May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-● Define
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password-FIGURE 1.1
The Strategic
Management Process
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password-● Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.
● Describe the competitive landscape and explain how globalization and technological changes shape it.
● Use the industrial organization (I/O) model to explain how firms can earn above-average returns.
● Use the resource-based model to explain how firms can earn above-average returns.
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password-● Describe vision and mission and discuss their value.
● Define stakeholders and describe their ability to influence organizations.
● Describe the work of strategic leaders.
● Explain the strategic management process.
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password-● STRATEGIC COMPETITIVENESS - achieved when a firm
successfully formulates and implements a value-creating strategy
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password-● RISK - an investor’s uncertainty about the economic gains or losses that will result from a particular investment
● ABOVE-AVERAGE RETURNS - returns in excess of what an
investor expects to earn from other investments with a similar amount of risk
● AVERAGE RETURNS - returns equal to those an investor expects
to earn from other investments with a similar amount of risk
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password-INABILITY TO EARN AVERAGE RETURNS resulted first in decline and,
eventually, failure
●Enjoyed considerable success early on
●Tried to enrich its traditional approach with more marketing and more attractive stores, demonstrating a lack of market understanding
● Declining book sales for large chain store retailers
● Should have been entrepreneurial, innovative, and market-oriented
BORDERS - OPENING CASE - FAILURE EXAMPLE
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■ FIRST: External environment and internal organization are analyzed to determine resources, capabilities, and core competencies—the sources of “strategic inputs.”
■ NEXT: Vision and mission are developed; strategies are formulated.
■ THEN: Strategies are implemented with the goal of achieving strategic competitiveness and above-average returns
■ DYNAMIC PROCESS: Continuously changing markets and industry conditions must match evolving strategic inputs.
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Rational: the approach firms use to achieve strategic competitiveness and earn above-average returns
FORMULATION and IMPLEMENTATION:
the two types of strategic actions that must be simultaneously integrated to successfully employ the strategic management process
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password-PART I: STRATEGIC INPUTS PART II: STRATEGIC ACTIONS- STRATEGY FORMULATION
PART II: STRATEGIC ACTIONS- STRATEGY FORMULATION
PART III: STRATEGIC ACTIONS- STRATEGY IMPLEMENTATION
PART III: STRATEGIC ACTIONS- STRATEGY IMPLEMENTATION
• Chapters
2, 3 Vision/Mission
• Chapters
2, 3 Vision/Mission
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■ GLOBALIZATION - emergence of a global economy
■ TECHNOLOGY - rapid technological changes
■ INDUSTRY BOUNDARIES BLURRING
■ EXAMPLES - computer networks and telecommunications have blurred the boundaries
of the entertainment industry
■ MSNBC is co-owned by NBC Universal and Microsoft
■ General Electric owns 49 percent of NBC Universal and Comcast owns the remaining
51 percent
■ STRATEGIC MANAGEMENT PROCESS - effective use of the strategic management process reduces the likelihood of failure for firms as they encounter the conditions of today’s competitive landscape
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password-■ HYPERCOMPETITION - characterized by
■ Market instability and change
■ Rapidly escalating competition
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password-■ Goods, services, people, skills, and ideas move freely
across geographic borders
■ New opportunities and challenges emerge
■ Competitive environments are broader and increasingly
more complex
THE GLOBAL ECONOMY
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password-THE GLOBAL ECONOMY
■ The European Union has become one of the world’s
largest markets, with 700 million potential customers
■ China has become the second largest economy in the
world surpassing Japan
■ India, the world’s largest democracy, has an economy
that now ranks as the fourth largest in the world
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Huawei also needs Guanxi in the United
■ Key element of doing business in China
■ Building strong relationships is an important dimension of
Chinese culture; Guanxi is also important when conducting business
in the United States
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password-THE GLOBAL ECONOMY
■ Hypercompetitive business environment challenges firms to reconsider
which markets to compete in; this positioning is more critical than ever
■ GE - headquartered in the U.S., yet up to 60% of its revenue growth through
2015 will be generated from rapidly developing economies such as China and India
■ Jeffrey Immelt - suggests that we have entered a new economic era in
which the global economy will be more volatile and emerging economies such
as Brazil, China, and India will be the major drivers of growth
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password-Globalization is increasing economic
interdependence among countries
and their organizations as reflected
in the flow of goods and services,
financial capital, and knowledge
across country borders.
Globalization is the product of a large number of firms competing against one another in an increasing number of global
economies.
Highly globalized firms must anticipate ever-increasing complexities in their operations as goods, services, people, etc move freely across geographic borders.
THE MARCH OF GLOBALIZATION
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password-Globalization has led to higher
performance standards in quality,
cost, productivity, product
introduction time, and operational
efficiency These standards translate
and impact domestic-only firms as
well
Free flow of resources among global economies, global sourcing for firms, global purchasing for customers, and
a global forum for workers all serve
as a key source of competitive advantage for firms.
Firms must learn that in this first century competitive landscape, only firms capable of meeting, if not exceeding, global standards, have the capability to earn above-average
twenty-returns.
THE MARCH OF GLOBALIZATION
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password-Significant time is required for firms
to learn how to compete in new
markets, and performance may
suffer during this time.
With globalization, firms may diversify internationally, which can have strong negative effects on a firm’s overall performance.
over-It is critical for firms competing globally to remain strategically committed to and competitive in both domestic and international
markets.
THE RISKS OF GLOBALIZATION
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password-THREE CATEGORIES for TECHNOLOGY TRENDS Technology is significantly altering the nature of competition and enabling unstable competitive
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Technology Diffusion - Category 1
■ Technology Diffusion – the speed at which new technologies become
available and are used; has increased substantially over the past 15 to 20 year
■ Examples of technology diffusion: How long it took to get the following into
25 percent of U.S homes:
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Technology Diffusion - Category 1
Perpetual Innovation
■ Perpetual Innovation - describes how rapidly and consistently new,
information-intensive technologies replace older ones
■ Competitive Premium - the shorter product life cycles resulting from rapid diffusions of new technologies place a competitive premium on being able to quickly introduce new, innovative goods and services
■ Competitive Advantage - speed to market with innovative products is a primary source of competitive advantage
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Technology Diffusion - Category 1
Perpetual Innovation
■ Innovations must be derived from an understanding of global standards and global expectations in terms of product functionality
■ Apple - an excellent example of radical innovation by a large established firm
■ Technology Diffusion - to diffuse the technology and enhance the innovation value, firms need to be innovative in incorporating the new technology into their product
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Technology Diffusion - Category 1
Perpetual Innovation ■ Rapid Technology Diffusion - now may take only 12 to 18 months for firms to gather information about research and development and product decisions for their competitors
■ Patents - may be an effective protection of proprietary technology in a small
number of industries, e.g., pharmaceuticals
■ Proprietary Strategies - many firms often do not apply for patents to prevent competitors from gaining access to the technological knowledge included in the patent application, e.g., the electronics industry
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Technology Diffusion - Category 1
Disruptive Technologies ■ Disruptive Technologies - technologies that destroy the value of an existing
technology and create new markets, many times representing radical or breakthrough innovation
■ Examples: iPods, iPads, WiFi, and the browser
■ Industry Incumbents Harmed or Destroyed – a disruptive or radical technology creates a new industry, thereby destroying the existing industry; with superior
resources, experience, and access to the new technology, some incumbents may be able to adapt
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Technology Diffusion - Category 1 Technology and Innovation
Strategic Focus: Apple
■ Apple’s “legendary” market power, phenomenal growth rate, and impressive
financial performance stem from its new technology development and innovation
■ Imitators - Apple is expected to retain at least 80% of the tablet computer market even with the many imitative products on the market
■ International- Apple’s stores in China handle 40,000 people daily, four times the average flow of U.S customers
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Technology Diffusion - Category 1 Technology and Innovation
Strategic Focus: Apple
■ Versatility - Apple provides an example of technological entrepreneurship across
multiple industries
■ Disruptive Technologies
● Innovation and industry transformation, e.g., iPod, iPad, and the iPhone
● iPod and the complementary iTunes have revolutionized how music is sold and used
by consumers
● iPad, in conjunction with Amazon’s Kindle, is changing the publishing industry; moving to electronic books
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The Information Age - Category 2
■ Dramatic Changes - in information technology have occurred in recent years, e.g., personal computers, cellular phones, artificial intelligence, virtual reality, massive
databases, and multiple social networking sites
■ Competitive Advantage - the ability to effectively and efficiently access and use information has become an important source of competitive advantage in virtually all industries
■ Information Technology - enables small firms to be flexible and competitive in the global arena
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The Information Age - Category 2
■ Change - both the pace of change in information technology and its diffusion will continue to increase
■ Cost - the declining costs of information technologies and the increased
accessibility to them are evident in the current competitive landscape
■ Internet - contributing factor to hypercompetition
■ Speed and Diffusion - the global proliferation of computers increases the speed and diffusion of information technologies and enables a level playing field
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Increasing Knowledge Intensity - Category 3
■ Knowledge - information, intelligence, and expertise are the basis of technology and its application
■ Competitive Advantage - in the 1980s, the basis of competition shifted from hard assets to intangible resources; knowledge is a critical organizational resource and an increasingly valuable source of competitive advantage
■ Intangible Resource – knowledge gained through experience, observation, and inference is an intangible resource; the value of intangible resources is growing as a proportion of total shareholder value
.
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Increasing Knowledge Intensity - Category 3
■ Strategic Competitiveness - enhanced for the firm that develops the ability
to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the firm
■ Competitive Advantage - firms must develop (e.g., through training
programs) and acquire (e.g., by hiring educated and experienced employees)
knowledge, integrate it into the organization to create capabilities, and then apply
it to gain a competitive advantage
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Increasing Knowledge Intensity - Category 3
■ Knowledge Spillovers - knowledge falls into competitor’s hands, e.g., hiring of professional staff/managers by competitors
quickly to use their knowledge in productive ways
■ Strategic Flexibility - facilitates knowledge diffusion to where it has value
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Increasing Knowledge Intensity - Category 3
STRATEGIC FLEXIBILITY
■ Set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment
■ Enables the capacity to learn
■ Facilitates coping with hypercompetition, uncertainty, and risk
■ Firms should try to develop strategic flexibility in all areas of operations
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EXTERNAL
I/O MODEL
INTERNAL
BASED MODEL
RESOURCE-Firms use two major models to help develop their vision and mission and then choose one or more strategies in pursuit of strategic competitiveness and above-average returns
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G rounded in economics, the I/O model has
F irst, the external environment is assumed to impose pressures and
constraints that determine the strategies that would result in above-average returns
S econd, most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources
Four Underlying Assumptions
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T hird, resources used to implement strategies are assumed to be highly mobile across firms, so any resource differences that might develop between firms will be short-lived
F ourth, organizational decision-makers are assumed to be rational and
committed to acting in the firm’s best interests, as shown by their
profit-maximizing behavior.
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password-T he Five Forces Model of competition is an analytical tool used to help firms find the industry that is the most attractive, as measured by its profitability potential
T he Five Forces Model suggests that an industry’s profitability (i.e., its rate of return on invested capital relative to its cost of capital) is a function of interactions among the Five Forces: suppliers, buyers, rivalry, product substitutes, and potential entrants to the industry.