Chapter 1 Strategic Management and Strategic Competitiveness

Chapter 1Strategic Management and Strategic CompetitivenessMichael A. HittR. Duane IrelandRobert E. Hoskisson©2000 South-Western College PublishingSustained Competitive AdvantageAbove-Average ReturnsReturns in excess of what an investor expects to earn from other investments with similar riskOccurs when a firm develops a strategy that competitors are not simultaneously implementingProvides benefits which current and potential competitors are unable to duplicateStrategic CompetitivenessAchieved when a firm successfully formulates and implements a value-creating strategywhich are required for firms to achieve:Above-Average ReturnsStrategic CompetitivenessSustained Competitive AdvantageThe Strategic Management ProcessInvolves the full set of:ActionsCommitmentsDecisionsThe StrategicManagementProcessChapter 3InternalEnvironmentChapter 2ExternalEnvironmentStrategic IntentStrategic MissionStrategy FormulationStrategy ImplementationChapter 4Business-LevelStrategyChapter 5CompetitiveDynamicsChapter 6Corporate-LevelStrategyChapter 8InternationalStrategyChapter 9CooperativeStrategiesChapter 7Acquisitions &RestructuringChapter 10CorporateGovernanceChapter 11Structure& ControlChapter 12StrategicLeadershipChapter 13Entrepreneurship & InnovationStrategicInputsFeedbackStrategicOutcomesStrategicActionsStrategicCompetitivenessAbove AverageReturnsChapter One: Key ThemesIndustrial Organization ModelResource-Based ModelChallenge of Strategic ManagementChanging Competitive LandscapeTwo Models of Superior ProfitabilityKey Stakeholder GroupsCompetitive success is transient...unless care is taken to preserve competitive positionOnly 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today!In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failedChallenge of Strategic ManagementBest Stocks of the DecadeChallenge of Strategic ManagementThe goals of achieving strategic competitiveness and earning above-average returns are challenging The performance of some companies more than meets strategic management's challenge Rapid technological changesRapid technology diffusionsDramatic changes in information and communication technologiesIncreasing importance of knowledgeFundamental nature of competition is changingThe pace of change is relentless....and increasingTraditional industry boundaries are blurring, such as...ComputersTelecommunications21st Century Competitive LandscapeThe global economy is changingPeople, goods, services and ideas move freely across geographic boundariesNew opportunities emerge in multiple global marketsMarkets and industries become more internationalizedTraditional sources of competitive advantage no longer guarantee successNew keys to success include:FlexibilityInnovationSpeedIntegration21st Century Competitive LandscapeCountry Competitiveness RankingsA country’s competitiveness is achieved through the accumulation of individual firms’ strategic competitiveness in the global economyAchieving improved competitiveness allows a country's citizens to have a higher standard of living 21st Century Competitive LandscapeAlternative Models of Superior ReturnsResource-BasedModelIndustrial Organization ModelThe External EnvironmentAn Attractive IndustryStrategy FormulationAssets and SkillsStrategy ImplementationSuperior ReturnsResourcesCapabilityCompetitive AdvantageAn Attractive IndustryStrategy ImplementationSuperior ReturnsI/O Model of Superior ReturnsThe Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.Action required:External EnvironmentGeneral EnvironmentIndustry EnvironmentCompetitive EnvironmentStudy the external environment, especially the industry environment.I/O Model of Superior ReturnsExternal EnvironmentGeneral EnvironmentIndustry EnvironmentCompetitive EnvironmentAn Attractive IndustryAn industry whose structural characteristics suggest above-average returns are possibleAction required:Locate an industry with high potential for above-average returns.I/O Model of Superior ReturnsExternal EnvironmentGeneral EnvironmentIndustry EnvironmentCompetitive EnvironmentAttractive IndustryAn industry whose structural characteristics suggest above-average returns are possibleAction required:Identify strategy called for by the industry to earn above-average returns.Selection of a strategy linked with above-average returns in a particular industryStrategyFormulationI/O Model of Superior ReturnsExternal EnvironmentGeneral EnvironmentIndustry EnvironmentCompetitive EnvironmentAttractive IndustryAn industry whose structural characteristics suggest above-average returns are possibleStrategy FormulationSelection of a strategy linked with above-average returns in a particular industryAction required:Develop or acquire assets and skills needed to implement the strategy.Assets and SkillsAssets and skills required to implement a chosen strategyI/O Model of Superior ReturnsExternal EnvironmentGeneral EnvironmentIndustry EnvironmentCompetitive EnvironmentAttractive IndustryAn industry whose structural characteristics suggest above-average returns are possibleStrategy FormulationSelection of a strategy linked with above-average returns in a particular industryAssets and SkillsAssets and skills required to implement a chosen strategyAction required:Use the firm’s strengths (its assets or skills) to implement the strategy.Strategy ImplementationSelection of strategic actions linked with effective implementation of the chosen strategyI/O Model of Superior ReturnsExternal EnvironmentGeneral EnvironmentIndustry EnvironmentCompetitive EnvironmentAttractive IndustryAn industry whose structural characteristics suggest above-average returns are possibleStrategy FormulationSelection of a strategy linked with above-average returns in a particular industryAssets and SkillsAssets and skills required to implement a chosen strategyAction required:Strategy ImplementationSelection of strategic actions linked with effective implementation of the chosen strategySuperior ReturnsEarning of above-average returnsMaintain selected strategy in order to outperform industry rivals.I/O Model of Superior ReturnsThe Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.Resource-Based Model of Superior ReturnsResourcesInputs to a firm’s production process.Action required:Identify firm resources. Study strengths and weak- nesses relative to rivals.Resource-Based Model of Superior ReturnsResourcesInputs to a firm’s production process.Action required:Determine what firm capabilities allow it to do better than rivals.CapabilityCapacity for an integrated set of resources to perform a task or activity.Resource-Based Model of Superior ReturnsResourcesInputs to a firm’s production process.CapabilityCapacity for an integrated set of resources to integratively perform a task or activity.Competitive AdvantageAbility of a firm to outperform its rivalsAction required:Determine how firm’s resources and capabilities may create competitive advantage.Resource-Based Model of Superior ReturnsResourcesInputs to a firm’s production process.CapabilityCapacity for an integrated set of resources to integratively perform a task or activity.Competitive AdvantageAbility of a firm to outperform its rivalsAn AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilitiesAction required:Locate an attractive industry.Resource-Based Model of Superior ReturnsResourcesInputs to a firm’s production process.CapabilityCapacity for an integrated set of resources to integratively perform a task or activity.Competitive AdvantageAbility of a firm to outperform its rivalsAn AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilitiesAction required:Select strategy that best exploits resources and capabilities relative to opportunities in environs.Strategy Formulation and ImplementationStrategic actions taken to earn above-average returnsResource-Based Model of Superior ReturnsResourcesInputs to a firm’s production process.CapabilityCapacity for an integrated set of resources to integratively perform a task or activity.Competitive AdvantageAbility of a firm to outperform its rivalsAn AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilitiesAction required:Maintain selected strategy in order to outperform industry rivals.Strategy Formulation and ImplementationStrategic actions taken to earn above-average returnsSuperior ReturnsEarning of above-average returnsResource-Based Model of Superior ReturnsNonsubstitutablethe firm must be organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage Valuableallow the firm to exploit opportunities or neutralize threats in its external environmentRarepossessed by few, if any, current and potential competitorsCostly to Imitatewhen other firms either cannot obtain them or must obtain them at a much higher costResources and capabilities lead to Competitive Advantage when they are:Core CompetenciesWhen these four criteria are met, Resources and Capabilities become:Core Competencies are resources and capabilities that can serve as a source of Competitive Advantage.The Resource-Based model argues that Core Competencies are the basis for a firm’s Competitive Advantage, Strategic Competitiveness and Ability to Earn Above-average Returns. Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies. Strategic IntentAn application of strategic intent in terms of products to be offered and markets to be served.Strategic MissionThe most effective strategists provide a vision (strategic intent) to effectively elicit the help of others in creating a firm's competitive advantage.Strategic IntentStakeholders:Groups who are affected by a firm’s performance and who have claims on its wealthThe firm must maintain performance at an adequate level in order to maintain the participation of key stakeholdersOrganizationalEmployeesManagersNon-ManagersFirmCapital MarketStock market/InvestorsDebt suppliers/BanksProduct MarketPrimary Customers SuppliersStakeholder InvolvementEach of the key stakeholders wants a piece of the same pie1How do you divide the pie in order to keep all of the stakeholders involved?2How do you increase the size of the pie so that there is more to go around?Chapter 3InternalEnvironmentChapter 2ExternalEnvironmentThe StrategicManagementProcessStrategic IntentStrategic MissionStrategicCompetitivenessAbove AverageReturnsFeedbackStrategy FormulationChapter 4Business-LevelStrategyChapter 5CompetitiveDynamicsChapter 6Corporate-LevelStrategyChapter 8InternationalStrategyChapter 9CooperativeStrategiesChapter 7Acquisitions &RestructuringStrategy ImplementationChapter 10CorporateGovernanceChapter 11Structure& ControlChapter 12StrategicLeadershipChapter 13Entrepreneurship & InnovationStrategicInputsStrategicActionsStrategic Outcomes