competing for advantage part i – strategic thinking chapter 1 – introduction to strategic...
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Competing For Advantage
Part I – Strategic Thinking
Chapter 1 – Introduction to Strategic Management
Strategy is “Strategos”
Objective – define and attainable Offensive – seize and exploit the opportunity Unity of command – directed in a single direction Mass – gather and direct sufficient resources Economy of force – invest resources efficiently Maneuver – create disadvantages for rivals Surprise – attack in unexpected ways Security – don’t let rivals gain the upper hand Simplicity – use clear, concise, uncomplicated plans
From http://www.wpi.edu/Academics/Depts/MilSci/Resources/prinwar.html
Why do we need strategy?
The reasons why firms succeed and fail is perhaps the central question in strategy
Strategy defines….
Who are you?Where are you going?
How are you going to get there?
Alice: Which way should I go?Cat: That depends on where you are
going.Alice: I don’t know where I am going.Cat: Then it doesn’t matter which way you
go. Lewis Carroll, Though the Looking-Glass
Organizations should make two types of decisions
1) Strategic decisions
2) Strategically driven decisions
Company A Company B Company C
Strategic Management Defined
decisions and actions required for the firm to create value and earn returns higher than those of competitors
formulation and implementation of plans designed to achieve objectives
unifying theme that gives coherence and direction to organizational/individual decisions
game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance
integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage
What is a competitive advantage?
Competitive Advantage
When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitate
Competitive advantages become sustainable competitive advantages when rivals stop trying to replicate
What is the nature of today’s competitive landscape?
Changes in the Competitive Landscape
Globalization of Markets and Industries
Reduced restraints on business transactions across national boundaries (such as tariffs)
Difficulty in recognizing or determining boundaries of an industry (for example, the blur among television, telephone, and computer service providers)
Greatly increased range of opportunities for acquiring resources (such as equipment, capital, raw material, or even employees) and for selling goods and services
Increasing rate of technological change and diffusion, and increasing speed at which technologies become available and are used
Dramatic information technology changes of recent years, and different ways that information is being used
Increasing knowledge intensity, the basis for technology and its application
Technological Trends
The Competitive Field
Hypercompetition resulting from the dynamics of strategic maneuvering among global and innovative competitors
Increased performance standards in many areas, including quality, cost, productivity, product introduction time, and operational efficiency
Continuous improvement in all areas is necessary for continued survival
New Realities in the Competitive Landscape
Quick competitive information needs Shorter product life cycles Indistinguishable products Rapid technology replacement Availability of inexpensive information New business culture from electronic-
business models Continuous learning is necessary
Disruptive Technologies
Value of existing technologies is destroyed
Creative destruction process replaces existing technologies with new ones
New markets are created
New Sources of Competitive Advantage
Speed to market Access and use of information Rapid diffusion of new, transformed
knowledge throughout the company Innovation Integration of new conditions into
organization mind set Global standard achievement Strategic flexibility
What is Strategy?
Strategy is not doing similar activities better than your rivals – that’s operational effectiveness continual improvement not a sustainable
advantage industry-wide cost reductions do not lead to
increased profitability examples: PCs, automobiles, airlines
What is Strategy?
1) Strategy is performing different activities or performing similar activities in a different way
Strategy is about positioning
a) Variety-based positioning offering a unique choice of goods/services - Chic-fil-a,
GameStop
b) Needs-based positioning serving most/all of a particular group of customers’ needs -
Babies R Us
c) Access-based positioning serving a set of customers that require unique access –
Kinkos, Movie Gallery, Superette
What is Strategy?
2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate
Tradeoffs arise from inconsistent image/reputation different activities, products, equipment,
employees, skills, systems, machines priorities, internal coordination, and control
What is Strategy?
3) Strategy is about combining activities as advantages come from fit and reinforcing
Operational effectiveness is about excellence in individual activities
Fit/integration increases sustainability by reducing imitability
What is Strategy?
4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages
Three Perspectives on Value Creation
Industrial/Organization (I/O) Economic Model
Resource-Based View Stakeholder Approach
The Industrial/Organization (I/O) Model of Above-Average Returns
Basic Premise of the I/O Model – to explain the dominant influence of the external environment on a firm's strategic actions and performance
The Industrial/Organization (I/O) Model of Above-Average Returns
Underlying Assumptions That the external environment imposes
pressures and constraints that determine the strategies resulting in above-average returns
That most firms competing within a particular industry or industry segment control similar strategically relevant resources and pursue similar strategies in light of those resources
The Industrial/Organization (I/O) Model of Above-Average Returns
Underlying Assumptions (cont.) That resources for implementing strategies
are highly mobile across firms, and that due to this mobility any resource differences between firms will be short lived
The Industrial/ Organization (I/O) Model of Above-Average Returns
The Industrial/Organization (I/O) Model of Above-Average Returns
Michael Porter’s Five-Forces Model Reinforces the importance of economic
theory Offers an analytical approach that was
previously lacking in the field of strategy Describes the forces that determine the
nature/level of competition and profit potential in an industry
Suggests how an organization can use the analysis to establish a competitive advantage
The Industrial/Organization (I/O) Model of Above-Average Returns
Limitations Only two strategies are suggested:
Cost Leadership Differentiation
Internal resources and capabilities are not considered
The Resource-Based Model of Above-Average Returns
Basic Premise of the Resource-Based Model – to propose that a firm's unique resources and capabilities should define its strategic actions and be used effectively to exploit opportunities in the external environment to ensure successful performance
The Resource-Based Model of Above-Average Returns
Underlying Assumptions That the internal environment imposes
pressures and constraints that determine the strategies resulting in above-average returns
That most firms competing within a particular industry or industry segment control unique strategically relevant resources and pursue dissimilar strategies in light of those resources
The Resource-Based Model of Above-Average Returns
Underlying Assumptions (cont.) That resources for implementing strategies
are not highly mobile across firms, and that due to this immobility any resource differences between firms can be sustainable
The Resource-Based Model of Above-Average Returns
The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Basic Premise of the Stakeholder Model – to propose that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors
The Three Stakeholder Groups
Secondary Stakeholders
Government entities and administrators
Activists and advocacy groups Religious organizations Other nongovernmental
organizations
The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Ways Stakeholder Relationships Contribute to Competitive Advantage
Timely and high quality strategic intelligence is gathered to improve a firm's strategic decisions
A trustworthy reputation draws valuable customers, suppliers, and business partners to acquire or develop competitive resources
A trustworthy reputation attracts investors to offer financial resources
Firms that have fair and respectful treatment of employee relationships attract high-quality human resources
Ways Stakeholder Relationships Contribute to Competitive Advantage
Transactions costs associated with making and enforcing agreements can be reduced
Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions
Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulations, legal suits and penalties, consumer dissatisfaction, employee work outages, or bad press)
It’s all about prioritizing…