Lecture1 CHAPTER 1 Strategic Management Strategic Competitiveness THE

Lecture-1 CHAPTER 1: Strategic Management & Strategic Competitiveness

THE STRATEGIC MANAGEMENT PROCESS

IMPORTANT DEFINITIONS ● STRATEGIC COMPETITIVENESS - achieved when a firm successfully formulates and implements a value-creating strategy ● STRATEGY - an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage ● COMPETITIVE ADVANTAGE - when a firm implements a strategy that creates superior value for customers; competitors are unable to duplicate it or find too costly to imitate it

IMPORTANT DEFINITIONS ● RISK - an investor’s uncertainty about the economic gains or losses that will result from a particular investment ● ABOVE-AVERAGE RETURNS - returns in excess of what an investor expects to earn from other investments with a similar amount of risk ● AVERAGE RETURNS - returns equal to those an investor expects to earn from other investments with a similar amount of risk

THE STRATEGIC MANAGEMENT PROCESS ■ FIRST: External environment and internal organization are analyzed to determine resources, capabilities, and core competencies—the sources of “strategic inputs. ” ■ NEXT: Vision and mission are developed; strategies are formulated. ■ THEN: Strategies are implemented with the goal of achieving strategic competitiveness and above-average returns. ■ DYNAMIC PROCESS: Continuously changing markets and industry conditions must match evolving strategic inputs.

THE COMPETITIVE LANDSCAPE ■ GLOBALIZATION - emergence of a global economy ■ TECHNOLOGY - rapid technological changes ■ INDUSTRY BOUNDARIES BLURRING ■ EXAMPLES - computer networks and telecommunications have blurred the boundaries of the entertainment industry ■ MSNBC is co-owned by NBC Universal and Microsoft ■ General Electric owns 49 percent of NBC Universal and Comcast owns the remaining 51 percent ■ STRATEGIC MANAGEMENT PROCESS - effective use of the strategic management process reduces the likelihood of failure for firms as they encounter the conditions of today’s competitive landscape

THE COMPETITIVE LANDSCAPE THE GLOBAL ECONOMY ■ Goods, services, people, skills, and ideas move freely across geographic borders ■ New opportunities and challenges emerge ■ Competitive environments are broader and increasingly more complex

THE COMPETITIVE LANDSCAPE THE GLOBAL ECONOMY ■ The European Union has become one of the world’s largest markets, with 700 million potential customers ■ China has become the second largest economy in the world surpassing Japan ■ India, the world’s largest democracy, has an economy that now ranks as the fourth largest in the world

THE COMPETITIVE LANDSCAPE THE MARCH OF GLOBALIZATION Globalization is increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders. Globalization is the product of a large number of firms competing against one another in an increasing number of global economies.

THE COMPETITIVE LANDSCAPE THE RISKS OF GLOBALIZATION Significant time is required for firms to learn how to compete in new markets, and performance may suffer during this time. With globalization, firms may overdiversify internationally, which can have strong negative effects on a firm’s overall performance.

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES THREE CATEGORIES for TECHNOLOGY TRENDS Technology is significantly altering the nature of competition and enabling unstable competitive environments ■Technology Diffusion & Disruptive Technologies ■ Information Age ■ Increasing Knowledge Intensity

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 ■ Technology Diffusion – the speed at which new technologies become available and are used; has increased substantially over the past 15 to 20 year. ■ Examples of technology diffusion: How long it took to get the following into 25 percent of U. S. homes: ● Telephone — 35 years ● TV — 26 years ● Radio — 22 years ● PCs — 16 years ● Internet — 7 years

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Perpetual Innovation ■ Perpetual Innovation - describes how rapidly and consistently new, information-intensive technologies replace older ones ■ Competitive Premium - the shorter product life cycles resulting from rapid diffusions of new technologies place a competitive premium on being able to quickly introduce new, innovative goods and services ■ Competitive Advantage - speed to market with innovative products is a primary source of competitive advantage

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Perpetual Innovation ■ Innovations must be derived from an understanding of global standards and global expectations in terms of product functionality ■ Apple - an excellent example of radical innovation by a large established firm ■ Technology Diffusion - to diffuse the technology and enhance the innovation value, firms need to be innovative in incorporating the new technology into their product

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Perpetual Innovation ■ Rapid Technology Diffusion - now may take only 12 to 18 months for firms to gather information about research and development and product decisions for their competitors ■ Patents - may be an effective protection of proprietary technology in a small number of industries, e. g. , pharmaceuticals ■ Proprietary Strategies - many firms often do not apply for patents to prevent competitors from gaining access to the technological knowledge included in the patent application, e. g. , the electronics industry

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Disruptive Technologies ■ Disruptive Technologies - technologies that destroy the value of an existing technology and create new markets, many times representing radical or breakthrough innovation ■ Examples: i. Pods, i. Pads, Wi. Fi, and the browser ■ Industry Incumbents Harmed or Destroyed – a disruptive or radical technology creates a new industry, thereby destroying the existing industry; with superior resources, experience, and access to the new technology, some incumbents may be able to adapt

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Technology and Innovation Strategic Focus: Apple ■ Apple’s “legendary” market power, phenomenal growth rate, and impressive financial performance stem from its new technology development and innovation ■ Imitators - Apple is expected to retain at least 80% of the tablet computer market even with the many imitative products on the market ■ International- Apple’s stores in China handle 40, 000 people daily, four times the average flow of U. S. customers

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Technology and Innovation Strategic Focus: Apple ■ Versatility - Apple provides an example of technological entrepreneurship across multiple industries ■ Disruptive Technologies ● Innovation and industry transformation, e. g. , i. Pod, i. Pad, and the i. Phone ● i. Pod and the complementary i. Tunes have revolutionized how music is sold and used by consumers ● i. Pad, in conjunction with Amazon’s Kindle, is changing the publishing industry; moving to electronic books

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES The Information Age - Category 2 ■ Dramatic Changes - in information technology have occurred in recent years, e. g. , personal computers, cellular phones, artificial intelligence, virtual reality, massive databases, and multiple social networking sites ■ Competitive Advantage - the ability to effectively and efficiently access and use information has become an important source of competitive advantage in virtually all industries ■ Information Technology - enables small firms to be flexible and competitive in the global arena

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES The Information Age - Category 2 ■ Change - both the pace of change in information technology and its diffusion will continue to increase ■ Cost - the declining costs of information technologies and the increased accessibility to them are evident in the current competitive landscape ■ Internet - contributing factor to hypercompetition ■ Speed and Diffusion - the global proliferation of computers increases the speed and diffusion of information technologies and enables a level playing field

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Increasing Knowledge Intensity - Category 3 ■ Knowledge - information, intelligence, and expertise are the basis of technology and its application ■ Competitive Advantage - in the 1980 s, the basis of competition shifted from hard assets to intangible resources; knowledge is a critical organizational resource and an increasingly valuable source of competitive advantage ■ Intangible Resource – knowledge gained through experience, observation, and inference is an intangible resource; the value of intangible resources is growing as a proportion of total shareholder value.

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Increasing Knowledge Intensity - Category 3 ■ Strategic Competitiveness - enhanced for the firm that develops the ability to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the firm ■ Competitive Advantage - firms must develop (e. g. , through training programs) and acquire (e. g. , by hiring educated and experienced employees) knowledge, integrate it into the organization to create capabilities, and then apply it to gain a competitive advantage

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Increasing Knowledge Intensity - Category 3 ■ Knowledge Spillovers - knowledge falls into competitor’s hands, e. g. , hiring of professional staff/managers by competitors ■ Knowledge Diffusion - because of the potential for spillovers, firms must act quickly to use their knowledge in productive ways ■ Strategic Flexibility - facilitates knowledge diffusion to where it has value

THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Increasing Knowledge Intensity - Category 3 STRATEGIC FLEXIBILITY ■ Set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment ■ Enables the capacity to learn ■ Facilitates coping with hypercompetition, uncertainty, and risk ■ Firms should try to develop strategic flexibility in all areas of operations