Strategic Management: Creating Competitive Advantages PDF

Strategic Management: Creating Competitive Advantages Copyright Anatoli Styf/Shutterstock  Introduction to Strategic Management: Learning Objectives 1-1 The definition of strategic management and its four key attributes. 1-2 Th...

Strategic Management: Creating Competitive Advantages Copyright Anatoli Styf/Shutterstock  Introduction to Strategic Management: Learning Objectives 1-1 The definition of strategic management and its four key attributes. 1-2 The strategic management process and its three interrelated and principal activities. 1-3 The vital role of corporate governance and stakeholder management as well as “symbiosis” that can be achieved among an organization’s stakeholders. 1-4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy. 1-5 The need for greater empowerment throughout the organization. 1-6 How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction. ©McGraw-Hill Education.  The Importance of Leadership Consider… Maintaining competitive success or even surviving over long periods of time is difficult for companies of any size. So, how much credit (or blame) does a leader deserve? ©McGraw-Hill Education.  Two Perspectives of Leadership External control perspective: External forces determine the organization’s success. Economic downturns Industry lifecycle Emergence of new competitors etc OR Romantic view: A leader is the key force in the organization’s success. Steve Jobs ©McGraw-Hill Education.  Leaders Can Make a Difference Be proactive - anticipate change. Refine strategies continually. Be aware of external opportunities and threats. Understand thoroughly the firm’s resources and capabilities. Make strategic management both a process and a way of thinking throughout the organization. ©McGraw-Hill Education.  Defining Strategic Management Strategic management process involves: Analysis Strategic goals (vision, mission, strategic objectives) Internal and external environment Decisions - Formulation What industries should we compete in? How should we compete in those industries? Actions – Implementation of strategy Allocate necessary resources. Design the organization to bring intended strategies to reality. ©McGraw-Hill Education.  Two Fundamental Questions 1. How should we compete in order to create competitive advantages in the marketplace? 2. How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute? NOTE: Operational effectiveness is not enough to sustain a competitive advantage. ©McGraw-Hill Education.  Strategic Management 4 key attributes of strategic management: 1. Directs the organization toward overall goals and objectives. 2. Includes multiple stakeholders in decision making ©McGraw-Hill Education.  Source: Gareth Morgan (1997: Imaginization: new mind sets for seeing, organizing, and managing. Berret- Kohler Publishers Inc. San Francisco, CA. SAGE Publications Inc. Thousands Oaks, CA. ©McGraw-Hill Education.  Major Stakeholder Groups and What They Expect 10 ©McGraw-Hill Education.  Strategic Management 4 key attributes of strategic management (cont’d): 3. Needs to incorporate short-term and long-term perspectives. 4. Recognizes trade-offs between efficiency and effectiveness. ©McGraw-Hill Education.  Strategic Management Trade-offs Managers need to be ambidextrous. Focus on long-term effectiveness. Expand product-market scope by proactively exploring new opportunities. At the same time: Focus on short-term efficiency. Align resources to take advantage of existing product markets. ©McGraw-Hill Education.  Intended vs. Realized Strategies The business environment is far from predictable. Intended strategy Organizational decisions are determined only by analysis. Intended strategies rarely survive in the original form. VERSUS Realized strategy Decisions are determined by both analysis (deliberate) and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences (emergent). ©McGraw-Hill Education.  Strategy Analysis Strategy analysis is the starting point in the strategic management process. The analysis needs to be done to effectively formulate and implement strategies. It involves: 1) setting the overarching goals of the organization 2) careful analysis of the organization’s external and internal environment. ©McGraw-Hill Education.  Strategy Analysis: Hierarchy of Goals Stable Change able Exhibit 1.6 A Hierarchy of Goals ©McGraw-Hill Education.  Strategy Analysis: Hierarchy of Goals Organizational vision A “massively inspiring” goal, overarching, long term A destination driven by & evoking passion Developed & implemented by leadership A fundamental statement of an organization’s values, aspirations, and goals Captures both the minds & hearts of employees E.g.., “To be the happiest place on earth” (Disney). “To give everyone in the world the power to share and make the world more open and connected” (Facebook) BUT can backfire and erode a company’s credibility ©McGraw-Hill Education.  Strategy Analysis: Hierarchy of Goals Mission statement Encompasses both the purpose of the company and the basis of competition and competitive advantage More specific than the vision Focuses on the means by which the firm will compete Incorporates stakeholder management Communicates why an organization is special & different Can & should change when competitive conditions change E.g. “To produce superior financial returns for our shareholders as we serve our customers with the highest quality transportation, logistics, and e- commerce” (FedEx) ©McGraw-Hill Education.  Coherence in Strategic Direction Strategic objectives Used to operationalize the mission statement Provide guidance on how to fulfill mission & vision Measurable, specific, appropriate, realistic & timely Channel all employees’ efforts toward common goals Can be both financial and nonfinancial Should be challenging, yet help resolve conflicts Provide a yardstick for rewards & incentives E.g. “Increase sales growth 6 to 8 percent over the next 5 years” “Reduce emissions by 50% in 2 years” BUT too many objectives can result in lack of focus ©McGraw-Hill Education.  Strategy Analysis Analyzing organizational goals & objectives Whose Vision and Mission are these? Vision “We aspire to be a leading business school known for making a difference in the lives of our students and for our impact on the world” Mission “[this organization] provides life-changing, quality business education to prepare students from diverse backgrounds to become successful business professionals and leaders” ©McGraw-Hill Education.  Strategy Analysis Analyzing organizational goals & objectives Establish a hierarchy of goals ©McGraw-Hill Education.  Strategy Analysis Analyzing the external environment of the firm Managers must monitor and scan the environment as well as analyze competitors. General environment Industry environment We will focus on these next week! ©McGraw-Hill Education.  Strategy Analysis Assessing the internal environment of the firm Analyze strengths & relationships among activities that constitute a firm’s value chain. Analysis can uncover potential sources of competitive advantage. Assessing a firm’s intellectual assets Knowledge workers & other intellectual assets drive competitive advantage & wealth creation. Networks & relationships plus technology enhance collaboration, accumulate & store knowledge. We will focus on these the week after! ©McGraw-Hill Education.  Strategy Formulation Formulating business-level strategy Successful firms develop bases for sustainable competitive advantage through: Cost leadership and/or Differentiation, as well as Focusing on a narrow or industrywide market segment. Formulating corporate-level strategy Addresses a firm’s portfolio (or group) of businesses What business or businesses should we compete in? How can we manage this portfolio of businesses to create synergies? ©McGraw-Hill Education.  Strategy Formulation Formulating international strategy What is the appropriate entry strategy? How do we go about attaining competitive advantage in international markets? Entrepreneurial strategy and competitive dynamics How do we recognize viable opportunities? How do we formulate effective strategies? ©McGraw-Hill Education.  Strategy Implementation Strategy implementation takes action to implement the formulated strategy. Ensure proper strategic control systems (next slide). Establish an appropriate organizational design, coordinating & integrating activities within the firm. Coordinate activities with suppliers, customers, alliance partners. Leadership ensures organizational commitment to excellence & ethical behavior. Promote learning & continuous improvement. Act entrepreneurially in creating new opportunities. ©McGraw-Hill Education.  Strategy Implementation Strategic control & corporate governance Informational control Monitor & scan the environment Respond effectively to threats & opportunities Behavioral control Proper balance of rewards & incentives Appropriate cultures & boundaries (or constraints) Effective corporate governance ©McGraw-Hill Education.  Corporate Governance & Stakeholder Management Appropriate strategic management requires an effective & appropriate corporate structure. Corporate governance is the relationship among various participants in determining the direction and performance of corporations. Primary participants: Shareholders Management (led by the Chief Executive Officer) The Board of Directors (BOD) ©McGraw-Hill Education.  Corporate Governance Board of Directors Elected representatives of the owners Ensure interests & motives of management are aligned with those of the owners: Create an effective and engaged board. Address shareholder activism. Provide proper managerial rewards & incentives. Exhibit 1.4 The Key Elements of Corporate Establish external control Governance mechanisms. Jump to Appendix 2 for long description. ©McGraw-Hill Education.  Empowered Strategic Management Strategic management requires an integrative view of the organization. ALL functional areas & activities must fit together to achieve goals & objectives. Leaders are needed throughout: Local line leaders – have profit & loss responsibility Executive leaders – champion & guide ideas Internal networkers – hold little positional power, but have conviction & clarity of ideas ©McGraw-Hill Education.  Social Responsibility & Environmental Sustainability Firms have multiple stakeholders and must go beyond a focus solely on financial results. Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of society. Firms can measure a triple bottom line, assessing 1) financial, 2) social, AND 3) environmental performance. Sustainability projects can yield substantial benefits even when they are difficult to quantify. ©McGraw-Hill Education.  Two Views of Stakeholder Management Two views of stakeholder management Zero sum Stakeholders compete for attention & resources. The gain of one is a loss to the other. OR Symbiosis Stakeholders are dependent upon each other for success & well-being. Stakeholders receive mutual benefits. ©McGraw-Hill Education.