Strategic management competitiveness globalization concepts and case 10e chapter 1

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-protecte

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Strategic

Competitiveness

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©2013 Cengage Learning All Rights Reserved 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-protected website for classroom use.

THE STRATEGIC

MANAGEMENT PROCESS

FIGURE 1.1

The Strategic

Management

Process

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

● 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.

KNOWLEDGE OBJECTIVES

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● 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.

KNOWLEDGE OBJECTIVES

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● COMPETITIVE ADVANTAGE - when a

firm implements a strategy that creates superior value for customers; competitors are unable to

duplicate it or find too costly to imitate it

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IMPORTANT DEFINITIONS

● 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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INABILIT Y 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

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THE STRATEGIC MANAGEMENT

PROCESS

■ 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

changing markets and industry conditions must match evolving strategic inputs.

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THE STRATEGIC MANAGEMENT

PROCESS

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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PART I: STRATEGIC INPUTS PART II: STRATEGIC ACTIONS- STRATEGY FORMULATION PART III: STRATEGIC ACTIONS- STRATEGY IMPLEMENTATION

• Chapters

2, 3

Vision/Mission

• Chapters

4, 5, 6, 7, 8 & 9

• Chapters

10, 11, 12 & 13

THE STRATEGIC MANAGEMENT

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THE COMPETITIVE

LANDSCAPE

■ 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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THE COMPETITIVE

LANDSCAPE

■ HYPERCOMPETITION - characterized by

■ Market instability and change

■ Rapidly escalating competition

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■ Goods, services, people, skills, and

ideas move freely across geographic borders

■ New opportunities and challenges

emerge

■ Competitive environments are

broader and increasingly more complex

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THE COMPETITIVE

LANDSCAPE

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 States

THE COMPETITIVE

LANDSCAPE

STRATEGIC FOCUS

GUANXI

■ Strong relationships in which each party

feels obligated to help the other

■ 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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THE COMPETITIVE

LANDSCAPE

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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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

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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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■ 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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■ 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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■ 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 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

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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 -

■ 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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integrate it into the organization to create capabilities, and then apply it to gain a competitive advantage

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Category 3

■ Knowledge Spillovers - knowledge falls into

competitor’s hands, e.g., hiring of professional

staff/managers by competitors

■ Knowledge Diffusion - because of the potential for spillovers, firms must act quickly to use their knowledge

in productive ways

■ Strategic Flexibility - facilitates knowledge diffusion

to where it has value

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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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EXTERNA

L

I/O MODEL

INTERNAL

RESOURC E-BASED MODEL

TWO MODELS OF STRATEGIC

DECISION MAKING

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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THE I/O MODEL OF

ABOVE-AVERAGE RETURNS

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

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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.

THE I/O MODEL of

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is an analytical tool used to help firms find the industry that is the most attractive, as measured by its profitability potential

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.

THE I/O MODEL of

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