Definitions Strategic Competitiveness When a firm successfully formulates

Definitions • Strategic Competitiveness Ø When a firm successfully formulates and implements a value-creating strategy • Sustainable Competitive Advantage Ø When competitors are unable to duplicate a company’s value-creating strategy • Strategic Management Process Ø The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns Copyright © 2004 South-Western. All rights reserved. 1

Definitions (cont’d) • Risk Ø An investor’s uncertainty about the economic gains or losses that will result from a particular investment • Average Returns Ø Returns equal to those an investor expects to earn from other investments with a similar amount of risk • Above-average Returns Ø Returns in excess of what an investor expects to earn from other investments with a similar amount of risk Copyright © 2004 South-Western. All rights reserved. 2

Competitive Landscape Strategic maneuvering among global and innovative combatants Global economy Rapid technological change Copyright © 2004 South-Western. All rights reserved. 3

Competitive Landscape: Hypercompetition A condition of rapidly escalating competition based on • Price-quality positioning Hypercompetition • Competition to create new know-how and establish first-mover advantage • Competition to protect or invade established product or geographic markets Copyright © 2004 South-Western. All rights reserved. 4

The External Environment 1. Study the external environment, especially the industry environment • The general environment • The industry environment • The competitor environment Adapted from Figure 1. 2 Copyright © 2004 South-Western. All rights reserved. 5

The External Environment An Attractive Industry 2. Locate an attractive industry with a high potential for aboveaverage returns • An industry whose structural characteristics suggest above-average returns Adapted from Figure 1. 2 Copyright © 2004 South-Western. All rights reserved. 6

The External Environment An Attractive Industry Strategy Formulation 3. Identify the strategy called for by the attractive industry to earn above-average returns • Selection of a strategy linked with aboveaverage returns in a particular industry Adapted from Figure 1. 2 Copyright © 2004 South-Western. All rights reserved. 7

The External Environment An Attractive Industry Strategy Formulation Assets and Skills 4. Develop or acquire assets and skills needed to implement the strategy • Assets and skills required to implement a chosen strategy Adapted from Figure 1. 2 Copyright © 2004 South-Western. All rights reserved. 8

The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy • Selection of strategic actions linked with effective implementation of the chosen strategy Adapted from Figure 1. 2 Copyright © 2004 South-Western. All rights reserved. 9

Resources and Capabilities • Capabilities • Resources Ø Inputs into a firm’s production process v Capital equipment v Skills of individual employees v Patents v Finances v Talented managers Copyright © 2004 South-Western. All rights reserved. Ø Capacity of a set of resources to perform in an integrative manner Ø A capability should not be v So simple that it is highly imitable v So complex that it defies internal steering and control 10

Resources 1. Identify the firm’s resources. Study its strengths and weaknesses compared with those of competitors • Inputs into a firm’s production process Adapted from Figure 1. 3 Copyright © 2004 South-Western. All rights reserved. 11

Resources Capability 2. Determine the firm’s capabilities. What do the capabilities allow the firm to do better than its competitors. • Capacity of an integrated set of resources to perform a task or activity Adapted from Figure 1. 3 Copyright © 2004 South-Western. All rights reserved. 12

Resources Capability Competitive Advantage 3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage. • Ability of a firm to outperform its rivals Adapted from Figure 1. 3 Copyright © 2004 South-Western. All rights reserved. 13

Resources Capability Competitive Advantage An Attractive Industry 4. Locate an attractive industry. • An industry with opportunities that can be exploited by the firm’s resources and capabilities Adapted from Figure 1. 3 Copyright © 2004 South-Western. All rights reserved. 14

Resources Capability Competitive Advantage An Attractive Industry 5. Select a strategy that best allow the firm to utilize its resources and capabilities relative to opportunities in the external environment. • Strategic actions taken Strategy Implementation Adapted from Figure 1. 3 Copyright © 2004 South-Western. All rights reserved. 15

Key Criteria of Resources and Capabilities Valuable Ø Resources and capabilities are valuable when they allow a firm to take advantage of opportunities or neutralize threats in external environment • Rare Ø Resources and capabilities are rare when possessed by few, if any, current and potential competitors Copyright © 2004 South-Western. All rights reserved. 16

Key Criteria of Resources and Capabilities • Costly to Imitate Ø Resources and capabilities are costly to imitate when other firms either cannot obtain them or are at a cost disadvantage in obtaining them • Nonsubstitutable Ø Resources and capabilities are nonsubstitutable when they have no structural equivalents Copyright © 2004 South-Western. All rights reserved. 17

Core Competencies • When the four key criteria of resources and capabilities are met, they become core competencies • Core competencies serve as a source of competitive advantage • Managerial competencies are especially important Copyright © 2004 South-Western. All rights reserved. 18

How Resources and Capabilities Provide Competitive Advantage Valuable Allow the firm to exploit opportunities or neutralize threats in its external environment Rare Possessed by few, if any, current and potential competitors Costly to imitate When other firms cannot obtain them or must obtain them at a much higher cost Nonsubstitutable The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage Copyright © 2004 South-Western. All rights reserved. 19

Resources and Capabilities, Core Competencies, and Outcomes Valuable Core Competencies Rare Competitive Advantage Costly to Imitate Value Creation Nonsubstitutable Copyright © 2004 South-Western. All rights reserved. 20

Strategic Intent • Internally focused • The leveraging of a firm’s resources, capabilities and core competencies to accomplish the firm’s goals • Exists when all employees and levels of a firm are committed to the pursuit of a specific, significant performance criterion Copyright © 2004 South-Western. All rights reserved. 21

Strategic Mission • Externally focused • A statement of a firm’s unique purpose and the scope of its operations in product and market terms Ø Establishes a firm’s individuality and is inspiring and relevant to all stakeholders Ø Provides general descriptions of the firm’s intended products and its markets Copyright © 2004 South-Western. All rights reserved. 22

The Three Stakeholder Groups Figure 1. 4 Copyright © 2004 South-Western. All rights reserved. 23

Stakeholder Involvement • Two issues affect the extent of stakeholder involvement in the firm Ø How to divide returns to keep stakeholders involved? Ø How to increase Organizational returns so everyone has more to share? Capital Market Product Market Copyright © 2004 South-Western. All rights reserved. 24

Strategic Managers • People responsible for the design and execution of strategic management processes • Decisions they make include Ø How resources will be developed or acquired Ø At what price resources will be obtained Ø How resources will be used Copyright © 2004 South-Western. All rights reserved. 25

Organizational Culture • The complex set of Ø Ideologies Ø Symbols Ø Core values that are shared throughout the firm, that influence how the firm conducts business Copyright © 2004 South-Western. All rights reserved. 26

Strategic Management Process • Study the external and internal environments • Identify marketplace opportunities and threats • Determine how to use core competencies • Use strategic intent to leverage resources, capabilities and core competencies and win competitive battles • Integrate formulation and implementation of strategies • Seek feedback to improve strategies Copyright © 2004 South-Western. All rights reserved. 27