate.
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DefinitionsDefinitions
Returns that are in excess of what an investorReturns that are in excess of what an investor
expects to earn from other investments with aexpects to earn from other investments with a
similar amount of risksimilar amount of risk
Above-Average ReturnsAbove-Average Returns
Returns that are equal to those an investorReturns that are equal to those an investor
expects to earn from other investments withexpects to earn from other investments witha similar amount of riska similar amount of risk
Average ReturnsAverage Returns
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DefinitionsDefinitions
RiskRiskAn investors uncertainty about theAn investors uncertainty about the
economic gains or losses that will resulteconomic gains or losses that will result
from a particular investmentfrom a particular investment
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Discussion Question 2Discussion Question 2
What is happening in the strategicenvironment?
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Fundamental nature of
competition is changing
Competitive LandscapeCompetitive Landscape
HypercompetitiveHypercompetitive
environmentsenvironments
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
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Fundamental nature of
competition is changing
HypercompetitiveHypercompetitive
environmentsenvironments
Competitive LandscapeCompetitive Landscape
Emergence of
global economy
Goods, services, people,
skills, and ideas move
freely across geographic
borders
Spread of economic
innovations around the
world
Political and cultural
adjustments are
required
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HypercompetitiveHypercompetitive
environmentsenvironments
Competitive LandscapeCompetitive Landscape
Emergence of
global economy
Rapid technological
change
Increasing rate of
technological change and
diffusion
The information age
Increasing knowledge
intensity
Fundamental nature of
competition is changing
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Questions
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Discussion Question 3Discussion Question 3
What is strategic flexibility andwhy is there a need for it?
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Strategic FlexibilityStrategic Flexibility
A set of capabilities used to respond toA set of capabilities used to respond to
various demands and opportunitiesvarious demands and opportunities
existing in a dynamic and uncertainexisting in a dynamic and uncertaincompetitive environmentcompetitive environment
It involves coping with uncertainty and theIt involves coping with uncertainty and the
accompanying risksaccompanying risks
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Strategic
Flexibility
Strategic
Flexibility
Strategic FlexibilityStrategic Flexibility
StrategicStrategic
flexibilityflexibilityStrategicStrategic
reorientationreorientation
Capacity toCapacity to
learnlearn
OrganizationalOrganizational
slackslack
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Discussion Question 4Discussion Question 4
What is the Industrial Organization(IO) Model of Strategy?
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1.1. Strategy dictated by theStrategy dictated by the
external environment ofexternal environment of
the firm (whatthe firm (what
opportunities exist inopportunities exist in
these environments?)these environments?)
2.2. Firm develops internalFirm develops internal
skills required byskills required byexternal environmentexternal environment
(what can the firm do(what can the firm do
about the opportunities?)about the opportunities?)
GeneralGeneral
EnvironmentEnvironment
GlobalGlobal
TechnologicalTechnological
Economic
Economic
Socio
cultu
ral
Socio
cultu
ral
Politic
al/L
egal
Politic
al/L
egal D
emographic
D
emographic
1. External Environments
IndustryEnvironment
Competitor
Environment
I/O Model of Above-Average ReturnsI/O Model of Above-Average Returns
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Four Assumptions of the I/O ModelFour Assumptions of the I/O Model
1.1. The external environment is assumed toThe external environment is assumed topossess pressures and constraints thatpossess pressures and constraints thatdetermine the strategies that would resultdetermine the strategies that would result
in above-average returnsin above-average returns2.2. Most firms competing within a particularMost firms competing within a particular
industry or within a certain segment of itindustry or within a certain segment of itare assumed to control similarare assumed to control similar
strategically relevant resources and tostrategically relevant resources and topursue similar strategies in light of thosepursue similar strategies in light of thoseresourcesresources
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Four Assumptions of the I/O ModelFour Assumptions of the I/O Model
3.3. Resources used to implement strategiesResources used to implement strategies
are highly mobile across firmsare highly mobile across firms
4.4. Organizational decision makers areOrganizational decision makers are
assumed to be rational and committed toassumed to be rational and committed to
acting in the firms best interests, asacting in the firms best interests, as
shown by their profit-maximizingshown by their profit-maximizing
behaviorsbehaviors
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Industrial OrganizationIndustrial Organization
ModelModel
I/O Model of Above-Average Returns
1.1. Study the externalStudy the external
environment, especially theenvironment, especially the
industry environmentindustry environment
economies of scaleeconomies of scale barriers to market entrybarriers to market entry diversificationdiversification product differentiationproduct differentiation degree of concentration ofdegree of concentration of
firms in the industryfirms in the industry
The External EnvironmentThe External Environment
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I/O Model of Above-Average Returns
2.2. Locate an attractive industryLocate an attractive industry
with a high potential forwith a high potential for
above-average returnsabove-average returns
Attractive industry: one whoseAttractive industry: one whose
structural characteristicsstructural characteristics
suggest above-average returnssuggest above-average returns
Industrial OrganizationIndustrial Organization
ModelModel
The External EnvironmentThe External Environment
An Attractive IndustryAn Attractive Industry
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I/O Model of Above-Average Returns
3.3. Identify the strategy calledIdentify the strategy called
for by the attractive industryfor by the attractive industry
to earn above-average returnsto earn above-average returns
Strategy formulation: selectionStrategy formulation: selection
of a strategy linked withof a strategy linked with
above-average returns in aabove-average returns in a
particular industryparticular industry
Industrial OrganizationIndustrial Organization
ModelModel
The External EnvironmentThe External Environment
An Attractive IndustryAn Attractive Industry
Strategy FormulationStrategy Formulation
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I/O Model of Above-Average Returns
4.4. Develop or acquire assets andDevelop or acquire assets and
skills needed to implementskills needed to implement
the strategythe strategy
Assets and skills: those assetsAssets and skills: those assetsand skills required toand skills required to
implement a chosen strategyimplement a chosen strategy
Industrial OrganizationIndustrial Organization
ModelModel
The External EnvironmentThe External Environment
An Attractive IndustryAn Attractive Industry
Strategy FormulationStrategy Formulation
Assets and SkillsAssets and Skills
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I/O Model of Above-Average Returns
5. Use the firms strengths (its5. Use the firms strengths (its
developed or acquired assetsdeveloped or acquired assets
and skills) to implement theand skills) to implement the
strategystrategy
Strategy implementation:Strategy implementation:
select strategic actions linkedselect strategic actions linked
with effective implementationwith effective implementation
of the chosen strategyof the chosen strategy
Industrial OrganizationIndustrial Organization
ModelModel
The External EnvironmentThe External Environment
An Attractive IndustryAn Attractive Industry
Strategy FormulationStrategy Formulation
Assets and SkillsAssets and Skills
Strategy ImplementationStrategy Implementation
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External EnvironmentThe External Environment
An Attractive IndustryAn Attractive Industry
Strategy FormulationStrategy Formulation
Assets and SkillsAssets and Skills
Strategy ImplementationStrategy Implementation
Superior ReturnsSuperior Returns
Superior returns: earning
of above-average returns
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Discussion Question 5Discussion Question 5
What is the Resource-BasedModel of Strategy?
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1.1. Strategy dictated by theStrategy dictated by the
firms unique resourcesfirms unique resources
and capabilitiesand capabilities
2.2. Find an environment inFind an environment in
which to exploit thesewhich to exploit these
assets (where are the bestassets (where are the bestopportunities?)opportunities?)
Resource-based Model of AboveResource-based Model of Above
Average ReturnsAverage Returns
1. Firms Resources1. Firms Resources
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1.1. Identify the firmsIdentify the firms
resources-- strengths andresources-- strengths and
weaknesses compared withweaknesses compared with
competitorscompetitorsResources: inputs into a firmsResources: inputs into a firmsproduction processproduction process
Resource-based Model of Above
Average Returns
Resource-basedResource-based
ModelModel
ResourcesResources
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2.2. Determine the firmsDetermine the firms
capabilities--what it can docapabilities--what it can do
better than its competitorsbetter than its competitors
Capability: capacity of anCapability: capacity of an
integrated set of resources tointegrated set of resources to
integratively perform a task orintegratively perform a task or
activityactivity
Resource-based Model of Above
Average Returns
Resource-basedResource-based
ModelModel
ResourcesResources
CapabilityCapability
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Four Attributes of Resources andFour Attributes of Resources and
Capabilities (Competitive Advantage)Capabilities (Competitive Advantage)
the firm is organized appropriately tothe firm is organized appropriately toobtain the full benefits of the resources inobtain the full benefits of the resources inorder to realize a competitive advantageorder to realize a competitive advantage
ValuableValuable allow the firm to exploit opportunities orallow the firm to exploit opportunities orneutralize threats in its externalneutralize threats in its externalenvironmentenvironment
RareRare possessed by few, if any, current andpossessed by few, if any, current andpotential competitorspotential competitors
Costly to imitateCostly to imitate when other firms cannot obtain them orwhen other firms cannot obtain them or
must obtain them at a much higher costmust obtain them at a much higher cost
NonsubstitutableNonsubstitutable
Resou
rce
sandCa
pabilit i
es
Resou
rce
sa
ndCapabilit i
es
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Core CompetenciesCore Competencies
Resources and capabilities that meetthese four criteria become a source of:
ValuableValuable
RareRare
Costly to imitateCostly to imitate
NonsubstitutableNonsubstitutable
Core CompetenciesCore Competencies
Resou
rce
sandCa
pabilities
Resou
rce
sa
ndCapabilit i
es
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Core Competencies are the basis for afirms
CompetitiveCompetitive
advantageadvantage
Value CreationValue Creation
Ability to earnAbility to earn
above-averageabove-average
returnsreturns
Core CompetenciesCore Competencies
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3.3. Determine the potential of theDetermine the potential of the
firms resources andfirms resources and
capabilities in terms of acapabilities in terms of a
competitive advantagecompetitive advantage
Competitive advantage: abilityCompetitive advantage: ability
of a firm to outperform itsof a firm to outperform its
rivalsrivals
Resource-based Model of Above
Average Returns
Resource-basedResource-based
ModelModel
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
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4.4. Locate an attractive industryLocate an attractive industry
An attractive industry: anAn attractive industry: anindustry with opportunities thatindustry with opportunities that
can be exploited by the firmscan be exploited by the firms
resources and capabilitiesresources and capabilities
Resource-based Model of Above
Average Returns
Resource-basedResource-based
ModelModel
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
An Attractive IndustryAn Attractive Industry
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5.5. Select a strategy that bestSelect a strategy that best
allows the firm to utilize itsallows the firm to utilize its
resources and capabilitiesresources and capabilities
relative to opportunities inrelative to opportunities inthe external environmentthe external environment
Strategy formulation andStrategy formulation and
implementation: strategicimplementation: strategic
actions taken to earn aboveactions taken to earn above
average returnsaverage returns
Resource-based Model of Above
Average Returns
Resource-basedResource-based
ModelModel
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
An Attractive IndustryAn Attractive Industry
Strategy Form/ImplStrategy Form/Impl
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Resource-based Model of Above
Average Returns
Resource-basedResource-based
ModelModel
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
An Attractive IndustryAn Attractive Industry
Strategy Form/ImplStrategy Form/Impl
Superior ReturnsSuperior Returns
Superior returns: earningSuperior returns: earning
of above-average returnsof above-average returns
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Discussion Question 6Discussion Question 6
What is strategic intent and how isit related to strategic mission?
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Strategic Intent & MissionStrategic Intent & Mission
Strategic IntentStrategic Intent Winning competitive battles by leveraging theWinning competitive battles by leveraging the
firms resources, capabilities, and corefirms resources, capabilities, and core
competenciescompetencies
Strategic MissionStrategic Mission An application of strategic intent in terms ofAn application of strategic intent in terms of
products to be offered and markets to be servedproducts to be offered and markets to be served
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Discussion Question 7Discussion Question 7
How do stakeholders affectstrategy?
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Groups who are affected by aGroups who are affected by a
firms performance and whofirms performance and who
have claims on its wealthhave claims on its wealth
The firm must maintainThe firm must maintain
performance at an adequateperformance at an adequate
level in order to retain thelevel in order to retain the
participation of keyparticipation of key
stakeholdersstakeholders
The Firm and Its StakeholdersThe Firm and Its Stakeholders
StakeholdersStakeholders
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Capital Market StakeholdersCapital Market Stakeholders
The Firm and Its StakeholdersThe Firm and Its Stakeholders
ShareholdersShareholders
Major suppliers of capitalMajor suppliers of capitalBanksBanksPrivate lendersPrivate lendersVenture capitalistsVenture capitalists
StakeholdersStakeholders
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Capital Market StakeholdersCapital Market Stakeholders
Product Market StakeholdersProduct Market Stakeholders
The Firm and Its Stakeholders
Primary customersPrimary customers
SuppliersSuppliers
Host communitiesHost communitiesUnionsUnions
StakeholdersStakeholders
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Capital Market StakeholdersCapital Market Stakeholders
Product Market StakeholdersProduct Market Stakeholders
Organizational StakeholdersOrganizational Stakeholders
The Firm and Its Stakeholders
EmployeesEmployees
ManagersManagers
NonmanagersNonmanagers
StakeholdersStakeholders
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Stakeholder InvolvementStakeholder Involvement
Two issues affect theTwo issues affect the
extent of stakeholderextent of stakeholder
involvement in the firminvolvement in the firm
How do you divide theHow do you divide the
returns to keepreturns to keep
stakeholders involved?stakeholders involved?
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CapitalCapital
MarketMarket
ProductProduct
MarketMarket
OrganizationalOrganizational
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Stakeholder Involvement
Two issues affect theTwo issues affect the
extent of stakeholderextent of stakeholder
involvement in the firminvolvement in the firm
How do you increase theHow do you increase the
returns so everyone hasreturns so everyone has
more to share?more to share?
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CapitalCapital
MarketMarket
ProductProduct
MarketMarket
OrganizationalOrganizational
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Discussion Question 8Discussion Question 8
What is the role of the strategist(top executive)?
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Organizational StrategistsOrganizational Strategists
Serve as a major source of
competitive advantage
Are held responsible by stakeholdersMake decisions regarding
development, acquisition, cost and
use of resourcesAssess risks of strategic actions