CH 01
CH 01
CH 01
Strategic Management
PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.
KNOWLEDGE OBJECTIVES Studying this chapter should provide you with the strategic management knowledge needed to:
1. Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.
2. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it. 3. Use the industrial organization (I/O) model to explain how firms can earn above-average returns. 4. Use the resource-based model to explain how firms can earn above-average returns.
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KNOWLEDGE OBJECTIVES (contd) Studying this chapter should provide you with the strategic management knowledge needed to:
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Important Definitions
Strategic Competitiveness
When a firm successfully formulates and implements a value-creating strategy.
Strategy
An integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.
Competitive Advantage
When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate.
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Average Returns
Returns equal to those an investor expects to earn from other investments with a similar amount of risk.
Above-average Returns
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk.
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FIGURE 1.1
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Global Economy
The Global Economy
Goods, people, skills, and ideas move freely across geographic borders. Movement is relatively unfettered by artificial constraints. Expansion into global arena complicates a firms competitive environment.
Short-term: Where is the fastest growth likely to occur? Long-term: Where will sustainable growth occur?
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Increased range of opportunities for companies competing in the 21st-century competitive landscape
Liability of foreignnessthe risks of participating outside of a firms domestic country in the global economy The amount of time required for firms to learn how to compete in markets that are new to them.
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Disruptive Technologies
Technologies that destroy the value of existing technology and create new markets
Perpetual Innovation
The rapidity and consistency with which new, information-intensive technologies replace older ones
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Technological Changes
The Information Age
The ability to effectively and efficiently access and use information has become an important source of competitive advantage. Technology includes personal computers, cellular phones, artificial intelligence, virtual reality, massive databases, electronic networks, internet trade.
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Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies. Resources used to implement strategies are highly mobile across firms. Organizational decision makers are assumed to be rational and committed to acting in the firms best interests (profitmaximizing).
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FIGURE 1.2
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1. Strategy is dictated by the external environment of the firmwhat opportunities exist in these environments? 2. Firm develops internal skills required by external environment what can the firm do about the opportunities?
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2. Locate an attractive industry with a high potential for aboveaverage returns. Attractive industry: One whose structural characteristics suggest above-average returns.
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Strategy Formulation
3. Identify the strategy called for by the attractive industry to earn above-average returns. Strategy formulation: Selection of a strategy linked with aboveaverage returns in a particular industry.
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Superior Returns
Superior returns: earning above-average returns
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Differentiation
Manufacturing differentiated products for which customers are willing to pay a price premium
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FIGURE 1.3
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1. Strategy is dictated by the firms unique resources and capabilities. 2. Find an environment in which to exploit these assets (where are the best opportunities?)
Environment
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Capabilities
Capacity of a set of resources to perform in an integrative manner A capability should not be:
So simple that it is highly imitable. So complex that it defies internal steering and control.
Patents
Finances Talented managers
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5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment.
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Superior Returns
Superior returns: earning above-average returns
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Valuable
Rare
Core Competencies
Nonsubstitutable
Costly to Imitate
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Core Competencies
When the four key criteria of resources and capabilities are met, they become core competencies. Managerial competencies are especially important.
Core competencies serve as a source of competitive advantage, create value, and provide the opportunity for above-average returns.
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Successful strategy formulation and implementation actions result only when the firm properly uses both models.
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Above-average returns are the fruits of the firms efforts to achieve its vision and mission.
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Stakeholders
Individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firms performance.
Claims on the firms performance are enforced by the stakeholders ability to withhold participation essential to the firms survival. The more critical and valued a stakeholders participation, the greater a firms dependency on it.
Managers must find ways to either accommodate or insulate the organization from the demands of stakeholders controlling critical resources.
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Stakeholder Involvement
Two issues affect the extent of stakeholder involvement in the firm: How to divide returns to keep stakeholders involved? How to increase returns so everyone has more to share?
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FIGURE
1.4
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Stakeholders
Capital Market Stakeholders Capital Market Stakeholders Shareholders Major suppliers of capital Banks Private lenders Venture capitalists
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Management must balance the interests of shareholders and lenders with its concerns for the firms future competitive ability.
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Stakeholders (contd)
Capital Market Stakeholders Product Market Stakeholders Product Market Stakeholders
Customers
Suppliers Host communities Unions
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Suppliers
Seek loyal customers willing to pay highest sustainable prices for goods and services
Host communities
Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services
Union officials
Want secure jobs and desirable working conditions
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Stakeholders (contd)
Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders Organizational Stakeholders Employees Managers Nonmanagers
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Organizational Stakeholders
Employees
Expect a dynamic, stimulating and rewarding work environment. Are satisfied by a company that is growing and actively developing their skills.
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Strategic Leaders
Strategic Leaders
People located in different parts of the firm who are using the strategic management process to help the firm reach its vision and mission.
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