Chapter 1 strategic management and strategic competitiveness
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Chapter 1: Strategic Management and Strategic Competitiveness. Overview: Eight Topics Nature of Competition The 21 st Century Competitive Landscape I/O Model of Above-Average Returns (AAR) Resource-Based Model of AAR Strategic Vision and Mission Stakeholders Strategic Leaders

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Chapter 1: Strategic Management and Strategic Competitiveness

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Chapter 1 strategic management and strategic competitiveness

Chapter 1: Strategic Management and Strategic Competitiveness

  • Overview: Eight Topics

    • Nature of Competition

    • The 21st Century Competitive Landscape

    • I/O Model of Above-Average Returns (AAR)

    • Resource-Based Model of AAR

    • Strategic Vision and Mission

    • Stakeholders

    • Strategic Leaders

    • The Strategic Management Process


Nature of competition basic concepts

Nature of Competition: Basic concepts

  • Strategic Competitiveness

    • Achieved when a firm successfully formulates & implements a value-creating strategy

  • Strategy

    • Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

  • Competitive Advantage (CA)

    • Implemented strategy that competitors are unable to duplicate or find too costly to imitate


Nature of competition basic concepts1

Nature of Competition: Basic concepts

  • Above Average Returns

    • Returns in excess of what investor expects in comparison to other investments with similar risk

  • Risk

    • Investor’s uncertainty about economic gains/losses resulting from a particular investment

  • Average Returns

    • Returns equal to what investor expects in comparison to other investments with similar risk

  • Strategic Management Process (SMP)

    • Full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average returns


The strategic management process

The Strategic Management Process


21 st century competitive landscape

21st Century Competitive Landscape

  • The Global Economy

    • Goods, services, people, skills and ideas move freely across geographic borders

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

  • Technology and Technological Changes

    • 3 categories:

      • Technology diffusion & disruptive technologies

      • The information age

      • Increasing knowledge intensity

    • Changing nature of competition and contributing to unstable competitive environments


Industrial organizational i o model of above average returns aar

Industrial Organizational (I/O) Model of Above-Average Returns (AAR)

  • Basic Premise – to explain the dominant influence of the external environment on a firm's strategic actions and performance

  • Characteristics of and conditions present in the external environment determine the appropriateness of strategies that are formulated and implemented in order for a firm to earn above-average returns.

  • The choice of industries in which to compete has more influence on firm performance than the decisions made by managers inside their firm.


Industrial organizational i o model of above average returns aar1

Industrial Organizational (I/O) Model of Above-Average Returns (AAR)

  • Underlying Assumptions

    • External environment imposes pressures and constraints that determine the strategies resulting in AAR

    • Most firms that compete within a particular industry:

      • Control similar strategically relevant resources

      • Pursue similar strategies in light of those resources

    • Resources for implementing strategies are highly mobile across firms

      • Therefore any resource differences between firms will be short-lived

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


Chapter 1 6150

Industrial Organizational (I/O) Model of Above-Average Returns (AAR)


Industrial organizational i o model of above average returns aar2

Industrial Organizational (I/O) Model of Above-Average Returns (AAR)

  • Limitations

    • Only two strategies are suggested:

      • Cost Leadership

        • THE low-cost leader

      • Differentiation

        • Customer willing to pay the premium price for ‘being different’

    • Internal resources & capabilities not considered


The resource based model of aar

The Resource-Based Model of AAR

  • Basic Premise - a firm's unique resources & capabilities is the basis for firm strategy and AAR

    • Each firm’s performance difference across time emerges (vs industry’s structural characteristics)

    • Combined uniqueness should define the firms’ strategic actions

    • Resources are tangible and intangible


The resource based model of aar1

The Resource-Based Model of AAR

  • Resources

    • Inputs into a firm's production process

      • Includes capital equipment, employee skills, patents, high-quality managers, financial condition, etc.

    • Basis for competitive advantage: When resources are valuable, rare, costly to imitate and nonsubsitutable

    • Internal/firm-specific resources (N=3)

      • Physical

        • Things you can touch/feel = tangible

      • Human

        • People / employees

      • Organizational capital

        • Relative to the firm itself


The resource based model of aar2

The Resource-Based Model of AAR

  • Capability

    • Capacity for a set of resources to perform a task or activity in an integrative manner

  • Core Competency

    • A firm’s resources and capabilities that serve as sources of competitive advantage over its rival

  • Summary

    • A firm has superior performance because of

      • Unique resources and capabilities, and the combination makes them different, and better, than their competition – driving the competitive advantage


Chapter 1 6150

The Resource-Based Model of AAR


Vision and mission

Vision and Mission

  • Purpose to inform stakeholders of what the firm is, what it seeks to accomplish, and who it seeks to serve

  • Vision

    • Picture of what the firm wants to be

    • What the firm ultimately wants to achieve

    • An effective vision statement is the responsibility of the leader who should work with others to form it

    • Foundation for the mission

  • Mission

    • Specifics business(es) in which firm intends to compete and customers it intends to serve

    • More specific than the vision


Stakeholders

Stakeholders

  • Basic Premise – a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors

  • Stakeholders are individuals and groups

    • They can affect, and are affected by, the strategic outcomes/performance a firm achieves

    • Must minimally meet the expectations of each stakeholder group

    • 3 stakeholder groups


Chapter 1 6150

The Three Stakeholder Groups


Strategic leaders

Strategic Leaders

  • People located in different parts of the firm using the strategic management process to help the firm reach its vision and mission

    • Decisive and committed to firms’ efforts to achieve their desired strategic outcomes

    • Create and sustain organizational culture

    • Can exist at different organizational levels


Strategic leaders1

Strategic Leaders

  • The Work of Effective Strategic Leaders

    • Work long hours

    • Must be able to think strategically

      • ”think seriously and deeply…about the purposes of the organizations they head or functions they perform, about strategies, tactics,…..and people…and about the important questions … they need to ask.”

    • Set ethical tone for organization

    • Try to predict the outcomes of their strategic decisions before they are implemented


Strategic management process

Strategic Management Process

  • Rational approach used by firms to achieve strategic competitiveness and earn above average returns (AAR)

  • Figure 1.1 (Diagram of chapter relationships)

    • Part 1: Strategic Mgmt Inputs

    • Part 2: Strategic Actions: Strategy Formulation

    • Part 3: Strategic Actions: Strategy Implementation


The strategic management process1

The Strategic Management Process


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