Competing for Advantage Robert E Hoskisson Michael A

Competing for Advantage Robert E. Hoskisson Michael A. Hitt R. Duane Ireland The Power. Point slides for this textbook were prepared by: R. Dennis Middlemist Professor of Management Colorado State University If you have any concerns, contact me directly at Dennis@Middlemist. com This slide is informational only. Do not display in the classroom. 1

Chapter 1 Introduction to Strategic Management Robert E. Hoskisson Michael A. Hitt R. Duane Ireland © 2004 by South-Western/Thomson Learning 2

The Strategic Management Process Strategic Thinking Chapter 1 Introduction to Strategic Management Chapter 2 Strategic Leadership Strategic Analysis Chapter 3 The External Environment Chapter 4 The Internal Organization Strategic Intent Strategic Mission Chapter 5 Business-Level Strategy Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 7 Corporate-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 9 International Strategy Chapter 10 Cooperative Strategy Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities Chapter 11 Corporate Governance Chapter 12 Strategic Entrepreneurship 3

Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns Value Creation What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate. 4

Definitions Average Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Above-Average Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk 5

Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment 6

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 7

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 8

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 9

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 10

Strategic Flexibility Organizational slack Strategic reorientation Strategic Flexibility flexibility Capacity to learn 11

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 environment 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? ) 12

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 industry 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 13

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 14

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 15

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 16

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 17

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 18

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 19 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 20

Resource-based Model of Above Average Returns 1. Firm’s Resources 1. Strategy dictated by the firm’s unique resources and capabilities 2. Find an environment in which to exploit these assets (where are the best opportunities? ) 21

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 22

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 23

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 24

Resources and capabilities that meet these four criteria become a source of: Rare Costly to imitate Nonsubstitutable Resources and Capabilities Valuable Core Competencies 25

Core Competencies are the basis for a firm’s Competitive advantage Value Creation Core Competencies Ability to earn above-average returns 26

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 27

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 28

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 29

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 30

Strategic Intent & Mission l Strategic Intent l Winning competitive battles by leveraging the firm’s 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 31

The Firm and Its Stakeholders Groups The firmwho must aremaintain affected by a firm’s performance at an adequate and who have level claims in orderontoits retain wealth the participation of key stakeholders 32

The Firm and Its Stakeholders Capital Market Stakeholders Shareholders Major suppliers of capital • Banks • Private lenders • Venture capitalists 33

The Firm and Its Stakeholders Capital Market Stakeholders Product Market Stakeholders Primary customers Suppliers Host communities Unions 34

The Firm and Its Stakeholders Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders Employees Managers Nonmanagers 35

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 36

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 37

Organizational Strategists l Serve as a major source of competitive advantage l Are held responsible by stakeholders l Make decisions regarding development, acquisition, cost and use of resources l Assess risks of strategic actions 38