Strategic-Management (2) (1).pdf

CHAPTER 1: STRATEGIC MANAGEMENT AND AVERAGE RETURNS STRATEGIC COMPETITIVENESS Returns that are equal to those an investor expects (Michael A. Hitt, R. Duane Ireland, Robert E. to earn from other investments with a similar amount Hoski...

CHAPTER 1: STRATEGIC MANAGEMENT AND AVERAGE RETURNS STRATEGIC COMPETITIVENESS Returns that are equal to those an investor expects (Michael A. Hitt, R. Duane Ireland, Robert E. to earn from other investments with a similar amount Hoskisson) of risk COMPETITIVE LANDSCAPE (Fundamentals nature of competition is changing) 1. HYPERCOMPETITIVE ENVIRONMENTS  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 2. EMERGENCE OF GLOBAL ECONOMY  Goods, services, people, skills, and ideas move freely across geographic borders.  Spread of economic innovations around the STRATEGIC MANAGEMENT PROCESS world. The full set of commitments, decisions, and actions  Political and cultural adjustments are required. required for a firm to achieve strategic competitiveness and earn above-average returns. 3. RAPID TECHNOLOGICAL CHANGE  Increasing rate of technological change and STRATEGY diffusion Is an integrated and coordinated set of commitments  The information age and actions designed to exploit core competencies  Increasing knowledge intensity and gain a competitive advantage. HYPER COMPETITION COMPETITIVE ADVANTAGE Describes competition that is excessive such that it Achieved when a firm implements a strategy that creates inherent instability and necessitates creates superior value for customers and that constant disruptive change for firms in the competitors are unable to duplicate or find it too competitive landscape. costly to try to imitate. TECHNOLOGY & TECHNOLOGICAL CHANGES STRATEGIC COMPETITIVENESS Technology-related trends and conditions can be Achieved when a firm successfully formulates and placed into three categories: implements a value-creating strategy 1. Technology diffusion and disruptive technologies 2. The information age, ABOVE-AVERAGE RETURNS 3. Increasing knowledge intensity. Occurs when a firm develops a strategy that competitors are not simultaneously implementing GLOBAL ECONOMY One in which goods, services, people, skills, and Provides benefits which current and potential ideas move freely across geographic Borders. competitors are unable to duplicate GLOBALIZATION RISK The increasing economic interdependence among An investor’s uncertainty about the economic gains countries and their organizations as reflected in the or losses that will result from a particular investment flow of goods and services, financial capital, and knowledge across country borders 21ST CENTURY COMPETITIVE LANDSCAPE 2. AN ATTRACTIVE INDUSTRY  An Industry whose structural characteristics The global economy is changing: suggest above average returns.  People goods, services and ideas move freely  Locate an industry with high potential for above across geographic boundaries average returns  New opportunities emerge in multiple global market. 3. STRATEGY FORMULATION  Markets and industries become more  Selection of a strategy linked with above- internationalized average returns in a particular industry.  Identify the strategy called for by the attractive Traditional sources of competitive advantage no industry to earn above average returns. longer guarantee success New keys to success include: 4. ASSETS & SKILLS  Flexibility  Assets and skill required to implement a chosen  Innovation strategy  Speed  Develop or acquire assets and skills needed to  Integration implement the strategy. STRATEGIC FLEXIBILITY 5. STRATEGY IMPLEMENTATION A set of capabilities used to respond to various  Selection of strategic actions linked with effective demands and opportunities existing in a dynamic implementation of the chosen strategy. and uncertain competitive environment  Use the firm’s strengths, its developed or acquired assets and skills to implement the It involves coping with uncertainty and the strategy. accompanying risks 6. SUPERIOR RETURNS  Organizational Slack  Earning of above-average returns  Strategic Reorientation  Capacity to learn I/O MODEL OF ABOVE-AVERAGE RETURNS ALTERNATIVE MODELS OF SUPERIOR RETURNS INDUSTRIAL ORGANIZATION MODEL (THE I/0 MODEL ABOVE-AVERAGE RETURNS) 1. THE EXTERNAL ENVIRONMENT  The General Environment  The Industry Environment  The Competitor Environment 1. Strategy dictated by the external environments  Study the external environment, especially the of the firm (what opportunities exist in these industry environment environments?) o Economies of scale 2. Firm develops internal skills required by external o Barriers to market entry environment (what can the firm do about the o Diversification opportunities?) o Product differentiation o Degree of concentration of firms in the FOUR ASSUMPTIONS OF THE I/O MODEL industry 1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns 2. Most firms competing within a particular or within CORE COMPETENCIES are the basis for a firm’s a certain segment of it are assumed to control  Competitive Advantage similar strategically relevant resources and to  Strategic Competitiveness pursue similar strategies in light of those  Ability to earn above-average returns resources 3. Resources used to implement strategies are 3. COMPETITIVE ADVANTAGE highly mobile across firms  Ability of a firm to outperform its rivals 4. Organizational decision makers are assumed to  Determine the potential of the firm’s resources be rational and committed to acting in the firm’s and capabilities in terms of a competitive best interests, as shown by their profit- advantage maximizing behaviors 4. AN ATTRACTIVE INDUSTRY RESOURCE-BASED MODEL (ABOVE AVERAGE  An industry with opportunities that can be RETURNS) exploited by the firm’s resources and capabilities 1. RESOURCES  Locate an attractive industry  Inputs into a firm’s production process  Identify the firm’s resources strengths and 5. STRATEGY FORMULATION / weaknesses compared with competitors IMPLEMENTATION  Strategic actions taken to earn above average 2. CAPABILITY returns  Capacity of an integrated set of resources to  Select a strategy that best allows the firm to integratively perform a task or activity utilize its resources and capabilities relative to  Determine the firm’s capabilities. What do the opportunities in the external environment capabilities allow the firm to do better than its competitors? 6. SUPERIOR RETURNS  Earning of above-average returns. FOUR ATTRIBUTES OF RESOURCES AND CAPABILITIES (COMPETITIVE ADVANTAGE) RESOURCE-BASED MODEL OF ABOVE 1. VALUABLE AVERAGE RETURNS  Allow the firm to exploit opportunities or neutralize threats in its external environment 2. RARE  Possessed by few, if any, current and potential competitors 3. COSTLY TO IMITATE  When other firms cannot obtain them or must obtain them at a much higher cost 4. NONSUBSTITUTABLE  The firm is organized appropriately to obtain the 1. Strategy dictated by unique resources and full benefits of the resources in order to realize a capabilities of the firm (what can the firm do competitive advantage best?) 2. Find an environment in which to exploit these assets (where are the best opportunities?) VISSION & MISSION ORGANIZATIONAL STAKEHOLDERS  The key purpose of vision and mission  Employees statements is to inform stakeholders of what the  Managers firm is, what it seeks to accomplish, and who its  Non managers seeks to serve.  Together, the vision and mission provide the STAKEHOLDER INVOLVEMENT foundation that Two issues affect the extent of stakeholder o the firm needs to choose and implement one involvement in the firm: or more strategies. 1. How do you divide the returns to keep  Business ethics are a vital part of the firm’s stakeholders involved? discussions to decide what it wants to become 2. How do you increase the returns so everyone (its vision) as well as who it intends to serve and has more to share? how it desires to serve those individuals and groups (its mission).. VISION  A picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.  A vision statement points the firm in the direction of where it would like to be in the years to come. VISION STATEMENT  It is also important to recognize that vision statements reflect a firm’s values and aspirations and are intended to capture the heart and mind of each employee and, hopefully, many of its other stakeholders. MISSION  A mission specifies the businesses in which the firm intends to compete and the customers it intends to serve.  A firm’s mission is more concrete than its vision THE FIRM AND ITS STAKEHOLDERS STAKEHOLDERS  The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders CAPITAL MARKET STAKEHOLDERS  Shareholders  Major suppliers of capital o Banks o Private lenders o Venture capitalists PRODUCT MARKET STAKEHOLDERS  Primary customers  Suppliers  Host communities  Unions