Part I. Strategic Management Inputs

Chapter 1 Strategic Management and Strategic Competitiveness Diane M. Sullivan, Ph.D., 2015 Sections modified from Hitt, Ireland, and Hoskisson, Copyright 2008 Cengage Setting the Stage: Definitions and Goals Strategy Defined Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage Integrated and coordinated commitments and actions must be to pursue a long-term mission and vision Must involve multiple functional areas Must have impact on long-term profitability

Goals of Strategy (e.g., what we are trying to achieve): Strategic Competitiveness Sustainable Competitive Advantage Can be achieved when a firm formulates and implements a value-creating strategy Implemented strategy that competitors are unable to duplicate or find too costly to imitate Above-Average Returns Returns above of what investor expects in comparison to other investments with similar risk Examples

Example 1: Boeing vs. Airbus Airbus Won competitive battle 2001 - 2005 Responded to customer demands after 2005 with A-380 aircraft Offered 550-plus seats; Could only serve 35 large airports Boeing Regained supremacy in 2006 Changed strategy Focused on smaller planes, serving more airports Different production process Example 2: McDonalds A Change of Strategy?

Then: profitability driven by market saturation growth via new stores Now: profitability and growth driven by existing stores Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve firm performance in terms of: 1) Strategic competitiveness Above-average returns 2)

Insert figure 1.1 graphic The 21st Century Context for Strategy: The New Competitive Landscape The old competitive landscape was characterized by market stability The new competitive landscape is characterized by Rapid change Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from traditional to more flexible and innovative New organizational forms/relationships needed to be successful These changes in the landscape often referred to as hypercompetition

Extremely intense rivalry among competing firms, characterized by Escalating and increasingly aggressive competitive moves Inherent market instability and change Two primary drivers of the competitive landscape: Partnerships created by mergers and acquisitions, joint ventures, alliances The global economy (e.g., globalization) Technology This landscape has created the need for new ways to develop/implement strategies

AND Developing and implementing strategy is more important to firm success in this landscape Strategic Management Process Step 1: Collect information/knowledge to help you determine what type of strategy would be effective and how it could best be implemented How do we do that? What tools should we use? Insert figure 1.1 graphic SWOT Headline, January 28, 2015: SWOT is Dead! SWOT SWOT Internal Environment

External Environment Then: Strengths & Weaknesses Opportunities & Threats Now: 1) Resources 2) Capabilities 3) Core Competencies 4) Competitive Advantage 5) V.R.I.O. 1) General Environment 2) Industry Environment 3) Competitive Environment SWOT 2 Models to Help with Strategy Development and Implementation Industrial organization (I/O) model

External environment is primary determinant of a firms strategic actions Model focuses on the firms external environment Resource-based model A firms unique resources and capabilities are the critical determinants of strategic competitiveness Model focuses on the firms internal environment I/O Model of

Firm Performance I/O Model says The industry in which a firm chooses to compete has a stronger influence on firm performance than do the choices managers make inside their organizations I/O Model Strategies In general, firms may earn above-average returns by pursuing one of the following strategies: Cost leadership: operations streamlined for efficiency (e.g., low cost operations); offering relatively standardized products/services (e.g., Wal-Mart)

Differentiation: create an industry-wide perception of unique value for which customers will pay a premium (e.g., Tiffany jewelry; Intel) More on these, and others, in Chapter 4 Resource-based Model of Firm Performance Assumes each firm is a collection of unique resources and capabilities The uniqueness of the resources/capabilities is the basis for a firms strategy and ability to earn above-average

returns Insert Figure 1.3 The Resource-Based Model of AboveAverage Returns Resource-based Model of Firm Performance According to the resource-based model a firm may earn above-average returns when it Chooses to enter an industry in which it has competitive advantages based on its resources/capabilities To become a competitive advantage, a resource or capability must be Valuable Rare Costly to imitate Not substitutable

More on this in Chapter 3 Strategic Management Process Step 2: After studying the external and internal environments, the firm has the information it needs to form vision and mission Purpose 1: articulate the goal the firm is trying to accomplish Purpose 2: inform stakeholders what that goal is Insert figure 1.1 graphic Vision and Mission Vision Picture of what the firm ultimately wants to be/achieve

An effective vision statement is the responsibility of the leader who should work with others to form it The vision is the foundation for the mission Fords vision: To become the worlds leading consumer company for automotive products and services Mission Specific business(es) in which firm intends to compete and customers it intends to serve More concrete than the vision Deals more with product markets and customers Fords mission: We are a global family with a proud heritage passionately committed to providing

personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve peoples lives. Vision, Mission and Stakeholders Research suggests that an effective vision and mission is related to firm performance Firm performance helps firms satisfy stakeholders Stakeholders are individuals and groups They can affect, and are affected by, the strategic outcomes/performance a firm achieves Stakeholders have conflicting interests, so it is difficult to adequately satisfy all of

them without achieving at least average returns Three classifications of stakeholders Firms require participation from each of these stakeholders in order to operate Capital Market (shareholders, banks, etc.) Expect returns commiserate with risk accepted by investments Higher the dependency relationship, the more direct and significant firms response Product Market (customers, suppliers, communities, unions) All benefit due to competitive battles Organizational Employees

Moving Forwardnext 2 classes Chapter 2: The External Environment I/O Model Please read Chapter 2 before next class Practice Round 2 decisions to be completed by Wednesday (February 2, 2015at 7:00pm) Insert figure 1.1 graphic

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