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Introduction to Strategic Management. MANA 5336. What is Strategy?. Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver. Characteristics of strategic decisions… Important

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Introduction to strategic management l.jpg

Introduction to Strategic Management

MANA 5336


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What is Strategy?

Strategy is the overall plan for deploying resources to establish a favorable position.

Tactic is a scheme for a specific maneuver.


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  • Characteristics of strategic decisions…

    • Important

    • Involve a significant commitment of resources

    • Not easily reversible


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Basic Framework

External Environment

Competitors

Customers

Suppliers

etc

The firm

Goals & Values

Resources & Capabilities

Structures & Systems

Strategy


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Definitions

Strategic Management Process

The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns

Value Creation

What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate.


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Definitions

Average Returns

Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk

Above-Average Returns

Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk


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Definitions

Risk

An investor’s uncertainty about the economic gains or losses that will result from a particular investment


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Competitive Landscape

Dynamics of strategic maneuvering among global and innovative combatants

Price-quality positioning, new know-how, first mover

Hypercompetitive environments

Protect or invade established product or geographic markets

Fundamental nature of competition is changing


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Competitive Landscape

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

Emergence of global economy

Spread of economic innovations around the world

Hypercompetitive environments

Political and cultural adjustments are required

Fundamental nature of competition is changing


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Competitive Landscape

Emergence of global economy

Increasing rate of technological change and diffusion

Rapid technological change

The information age

Increasing knowledge intensity

Hypercompetitive environments

Fundamental nature of competition is changing


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Strategic Flexibility

A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment

It involves coping with uncertainty and the accompanying risks


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Strategic

reorientation

Capacity to

learn

Organizational

slack

Strategic Flexibility

Strategic

Flexibility

Strategic

Flexibility

Strategic

flexibility


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General

Global

Political/Legal

Demographic

Economic

Sociocultural

Technological

Environment

I/O Model of Above-Average Returns

1. External Environments

  • Strategy dictated by the external environment of the firm (what opportunities exist in these environments?)

  • Firm develops internal skills required by external environment (what can the firm do about the opportunities?)

Industry Environment

Competitor Environment


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Four Assumptions of the I/O Model

  • The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns

  • Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources


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Four Assumptions of the I/O Model

  • Resources used to implement strategies are highly mobile across firms

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


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The External Environment

I/O Model of Above-Average Returns

Industrial Organization Model

  • Study the external environment, especially the industry environment

    • economies of scale

    • barriers to market entry

    • diversification

    • product differentiation

    • degree of concentration of firms in the industry


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The External Environment

An Attractive Industry

I/O Model of Above-Average Returns

Industrial Organization Model

  • Locate an attractive industry with a high potential for above-average returns

Attractive industry: one whose structural characteristics suggest above-average returns


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The External Environment

An Attractive Industry

Strategy Formulation

I/O Model of Above-Average Returns

Industrial Organization Model

Identify the strategy called for by the attractive industry to earn above-average returns

Strategy formulation: selection of a strategy linked with above-average returns in a particular industry


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The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

I/O Model of Above-Average Returns

Industrial Organization Model

  • Develop or acquire assets and skills needed to implement the strategy

Assets and skills: those assets and skills required to implement a chosen strategy


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The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation

I/O Model of Above-Average Returns

Industrial Organization Model

Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy

Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy


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The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation

Superior Returns

I/O Model of Above-Average Returns

Industrial Organization Model

Superior returns: earning of above-average returns


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The Firm

Resource-based Model of Above Average Returns

1. Firm’s Resources

  • Strategy dictated by the firm’s unique resources and capabilities

  • Find an environment in which to exploit these assets (where are the best opportunities?)


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Resources

Resource-based Model of Above Average Returns

Resource-based

Model

  • Identify the firm’s resources-- strengths and weaknesses compared with competitors

Resources: inputs into a firm’s production process


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Resources

Capability

Resource-based Model of Above Average Returns

Resource-based

Model

  • Determine the firm’s capabilities--what it can do better than its competitors

Capability: capacity of an integrated set of resources to integratively perform a task or activity


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Resources

Capability

Competitive Advantage

Resource-based Model of Above Average Returns

Resource-based

Model

  • Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage

Competitive advantage: ability of a firm to outperform its rivals


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Resources

Capability

Competitive Advantage

An Attractive Industry

Resource-based Model of Above Average Returns

Resource-based

Model

Locate an attractive industry

An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities


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Resources

Capability

Competitive Advantage

An Attractive Industry

Strategy Form/Impl

Resource-based Model of Above Average Returns

Resource-based

Model

  • Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment

Strategy formulation and implementation: strategic actions taken to earn above average returns


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Resources

Capability

Competitive Advantage

An Attractive Industry

Strategy Form/Impl

Superior Returns

Resource-based Model of Above Average Returns

Resource-based

Model

Superior returns: earning of above-average returns


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Strategic Intent & Mission

  • Strategic Intent

  • Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies

  • Strategic Mission

  • An application of strategic intent in terms of products to be offered and markets to be served


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Emergent and Deliberate Strategies

IntendedStrategy

DeliberateStrategy

RealizedStrategy

EmergentStrategy

UnrealizedStrategy

From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly,

Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.


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Strategic Management Process for Intended Strategies

Missionsand Goals

InternalAnalysis

Strategic Choice

ExternalAnalysis

INTENDED STRATEGY

Organizing forImplementation


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InternalAnalysis

ExternalAnalysis

Missionsand Goals

Strategic Choice

Does It Fit?

EMERGENT STRATEGY

OrganizationalGrassroots

Strategic Management Process for Emergent Strategies


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THE FIRM

The Firm and Its Stakeholders

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 retain the participation of key stakeholders


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The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

  • Shareholders

  • Major suppliers of capital

    • Banks

    • Private lenders

    • Venture capitalists


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The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Primary customers

Suppliers

Host communities

Unions


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The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Organizational Stakeholders

Employees

Managers

Nonmanagers


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Values

  • Johnson & Johnson’s credosets its responsibilities to:

    • J&J product users.

    • J&J employees.

    • Communities in which J&Jemployees live and work.

    • J&J stockholders.

Source: Courtesy of Johnson & Johnson.


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Johnson & Johnson Credo*

  • First Responsibility Is to Those Who Use J&J Products

  • Next Come Its Employees

  • Next, the Communities in Which the Employees Live and Work

  • Its Final Responsibility Is to Its Stockholders


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Functional

Business

Corporate

Global

Levels of Strategy


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