Chapter 1

What is Strategy & the Strategic Management

Process?

Key Chapter Objectives

Have an understanding of:• what is strategic management.• the strategic management process.• what competitive advantage is• why stakeholders are important.• key environmental forces that are

creating dynamic fast-paced change.• the need for a hierarchy of goals

What is Strategic Management?

“The analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages” (Dess & Lumpkin,

2003; p.3).

“A pattern in a stream of actions or decisions (Henry Mintzberg).

Types of Strategies

Strategy as a Plan Strategy as a Ploy Strategy as a Pattern Strategy as a Perspective Strategy as a Position

Key Attributes of Strategy

Directs organization toward overall goals & objectives.

Includes multiple stakeholders in decision making.

Must incorporate short- & long-term perspectives.

Recognizes trade-offs between efficiency & effectiveness.

Challenges of Strategic Managers

Network

ProfitabilityKey Stakeholders

Changing Landscape

Quarterly PerformanceLong-Term Planning

Diverse Workforce

Develop Cohesive Organization

Short-term Goals Long-term Goals

Overall View of the Strategic Management Process

Analysis Decisions Actions

Strategic Management Process

Mission&

Objectives

ExternalAnalysis

InternalAnalysis

StrategyFormulation

StrategyImplementation

Feedback

Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

Mission

Strategic Management Process

Barney & Hesterly p. 5

Analysis: Mission & Objectives

Vision statements are an inspiring, overarching, and long-term statement.

Mission statements encompasses both the purpose of the company and the basis of competition and competitive advantage.

Objectives are developed from the vision and mission statements.

Analysis: External & Internal

Analysis of the Firm’s External Environment: What are the trends in the industry? What are the trends in the general environment? What are the competitor’s trends?

Analysis of the Firm’s Internal Environment: What are the firm’s resources? What are the firm’s capabilities? What are the firm’s distinctive competencies?

Decisions (Strategic Choice)

Strategy Formulation: Functional-level (HR, Manufacturing, Marketing,

etc.)

Business-level (Cost, differentiation, focus, or integrative)

Corporate-level (diversification, restructuring)

Actions(Strategy Implementation)

Strategy Implementation through: Organizational Structure. Control Systems. Leadership. Response to Change.

Competitive Advantage

Definition: the ability to create more economic value than competitors

Competitive Parity

The firm’s offerings are ‘average’

People do not have a preference for the firm’s offering

The firm does not have a cost advantage over others Some things that may lead to competitive parity may still be critical to success (e.g., telephones)

Competitive Disadvantage

People may have an aversion to the firm’s offering.

A firm may have outdated technology/ equipment.

The firm may have a cost disadvantage.

A firm may have a negative reputation.

Competitive AdvantageTwo Types of Difference:1. Preference for the firm’s output

people choose the firm’s output over others’

people are willing to pay a premium

2. Cost advantage vis-à-vis competitors

lower costs of production/distribution

Competitive Advantage

Competitive advantage is often temporary:

Competitive advantage typically results in high profits.

Profits attract competition. Competition limits the duration of

competitive advantage in most cases.

Competitive Advantage

However, may be sustainable if:

Competitors are unable to imitate the source of advantage

No one conceives of a better offering.

Measuring Competitive Advantage

Two Classes of Measures:

1. Accounting Measures ROA, ROS, ROE, etc. that exceed

industry averages.2. Economic Measures

earning a return in excess of the cost of capital

Emergent vs. Intended Strategies

The strategic management process leads managers to intended strategies.

However, Conditions often change or new

information becomes available. Managers respond and adopt

emergent strategies.

Stakeholders

Stakeholders are individuals or groups inside or outside the company, that has a stake in and can influence an organization’s performance.

Five primary stakeholder groups:1. Customers, 4. the Community2. Employees, 5. Owners3. Suppliers

Strategic Management Process

Summary: This course is not about mere survival,

it is about thriving—achieving competitive advantage.

the strategic management process helps managers achieve competitive advantage.

competitive advantage depends on differences.

strategy is about discovering and exploiting these differences.

Strategic Management Process

Applying Strategy to Your Career: a solid understanding of strategy

concepts will help set you apart from other job candidates.

you can use the process to identify and exploit difference between you and others.

you can use the process to determine if you want to stay with a company.