chapter 1: creating competitive advantages mngt 4800 dr. shook
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Chapter 1: Creating Chapter 1: Creating Competitive AdvantagesCompetitive AdvantagesMNGT 4800MNGT 4800Dr. ShookDr. Shook
AgendaAgenda
Strategic management definedStrategic management defined Strategic management process Strategic management process Schools of thoughtSchools of thought Corporate governance and Corporate governance and
stakeholder managementstakeholder management Environmental forces creating Environmental forces creating
change change Hierarchy of strategic goalsHierarchy of strategic goals
Two Perspectives of Two Perspectives of LeadershipLeadership
Strategic Choice Perspective Strategic Choice Perspective (Romantic view)(Romantic view) Leader is the key force in Leader is the key force in
organization’s successorganization’s success Population EcologyPopulation Ecology
(External control perspective)(External control perspective) Focus is on external factors that affect Focus is on external factors that affect
an organization’s successan organization’s success
Two Perspectives of Two Perspectives of LeadershipLeadership
Leaders can make a differenceLeaders can make a difference Must be aware of opportunities and Must be aware of opportunities and
threats faced in external environmentthreats faced in external environment Must have thorough understanding of Must have thorough understanding of
the firm’s resources and capabilitiesthe firm’s resources and capabilities
Strategic ManagementStrategic Management
Definition:Definition: Strategic management consists of the Strategic management consists of the analysis, decisions, and actions an organization analysis, decisions, and actions an organization undertakes in order to create and sustain competitive undertakes in order to create and sustain competitive advantages.advantages.Key attributes of strategic managementKey attributes of strategic management Directs the organization toward overall goals and Directs the organization toward overall goals and
objectives.objectives. Includes multiple stakeholders in decision makingIncludes multiple stakeholders in decision making Needs to incorporate short-term and long-term Needs to incorporate short-term and long-term
perspectivesperspectives Recognizes trade-offs between efficiency and effectivenessRecognizes trade-offs between efficiency and effectiveness
Strategic ManagementStrategic Management
Analysis (Chs. 1, 2, 3, and 4)Analysis (Chs. 1, 2, 3, and 4) Strategic goals (vision, mission, strategic Strategic goals (vision, mission, strategic
objectives)objectives) Internal and external environment of the firmInternal and external environment of the firm
Strategic decisions (Chs 5, 6, 7, and 8)Strategic decisions (Chs 5, 6, 7, and 8) In which industry(ies) should we compete?In which industry(ies) should we compete? How should we compete in those industries?How should we compete in those industries?
Actions (Chs 9, and 10)Actions (Chs 9, and 10) Allocate necessary resourcesAllocate necessary resources Design the organization to bring intended Design the organization to bring intended
strategies to realitystrategies to reality
Strategic ManagementStrategic Management
Strategic management is the study of Strategic management is the study of why some firms outperform otherswhy some firms outperform others How to compete in order to create How to compete in order to create
competitive advantages in the competitive advantages in the marketplacemarketplace
How to create competitive advantages in How to create competitive advantages in the market placethe market place Unique and valuableUnique and valuable Difficult for competitors to copy or substituteDifficult for competitors to copy or substitute
Strategic IntentionsStrategic Intentions
IntendedStrategy
DeliberateStrategy
UnrealizedStrategy
EmergentStrategy
RealizedStrategy
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Two Foundational Schools of ThoughtTwo Foundational Schools of Thought
Industrial Organization ModelIndustrial Organization Model11
Resource-Based ModelResource-Based Model
– Assumptions:Assumptions: The external environment imposes constraints that The external environment imposes constraints that
determine the strategies that can result in superior determine the strategies that can result in superior
profitability.profitability. Competing firms control similar resources and pursueCompeting firms control similar resources and pursue
similar strategiessimilar strategies Resources utilized by firms are highly mobile Resources utilized by firms are highly mobile
thus homogeneousthus homogeneous
I/O Model of Superior ReturnsI/O Model of Superior Returns
I/O Model of Superior ReturnsI/O Model of Superior Returns
The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.
The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.
I/O Model of Superior ReturnsI/O Model of Superior Returns
The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.
The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.
The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.
The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
–Assumptions:Assumptions: Firms acquire different resources over timeFirms acquire different resources over time Resources heterogeneity within a particular Resources heterogeneity within a particular
industryindustry Resources may not be highly mobile acrossResources may not be highly mobile across
firmsfirms Difference in resources and how they are used Difference in resources and how they are used
form the basis of competitive advantageform the basis of competitive advantage
The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.
The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.
The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.
The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.
The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Corporate Governance and Corporate Governance and Stakeholder ManagementStakeholder Management
Corporate governance: the Corporate governance: the relationship among various relationship among various participants in determining the participants in determining the direction and performance of direction and performance of corporationscorporations ShareholdersShareholders Management (led by the CEO)Management (led by the CEO) Board of directorsBoard of directors
Corporate Governance and Corporate Governance and Stakeholder ManagementStakeholder Management
Board of directorsBoard of directors Elected represent-Elected represent-
atives of the ownersatives of the owners Ensure interests Ensure interests
and motives of man- and motives of man- agement are aligned agement are aligned with those of the owners with those of the owners Effective and engaged board of directorsEffective and engaged board of directors Shareholder activismShareholder activism Proper managerial rewards and incentivesProper managerial rewards and incentives
Exhibit 1.4 The Key Elements of Corporate Governance
Stakeholder ManagementStakeholder Management
Two views of stakeholder Two views of stakeholder managementmanagement Zero sumZero sum
Stakeholders compete for attention and Stakeholders compete for attention and resources of the organizationresources of the organization
Gain of one is a loss to the otherGain of one is a loss to the other SymbiosisSymbiosis
Stakeholders are dependent upon each Stakeholders are dependent upon each otherother
Mutual benefitsMutual benefits
Social ResponsibilitySocial Responsibility
Social responsibility: the Social responsibility: the expectation that businesses or expectation that businesses or individuals will strive to improve the individuals will strive to improve the overall welfare of societyoverall welfare of society Managers must take active steps to Managers must take active steps to
make society bettermake society better Socially responsible behavior changes Socially responsible behavior changes
over timeover time Triple bottom lineTriple bottom line
Four Additional Types of Four Additional Types of CapitalCapital
In addition to financial capitalIn addition to financial capital
Type of Capital Description
Ecological Renewable resources generated by living systems, such as wood or animal by-products
Material Nonrenewable or geological resources such as mineral ores and fossil fuels
Human People’s knowledge, skills, health, nutrition, safety, security, and motivation
Social Assets of civil society, such as social cohesion, trust, reciprocity, equity, and other values that provide mutual benefit
Strategic Management Strategic Management PerspectivePerspective
Integrative view of the organizationIntegrative view of the organization Assess how functional areas and Assess how functional areas and
activities “fit together” to achieve activities “fit together” to achieve goals and objectivesgoals and objectives
All managers and employees must All managers and employees must take and integrative, strategic take and integrative, strategic perspective of issues facing the perspective of issues facing the organizationorganization
Strategic Management Strategic Management PerspectivePerspective
Key driving forces increasing the Key driving forces increasing the need for strategic perspective and need for strategic perspective and involvementinvolvement GlobalizationGlobalization TechnologyTechnology Intellectual capitalIntellectual capital
These forces are These forces are InterrelatedInterrelated Accelerating the rate of change and Accelerating the rate of change and
uncertaintyuncertainty
Hierarchy of Goals
Coherence in Strategic Coherence in Strategic DirectionDirection
Company visionCompany vision Massively inspiringMassively inspiring OverarchingOverarching Long-termLong-term Driven by and evokes Driven by and evokes
passionpassion Fundamental statement of Fundamental statement of
the organization’sthe organization’s ValuesValues AspirationAspiration GoalsGoals
Company visionCompany vision
Hierarchy of Goals
Company visionCompany vision
Coherence in Strategic Coherence in Strategic DirectionDirection
Mission statementsMission statements Purpose of the Purpose of the
companycompany Basis of competition Basis of competition
and competitive and competitive advantagesadvantages
More specific than More specific than visionvision
Focused on the means Focused on the means by which the firm will by which the firm will competecompete
Mission statementsMission statements
Hierarchy of Goals
Company visionCompany vision
Mission statementsMission statements
Coherence in Strategic Coherence in Strategic DirectionDirection
Strategic objectivesStrategic objectives Operationalize the Operationalize the
mission statementmission statement Provide guidance on Provide guidance on
how the organization how the organization can fulfill or move can fulfill or move toward the “higher toward the “higher goals”goals”
More specificMore specific Cover a more well-Cover a more well-
defined time framedefined time frame
Strategic objectivesStrategic objectives
Coherence in Strategic Coherence in Strategic DirectionDirection
MeasurableMeasurable SpecificSpecific AppropriateAppropriate RealisticRealistic Timely Timely ChallengingChallenging Resolve conflicts that ariseResolve conflicts that arise Yardstick for rewards and Yardstick for rewards and
incentivesincentives
Strategic objectives
Hierarchy of Goals
Company visionCompany vision
Mission statementsMission statements
Strategic objectivesStrategic objectives