Strategic Management (MGMT481) Chapter 1 PDF

Strategic Management (MGMT481) Dr. Mohammed Ouakouak Email: [email protected] Office Location: N1-234 Textbook: Dess Gregory, McNamara Gerry, Eisner Alan and Lee Seung-Hyun (2021), “Strat...

Strategic Management (MGMT481) Dr. Mohammed Ouakouak Email: [email protected] Office Location: N1-234 Textbook: Dess Gregory, McNamara Gerry, Eisner Alan and Lee Seung-Hyun (2021), “Strategic Management: Text and Cases”, 10th edition, McGraw-Hill Education, ISBN 9781260575255.  CHAPTER 1 Strategic Management: Creating Competitive Advantages Copyright Anatoli Styf/Shutterstock Learning Objectives Studying this chapter should provide you with the strategic management knowledge needed to: 1. Define strategy and competitive advantage. 2. Define strategic management. 3. Describe mission, vision, strategic priorities, and strategic objectives. 4. Define stakeholders and describe their ability to influence organizations. 5. Define corporate governance.  What is strategy? Definition of Strategy:  An integrated and coordinated set of decisions and actions designed to exploit core competencies and gain a competitive advantage. A theory about how to gain a competitive advantage. Strategy is a set of long term choices that lead to create competitive advantages, in order to succeed in the marketplace. (Michael Porter) Strategy is about competing differently – doing what rivals do not do or what rivals cannot do–  “ …. being different means deliberately choosing a different set of activities to deliver a unique mix of value” (Michael Porter) - Basically all decisions/actions which support the achievement of the long-term objectives can be summarized as a strategy. Video: What Is Strategy? It’s a Lot Simpler Than You Video: Definition of Strategy - Private/Public Sector Contrast Think https://www.youtube.com/watch?v=o7Ik1OB4TaE https://www.youtube.com/watch?v=2tLCHRT_88w  What is strategy? Figure. Elements of a Company’s Strategy What separates a powerful strategy from a weak one is: “management’s ability to forge a series of moves, Video : Do you need strategy for your organization? both in the marketplace and internally, that makes the http://www.youtube.com/watch?v=DViVtgD0xwE company distinctive.”  What Makes a Good Strategy? Three tests can be applied to determine whether a strategy has the potential to be a winning strategy: 1. The Fit Test: How well does the strategy fit the company? with internal and external environment of company - A good strategy should be well matched to environment conditions - Also, a winning strategy has to be tailored to the company’s resources and capabilities Unless a strategy exhibits good fit with both external and internal aspects, it is likely to underperform and fall short of producing the desired results. 2. The Competitive Advantage Test: Can the strategy help the company achieve a sustainable competitive advantage? - A good strategy enables a company to achieve a competitive advantage over key rivals that is long- lasting. 3. The Performance Test: Is the strategy producing good organizational performance? financial and non-financial performance financial - The mark of a good strategy is strong organizational performance (positive return, high profit, profitability, high market share, etc.). All these performance indicators are signs of a good strategy. non-financial - employee satisfaction, customer satisfaction, csr, supplier satisfaction  Competitive advantage  Definition of Competitive Advantage  Anything that a firm does especially well compared to its competitors. Examples: Higher product quality, innovative products, lower operating cost, better customer service, better brand, etc.  It is a set of qualities that give businesses leverage over their competitors. It allows businesses to offer their target market a product or service with higher value than competitors.  In the short term:  In the long term: - Competitors can easily imitate. - No competitive advantage is permanent - Companies can imitate each other over time.  See on the portal the following documents for examples of competitive advantages: - 15 examples of competitive advantage - 35 examples of competitive advantage Video: Jeff Bezos explains Amazon's Competitive Video: Tesla competitive advantage (2020) : Why Advantage Tesla and Apple are so very similar https://www.youtube.com/watch?v=psPf-tx9OwY https://www.youtube.com/watch?v=aw628QSEl8k  Competitive advantage vrin framework valuable rare imitatable non substantiality measure resource & capability is it core competency? Case study: Why Does Best Buy Outperform Circuit City?  Strategic Management Process Managers of all types of organizations (Family-owned businesses, entrepreneurial firms, international corporations, and not-for profit organizations, such as community interest companies, state-owned enterprises and co-operatives) should answer the following three central questions: 1) What is our present situation?  Answering this question helps you understand both internal and external environments. 2) Where do we want to go from here?  Answering this question helps you think about the future of the company. 3) How are we going to get there?  Answering this question helps you understand the means, approaches, and ways to use to reach the desired future.  Strategic Management Process Defining strategic management: Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. This definition captures two main elements: First, the strategic management of a firm entails three ongoing processes: Analyses, decisions, and actions. a) Strategic management is concerned with the analysis of the internal and external environments of the organization, along with the review/development of the mission, vision, and objectives. b) Next, leaders must make strategic decisions. These decisions address two basic questions: a) What industries/markets should we compete in? b) How should we compete in those industries/markets? c) Lastly, the actions that must be taken. Firms must take the necessary actions to implement their strategies. This requires leaders to allocate the necessary resources and to design the organization to bring the intended strategies to reality.  Strategic Management Process Second, the essence of strategic management is the study of why some firms outperform others. Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on two fundamental questions: a) How should we compete in order to create competitive advantages in the marketplace? Managers need to determine if the firm should position itself as a low-cost producer or high-quality producer. Or should they do some combination of both? a) How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy? That is, managers need to make such advantages sustainable, instead of temporary.  Mission statement Mission statement: - It reflects the essential purpose of the organization, and ideally captures why it is in existence. - A one-sentence statement describing the reason your organization exists. Company Mission Linkedin “To connect the world’s professionals to make them more productive and successful.”. Facebook “To give people the power to share and make the world more open and connected.” Tesla “To accelerate the world's transition to sustainable energy.” Google “To organize the world’s information and make it universally accessible and useful.”  The vision, mission and core values statements are usually established when the organization was first set up. However, they are to be adapted or changed over time. Read document on the portal: Examples_mission, vision_values  Vision statement Vision Statement: - It describes what the company is to become in the long-term future. - A description of what an organization wants to achieve in the future. - A one-sentence statement describing what an organization would like to be or to achieve in long-term future. Company Vision Ethiopian Air “To become the most competitive and leading aviation group in Africa.” McDonald’s “To be the world’s best quick service restaurant experience.” Adidas “To be the leading sports brand in the world”. Sony “To be the most comprehensive entertainment company in the world.” Document: 27 Truly Inspiring Company Vision and Mission Statement Examples https://blog.hubspot.com/marketing/inspiring-company-mission-statements  Strategic Priorities and Strategic Objectives  Strategic priorities:  Strategic priorities are broad statements that indicate what is critical and important for an organization to focus on and achieve over a designated time period.  Setting strategic priorities may help create clear long-term objectives for the organization.  The strategic priorities should be directly aligned with the mission and vision statements. Case study: Case_McDonald's  Strategic objectives:  Strategic objectives are the objective that you want to achieve in the long-term future, usually for around three to five years.  The strategic objectives should be directly aligned with the strategic priorities and mission and vision. Document on the portal: Examples of company objectives (Nordstorm, Microsoft, and Mcdonalds)  Stakeholders Figure: The Three Stakeholder Groups Stakeholders are those individuals, groups, and organizations that have a “stake” in the success of the organization. Capital Market Stakeholders Shareholders Other suppliers of capital (e.g., banks, government, family, etc.) Product Market Stakeholders Customers Suppliers Competitors Communities, Unions Organizational Stakeholders Employees Owners Managers  Stakeholder Management 3 steps to manage stakeholders well 1) identify the key stakeholders 2) identify needs and importance 3) meet these needs Stakeholder management is the process by which you organize, monitor and improve your relationships with your stakeholders. It involves systematically identifying stakeholder; analyzing their needs and expectations; and planning and implementing various tasks to engage with them. Exhibit – An Organization’s Key Stakeholders & the Nature of Their Claims Stakeholder Group Nature of Claim Employees Wages, benefits, safe working environment, job security Suppliers Payment on time, assurance of continued relationship Creditors Payment of interest, repayment of principal Customers Value, warranties Government Taxes, compliance with regulations Shareholders Dividends, capital appreciation Community Good citizenship behavior such as charities, employment, not polluting the environment  Stakeholder Management There are two opposing ways of looking at the role of stakeholder management: Zero Sum and Symbiosis A) Zero Sum: The various stakeholders compete for the organization’s resources. The gain of one individual or group is the loss of another individual or group. For Example: - Employees want higher wages (which drive down profits) - Suppliers want higher prices for their inputs (which drive up costs) - Customers want higher quality and lower prices (which drive up costs) - Community wants charitable contributions (which drive down profits) - Shareholders want higher dividends (which take money from company profit) B) Symbiosis: Symbiosis recognizes that stakeholders are dependent upon each other for their success and well being. Stakeholders receive mutual benefits. Video 1: What is Stakeholder Theory? - R. Edward Video 2: Shareholders vs. Stakeholders -- Friedman vs. Freeman Freeman Debate - R. Edward Freeman https://www.youtube.com/watch?v=bIRUaLcvPe8&t=6 https://www.youtube.com/watch?v=_sNKIEzYM7M 3s  Corporate Governance Appropriate strategic management requires an effective & appropriate corporate governance. - Corporate governance is the relationship among various participants in determining the direction and performance of an organization. - Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions. Primary participants: Exhibit - The Key Elements of Corporate Governance  Management (led by the Chief Executive Officer)  The Board of Directors (BOD): Elected representatives of the owners. To Ensure interests & motives of management are aligned with those of 3 key participants the shareholders.  Shareholders: A person who owns shares in a company and therefore gets part of the company's profits and the right to vote. END CHAPTER 1