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Strategic Management: Concepts and Cases. Part I: Strategic Management Inputs Chapter 1: Strategic Management and Strategic Competitiveness. Chapter 1: Strategic Management and Strategic Competitiveness. Overview: Eight content areas Nature of Competition

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strategic management concepts and cases

Strategic Management: Concepts and Cases

Part I: Strategic Management Inputs

Chapter 1: Strategic Management and Strategic Competitiveness

chapter 1 strategic management and strategic competitiveness
Chapter 1: Strategic Management and Strategic Competitiveness
  • Overview: Eight content areas
    • 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 boeing vs airbus
Nature of Competition: Boeing vs. Airbus
  • Boeing
    • Historically a global leader in airplane manufacturing
    • Revenue from commercial aircraft division & gov’t contracts
    • Regained supremacy in 2006: more 787 super jumbo orders vs. Airbus’s more efficient A-380
    • Changed strategy and design
      • Different production process
      • Smaller plane (787 Dreamliner)
  • Airbus
    • EU Government owned and subsidized
    • Won competitor battle with Boeing between 2001 & 2005
    • Responded to customer demands with more efficient A-380 aircraft
nature of competition basic concepts
Nature of Competition: Basic concepts
  • Strategic Competitiveness
    • Achieved when a firm formulate & 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
  • Above Average Returns
    • Returns in excess of what investor expects in comparison to other investments with similar risk
nature of competition basic concepts cont d
Nature of Competition: Basic concepts (Cont’d)
  • 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
chapter 1 strategic management and strategic competitiveness7
Chapter 1: Strategic Management and Strategic Competitiveness
  • Overview: Eight content areas
    • 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
21 st century competitive landscape
21st Century Competitive Landscape
  • Introduction: The Competitive Landscape (CL)
    • Pace of change is rapid
    • Partnerships created by mergers & acquisitions (M&As)
    • Other CL characteristics: Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovative
21 st century competitive landscape cont d
21st Century Competitive Landscape (Cont’d)
  • Introduction: The Competitive Landscape (CL)
    • Hypercompetition – extremely intense rivalry among competing firms, characterized by
      • Escalating & increasingly aggressive competitive moves
      • Assumptions of market stability replaced with notion of INstability and change
    • Two primary drivers of the competitive landscape:
      • The global economy
      • Technology
21 st century competitive landscape cont d10
21st Century Competitive Landscape (Cont’d)
  • The Global Economy
    • Goods, services, people, skills and ideas move freely across geographic borders
    • Europe, through the European Union (EU) is the world’s largest single market
      • EU vs U.S. GDP: 35% higher
    • Emerging major competitive forces: China & India
    • In summary: globalization increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders
21 st century competitive landscape cont d11
21st Century Competitive Landscape (Cont’d)
  • Technology and Technological Changes
    • 3 categories:
      • 1. Technology diffusion & disruptive

technologies

      • 2. The information age
      • 3. Increasing knowledge intensity
21 st century competitive landscape cont d12
21st Century Competitive Landscape (Cont’d)
  • Technology and Technology Changes (Cont’d)
    • Technology diffusion
      • Perpetual innovation: describes how new information-intensive technologies are replacing older forms
      • Speed to market may be primary competitive advantage
      • 12 – 18 month timeframe to gather info re: competitor R&D
    • Disruptive technologies
      • Technologies that
        • Destroy value of existing technology
        • Create new markets
21 st century competitive landscape cont d13
21st Century Competitive Landscape (Cont’d)
  • Technology and Technology Changes (Cont’d)
    • 1. Technology diffusion & disruptive technologies
    • 2. The information age
    • 3. Increasing knowledge intensity
21 st century competitive landscape cont d14
21st Century Competitive Landscape (Cont’d)
  • Technology and Technology Changes (Cont’d)
    • The information age
      • Dramatic changes over last several years
      • Major technological developments: computers, phones, artificial intelligence, virtual reality
      • Internet provides infrastructure for information anytime, anywhere
    • Increasing knowledge intensity
      • Defined as information, intelligence & expertise and is the basis of technology and its application
      • Gained through experience, observations and inferences
      • Strategic Flexibility – set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment
chapter 1 strategic management and strategic competitiveness15
Chapter 1: Strategic Management and Strategic Competitiveness
  • Overview: Eight content areas
    • Nature of Competition
    • The 21st C 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
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
industrial organizational i o model of above average returns aar18
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 compete within a particular industry/segment
      • 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
industrial organizational i o model of above average returns aar19
Industrial Organizational (I/O) Model of Above-Average Returns (AAR)
  • Five-Forces Model (Michael Porter)
    • The 5 Forces includes
      • Suppliers, buyers, competitive rivalry, product substitutes and potential entrants
    • Reinforces the importance of economic theory
    • Analytical tool previously lacking in the field of strategy
    • Determines the nature/level of competition and profit potential in an industry
      • Suggests an industry’s profitability is an interaction between these 5 forces
industrial organizational i o model of above average returns aar cont d
Industrial Organizational (I/O) Model of Above-Average Returns (AAR) (Cont’d)
  • 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 cont d
The Resource-Based Model of AAR (Cont’d)
  • Basic Premise - a firm's unique [internal] resources & capabilities, in combination, 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 aar cont d23
The Resource-Based Model of AAR (Cont’d)
  • 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 aar cont d24
The Resource-Based Model of AAR (Cont’d)
  • 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 strategic management and strategic competitiveness25
Chapter 1: Strategic Management and Strategic Competitiveness
  • Overview: Eight content areas
    • Nature of Competition
    • The 21st C 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
vision and mission
Vision and Mission
  • 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
    • Three (3) classifications
stakeholders cont d
Stakeholders (Cont’d)
  • Classifications of Stakeholders
    • Capital Market
      • Expect returns commiserate with risk accepted by investments
      • Higher the dependency relationship, the more direct and significant firm’s response
    • Product Market
      • The 4 groups benefit due to competitive battles
    • Organizational
      • The employees
chapter 1 strategic management and strategic competitiveness30
Chapter 1: Strategic Management and Strategic Competitiveness
  • Overview: Eight content areas
    • Nature of Competition
    • The 21st C 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
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 nurturing those around them
    • Create and sustain organizational culture
    • Organizational culture emerges from & sustained by leaders
      • Complex set of ideologies, symbols and core values shared throughout the firm
      • Affects leaders/their work which in-turn shapes culture
      • Influences how the firm conducts business
strategic leaders cont d
Strategic Leaders (Cont’d)
  • The Work of Effective Strategic Leaders
    • Work long hours
    • Must be able to “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.”
  • Predicting Outcomes: Profit Pools (PP)
    • Anticipates their decisions relative to the PP
    • Entails the total profits earned in an industry at all points along the value chain
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
    • Part 4: Cases