Strategic Management Session One 9252020 Strategic Management Session

Strategic Management Session - One 9/25/2020 Strategic Management -Session One 1

Nature of Competition: Boeing vs. Airbus • Boeing – Historically a global leader in airplane manufacturing – Revenue from commercial aircraft division & gov’t contracts – Regained supremacy in 2006: more 787 super jumbo orders vs. Airbus’s more efficient A-380 – Changed strategy and design • Different production process • Smaller plane (787 Dreamliner) • Airbus – EU Government owned and subsidized – Won competitor battle with Boeing between 2001 & 2005 – Responded to customer demands with more efficient A-380 aircraft 9/25/2020 Strategic Management -Session One 2

Nature of Competition: Basic concepts • Strategic Competitiveness – Achieved when a firm formulate & implements a value-creating strategy • Strategy – Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage 9/25/2020 Strategic Management -Session One 3

Nature of Competition: Basic concepts • Competitive Advantage (CA) – Implemented strategy that competitors are unable to duplicate or find too costly to imitate • Above Average Returns – Returns in excess of what investor expects in comparison to other investments with similar risk 9/25/2020 Strategic Management -Session One 4

Nature of Competition: Basic concepts • Risk – Investor’s uncertainty about economic gains/losses resulting from a particular investment • Average Returns – Returns equal to what investor expects in comparison to other investments with similar risk • Strategic Management Process (SMP) – Full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average returns 9/25/2020 Strategic Management -Session One 5

Stakeholders • Basic Premise – a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors • Stakeholders are individuals and groups – They can affect, and are affected by, the strategic outcomes/performance a firm achieves – Three (3) classifications 9/25/2020 Strategic Management -Session One 6

The Three Stakeholder Groups 9/25/2020 Strategic Management -Session One 7

Stakeholders (Cont’d) • Classifications of Stakeholders – Capital Market • Expect returns commiserate with risk accepted by investments • Higher the dependency relationship, the more direct and significant firm’s response – Product Market • The 4 groups benefit due to competitive battles – Organizational • The employees- Managers, Non Managers 9/25/2020 Strategic Management -Session One 8

21 st Century Competitive Landscape • Introduction: The Competitive Landscape (CL) – Pace of change is rapid – Partnerships created by mergers & acquisitions (M&As) – Other CL characteristics: Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovative 9/25/2020 Strategic Management -Session One 9

21 st Century Competitive Landscape • Introduction: The Competitive Landscape (CL) – Hypercompetition – extremely intense rivalry among competing firms, characterized by • Escalating & increasingly aggressive competitive moves • Assumptions of market stability replaced with notion of Instability and change – Two primary drivers of the competitive landscape: • The global economy • Technology 9/25/2020 Strategic Management -Session One 10

21 st Century Competitive Landscape (Cont’d) • The Global Economy – Goods, services, people, skills and ideas move freely across geographic borders – Europe, through the European Union (EU) is the world’s largest single market • EU vs U. S. GDP: 35% higher – Emerging major competitive forces: China & India – In summary: globalization increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders 9/25/2020 Strategic Management -Session One 11

21 st Century Competitive Landscape (Cont’d) • Technology and Technological Changes – 3 categories: • 1. Technology diffusion & disruptive technologies • 2. The information age • 3. Increasing knowledge intensity 9/25/2020 Strategic Management -Session One 12

Industrial Organizational (I/O) Model of Above-Average Returns (AAR) 9/25/2020 Strategic Management -Session One 13

Industrial Organizational (I/O) Model of Above-Average Returns (AAR) • Basic Premise – to explain the dominant influence of the external environment on a firm's strategic actions and performance 9/25/2020 Strategic Management -Session One 14

Industrial Organizational (I/O) Model of Above-Average Returns (AAR) • Underlying Assumptions – External environment imposes pressures and constraints that determine the strategies resulting in AAR – Most firms compete within a particular industry/segment • Control similar strategically relevant resources • Pursue similar strategies in light of those resources 9/25/2020 Strategic Management -Session One 15

Industrial Organizational (I/O) Model of Above-Average Returns (AAR) • Underlying Assumptions – Resources for implementing strategies are highly mobile across firms • Therefore any resource differences between firms will be short-lived – Organizational decision makers are rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors 9/25/2020 Strategic Management -Session One 16

Industrial Organizational (I/O) Model of Above-Average Returns (AAR) • Five-Forces Model (Michael Porter) – The 5 Forces includes • Suppliers, buyers, competitive rivalry, product substitutes and potential entrants – Reinforces the importance of economic theory – Analytical tool previously lacking in the field of strategy – Determines the nature/level of competition and profit potential in an industry • 9/25/2020 Suggests an industry’s profitability is an interaction between these 5 forces Strategic Management -Session One 17

Industrial Organizational (I/O) Model of Above-Average Returns (AAR) (Cont’d) • Limitations – Only two strategies are suggested: • Cost Leadership – THE low-cost leader • Differentiation – Customer willing to pay the premium price for ‘being different’ – Internal resources & capabilities not considered 9/25/2020 Strategic Management -Session One 18

The Resource. Based Model of AAR 9/25/2020 Strategic Management -Session One 19

The Resource-Based Model of AAR (Cont’d) • Basic Premise - a firm's unique [internal] resources & capabilities, in combination, is the basis for firm strategy and AAR – Each firm’s performance difference across time emerges (vs industry’s structural characteristics) – Combined uniqueness should define the firms’ strategic actions – Resources are tangible and intangible 9/25/2020 Strategic Management -Session One 20

The Resource-Based Model of AAR (Cont’d) • Resources – Inputs into a firm's production process • Includes capital equipment, employee skills, patents, high-quality managers, financial condition, etc. – Basis for competitive advantage: When resources are valuable, rare, costly to imitate and nonsubsitutable 9/25/2020 Strategic Management -Session One 21

The Resource-Based Model of AAR – Resources • Internal/firm-specific resources (N=3) • Physical – Things you can touch/feel = tangible • Human – People / employees • Organizational capital – Relative to the firm itself 9/25/2020 Strategic Management -Session One 22

The Resource-Based Model of AAR (Cont’d) • Capability – Capacity for a set of resources to perform a task or activity in an integrative manner • Core Competency – A firm’s resources and capabilities that serve as sources of competitive advantage over its rival • Summary – A firm has superior performance because of • Unique resources and capabilities, and the combination makes them different, and better, than their competition – driving the competitive advantage 9/25/2020 Strategic Management -Session One 23

Vision and Mission • Vision – Picture of what the firm wants to be – What the firm ultimately wants to achieve – An effective vision statement is the responsibility of the leader who should work with others to form it – Foundation for the mission • Mission – Specifics business(es) in which firm intends to compete and customers it intends to serve – More specific than the vision 9/25/2020 Strategic Management -Session One 24

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What Makes a Successful Strategy? Successful � strategy EFFECTIVE IMPLEMENTATION Long-term, simple and agreed objectives © 2010 Robert M. Grant www. contemporarystrategyanalysis. com Profound understanding of the competitive environment Objective appraisal of resources 26

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The Basic Framework Strategy: the Link between the Firm and its Environment THE FIRM THE INDUSTRY ENVIRONMENT • Goals & Values • Resources & Capabilities • Structure & Systems © 2010 Robert M. Grant www. contemporarystrategyanalysis. com STRATEGY • Competitors • Customers • Suppliers 28

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What is Strategy? • Distinguishing strategy from tactics: – Strategy is the overall plan for deploying resources to establish a favorable position. – Tactic is a scheme for a specific maneuver. • Characteristics of strategic decisions: – Important. – Involve a significant commitment of resources. – Not easily reversible. © 2010 Robert M. Grant www. contemporarystrategyanalysis. com 30

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Describing Strategy: Competing for the Present; Preparing for the Future. STATIC DYNAMIC • • What do we want to become? - Vision statement • What do we want to achieve? - Mission statement - Performance goals • How will we get there? - Guidelines for development - Priorities for capital expenditure, R&D - Growth modes: organic growth, M&A, alliances • Where are we competing? - Product market scope - Geographical scope - Vertical scope How are we competing? - What is the basis of our competitive advantage? ) COMPETING FOR THE PRESENT © 2010 Robert M. Grant www. contemporarystrategyanalysis. com PREPARING FOR THE FUTURE 32

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