SME528 Lesson 1 2024 PDF

Compiled by Salu Yekela  The set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.  To achieve superior performance, companies compete for resources: New ventures compete for financial and human capital. Existing compa...

Compiled by Salu Yekela  The set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.  To achieve superior performance, companies compete for resources: New ventures compete for financial and human capital. Existing companies compete for profitable growth. Charities compete for donations, and social networks compete for members. In any competitive situation, a good strategy enables a firm to achieve superior performance.  The ongoing planning, monitoring, analysis and assessment of all necessities an organisation needs to meet its goals and objectives. Changes in business environments will require organisations to constantly assess their strategies for success.  1. A diagnosis of the competitive challenge. 2. A guiding policy to address the competitive challenge.  3. A set of coherent actions to implement the firm’s guiding policy. Defined: Superior performance relative to other competitors in the same industry or the industry average. A firm that achieves superior performance relative to other competitors in the same industry or the industry average has a competitive advantage. Apple, for instance, has achieved a competitive advantage over Google, Samsung, Nokia, and BlackBerry in the smartphone industry and over Microsoft, Amazon, Samsung, and HP in the tablet computer industry.  A firm that is able to outperform its competitors or the industry average over a prolonged period of time has a sustainable competitive advantage.  If a firm underperforms its rivals or the industry average, it has a competitive disadvantage. For example, a 15% return on invested capital may sound like superior firm performance. In the energy industry, though, where the average return on invested capital is often above 20%, such a return puts a firm at a competitive disadvantage.  The important point here is that strategy is about creating superior value, while containing the cost to create it. Stakeholder defined: Organizations, groups, and individuals that can affect or are affected by a firm’s actions. They make specific contributions for which they expect rewards in return. -Internal stakeholders -External stakeholders  The effective management of stakeholders, the organization, groups, or individuals that can materially affect or are affected by the action of a firm, is necessary to ensure the continued survival of the firm and to sustain any competitive advantage. Next, we turn to the process or method by which strategic leaders formulate and implement strategy. When strategizing for competitive advantage, managers rely on three different approaches: (1) strategic planning, (2) scenario planning, and (3) strategy as planned emergence.  External Analysis: - PESTEL - The PESTEL model groups the forces in the firm’s general environment into six segments: political, economic, sociocultural, technological, ecological, and legal, which together form the acronym PESTEL. A PESTLE analysis studies the key external factors (Political, Economic, Sociological, Technological, Legal and Environmental) that influence an organisation. It can be used in a range of different scenarios, and can guide people professionals and senior managers in strategic decision-making.  A tool used to gain a macro picture of an industry environment.  Analyses external forces that might impinge upon a firm. Michael Porter developed the highly influential five forces model to help managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage.  Buyer Power  Supplier Power  Threat of New Entrants  Threat of Substitutes  Competitive Rivalry  Looking inside the firm to analyze its resources, capabilities, and core competencies allows us to understand the firm’s strengths and weaknesses. Linking these insights from a firm’s internal analysis to the ones derived in the prior chapter on external analysis allows managers to determine their strategic options. Ideally, firms want to leverage their internal strengths to exploit external opportunities, and to mitigate internal weaknesses and external threats.  Since core competencies are critical to gaining and sustaining competitive advantage, it is important to understand how they are created. Core competencies are built through the interplay of resources and capabilities.  Differentiate among a firm’s resources, capabilities, core competencies, and activities.  Core competencies (what makes us different?)  Resources (what do we have?)  Capabilities (what can we do well?)  Activities are distinct and fine-grained business processes that enable firms to add incremental value by transforming input into goods and services.