Hih sm8e ch01

Chapter 1

Strategic Management and Strategic Competitiveness

Hitt, Ireland, and Hoskisson

Copyright © 2008 Cengage

Strategic management process The full set of

commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.

Insert figure 1.1 graphic


Step 1: Analyze strategic inputs Evaluate competitive, global landscape

Challenging landscape created by an emerging global economy, its resulting globalization, and rapid changes in technology.


2 models to analyze strategic inputs 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 link to strategic competitiveness.

Model focuses on the firm’s internal environment


Technology and technological changes Technology significantly alters competition

and contributes to unstable competitive environments.

3 categories of technology trends and conditions technology diffusion and disruptive technologies the information age increasing knowledge intensity


I/O model of above-average returns According to the

model, the industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their organizations.


I/O model suggests strategies Firms may earn above-average returns

by manufacturing standardized products, or

producing standardized services at costs below those of competitors (a cost leadership strategy), or

manufacturing differentiated products for which customers are willing to pay a price premium(a differentiation strategy).


Resource-based model

Assumes each organization is a collection of unique resources and capabilities, and uniqueness of its resources and 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

Using this model, a firm would choose to enter an industry in which it had competitive advantages

To become a competitive advantage, a resource or capability must be valuable, rare, costly to imitate, and not substitutable.


Step 2: Take strategic action

Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.

A mission specifies the business(es) in which the firm intends to compete and the customers it intends to serve.


Classifications of stakeholders

Insert figure Figure 1.4 The Three Stakeholder Groups


Step 3: Realize strategic outcomes Strategic leaders must predict the potential

outcomes of their strategic decisions. To do so, they must first calculate profit pools

in their industry that are linked to value chain activities.

A profit pool entails the total profits earned in an industry at all points along the value chain.

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