Chapter 1 Strategic Management and Strategic Competitiveness Michael

Chapter 1 Strategic Management and Strategic Competitiveness Michael A. Hitt R. Duane Ireland Robert E. Hoskisson © 2003 South-Western Publishing Company 1

Strategic Inputs The Strategic Management Process Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment Strategy Implementation Strategic Outcomes Strategic Actions Strategy Formulation Chapter 5 Chapter 4 Competitive Rivalry Business-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 Corporate. Level Strategy Chapter 10 Corporate Governance Chapter 11 Organizational Structure and Controls Chapter 9 Cooperative Strategy Chapter 12 Strategic Leadership Chapter 13 Strategic Entrepreneurship Strategic Competitiveness Above-Average Returns Feedback 2

Important Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn aboveaverage returns 3

Important Definitions Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Above-Average Returns Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate 4

Important Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment Average Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk 5

Competitive Landscape Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new knowhow, first mover Hypercompetitive environments Fundamental nature of competition is changing Protect or invade established product or geographic markets 6

Competitive Landscape Emergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders. Spread of economic innovations around the world. Hypercompetitive environments Fundamental nature of competition is changing Political and cultural adjustments are required. 7

Competitive Landscape Emergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Increasing knowledge intensity Hypercompetitive environments Fundamental nature of competition is changing 8

Strategic Flexibility A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks 9

Strategic Flexibility Organizational slack Strategic reorientation Strategic Flexibility flexibility Capacity to learn 10

I/O Model of Above-Average Returns 1. External Environments General ltu cu cio So Competitor Environment Technological Environment Ec on om ic Industry Environment ic ph gra mo De Po liti cal /Le gal Global 1. Strategy dictated by the external environments of the firm (what opportunities exist in these environments? ) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities? ) 11

Four Assumptions of the I/O Model 1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns 2. Most firms competing within a particular or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources 12

Four Assumptions of the I/O Model 3. Resources used to implement strategies are highly mobile across firms 4. Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors 13

I/O Model of Above-Average Returns Industrial Organization 1. Study the external environment, especially the Model The External Environment industry environment • economies of scale • barriers to market entry • diversification • product differentiation • degree of concentration of firms in the industry 14

I/O Model of Above-Average Returns Industrial Organization 2. Locate an attractive industry with a high potential for Model The External Environment An Attractive Industry above-average returns Attractive industry: one whose structural characteristics suggest above-average returns 15

I/O Model of Above-Average Returns Industrial Organization 3. Identify the strategy called for by the attractive industry Model The External Environment to earn above-average returns An Attractive Industry Strategy Formulation Strategy formulation: selection of a strategy linked with aboveaverage returns in a particular industry 16

I/O Model of Above-Average Returns Industrial Organization 4. Develop or acquire assets and skills needed to implement Model The External Environment the strategy An Attractive Industry Strategy Formulation Assets and Skills Assets and skills: those assets and skills required to implement a chosen strategy 17

I/O Model of Above-Average Returns Industrial Organization 5. Use the firm’s strengths (its developed or acquired assets and Model The External Environment skills) to implement the strategy An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Strategy implementation: select strategic actions linked with effective implementation of the 18 chosen strategy

I/O Model of Above-Average Returns Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns Superior returns: earning of above-average returns 19

Resource-based Model of Above Average Returns 1. Firm’s Resources 1. Strategy dictated by unique resources and capabilities of the firm (what can the firm do best? ) 2. Find an environment in which to exploit these assets (where are the best opportunities? ) 20

Resource-based Model of Above Average Returns Resource-based Model Resources 1. Identify the firm’s resources-strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process 21

Resource-based Model of Above Average Returns Resource-based Model Resources Capability 2. Determine the firm’s capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity 22

Four Attributes of Resources and Capabilities (Competitive Advantage) Rare Costly to imitate Nonsubstitutable Resources and Capabilities Valuable allow the firm to exploit opportunities or neutralize threats in its external environment possessed by few, if any, current and potential competitors when other firms cannot obtain them or must obtain them at a much higher cost the firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage 23

Resources and capabilities that meet these four criteria become a source of: Rare Costly to imitate Nonsubstitutable Resources and Capabilities Valuable Core Competencies 24

Core Competencies are the basis for a firm’s Competitive advantage Strategic competitiveness Core Competencies Ability to earn above-average returns 25

Resource-based Model of Above Average Returns Resource-based Model Resources 3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Capability Competitive Advantage Competitive advantage: ability of a firm to outperform its rivals 26

Resource-based Model of Above Average Returns Resource-based Model 4. Locate an attractive industry Resources Capability Competitive Advantage An Attractive Industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities 27

Resource-based Model of Above Average Returns Resource-based Model Resources Capability 5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Competitive Advantage An Attractive Industry Strategy Form/Impl Strategy formulation and implementation: strategic actions taken to earn above average returns 28

Resource-based Model of Above Average Returns Resource-based Model Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns Superior returns: earning of above-average returns 29

Strategic Intent & Mission l Strategic Intent l Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies l Strategic Mission l An application of strategic intent in terms of products to be offered and markets to be served 30

The Firm and Its Stakeholders Groups aremaintain affected by a The firmwho must firm’s performance and who performance at an adequate have wealth level claims in orderontoits retain the participation of key stakeholders 31

The Firm and Its Stakeholders Capital Market Stakeholders Shareholders Major suppliers of capital • Banks • Private lenders • Venture capitalists 32

The Firm and Its Stakeholders Capital Market Stakeholders Product Market Stakeholders Primary customers Suppliers Host communities Unions 33

The Firm and Its Stakeholders Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders Employees Managers Nonmanagers 34

Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Organizational Capital Market 1 How do you divide the returns to keep stakeholders involved? Product Market 35

Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Organizational Capital Market 2 How do you increase the returns so everyone has more to share? Product Market 36