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Title: xad


1
Chapter 1 Strategic Management
Competitiveness
2
The Strategic Management Process

Strategy Implementation
Chapter 10CorporateGovernance
Chapter 11OrganizationalStructure andControls
Chapter 13StrategicEntrepreneurship
3
Knowledge Objectives
  • Studying this chapter should provide you with the
    strategic management knowledge needed to
  • Define strategy, above-average returns, strategic
    competitiveness, and sustainable competitive
    advantage
  • Describe the 21st-century competitive landscape
    and explain how globalization and technological
    changes shape it
  • Use the industrial organization (I/O) model to
    explain how firms can earn above-average returns
  • Use the resource-based (RBV) model to explain how
    firms can earn above-average returns

4
Knowledge Objectives contd
  • Studying this chapter should provide you with the
    strategic management knowledge needed to
  • 5. Describe vision and mission and discuss their
    value
  • 6. Define stakeholders and describe their
    ability to influence organizations
  • 7. Explain the strategic management process

5
Agenda
  • What is strategy?
  • Current competitive landscape
  • I/O model of above-average returns
  • Resource-based model of above-average returns
  • Strategic management process

6
What is Strategy?
  • Greek origin stratos army, agos leader

7
Strategy
  • Strategy has been defined as the match an
    organization achieves between
  • its internal resources and skills and
  • the opportunities and risks created by its
    external environment.

Know yourself, know your opponents encounter a
hundred battles, win a hundred victories. Sun
Tzu, The Art of War, approx. 500 BC
Source Hofer, C. W. Schendel, D. (1978).
Strategy formulation Analytic concepts, St.
Paul, MN West 12.
8
Goals of Strategy
  • Above-Average Returns
  • Returns in excess of what an investor expects to
    earn from other investments with a similar amount
    of risk
  • Strategic Competitiveness
  • When a firm successfully formulates and
    implements a value-creating strategy
  • Sustainable Competitive Advantage
  • When competitors are unable to duplicate a
    companys value-creating strategy

9
And without a strategy
Artist Mary Chapin Carpenter Song The
BugAlbum Come On, Come On
Well it's a strange old game you learn it
slowOne step forward and it's back you goYou're
standing on the throttleYou're standing on the
brakeIn the groove 'til you make a
mistakeSometimes you're the windshieldSometimes
you're the bugSometimes it all comes together
babySometimes you're just a fool in
loveSometimes you're the Louisville
SluggerSometimes you're the ballSometimes it
all comes togetherSometimes you're gonna lose it
allOne day you got the glory and then you got
noneOne day you're a diamond and then you're a
stoneEverything can change in the blink of an
eyeSo let the good times roll before we say
goodbye
10
Strategy Deliberate and Emergent
Source Mintzberg, H., Ahlstrand, B., Lampel,
J. (1998). Strategy safari, London, UK
Prentice Hall 12.
11
Agenda
  • What is strategy?
  • Current competitive landscape
  • I/O model of above-average returns
  • Resource-based model of above-average returns
  • Strategic management process

12
Changes in the Competitive Landscape
13
Some Examples
Source IN (June 2006) 27.
14
Todays Competitive Environment
Global economy Rapid technological change
15
Global Economy
  • 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
  • Globalization
  • Increased economic interdependence among
    countries as reflected in the flow of goods and
    services, financial capital, and knowledge across
    country borders
  • Increased range of opportunities for companies
    competing in the 21st-century competitive
    landscape

16
Worlds Largest Economic Entities
Source Peng, M. W. (2006). Global Strategy,
Mason, OH South-Western 23.
17
Technological Changes
  • Rate of change of technology and speed at which
    new technologies become available
  • Perpetual innovation how rapidly and
    consistently new, information-intensive
    technologies replace older ones
  • The development of disruptive technologies that
    destroy the value of existing technology and
    create new markets (Schumpeterian innovation)

18
Technological Changes
  • Moores Law (Gordon Moore, co-founder of Intel)
  • At our rate of technological development, the
    complexity of an integrated circuit (i.e. number
    of transistors per square inch), with respect to
    minimum component cost will double every 24
    months.

19
Technological Changes
  • Moores Law Application
  • It took the telephone 35 years to get into
    25 percent of all homes in the United States. It
    took TV 26 years. It took radio 22 years. It took
    PCs 16 years. It took the Internet 7 years.
  • (Hammonds, K. H. (2001). What is the state
    of the new economy?, Fast Company 101-104)

20
Source Hitt, M. A., Keats, B. W., DeMarie, S.
M. (2006). Navigating in the new competitive
landscape Building strategic flexibility and
competitive advantage in the 21st century,
Academy of Management Executive, 12(4) 22-42.
21
SWOT Analysis
22
Agenda
  • What is strategy?
  • Current competitive landscape
  • I/O model of above-average returns
  • Resource-based model of above-average returns
  • Strategic management process

23
I/O Model Focus
24
Example Vonages IPO Prospectus
  • An investment in our common stock involves a
    high degree of risk. The following risks
    should be carefully considered before
    participating in this offering
  • Our history of net operating losses and our need
    for cash to finance our growth
  • The competition we face, including from companies
    with greater financial resources
  • Differences between our service and traditional
    telephone services
  • Uncertainties relating to regulation of VoIP
    services
  • System disruptions or flaws in our technology
  • Our ability to manage our rapid growth and
  • The risk that VoIP does not gain broader
    acceptance.

Source Form S1 http//www.sec.gov/Archives/edgar/
data/1272830/000104746906001567/a2167036zs-1.htm
(07/01/2007)
25
I/O Model Above-Average Returns
  • The industry in which a firm competes has a
    stronger influence on the firms performance than
    do the choices managers make inside their
    organizations
  • Industry properties include
  • economies of scale
  • barriers to market entry
  • diversification
  • product differentiation
  • degree of concentration of firms in the
    industry

26
I/O Model Above-Average Returns
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?)

General Environment
Outside-in
27
The I/O Model ofAbove-Average Returns
  • Study the external environment, especially the
    industry environment.
  • The general environment
  • The industry environment
  • The competitor environment

28
The I/O Model ofAbove-Average Returns
2. Locate an attractive industry with a high
potential for above-average returns.
  • An industry whose structural characteristics
    suggest above-average returns

29
The I/O Model ofAbove-Average Returns
3. Identify the strategy called for by the
attractive industry to earn above-average returns.
  • Selection of a strategy linked with above-average
    returns in a particular industry

30
The I/O Model ofAbove-Average Returns
4. Develop or acquire assets and skills needed to
implement the strategy.
  • Assets and skills required to implement a chosen
    strategy

31
The I/O Model ofAbove-Average Returns
5. Use the firms strengths (its developed or
acquired assets and skills) to implement the
strategy.
  • Selection of strategic actions linked with
    effective implementation of the chosen strategy

32
The I/O Model ofAbove-Average Returns
  • Superior returns Earning of above-average returns

33
Porters Five Forces Model
  • An industrys profitability results from
    interaction among
  • Suppliers
  • Buyers
  • Competitive rivalry among firms currently in the
    industry
  • Product substitutes
  • Potential entrants to the industry

34
Porters Five Forces Model contd
  • Firms earn above-average returns by
  • Producing standardized products or services (Cost
    Leadership Strategy)
  • Manufacturing differentiated products for which
    customers are willing to pay a price premium
    (Product Differentiation Strategy)

35
Agenda
  • What is strategy?
  • Current competitive landscape
  • I/O model of above-average returns
  • Resource-based model of above-average returns
  • Strategic management process

36
Resource-Based Model Focus
37
Resource-Based Model
  • Each organization is a collection of unique
    resources and capabilities that provides the
    basis for its strategy
  • Capabilities evolve and must be managed
    dynamically (acquired and/or developed)
  • Differences in firms performances are due
    primarily to their unique resources and
    capabilities rather than structural
    characteristics of the industry

38
Resource-Based Model contd
Firms Resources
  • Strategy dictated by the firms unique resources
    and capabilities
  • Find an environment in which to exploit these
    assets (where are the best opportunities?)

THE FIRM
Inside-out
39
The RBV Model of Above-Average Returns
  • Identify the firms resources. Study its
    strengths and weaknesses compared with those of
    competitors.
  • Inputs into a firms production process

40
The RBV Model of Above-Average Returns
2. Determine the firms capabilities. What do the
capabilities allow the firm to do better than its
competitors.
  • Capacity of an integrated set of resources to
    integratively perform a task or activity

41
The RBV Model of Above-Average Returns
3. Determine the potential of the firms
resources and capabilities in terms of a
competitive advantage.
  • Ability of a firm to outperform its rivals

42
The RBV Model of Above-Average Returns
4. Locate an attractive industry.
  • An industry with opportunities that can be
    exploited by the firms resources and capabilities

43
The RBV Model of Above-Average Returns
5. Select a strategy that best allow the firm to
utilize its resources and capabilities relative
to opportunities in the external environment.
Competitive Advantage
  • Strategic actions taken to earn above-average
    returns

44
The RBV Model of Above-Average Returns
  • Superior returns Earning of above-average returns

45
Agenda
  • What is strategy?
  • Current competitive landscape
  • I/O model of above-average returns
  • Resource-based model of above-average returns
  • Strategic management process

46
Vision
  • Picture of what the firm wants to be and
    ultimately achieve
  • Reflects a firms values and aspirations
  • Big Picture thinking with passion that helps
    people feel what they are supposed to be doing
  • Should be tied to the conditions in the firms
    external and internal environments

47
Vision - Examples
  • We must be a great company with great people
    (LG Electronics)
  • Our vision is to be the worlds best quick
    service restaurant (McDonalds)
  • To make the automobile accessible to every
    American (Ford Morot Companys vision from Henry
    Ford)
  • We want to become the Harvard of the West Coast
    (Stanford University)

48
Mission
  • Externally focused application of its vision
  • A statement of a firms unique purpose and the
    scope of its operations in product and market
    terms
  • Provides general descriptions of the firms
    intended products and its markets
  • Establishes a firms individuality and is
    inspiring and relevant to all stakeholders

49
Mission - Examples
  • To bring people together anytime and anywhere
    (ATT)
  • To experience the emotion of competition,
    winning, and crushing competitors (Nike)
  • To give ordinary folk the chance to buy the same
    things as rich people (Wal-Mart)
  • To make people happy (Disney)
  • Putting a Coke within arm's reach of every
    consumer in the world (Coca-Cola)

50
From Intent Mission to Action
51
Strategy Addresses 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 are enforced by the stakeholders ability
    to withhold essential participation

52
The Three Stakeholder Groups
53
Capital Market Stakeholders
  • Shareholders and other lenders
  • Expect the firm to preserve and enhance the
    wealth they have entrusted to it
  • Returns should be commensurate with the degree of
    risk to the shareholder/lender

54
Product Market Stakeholders
  • Customers
  • Demand reliable products at low prices
  • 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

55
Organizational Stakeholders
  • Union officials
  • Want secure jobs and desirable working conditions
  • Employees
  • Expect a dynamic, stimulating, and rewarding work
    environment
  • Are satisfied by a company that is growing and
    actively developing their skills

56
Stakeholder Management
  • Two issues affect the extent of stakeholder
    involvement in the firm
  • How to divide returns to keep stakeholdersinvolv
    ed?
  • How to increase returns so everyone has more to
    share?

Capital Market
Organizational
Product Market
57
Strategic Management Process
  • Study the external and internal environments
  • Identify marketplace opportunities and threats
  • Determine how to use strengths (core
    competencies) and avoid/improve weaknesses
  • Leverage resources, capabilities, and core
    competencies and win competitive battles
  • Integrate formulation and implementation of
    strategies
  • Seek feedback to improve strategies

58
To Dos
  • Purchase class text (from PSU bookshop or online)
    ensure that it includes the cases!
  • Turn in a one page personal bio for our second
    class
  • Review HIH Chapter 1
  • Meet with your Case Analysis Group
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