Strategic Management and Strategic Competitiveness PDF

**Chapter 1. STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS** ***Strategic Competitiveness*** - Achieved when a firm successfully formulates and implements a value-creating strategy. - A **strategy** is an integrated and coordinated set of commitments and actions designed to explo...

**Chapter 1. STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS** ***Strategic Competitiveness*** - Achieved when a firm successfully formulates and implements a value-creating strategy. - A **strategy** is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. ***Competitive Advantage*** - A firm has a ***competitive advantage*** "when it implements a strategy that creates superior value for customers and that its competitors are unable to duplicate or find too costly to imitate." - An organization can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors' efforts to duplicate its strategy have ceased or failed. ***Above-average Returns*** - ***Above-average returns*** are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. - ***Risk*** is an investor's uncertainty about the economic gains or losses that will result from a particular investment. ***Average Returns*** - ***Average returns*** are returns equal to those an investor expects to earn from other investments with a similar amount of risk. - In the long run, an inability to earn at least average returns results first in decline and, eventually, failure. ***Strategic Management Process*** - It is the **full set of commitments, decisions, and actions** required for a firm to achieve strategic competitiveness and earn above-average returns. - The process involves analysis, strategy and performance (the A-S-P) **THE COMPETITIVE LANDSCAPE** ***Hypercompetition*** - Describes competition that is **excessive** such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive landscape. - Results from the **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 ***THE GLOBAL ECONOMY*** A **global economy** is one in which goods, services, people, skills, and ideas move freely across Relatively geographic unfettered by borders. artificial constraints, such as tariffs, the global economy significantly expands and complicates a firm's competitive environment. The **nature of the global economy** reflects the hypercompetitive environment realities and individual firms to of a business challenges seriously evaluate the markets in which they will compete ***THE MARCH OF THE MARCH OF GLOBALIZATION GLOBALIZATION*** ***Globalization*** - It is the **increasing economic interdependence** among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders. - Overall, it is important to note that globalization has led to **higher performance standards** in many competitive dimensions, including those of quality, cost, productivity, product introduction time, and operational efficiency. **TECHNOLOGY AND TECHNOLOGICAL CHANGES** Technology-related trends and conditions can be placed into three categories: 1. *technology diffusion and disruptive technologies* 2. *the information age and;* 3. *increasing knowledge intensity.* These categories are **significantly altering the nature of competition** and as a result contributing to highly dynamic competitive environments. ***Technology Diffusion and Disruptive Technologies*** - The **rate of technology diffusion**, which is the speed at which new technologies become available and are used, has increased substantially over the past 15 to 20 years. - The impact of technological changes on individual firms and industries has been **broad and significant**. ***Perpetual innovation*** - It is a term used to describe how **[rapidly and consistently]** new, information-intensive technologies replace older ones. - The shorter product life cycles resulting from these rapid diffusions of new technologies place a **[competitive premium]** on being able to quickly introduce new, innovative goods and services into the marketplace. - When products become somewhat indistinguishable because of the widespread and rapid diffusion of technologies, speed to market with innovative products may be the **primary source of competitive advantage.** - Another indicator of rapid technology diffusion is that it now may **take only 12 to 18 month**s for firms to gather information about their competitors' research and development (R&D) and product decisions. - **Disruptive technologies**---technologies that destroy the value of an existing technology and create new markets---surface frequently in today's competitive markets. ***The Information Age*** - Dramatic changes in **information technology** (IT) have occurred in recent years. Personal computers, cellular phones, artificial intelligence, virtual reality, massive databases ("big data"), and multiple social networking sites are only a few examples of how information is used differently as a result of **technological developments.** - IT has become an important source of competitive advantage in virtually all industries. ***Increasing Knowledge Intensity*** - **Knowledge** (information, intelligence, and expertise) is the basis of technology and its application. - In the **competitive landscape of the twenty-first century**, knowledge is a critical organizational resource and an increasingly valuable source of competitive advantage. - Knowledge is gained through experience, observation, and inference and is an intangible resource. - A strong **knowledge-base** is necessary to create innovations. - Firms must continue to learn (building their knowledge base) because knowledge spillovers to competitors are common. - Firms must build routines that facilitate the diffusion of local knowledge throughout the organization for use everywhere that it has value *Strategic flexibility* - A **set of capabilities** used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment - Involves coping with uncertainty and its accompanying risks. - Firms should try to develop strategic flexibility in all areas of their operations. - To be strategically flexible on a continuing basis and to gain the competitive benefits of such flexibility, **a firm has to develop the capacity to learn** ***The I/O Model of Above-Average Returns*** - The industrial organization (I/O) model of above-average returns **explains the external environment's dominant influence** on a firm's strategic actions - The I/O model challenges firms to find the **most attractive industry** in which to compete. - Firms use the five forces model to identify the attractiveness of an industry (as measured by its profitability potential) as well as the most advantageous position for the firm to take in that industry, given the industry's structural characteristics Figure 1.2 The I/O Model of Above-Average Returns  A diagram of a strategy Description automatically generated **THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS** The Resource-Based Model of Above-Average Returns The **resource-based model of above-average returns** assumes that each organization is a collection of unique resources and capabilities. The **uniqueness** of its resources and capabilities is the basis of a firm's strategy and its ability to earn above-average returns. **Resource** **Resources** are inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers. In general, a firm's resources are classified into three categories: physical, human, and organizational capital. A **capability** is the capacity for a set of resources to perform a task or an activity in an integrative manner. **Core competencies** are capabilities that serve as source of competitive advantage for a firm over its rivals. Core competencies are often visible in the form of organizational functions. **Figure 1.3 The Resource-Based Model of Above-Average Returns**  A diagram of a company\'s strategy Description automatically generated Resources are **valuable** when they allow a firm to take advantage of opportunities or neutralize threats in its external environment. They are **rare** when possessed by few, if any, current and potential competitors. Resources are **costly to imitate** when other firms either cannot obtain them or are at a cost disadvantage in obtaining them compared with the firm that already possesses them. And they are **non-substitutable** when they have no structural equivalents. Many resources can either be imitated or substituted over time. Therefore, it is difficult to achieve and sustain a competitive advantage based on resources alone **VISION AND MISSION** **Vision** - **Vision** is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. - A **vision statement** articulates the ideal description of an organization and gives shape to its intended future. - 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 - A vision statement tends to be **relatively short and concise**, making it easily remembered. - The **CEO is responsible** for working with others to form the firm's vision. To help the firm reach its desired future state, a vision statement should be clearly tied to the conditions in **the firm's external environment and internal organization.** **Mission** *The vision is the foundation for the firm's mission* - A **mission** specifies the businesses in which the film intends to compete and the customers it intends to serve. - The firm's mission is more concrete than its vision. - The vision and mission provide the foundation that the firm needs to choose and implement one or more strategies. - The probability of forming an effective mission increases when employees have a **strong sense of the ethical standards** that guide their behaviors as they work to help the firm reach its vision**.** - The **CEO and other top-level managers** often involve more people in developing the mission. **STAKEHOLDERS** - **Stakeholders** are the individuals, groups, and organizations that can affect the firm's vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firm's performance. - Also, research suggests that firms that effectively manage stakeholder relationships outperform those that do not. - Stakeholder relationships and the firm's overall reputation among stakeholders can therefore be a source of competitive advantage. **Classification of Stakeholders** - The parties involved with a firm's operations can be separated into at least three groups. - These groups are **the capital market stakeholders** (shareholders and the major suppliers of a firm's capital), **the product market stakeholders** (the firm's primary customers, suppliers, host communities, and unions representing the workforce), and the **organizational stakeholders** (all of a firm's employees, including both non-managerial and managerial personnel). **Figure 1.4 The Three Stakeholder Groups**  **SHAREHOLDERS** - **Individuals and groups** who have invested capital in a firm in the expectation of earning a positive return on their investments. - These stakeholders' **rights are grounded in laws** governing private property and private enterprise. - In contrast to shareholders, another group of stakeholders---**the firm's customers**---prefers that investors receive a minimum return on their investments. - Customers could have their interests maximized when **the quality and reliability of a firm's products are improved**, but without high prices. High returns to customers, therefore, might come at the expense of lower returns for capital market stakeholders. **Because of potential conflicts, each firm must carefully manage its stakeholders.** - First, a firm must thoroughly identify and understand all important stakeholders. - Second, it must prioritize them in case it cannot satisfy all of them. Power is the most critical criterion in prioritizing stakeholders. - Other criteria might include the urgency of satisfying each particular stakeholder group and the degree of importance of each to the firm ***Capital Market Stakeholders*** - **Shareholders and lenders** both expect a firm to preserve and enhance the wealth they have entrusted to it. - The returns they expect are commensurate with the degree of risk they accept with those investments (i.e., lower returns are expected with low risk investments, while higher returns are expected with high-risk investments). - **Dissatisfied lenders** may impose stricter covenants on subsequent borrowing of capital. - **Institutional investors** (e.g., pension funds, mutual funds) often are willing to sell their stock if the returns are not what they desire, or they may take actions to improve the firm's performance such as pressuring top managers and members of boards of directors to improve the strategic decisions and governance oversight. Clearly, shareholders who hold a large share of stock (sometimes referred to as **blockholders**) are influential, especially in the determination of the firm's capital structure (i.e., the amount of equity versus the amount of debt used). **Product Market Stakeholders** - Some might think that product market stakeholders (customers, suppliers, host communities, and unions) share few common interests. However, **all four groups can benefit as firms engage in competitive battles.** - **Product market stakeholders** are generally satisfied when a firm's profit margin reflects at least a balance between the returns to capital market stakeholders (i.e., the returns lenders and shareholders will accept and still retain their interests in the firm) and the returns in which they share. **Organizational Stakeholders Organizational Stakeholders** - **Employees**---the firm's organizational stakeholders---expect the firm to provide a dynamic, stimulating, and rewarding work environment. - **Employees** generally prefer to work for a company that is growing and in which the employee can develop their skills, especially those skills required to be effective team members and to meet or exceed global work standards. - The process of managing expatriate employees and helping them build knowledge can have significant effects over time on the firm's **ability to compete in global markets.** **STRATEGIC LEADERS** **Strategic Leaders** **Strategic leaders** are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission. **Regardless of their location in the firm,** successful strategic leaders are decisive, committed to nurturing those around them, and committed to helping the firm create value for all stakeholder groups. **Organizational culture** also affects strategic leaders and their work. In turn, strategic leaders' decisions and actions shape a firm's culture. **The Work of Effective Strategic Leaders** Perhaps not surprisingly, hard work, thorough analyses, a willingness to be brutally honest, a penchant for wanting the firm and its people to accomplish more, and tenacity are **prerequisites to an individual's success as a strategic leader.** - The **top strategic leaders** are chosen on the basis of their capabilities (their accumulation of human capital and skills over time). - **Effective top management teams** (those with better human capital, management skills, and cognitive abilities) make better strategic decisions - strategic leaders must be **innovative thinkers** and **promote innovation** in their organization. - strategic leaders need to have a **global mindset**, or sometimes referred to as an **ambicultural approach to management**. - The most effective strategic leaders **provide a vision** as the foundation for the firm's mission and subsequent choice and use of one or more strategies **Chapter 2. The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis** **THE EXTERNAL ENVIRONMENT** **Figure 2.1. The External Environment** A diagram of a company Description automatically generated **THE GENERAL, INDUSTRY, AND COMPETITOR ENVIRONMENTS** **The General Environment.** is composed of dimensions in the broader society that influence an industry and the firms within it. **[SEVEN ENVIRONMENTAL SEGMENTS]**: demographic, economic, political/legal, sociocultural, technological, global, and sustainable physical. Firms cannot directly control the general environment's segments. **Table 2.1 The General Environment: Segments and Elements**  **Industry Environment** - It is the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms. **Competitor Analysis** - How companies gather and interpret information about their competitors. - Understanding the firm's competitor environment complements the insights provided by studying the general and industry environments**.** **External Environmental Analysis** **Table 2.2 Parts of the External Environment Analysis** A close up of text Description automatically generated **Opportunity** is a condition in the general environment that, if exploited effectively, helps a company reach strategic competitiveness. A **Threat** is a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness **SCANNING** - entails the study of all segments in the general environment. Although challenging, scanning is critically important to the firms' efforts to understand trends in the general environment and to predict their implications. - Through scanning, firms identify early signals of potential changes in the general environment and detect changes that are already underway. - Scanning activities must be aligned with the organizational context; a **scanning system** designed for a volatile environment is inappropriate for a firm in a stable environment. - Scanning often reveals ambiguous, incomplete, or unconnected data and information that require careful analysis. **MONITORING** - When monitoring, analysts observe environmental changes to see if an important trend is emerging from among those spotted through scanning. - Critical to successful monitoring is the firm's ability to detect meaning in environmental events and trends. - Effective monitoring requires the firm to identify important stakeholders and understand its reputation among these stakeholders as the foundation for serving their unique needs. - Scanning and monitoring are particularly important when a firm competes in an industry with high technological uncertainty. - Scanning and monitoring can provide the firm with information. **FORECASTING** - When forecasting, analysts develop feasible projections of what might happen, and how quickly, as a result of the events and trends detected through scanning and monitoring. - Forecasting events and outcomes accurately is challenging. **ASSESSING** - To determine the timing and significance of the effects of environmental changes and trends that have been identified. - Accurately assessing the trends expected to take place in the segments of a firm's general environment is important. **SEGMENTS OF THE GENERAL ENVIRONMENT** The **general environment** is composed of segments that are external to the firm. Although the degree of impact varies, these environmental segments affect all industries and the firms competing in them. ***The Demographic Segment*** The demographic segment is concerned with a population's size, structure, age geographic distribution, ethnic mix, and income distribution.  ***The Economic Segment*** **Economic Environment** - refers to the [nature and direction] of the economy in which a firm competes or may compete. - In general, firms seek to compete in relatively stable economies with strong growth potential. - It is challenging for firms studying the economic environment to predict economic trends that may occur and their effects on them ***The Political/Legal Segment*** - The political/legal segment is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies. - This segment is concerned with **how organizations try to influence governments** and how they try to understand the influences (current and projected) of those governments on their competitive actions and responses. **The Sociocultural Segment** - The **sociocultural segment** is concerned with a society's attitudes and cultural values. Because attitudes and values form the cornerstone of society, they often drive demographic, economic, political/legal, and technological conditions and changes. - **Individual societies' attitudes and cultural orientations** are anything but stable, meaning that firms must carefully scan, monitor, forecast, and assess them to recognize and study associated opportunities and threats **The Technological Segment** - The technological segment includes the institutions and activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials. - Given the rapid pace of technological change and risk of disruption, it is vital for firms to thoroughly study the technological segment **THE GLOBAL SEGMENT** - The global segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets. - **Global focusing** often is used by firms with moderate levels of international operations who increase their internationalization by focusing on global niche markets **The Sustainable Physical Environment Segment** - The sustainable physical environment segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to those changes with the intent of creating a sustainable environment. - Ecological, social, and economic systems interactively influence what happens in this particular segment, and that they are part of an interconnected global society. **INDUSTRY ENVIRONMENTAL ANALYSIS** **Industry** - is a group of firms producing products that are close substitutes. In the course of competition, these firms influence one another. - An industry's structural characteristics influence a firm's choice of strategies. - Compared with the general environment, the industry environment (measured primarily in the form of its characteristics) has a more direct effect on the competitive actions and responses a firm takes to succeed. **Figure 2.2 The Five Forces of Competition Mode** A diagram of a circular diagram Description automatically generated **Threats of New Entrants** - Identifying new entrants is important because they can threaten the market share of existing competitors. - One reason new entrants pose such a threat is that they bring additional production capacity. - The likelihood that firms will enter an industry is a function of two factors: barriers to entry and the retaliation expected participants. **Barriers to Entry** - Firms competing in an industry (and especially those earning above-average returns) try to develop entry barriers to thwart potential competitors. - Companies competing within a particular industry study these barriers to determine the degree to which their competitive position reduces the likelihood of new competitors being able to enter the industry to compete against them. - Economies of Scale - Product Differentiation - Capital Requirements - Switching Costs - Access to Distribution Channels - Cost Disadvantages Independent of Scale - Government Policy **Expected Retaliation** - Companies seeking to enter an industry also anticipate the reactions of firms in the industry. - An expectation of swift and vigorous competitive responses reduces the likelihood of entry. - Vigorous retaliation can be expected when the existing firm has a major stake in the industry (e.g., it has fixed assets with few, if any, alternative uses), when it has substantial resources, and when industry growth is slow or constrained. **Bargaining Power of Suppliers** A supplier group is powerful when: - It is **dominated** by a few large companies and is more concentrated than the industry to which it sells. - **Satisfactory substitute products** are not available to industry firms. - **Industry firms** are not a significant customer for the supplier group. - Suppliers' goods are critical to buyers' marketplace success - The effectiveness of suppliers' products has created high switching costs for industry firms. - It poses a credible threat to integrate forward into the buyers' industry. - Credibility is enhanced when suppliers have substantial resources and provide a highly differentiated product **Threat of Substitute Products** - **Substitute products** are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces. - Product substitutes present a strong threat to a firm when customers face few if any switching costs and when the substitute product's price is lower or its quality and performance capabilities are equal to or greater than those of the competing product. **Intensity of Rivalry among Competitors** The most prominent factors that experience shows affect the intensity of rivalries among firms. **Numerous or Equally Balanced Competitors** - it is common for a few firms to believe they can act without eliciting a response. **Slow Industry Growth**- rivalry in no-growth or slow growth markets becomes more intense as firms battle to increase their market shares by attracting competitors' customers. **High Fixed Costs or High Storage Cost** - When fixed costs account for a large part of total costs, companies try to maximize the use of their productive capacity. **Lack of Differentiation or Low Switching Costs** - Firms that develop and sustain a differentiated product that cannot be easily imitated by competitors often earn higher returns. **High Strategic Stakes -** Competitive rivalry is likely to be high when it is important for several of the competitors to perform well in the market. - High strategic stakes can also exist in terms of geographic locations. **High Exit Barriers** Common exit barriers that firms face include the following: - **Specialized assets** (assets with values linked to a particular business or location) Fixed costs of exit (such as labor agreements). - **Strategic interrelationships** (relationships of mutual dependence, such as those between one business and other parts of a company's operations, including shared facilities and access to financial markets). - **Emotional barriers** (aversion to economically justified business decisions because of fear for one's own career, loyalty to employees, and so forth) - **Government and social restrictions** (often based on government concerns for job losses and regional economic effects; more common outside the United States). **INTERPRETING INDUSTRY ANALYSIS** **Effective industry analyses** are products of careful study and interpretation of data and information from multiple sources. **Analysis of the five forces within a given industry** allows the firm to determine the industry's attractiveness in terms of the potential to earn average or above-average returns. **Strategic Groups** - A set of firms emphasizing similar strategic dimensions and using a similar strategy is called a strategic group. - The competition between firms within a strategic group is greater than the competition between a member of a strategic group and companies outside that strategic group. - The notion of strategic groups can be useful for analyzing an industry's competitive structure. Strategic groups have several implications. - First, because firms within a group offer similar products to the same customers, the competitive rivalry among them can be intense. The more intense the rivalry, the greater the threat to each firm's profitability. - Second, the strengths of the five forces differ across strategic groups. - Third, the closer the strategic groups are in terms of their strategies, the greater is the likelihood of rivalry between the groups. **COMPETITOR ANALYSIS** - The competitor environment is the final part of the external environment requiring study. - Competitor analysis focuses on each company against which a firm competes directly. In a competitor analysis, the firm seeks to understand the following: - What drives the competitor, as shown by its future objectives. - What the competitor is doing and can do, as revealed by its current strategy. - What the competitor believes about the industry, as shown by its assumptions. - What the competitor's capabilities are, as shown by its strengths and weaknesses. Figure 2.3 Competitor Analysis Components  Critical to an effective competitor analysis is gathering data and information that can help the firm understand its competitors' intentions and the strategic implications resulting from them. Useful data and information combine to form **competitor intelligence** which is the set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities. Complementors are companies or networks of companies that sell complementary goods or services that are compatible with the focal firm's good or service. When a complementor's good or service contributes to the functionality of a focal firm's good or service, it in turn creates additional value for that firm. **ETHICAL CONSIDERATIONS** Practices considered both legal and ethical include: - Obtaining publicly available information (e.g., court records, competitors' help wanted advertisements, annual reports, financial reports of publicly held corporations, and Uniform Commercial Code filings) - Attending trade fairs and shows to obtain competitors' brochures, view their exhibits, and listen to discussions about their products. - certain practices (including blackmail, trespassing, eavesdropping, and stealing drawings, samples, or documents) are widely viewed as unethical and often are illegal as well. - Some competitive intelligence practices may be legal, but a firm must decide whether they are also ethical, given the image it desires as a corporate citizen.