Chapter 1

Strategic Management and Strategic Competitiveness

Diane M. Sullivan, Ph.D., 2013

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

Can be achieved when a firm formulates and implements a value-creating strategy

Sustainable Competitive Advantage 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

2) Above-average returns

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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

Partnerships created by mergers and acquisitions, joint ventures, alliances

These changes in the landscape often referred to as hypercompetition 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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SWOTHeadline, January 30, 2013:

SWOT is Dead!

SWOT

SWOT

SWOT

Now: 1) Resources 1) General Environment2) Capabilities 2) Industry Environment3) Core Competencies 3) Competitive Environment4) Competitive Advantage5) V.R.I.O.

Internal Environment External Environment

Then: Strengths & Weaknesses Opportunities & Threats

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 Above-Average 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

Insert figure 1.1 graphicStep 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

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 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

Firms require participation from each of

these stakeholders in order to

operate

Moving Forward…next 2 classes

Insert figure 1.1 graphic Chapter 2: The External

Environment

I/O Model

Please read Chapter 2 before next class

Practice Round 2 decisions to be completed by Monday (February 4, 2013 at 7:00pm)