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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
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
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
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
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
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