ch01 strategic management and

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Chapter 1Chapter 1

Strategic Management andStrategic Management and

Strategic CompetitivenessStrategic Competitiveness

Michael A. HittMichael A. HittR. Duane IrelandR. Duane IrelandRobert E. HoskissonRobert E. Hoskisson

2000 South-Western College Publishing


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Michael A. HittMichael A. HittR. Duane IrelandR. Duane IrelandRobert E. HoskissonRobert E. Hoskisson

2000 South-Western College Publishing


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Sustained Competitive AdvantageSustained Competitive Advantage

Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects toReturns in excess of what an investor expects to

earn from other investments with similar riskearn from other investments with similar risk

Occurs when a firm develops a strategy thatOccurs when a firm develops a strategy thatcompetitors are not simultaneously implementingcompetitors are not simultaneously implementing

Provides benefits which current and potentialProvides benefits which current and potentialcompetitors are unable to duplicatecompetitors are unable to duplicate

Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulatesAchieved when a firm successfully formulates

and implements a value-creating strategyand implements a value-creating strategy


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which are required for firms to achieve:which are required for firms to achieve:

Above-Average ReturnsAbove-Average Returns

Strategic CompetitivenessStrategic CompetitivenessSustained Competitive AdvantageSustained Competitive Advantage

The Strategic Management ProcessThe Strategic Management Process

Involves the full set of:Involves the full set of:

ActionsActionsCommitmentsCommitments DecisionsDecisions


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The StrategicThe StrategicManagementManagement

ProcessProcessChapter 3

InternalEnvironment

Chapter 2

ExternalEnvironment

Strategic Intent

Strategic Mission

Strategy Formulation Strategy Implementation

Chapter 4Business-Level

Strategy

Chapter 5CompetitiveDynamics

Chapter 6Corporate-Level

Strategy

Chapter 8

InternationalStrategy

Chapter 9

CooperativeStrategies

Chapter 7

Acquisitions &Restructuring

Chapter 10Corporate

Governance

Chapter 11Structure& Control

Chapter 12

StrategicLeadership

Chapter 13Entrepreneurship& Innovation

Strategic

Inputs

FeedbackStrategic

Outcomes

Strategic

Strategic

Actions

Actions

StrategicCompetitivenessAbove Average

Returns


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Chapter One: Key ThemesChapter One: Key Themes

Industrial Organization ModelIndustrial Organization Model

Resource-Based ModelResource-Based Model

Challenge of Strategic ManagementChallenge of Strategic Management

Changing Competitive LandscapeChanging Competitive Landscape

Two Models of Superior ProfitabilityTwo Models of Superior Profitability

Key Stakeholder Groups


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Competitive success is transient...unless care is

taken to preserve competitive position

Only 16 of the 100 largest U.S. companies atthe start of the 20th century are stillidentifiable today!

In a recent year, 44,367 businesses filed forbankruptcy and many more U.S. businesses failed



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100 16 .

44367

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Best Stocks of the DecadeBest Stocks of the Decade


The goals of achievingThe goals of achievingstrategic competitivenessstrategic competitivenessand earning above-and earning above-average returns areaverage returns arechallengingchallenging

The performance ofThe performance ofsome companies moresome companies more

than meets strategicthan meets strategicmanagement'smanagement'schallengechallenge


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Rapid technological changes Rapid technology diffusions

Dramatic changes ininformation andcommunication technologies

Increasing importance ofknowledge

Fundamental nature ofcompetition is changing

The pace of changeis relentless....and increasing

Traditional industryboundaries are

blurring, such as... Computers Telecommunications

21st Century Competitive Landscape21st Century Competitive Landscape


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http://technological%20changes.ppt/http://technological%20changes.ppt/


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The global economy ischanging

People, goods, services andideas move freely acrossgeographic boundaries

New opportunities emergein multiple global markets

Markets and industriesbecome moreinternationalized

Traditional sources ofcompetitive advantageno longer guarantee

successNew keys to successinclude:

Flexibility Innovation Speed Integration



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1999 1998 Country Competitiveness

Index 1999

Competitiveness

Index 19981 1 Singapore 2.12 2.16

2 3 United States 1.58 1.413 2 Hong Kong 1.41 1.91

4 6 Taiwan 1.38 1.19

5 5 Canada 1.33 1.27

6 8 Switzerland 1.27 1.10

7 10 Luxembourg 1.25 1.05

8 4 United Kingdom 1.17 1.299 7 Netherlands 1.13 1.13

10 11 Ireland 1.11 1.05

11 15 Finland 1.11 0.7012 14 Australia 1.04 0.79

13 13 New Zealand 10.1 0.8414 12 Japan 1.00 0.97

15 9 Norway 0.92 1.09

16 17 Malaysia 0.86 0.59

17 16 Denmark 0.85 0.61

18 30 Iceland 0.59 -0.18

19 23 Sweden 0.58 0.25

20 20 Austria 0.37 0.37

21 18 Chile 0.57 0.5722 19 Korea 0.46 0.39

23 22 France 0.44 0.25

24 27 Belgium 0.39 -0.03

25 24 Germany 0.37 0.15

26 25 Spain 0.16 0.02

Country Competitiveness RankingsCountry Competitiveness RankingsA countrysA countrys

competitiveness iscompetitiveness isachieved through theachieved through theaccumulation ofaccumulation ofindividual firmsindividual firmsstrategicstrategic

competitiveness incompetitiveness inthe global economythe global economy

Achieving improvedAchieving improvedcompetitivenesscompetitivenessallows a country'sallows a country'scitizens to have acitizens to have ahigher standard ofhigher standard oflivingliving



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1999 1998 1999

1998

1 1 2.12 2.162 3 1.58 1.413 2 1.41 1.914 6 1.38 1.195 5 1.33 1.276 8 1.27 1.107 10 1.25 1.058 4 1.17 1.29

9 7 1.13 1.1310 11 1.11 1.0511 15 1.11 0.7012 14 1.04 0.7913 13 10.1 0.8414 12 1.00 0.9715 9 0.92 1.0916 17 0.86 0.59

17 16 0.85 0.6118 30 0.59 -0.1819 23 0.58 0.2520 20 0.37 0.3721 18 0.57 0.5722 19 0.46 0.3923 22 0.44 0.2524 27 0.39 -0.0325 24

0.37 0.15

26 25 0.16 0.02

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Country Competitiveness Rankings (Population over20 Million)

Country 2002 2003United States 1 2Australia 2 3

Canada 3 2

Malaysia 4 6

Germany 5 4

Taiwan 6 7United Kingdom 7 5

France 8 9

Spain 9 8

Thailand 10 10

Japan 11 11

China 12 12Brazil 13 0

China 14 0

Korea 15 10

Country 2002 2003Colombia 16 20Italy 17 14

South Africa 18 16

India 19 0

India 20 17

Brazil 21 15Philippines 22 18

Romania 23 0

Mexico 24 19

Turkey 25 23

Russia 26 21

Poland 27 22Indonesia 28 25

Argentina 29 26

Venezuela 30 24

SOURCE: From World Competitiveness Yearbook 2003, IMD,Switzerland. http://www.imd.ch.wcy.esummary, April. Reprintedby permission.


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Alternative Models of Superior ReturnsAlternative Models of Superior Returns

Resource-BasedResource-BasedModelModel

Industrial OrganizationIndustrial OrganizationModelModel

The External EnvironmentThe External Environment

An Attractive IndustryAn Attractive Industry

Strategy FormulationStrategy Formulation

Assets and SkillsAssets and SkillsStrategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

ResourcesResources

CapabilityCapability

Competitive AdvantageCompetitive Advantage

An Attractive IndustryAn Attractive IndustryStrategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns


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I/O Model of Superior ReturnsI/O Model of Superior Returns

The Industrial Organization modelsuggests that above-average returnsfor any firm are largely determined

by characteristics outside the firm.

This model largely focuses onindustry structure or attractiveness ofthe external environment rather thaninternal characteristics of the firm.


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http://1-%20/??????%20?????.ppthttp://1-%20/??????%20?????.ppthttp://1-%20/??????%20?????.ppt


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Action required:External

EnvironmentGeneral Environment

Industry Environment

Competitive

Environment

Study the externalenvironment, especiallythe industry environment.



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I/OI/O


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External



Competitive

Environment

An AttractiveIndustry

An industry whosestructural characteristicssuggest above-averagereturns are possible

Action required:

Locate an industry withhigh potential for above-average returns.



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External



Competitive

Environment

AttractiveIndustry


Action required:

Identify strategy called forby the industry to earnabove-average returns.

Selection of a strategylinked with above-average returns in aparticular industry

StrategyFormulation



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External



Competitive

Environment

AttractiveIndustry


StrategyFormulation


Action required:

Develop or acquire assetsand skills needed toimplement the strategy.

Assets and Skills

Assets and skillsrequired to implementa chosen strategy



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External



Competitive

Environment

AttractiveIndustry


StrategyFormulation


Assets and Skills


Action required:

Use the firms strengths(its assets or skills) toimplement the strategy.

StrategyImplementation

Selection of strategicactions linked witheffective implementationof the chosen strategy



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External



Competitive

Environment

AttractiveIndustry


StrategyFormulation


Assets and Skills


Action required:

StrategyImplementation

Selection of strategicactions linked witheffective implementationof the chosen strategy

Superior Returns

Earning of above-average returns

Maintain selected strategyin order to outperformindustry rivals.



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The Resource-Based model suggeststhat above-average returns for anyfirm are largely determined by

characteristics inside the firm.This model focuses on developing orobtaining valuable resources and

capabilities which are difficult orimpossible for rivals to imitate.

Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns


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Resources

Inputs to a firmsproduction process.

Action required:

Identify firm resources.Study strengths and weak-nesses relative to rivals.



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R B d M d l f S i R


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Resources


Action required:

Determine what firmcapabilities allow it to dobetter than rivals.

Capability

Capacity for an integratedset of resources to perform

a task or activity.



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f S iR B d M d l f S i R t


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Resources


Capability

Capacity for an integratedset of resources to

integratively perform atask or activity.

CompetitiveAdvantage

Ability of a firm tooutperform its rivals

Action required:

Determine how firmsresources and capabilitiesmay create competitiveadvantage.



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R B d M d l f S i R tR B d M d l f S i R t


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ResourcesInputs to a firmsproduction process.

Capability






Location of anindustry withopportunities that can

be exploited by thefirms resources andcapabilities

Action required:

Locate an attractiveindustry.



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Capability








Action required:

Select strategy that bestexploits resources andcapabilities relative toopportunities in environs.

StrategyFormulation andImplementation

Strategic actions taken toearn above-averagereturns


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Capability








Action required:

Maintain selected strategyin order to outperformindustry rivals.

StrategyFormulation andImplementation

Strategic actions taken toearn above-averagereturns

Superior Returns

Earning of above-average returns


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Resources and capabilities lead toResources and capabilities lead to


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NonsubstitutableNonsubstitutable the firm must be organized appropriately tothe firm must be organized appropriately toobtain the full benefits of the resources inobtain the full benefits of the resources inorder to realize a competitive advantageorder to realize a competitive advantage

ValuableValuable allow the firm to exploit opportunities orallow the firm to exploit opportunities orneutralize threats in its externalneutralize threats in its externalenvironmentenvironment

RareRarepossessed by few, if any, current andpossessed by few, if any, current andpotential competitorspotential competitors

Costly to ImitateCostly to Imitate when other firms either cannot obtain themwhen other firms either cannot obtain themor must obtain them at a much higher costor must obtain them at a much higher cost

Resources and capabilities lead toResources and capabilities lead toCompetitive AdvantageCompetitive Advantage when they are:when they are:

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Resources and Capabilities Core


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Resources and Capabilities, CoreCompetencies, and Outcomes

CoreCore

CompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

Value CreationValue Creation

Above AverageAbove Average

ReturnsReturns

ValuableValuable

RareRare

Costly toCostly to

ImitateImitate

NonsubstitutablNonsubstitutabl

ee


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Core CompetenciesCore Competencies

When these fourWhen these fourcriteria are met,criteria are met,

Resources andResources andCapabilitiesCapabilitiesbecome:become:

Core Competencies are resources and capabilitiesCore Competencies are resources and capabilitiesthat can serve as a source ofthat can serve as a source ofCompetitive AdvantageCompetitive Advantage..

The Resource-Based model argues that CoreThe Resource-Based model argues that CoreCompetencies are the basis for a firms CompetitiveCompetencies are the basis for a firms CompetitiveAdvantage, Strategic Competitiveness and Ability toAdvantage, Strategic Competitiveness and Ability toEarn Above-average Returns.Earn Above-average Returns.


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Winning competitive battles through decidingWinning competitive battles through decidinghow to leverage internal resources, capabilities,how to leverage internal resources, capabilities,and core competencies.and core competencies.

Strategic IntentStrategic Intent

An application of strategic intent in terms ofAn application of strategic intent in terms ofproducts to be offered and markets to be served.products to be offered and markets to be served.

Strategic MissionStrategic Mission


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BUSINESS WEEKSS 10 Top Managers of the Year, 1999Name Company Strategic Accomplishment

Minoru Arakawa Nintendo America Scored huge hit by bringing Pok mon to U.S.

over objections of co-workers and negativemarket research

Bernard Arnault LVMH From just 23 in Oct. 98, LVMHs U.S. shareshave vaulted 280%, to about 87

Arthur Blank Home Depot Profits should jump 46%, to $2.3 billion for fiscal year 1999. Sales are expected to grow25%, to $38 billion

Peter Bijur Texaco After his company was labeled racist, attracted

minorities to key jobs, including treasurer IraHall, a former IBM executive

Gordon Binder Amgen Boosted stock price by around 100% last year, toabout $54

Steve Case America Online Deals to broaden AOLs availability and serviceswill help boost income 102% this fiscal year, to$800 million

John Chambers Cisco Systems Broadened Cisco into strategic businesses such

as software, consulting, and fiber-opticcommunications

Jim Curvey Fidelity Investments Reduced internal conflicts and spurred growththrough management changes

Thierry Desmarest Totalfina Acquired rival French oil company ELFAquitaine for $44 billion. Shares up about 35%in 99, as profits expected to grow 20%, to $3.1billion

Bernie Ebbers MCI Worldcom Turned toward more profitable data, Internet,and international operations

The most

effectivestrategists providea vision )strategicintent( toeffectively elicitthe help of othersin creating afirm's competitiveadvantage.



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Minoru Arakawa Nintendo America Scored huge hit by bringing Pokmon to U.S.

over objections of co-workers and negativemarket research

Bernard Arnault LVMH From just 23 in Oct. 98, LVMHs U.S. shareshave vaulted 280%, to about 87

Arthur Blank Home Depot Profits should jump 46%, to $2.3 billion forfiscal year 1999. Sales are expected to grow25%, to $38 billion

Peter Bijur Texaco After his company was labeled racist, attracted

minorities to key jobs, including treasurer IraHall, a former IBM executive

Gordon Binder Amgen Boosted stock price by around 100% last year, toabout $54

Steve Case America Online Deals to broaden AOLs availability and serviceswill help boost income 102% this fiscal year, to$800 million

John Chambers Cisco Systems Broadened Cisco into strategic businesses such

as software, consulting, and fiber-opticcommunications

Jim Curvey Fidelity Investments Reduced internal conflicts and spurred growththrough management changes

Thierry Desmarest Totalfina Acquired rival French oil company ELFAquitaine for $44 billion. Shares up about 35%in 99, as profits expected to grow 20%, to $3.1

billion

Bernie Ebbers MCI Worldcom Turned toward more profitable data, Internet,and international operations

.

Stakeholders:Stakeholders: Groups who are affected by a firmsGroups who are affected by a firms


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Stakeholders:Stakeholders: Groups who are affected by a firm sGroups who are affected by a firm sperformance and who have claims on itsperformance and who have claims on itswealthwealth

The firm must maintainThe firm must maintainperformance at an adequate level inperformance at an adequate level inorder to maintain the participationorder to maintain the participationof key stakeholdersof key stakeholders

OrganizationalOrganizational

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

FirmFirm

Capital MarketCapital Market

Stock market/InvestorsStock market/Investors

Debt suppliers/BanksDebt suppliers/Banks

Product MarketProduct Market

Primary CustomersPrimary CustomersSuppliersSuppliers

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Stakeholder InvolvementStakeholder Involvement


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Stakeholder InvolvementStakeholder InvolvementEach of the key stakeholdersEach of the key stakeholderswants a piece of the same piewants a piece of the same pie

How do youHow do you divide the piedivide the piein order to keep all of thein order to keep all of the

stakeholders involved?stakeholders involved?

How do youHow do you increase theincrease thesizesize of the pie so that thereof the pie so that there

is more to go around?is more to go around?



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Chapter 2

External The StrategicThe Strategic


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Chapter 3

InternalEnvironment

EnvironmentThe StrategicgManagementManagement

ProcessProcess

Strategic Intent

Strategic Mission

StrategicCompetitivenessAbove Average

ReturnsFeedback

Strategy Formulation

Chapter 4

Business-LevelStrategy

Chapter 5

CompetitiveDynamics

Chapter 6

Corporate-LevelStrategy

Chapter 8

InternationalStrategy

Chapter 9

CooperativeStrategies

Chapter 7

Acquisitions &Restructuring

Strategy Implementation

Chapter 10

CorporateGovernance

Chapter 11

Structure& Control

Chapter 12

StrategicLeadership

Chapter 13Entrepreneurship& Innovation

Strategic

Inputs

Strategic

Actions

Strategic

Outcomes

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