competing for advantage part i – strategic thinking chapter 1 – what is strategic management?

Competing For Advantage

Part I – Strategic Thinking

Chapter 1 – What is Strategic Management?

The Competitive Landscape- An Illustration

U.S. Automobile Industry Conditions in 1970s Increase in gas prices Dramatic increase in quality of Japanese-

made vehicles Negative Impact to U.S. Automakers

Slow response to global forces Inability to compete against new entrants to

US market Failure to make technological improvements to

stay competitive

Globalization of Markets and Industries

Key Terms Globalization – increased economic

interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders

Hypercompetition – extremely intense rivalry among competing firms, characterized by escalating and increasingly aggressive competitive moves


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


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

Technological Advances

Key Terms Strategic Flexibility – set of capabilities used to

respond to various demands and opportunities existing in a dynamic and uncertain competitive environment

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

Changes in the Competitive Landscape

Changes 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

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

Disruptive Technologies

Value of existing technologies is destroyed

Creative destruction process replaces existing technologies with new ones

New markets are created

Early Influences on the Strategy Concept

Key Terms Agency Theory – the idea that agency

problems exist when managers take actions that are in their own best interests rather than those of shareholders

Transactions Costs Economics – examination of the efficiency of economic activity that instructs firms to buy required resources through a market transaction, unless certain conditions exist that efficiently allow firms to create them internally

Foundational Concepts

The need to establish goals, formulate strategies to achieve them, and set implementation (resource-allocation) plans to meet them

The integration of external market factors into business planning

The wisdom of balancing the conflicting needs of internal and external stakeholders

The importance of an economic approach to identifying market opportunities

The importance of having or acquiring the resources and capabilities to achieve organizational objectives

Foundational Concepts (cont.)

The idea that political strategies should be used in addition to rational-deductive strategy development to address stakeholder interests and facilitate the achievement of organizational goals

The use of organizational learning processes to achieve strategic success

The use of Agency Theory to focus on shareholder returns as a primary criterion for firm success

The use of Transactions Costs Economics to determine whether a business should produce or acquire the resources needed

Modern Strategic Management

Key Terms Deterministic Perspective – the argument that

a firm should adapt to its environment, establishing "fit“ (environmental situation determines the most effective strategies for achieving success)

Enactment – the principle that recognizes the potential of influencing the environment through human action (environmental forces do not entirely determine strategic moves to create a competitive advantage)

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


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


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

That organizational decision makers are rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors

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


Limitations Only two strategies are suggested:

Cost Leadership Differentiation

Internal resources and capabilities are not considered

The Resource-Based Model of Above-Average Returns Key Terms

Distinctive Competencies – attributes that allow a firm to pursue a certain strategy more efficiently than other firms

Resources – inputs into a firm's production process, such as capital equipment, employee skills, patents, high-quality managers, financial condition, etc.

Capability – capacity for a set of resources to perform a task or activity in an integrative manner

The Resource-Based Model of Above-Average Returns Key Terms (cont.)

Core Competencies – a firm’s resources and capabilities that serve as sources of competitive advantage over its rivals

Competitive Advantage – the successful formulation and execution of strategies that are different from and produce more value than the strategies of competitors

Sustainable Competitive Advantage (referred to as "Competitive Advantage" in text) – competitive advantage that is possible only after competitors' efforts to duplicate the value-creating strategy have ceased or failed

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


Three Categories of Resources Physical Human Organizational capital


Types of resources that become a competitive advantage

Valuable Rare Costly to imitate Nonsubstitutable


Two types of core competencies

Managerial competencies Product-related competencies

The Stakeholder Model of Responsible Firm Behavior and Firm Performance

Key Terms Stakeholders – individuals and groups that

can affect (and are affected by) the strategic outcomes a firm achieves, and that have enforceable claims on a firm's performance

Strategic Intelligence – information that firms collect from their network of stakeholders and use to deal with diverse and cognitively complex competitive situations


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

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)

Strategic Thinking and the Strategic Management Process

Key Terms Strategic Management Process – full set of

commitments, decisions, and actions required for a firm to create value and earn returns that are higher than those of competitors

Strategic Thinking

Key Terms Strategic Intent – organizational term used for

a vision that challenges and energizes a company; the leveraging of a firm's resources, capabilities, and core competencies to accomplish a firm's goals in its competitive environment

Resources – inputs into a firm's production process, such as capital equipment, employee skills, patents, high-quality managers, financial condition, etc. (Described in Chapter 4)

Strategic Thinking

Key Terms Capability – capacity for a set of

resources to perform a task or activity in an integrative manner

Core Competencies – resources and capabilities that serve as a source of competitive advantage for a firm over its rivals

Effective Formation of Strategic Intent

When all levels of a firm are committed to the pursuit of specific, significant performance criterion

When employees believe fervently in their company's product

When employees are entirely focused on the firm's ability to outperform its competitors

Elements of Strategic Thinking

Takes advantage of unanticipated opportunities as they arise

Recognizes all time frames (learning from past experiences, exploiting current competitive advantages, and considering long-term implications of decisions and actions)

Is a sequential process of hypothesis testing (evaluating creative ideas from their generation, to trial market assessment, to full-blown market implementation)

Encouraging Strategic Thinking

Employ top managers who are champions of change

Put in place systems and processes to find innovative ideas for operating ("front line") areas of an organization

Train managers and employees in strategic thinking methods and processes

Provide flexibility in strategic management processes to allow incorporation of new ideas that have potential

The Strategic Management Process

Ethical Questions

What is the relationship between ethics and the firm’s stakeholders? For example, from an ethical perspective, how much information should the firm reveal to each of its stakeholders, and how should that vary among stakeholders?

Ethical Questions

Do firms face ethical challenges—perhaps even ethical dilemmas—when trying to satisfy both short-term and long-term expectations of capital market stakeholders?

Ethical Questions

What types of ethical issues and challenges do firms encounter when competing internationally?

Ethical Questions

What ethical responsibilities does the firm have when it earns above-average returns? Who should make decisions regarding these issues, and why?

Ethical Questions

How should ethical considerations be included in analyses of the firm’s external environment and internal organization?

Ethical Questions

What should top-level managers do to ensure that a firm’s strategic management process leads to outcomes that are consistent with the firm’s values?

competing for advantage part i – strategic thinking chapter 1 – what is strategic management?

Documents

competitive landscapechanges

new onesnew markets

new entrants

technological improvements

business transactions

strategic management

strategic thinkingchapter

increasing knowledge