strategic management and strategic competitiveness

Selection of a strategy linked with above- average returns in a particular industry Strategy Formulation I/O Model of Superior Returns... An industry whose structural characteristics sug

Sustained Competitive Advantage

Above-Average Returns

Returns in excess of what an investor expects to

earn from other investments with similar risk

Occurs when a firm develops a strategy that

competitors are not simultaneously implementing

Provides benefits which current and potential

competitors are unable to duplicate

Strategic Competitiveness

Achieved when a firm successfully formulates

and implements a value-creating strategy

which are required for firms to achieve:

Above-Average Returns

Strategic Competitiveness Sustained Competitive Advantage

The Strategic Management Process

Involves the full set of:

Actions

The Strategic Management

Process

The Strategic Management

Process

Chapter 3

Internal Environment

Chapter 2

External Environment

Chapter 6

Corporate-Level Strategy

Chapter 8

International Strategy

Chapter 9

Cooperative Strategies

Chapter 13

Entrepreneurship & Innovation

Chapter One: Key Themes

• Industrial Organization Model

• Resource-Based Model

Challenge of Strategic Management

Changing Competitive Landscape

Two Models of Superior Profitability

Key Stakeholder Groups

Competitive success is transient unless care is

taken to preserve competitive position

Only 16 of the 100 largest U.S companies at

the start of the 20th century are still

identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S businesses failed

Challenge of Strategic Management

Best Stocks of the Decade

Challenge of Strategic Management

The goals of achieving

strategic competitiveness

and earning

above-average returns are

challenging

The performance of

some companies more

than meets strategic

management's

challenge

• Rapid technological changes

• Rapid technology diffusions

blurring, such as

• Computers

• Telecommunications

21st Century Competitive Landscape

The global economy is

changing

• People, goods, services and

ideas move freely across

geographic boundaries

• New opportunities emerge

in multiple global markets

• Markets and industries

become more

internationalized

Traditional sources of competitive advantage

no longer guarantee success

New keys to success include:

1999 1998 Country Competitiveness

Index 1999

Competitiveness Index 1998

achieved through the

achieved through the

Alternative Models of Superior Returns

An Attractive Industry Strategy Implementation

Superior Returns

I/O Model of Superior Returns

suggests that above-average returns

for any firm are largely determined

by characteristics outside the firm.

This model largely focuses on

industry structure or attractiveness of

the external environment rather than

internal characteristics of the firm.

I/O Model of Superior Returns

An industry whose structural characteristics suggest above-average returns are possible

Action required:

Locate an industry with high potential for above- average returns.

I/O Model of Superior Returns

An industry whose structural characteristics suggest above-average returns are possible

Action required:

Identify strategy called for

by the industry to earn above-average returns.

Selection of a strategy linked with above-

average returns in a particular industry

Strategy Formulation

I/O Model of Superior Returns

An industry whose structural characteristics suggest above-average returns are possible

Strategy Formulation

Selection of a strategy linked with above-

average returns in a particular industry

Action required:

Develop or acquire assets and skills needed to

implement the strategy.

Assets and Skills

Assets and skills required to implement

a chosen strategy

I/O Model of Superior Returns

An industry whose structural characteristics suggest above-average returns are possible

Strategy Formulation

Selection of a strategy linked with above-

average returns in a particular industry

Assets and Skills

Assets and skills required to implement

a chosen strategy

Action required:

Use the firm’s strengths (its assets or skills) to implement the strategy.

Strategy ImplementationSelection of strategic actions linked with effective implementation

of the chosen strategy

I/O Model of Superior Returns

An industry whose structural characteristics suggest above-average returns are possible

Strategy Formulation

Selection of a strategy linked with above-

average returns in a particular industry

Assets and Skills

Assets and skills required to implement

a chosen strategy

Action required:

Strategy Implementation

Selection of strategic actions linked with effective implementation

of the chosen strategy

Superior Returns

Earning of average returns

above-Maintain selected strategy

in order to outperform industry rivals.

I/O Model of Superior Returns

The Resource-Based model suggests that above-average returns for any firm are largely determined by

characteristics inside the firm

This model focuses on developing or obtaining valuable resources and

capabilities which are difficult or impossible for rivals to imitate.

Resource-Based Model of Superior Returns

Identify firm resources

Study strengths and weak- nesses relative to rivals.

Resource-Based Model of Superior Returns

Competitive Advantage

Ability of a firm to outperform its rivals

Action required:

Determine how firm’s resources and capabilities may create competitive advantage.

Resource-Based Model of Superior Returns

Competitive Advantage

Ability of a firm to outperform its rivals

An Attractive Industry

Location of an industry with opportunities that can

be exploited by the firm’s resources and capabilities

Action required:

Locate an attractive industry.

Resource-Based Model of Superior Returns

Competitive Advantage

Ability of a firm to outperform its rivals

An Attractive Industry

Location of an industry with opportunities that can

be exploited by the firm’s resources and capabilities

Action required:

Select strategy that best exploits resources and capabilities relative to opportunities in environs.

Strategy Formulation and Implementation

Strategic actions taken to earn above-average

returns

Resource-Based Model of Superior Returns

Competitive Advantage

Ability of a firm to outperform its rivals

An Attractive Industry

Location of an industry with opportunities that can

be exploited by the firm’s resources and capabilities

Action required:

Maintain selected strategy

in order to outperform industry rivals.

Strategy Formulation and Implementation

Strategic actions taken to earn above-average

returns

Superior Returns

Earning of average returns

above-Resource-Based Model of Superior Returns

Nonsubstitutable the firm must be organized appropriately to

obtain the full benefits of the resources in order to realize a competitive advantage

Valuable allow the firm to exploit opportunities or

neutralize threats in its external environment

potential competitors

Costly to Imitate when other firms either cannot obtain them

or must obtain them at a much higher cost

Resources and capabilities lead to

Core Competencies

When these four

criteria are met,

Resources and

Capabilities

become:

Core Competencies are resources and capabilities

that can serve as a source of Competitive Advantage .

The Resource-Based model argues that Core

Competencies are the basis for a firm’s Competitive

Advantage, Strategic Competitiveness and Ability to

Earn Above-average Returns

Winning competitive battles through deciding

how to leverage internal resources, capabilities,

and core competencies

Strategic Intent

An application of strategic intent in terms of

products to be offered and markets to be served.

Strategic Mission

BUSINESS WEEKS’S 10 Top Managers of the Year, 1999

Name Company Strategic Accomplishment

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

over objections of co-workers and negative market research

Bernard Arnault LVMH From just 23 in Oct ’98, LVMH’s U.S shares

have 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 grow 25%, to $38 billion

Peter Bijur Texaco After his company was labeled racist, attracted

minorities to key jobs, including treasurer Ira Hall, a former IBM executive

Gordon Binder Amgen Boosted stock price by around 100% last year, to

about $54 Steve Case America Online Deals to broaden AOL’s availability and services

will 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-optic communications

Jim Curvey Fidelity Investments Reduced internal conflicts and spurred growth

through management changes Thierry Desmarest Totalfina Acquired rival French oil company ELF

Aquitaine for $44 billion Shares up about 35%

Stakeholders: Groups who are affected by a firm’s

performance and who have claims on its wealth

The firm must maintain

performance at an adequate level in

order to maintain the participation

of key stakeholders

Organizational

Employees Managers Non-Managers

Firm

Capital Market

Stock market/Investors Debt suppliers/Banks

Product Market

Primary Customers

Suppliers

Stakeholder Involvement

Each of the key stakeholders

wants a piece of the same pie

1 How do you divide the pie

in order to keep all of the stakeholders involved?

2

How do you increase the size of the pie so that there

is more to go around?

Chapter 3

Internal Environment

Process

Strategic Intent

Strategic Mission

Strategic Competitiveness Above Average Returns

Chapter 6

Corporate-Level Strategy

Chapter 8

International Strategy

Chapter 9

Cooperative Strategies

Chapter 13

Entrepreneurship & Innovation