Strategic Management

Chapter 1 Top Corporate performers

Today’s Competitive Markets 1. Haven an entrepreneurial/
opportunistic mindset
1. The global economy 2. Are market/ customer-needs oriented
2. Globalization 3. Make effective use of valuable
3. Rapid technological change
competencies
4. Increasing importance of knowledge
4. Offer new and innovative products
and people
and services
Technology trends impacting the global
competitive environment
1. Increasing rate of technology
diffusion and the emergence of
disruptive technologies
2. The information age: internet and the
global proliferation of low-cost
computing power
3. Increasing knowledge intensity as an
intangible source of competitive
Competitive Advantage advantage

Global Competitive Landscape Strategic Flexibility

 Market volatility and instability due to  Involves coping with the uncertainty
the rapid pace of change in markets and risks of hypercompetitive
 Blurring of market boundaries environments.
 Globalized flow of financial capital  Must first overcome built-up
 Need for flexibility, speed, innovation, organizational inertia.
and integration in the use of  Requires developing the capacity for
technology continuous learning and applying the
 Strategic and operational complexity new and updated skills sets and
of global-scale competition competencies to the firm’s
 Rising product quality standards competitive advantage.
Strategic choices
 Traditional time for adapting to
change 1. Economic of scale – saving in costs
 Traditional sources of competitive gained by an increased level of
advantage production
 Traditional managerial mindset 2. Barriers to market entry – factors
that can prevent newcomers to a
Hypercompetition market sector
3. Diversification – adding new
products or services to the
company’s offerings
 4. Product differentiation – use to  Strategic decision makers are
distinguish a product from other rational and engage in profit-
similar ones available in the market maximizing behaviors.
5. Industry concentration – focusing
business’ efforts on a specific target
6. Market frictions – anything that 5 forces model of competition
interferes with trade
The industry organization model of
above-average returns

 Industry profitability (i.e., rate of

return on invested capital relative to
cost of capital) is a function of
interactions among the five forces.
 Industry attractiveness equates to its
profitability potential for earning
above-average returns by:
- producing standardized
goods or services at costs
below competitor costs (a
cost leadership strategy).
- producing differentiated
goods or services for which
customers are willing to pay a
price premium (a
differentiation strategy).
The resource-based model of above-
I/O model assumptions average returns
 The external environment imposes Building competitive advantage:
pressures and constraints that
1. resources – physical, human, and
determine strategic choices.
org. capital (tangible & intangible)
 Similarity in strategically relevant
2. Capability – integrated set of
resources causes competitors to
resources
pursue similar strategies.
3. Core competence – source of
 Resource differences among
competitive advantage
competitors are short-lived due to
 Firms acquire different resources.
resource mobility across firms.
 Firms develop unique capabilities
based on how they combine and use
resources.
  Resources and certain capabilities  is an enduring word picture of what
are not highly mobile across firms. the firm wants to be and expects to
 Differences in resources and achieve in the future.
capabilities are the bases of  stretches and challenges its people.
competitive advantage and a firm’s  reflects the firm’s values and
performance rather than its industry’s aspirations.
structural characteristics.  is most effective when its
development includes all
Resources as core competencies
stakeholders.
1. Rare  recognizes the firm’s internal and
2. Costly to imitate external competitive environments.
3. Nonsubstitutable  is supported by upper management
4. Valuable decisions and actions.
Mission statement
An effective mission:

 specifies the present business or

businesses in which the firm intends
to compete and customers it intends
to serve.
 has a more concrete, near-term focus
on current product markets and
customers than the firm’s vision.
 should be inspiring and relevant to all
stakeholders
Primary stakeholders (individuals, groups,
and organizations)

 can affect development of the firm’s

visions and mission
 are affected by the strategic
outcomes achieved by the firm
 can have enforceable claims on the
firm’s performance
 are influential when in control of
critical or valued resources
Classification/ Categories of
Competitive strategy decision stakeholders

1. Industry organization (I/O) model Stakeholders – people who are affected by

2. Resource-based model a firm’s performance and who have claims on
its performance
Vision statement
1. capital market stakeholders
A successful vision:
 shareholders
 major suppliers of capital (ex.  are innovative thinkers who promote
Banks) innovation.
2. product market stakeholders  can leverage relationships with
 primary customers external parties while simultaneously
 suppliers promoting exploratory learning.
 host communities  have an ambicultural (global mindset)
 unions approach to management.
3. organizational stakeholders
The strategic management process (ASP
 employees
process)
 managers
 nonmanagers
Capital market stakeholders
Conflicting expectations of shareholders
and lenders
1. influence
2. preservation of investment
3. risk/ return
4. enhanced wealth Chapter 2
Types of product market stakeholders The external environment
1. suppliers
2. customers
3. host communities
4. unions
Organizational stakeholders
Responsibilities of strategic leaders for
development and effective use of the firm’s
human capital
1. education and skills of employees
2. organizational culture and ethical
work environment
3. strategic goals and global standards
4. international assignments
The work of effective strategic leaders General Environment
 have a strong strategic orientation Dimensions in the broader society that
that relies on thorough analysis when influence an industry and the firms within it:
taking action.
 are located at various levels  demographic
throughout the firm.  economic
 want the firm and its people to  political/legal
accomplish more.  sociocultural
 technological
  global  threat of product substitutes
 physical  intensity of rivalry among competitors
Competitor analysis

 Gathering and interpreting

information about all of the
companies that the firm competes
against.
 Understanding the firm’s competitor
environment complements the
insights provided by studying the
general and industry environments.
External environmental analysis
 General Environment
 Focused on the future
 Industry Environment
 Focused on factors and conditions
influencing a firm’s profitability within
an industry
 Competitor Environment
 Focused on predicting the dynamics
of competitors’ actions, responses
and intentions
Components of the external
environmental analysis
Scanning – identifying early signals of
environmental changes and trends
Monitoring – detecting meaning through
ongoing observations of environmental
changes and trends
Forecasting – developing projections of
anticipated outcomes based on monitored
changes and trends
Assessing – determining the timing and
importance of environmental changes and
Industry Environment
trends for firms’ strategies and their
The set of factors directly influencing a firm management
and its competitive actions and competitive
Opportunities and threats
responses:
Opportunity - A condition in the general
 threat of new entrants
environment that, if exploited
 power of suppliers
 power of buyers
effectively, helps a firm achieve
strategic competitiveness.
The technological segment
Threat - A condition in the general
environment that may hinder a firm’s efforts  Product innovations
to achieve strategic competitiveness  Rapid technological change and the
risk of disruption
Segments of the general environment  Knowledge application
The demographic segment:  Growth of the Internet
 New communication technologies
 Population size
 Age structure
 Geographic distribution
 Ethnic mix
 Income distribution
The economic segment:
Uncertainty in

 market growth rates

 consumer demand
The physical environment segment
 inflation and interest rates
 trade deficits or surpluses  Emerging trends oriented to
 budget deficits or surpluses sustaining the world’s physical
 personal and business savings rates environment
 gross domestic product  Recognition of the interactive
influence of ecological, social, and
The political/ legal segment economic systems
 Regulations  Growing concerns for sustainable
 Consumer privacy laws industry development and increased
corporate social responsibility for the
 Lobbying
future effects of globalized operations
 Antitrust, deregulation laws
 Taxation Industry environment analysis
The sociocultural segment Industry - A group of firms producing
products that are close substitutes
Changing attitudes and cultural values
- Competitive strategies to pursue
 Attitudes and approaches to health
above-average returns when
care
competing in a particular industry
 Attitudes about quality of worklife - An industry’s structural
 Diverse and aging workforce characteristics influence a firm’s
 Women in the workplace choice of strategies
 Concerns about environment
 Shifts in work and career preferences Five forces of competition model
 Shifts in product and service 1. Threat of new entrants
preferences
  Economies of scale - Marginal  Expected retaliation - Responses
improvements in efficiency that a firm by existing competitors may depend
experiences as it incrementally on a firm’s present stake in the
increases its size. industry (available business options)
2. Bargaining power of suppliers
Factors (advantages and disadvantages)
Supplier power increases when:
related to large and small-scale entry
 suppliers are large and few in
include:
number.
- flexibility in pricing and market share  suitable substitute products
- costs related to scale economies are not available.
- competitor retaliation  individual buyers are not large
customers of suppliers and
 Product differentiation there are many of them.
 Unique products  suppliers’ goods are critical to
 Customer loyalty the buyers’ marketplace
 Products at competitive success.
prices  suppliers’ products create
 Capital requirements high switching costs.
 Physical facilities  suppliers pose a threat to
 Inventories integrate forward into buyers’
 Marketing activities industry.
 Availability of capital 3. Bargaining power of buyers
 Switching costs  buyers are large and few in
One-time costs customers incur number.
buying from a different supplier:  buyers purchase a large
 new equipment portion of an industry’s total
 retraining employees output.
 psychic costs of ending a  buyers’ purchases are a
relationship significant portion of a
 Access to distribution channels supplier’s annual revenues.
 Stocking or shelf space  buyers’ switching costs are
 Price breaks low.
 Cooperative advertising  buyers can pose threat to
allowances integrate backward into the
 Cost disadvantages independent sellers’ industry.
of scale 4. Threat of substitute products
 Proprietary product **The threat of substitute products
technology increases when:
 Favorable access to  buyers face few switching
raw materials costs.
 Desirable locations  the substitute product’s price
 Government policy is lower.
 Licensing and permit  substitute product’s quality
requirements and performance are equal to
 Deregulation of industries or greater than the existing
product.
**Differentiated industry products that are
values by customers reduce this threat
Strategic Dimensions
5. Rivalry among competing firms
 Extent of technological leadership
 there are numerous or equally
balanced competitors.  Product quality
 industry growth slows or  Pricing policies
declines.  Distribution channels
 there are high fixed costs or  Customer service]
high storage costs. Implications
 there is a lack of
differentiation opportunities or  Intense competitive rivalry within a
low switching costs. group threatens profitability of all
 when the strategic stakes are group members
high.  Strengths of the five forces differ
 when high exit barriers across strategic groups
prevent competitors from  The closer the groups are in their
leaving the industry. strategies, the greater the rivalry
between groups
Interpreting industry analyses
Competitor analysis
Unattractive Industry (low profit potential)
Competitor intelligence - The ethical
1. low entry barriers gathering of needed information
2. suppliers and buyers have strong and data that provides understanding of
positions what:
3. strong threats from substitute
products  drives the competitor, as shown by its
4. intense rivalry among competitors future objectives.
 the competitor is doing and can do,
Attractive industry (high profit potential) as revealed by its current strategy.
1. high entry barriers  the competitor believes about the
2. suppliers and buyers have weak industry, as shown by its
positions assumptions.
3. few threats from substitute products  the competitor’s capabilities are, as
4. moderate rivalry among competitors shown by its strengths and
weaknesses.
Strategic Groups
Future objectives
- a set of firms emphasizing similar strategic
dimensions and using similar strategies  How do our goals compare with our
competitors’ goals?
- intra-strategic group competition is more
 Where will the emphasis be placed in
intense than is inter-strategic group
the future?
competition due to similar:
 What is the attitude toward risk?
 market positions
Current strategy
 products
 strategic actions  How are we currently competing?
  Does this strategy support changes in 1. Obtaining publicly available
the competitive structure information
2. Attending trade fairs and shows to
Assumptions obtain competitors’ brochures,
 Do we assume the future will be viewing their exhibits, and listening to
volatile? discussions about their products
 Are we operating under a status quo? Practices considered both unethical and
 What assumptions do our illegal:
competitors hold about the industry
and themselves? 1. Blackmail
2. Trespassing
Capabilities 3. Eavesdropping
4. Stealing drawings, samples, or
 What are our strengths and
documents
weaknesses?
 How do we rate compared to our
competitors?
Response

 What will our competitors do in the

future?
 Where do we hold an advantage over
our competitors?
 How will this change our relationship
with our competitors?
Complementor
- The network of companies that sell
complementary products or services or are
compatible with the focal firm’s own product
or service.

 If a complementor’s product or
service adds value to the sale of the
focal firm’s product or service, it is
likely to create value for the focal firm.
 However, if a complementor’s
product or service is in a market into
which the focal firm intends to
expand, the complementor can
represent a formidable competitor.
Ethical considerations
Practices considered both legal and
ethical: