Part 1: Strategic Analysis

Strategic
Management: Chapter 1
creating competitive
advantages
Strategic
Gregory G. Dess Management:
G. T. Lumpkin Creating Competitive
Marilyn L. Taylor Advantage

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
 Strategic Management

• Analysis
• Strategic goals (vision, mission, strategic objectives)
• Internal and external environment of the firm
• Strategic decisions
• What industries should we compete in?
• How should we compete in those industries?
• Actions
• Allocate necessary resources
• Design the organization to bring intended strategies
to reality

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 Strategic Management

• Strategic management is the study of

why some firms outperform others
• How to compete in order to create
competitive advantages in the marketplace
• How to create competitive advantages in the
market place
 Unique and valuable
 Difficult for competitors to copy or substitute

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 Strategic Management Concepts
Definition: Strategic management consists of the
analysis, decisions, and actions an organization
undertakes in order to create and sustain competitive
advantages.
Key attributes of strategic management
• Directs the organization toward overall goals and objectives.
• Includes multiple stakeholders in decision making
• Needs to incorporate short-term and long-term perspectives
• Recognizes trade-offs between efficiency and effectiveness

Adapted from Exhibit 1.1 Strategic Management Concepts

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 Strategic Management Process

Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy:

Usually Not the Same
Source:H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and
Emergent,” Strategic Management Journal 6 (1985), pp. 257-72.
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 Strategic Analysis

• Starting point in the

strategic management
process
• Precedes effective
formulation and
implementation of
strategies

Exhibit 1.3 The Strategic Management Process

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 Strategic Analysis (cont.)

• Clear goals and

objectives permit
effective allocation of
resources
• Hierarchy of goals
• Vision
• Mission
• Strategic objectives

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Analysis (cont.)

• Managers
• Scan the environment
• Analyze competitors
• General environment
• Industry environment

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Analysis (cont.)

• Frameworks for
analyzing a firm’s
internal environment
• Strengths
• Weaknesses
• Analyzing strengths
can uncover potential
sources of competitive
advantage

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Analysis (cont.)

• Intellectual assets are

drivers of
• Competitive advantages
• Wealth creation
• Networks and
relationships among
• Employees
• Customers
• Suppliers
• Alliance partners
Adapted from Exhibit 1.3 The Strategic Management Process
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 Strategic Formulation

• Successful firms
develop bases for
competitive advantage
• Cost leadership
• Differentiation
• Focusing on narrow or
industry-wide market
segments
• Sustainability
• Industry life cycle

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Formulation (cont.)

• Firm’s portfolio or group

of businesses
• What business(es)
should we be in?
• How can we create
synergies among the
businesses?
• Diversification
• Related
• Unrelated
Adapted from Exhibit 1.3 The Strategic Management Process
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 Strategic Formulation (cont.)

• Appropriate entry
strategies
• Sustain competitive
advantage in global
markets

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Formulation (cont.)

• Digital technologies
change the way
business is conducted
• Added value
• Impact on performance
• Digital technologies can
enhance
• Cost leadership
• Differentiation

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Implementation

• Informational control
• Monitor and scan the
environment
• Respond effectively to
threats and opportunities
• Behavioral control
• Effective corporate
governance
• Interests of managers
and owners of the firm

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Implementation (cont.)

• Organizational structure
and design
• Organizational
boundaries
• Flexible
• Permeable
• Strategic Alliances

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Implementation (cont.)

• Develop organization
that is committed to
• Excellence
• Ethical behavior
• Learning organization
responsive to
• Rapid and unpredictable
change in today’s
competitive
environments
Adapted from Exhibit 1.3 The Strategic Management Process
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 Strategic Implementation (cont.)

• Corporate
entrepreneurship and
innovation
• New opportunities
• Enhance innovative
capacity
• Autonomous
entrepreneurial behavior
• Product champions

Adapted from Exhibit 1.3 The Strategic Management Process

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 Strategic Implementation (cont.)

• New ventures and

small businesses
• Major engine of
economic growth
• Recognize viable
opportunities
• Entrepreneurial
leadership skills

Adapted from Exhibit 1.3 The Strategic Management Process

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 Corporate Governance and Stakeholder
Management

• Corporate governance: the relationship

among various participants in determining
the direction and performance of
corporations
• Shareholders
• Management (led by the CEO)
• Board of directors

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 Corporate Governance and Stakeholder
Management

• Board of directors
• Elected represent-
atives of the owners
• Ensure interests
and motives of man-
agement are aligned
with those of the owners
 Effective and engaged board of directors
 Shareholder activism

 Proper managerial rewards and incentives

Exhibit 1.4 The Key Elements of Corporate Governance

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 Stakeholder Management

• Two views of stakeholder management

• Zero sum
 Stakeholders compete for attention and
resources of the organization
 Gain of one is a loss to the other

• Symbiosis
 Stakeholders are dependent upon each other
 Mutual benefits

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 Social Responsibility

• Social responsibility: the expectation that

businesses or individuals will strive to
improve the overall welfare of society
• Managers must take active steps to make
society better
• Socially responsible behavior changes over
time
• Triple bottom line

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 Strategic Management Perspective

• Integrative view of the organization

• Assess how functional areas and
activities “fit together” to achieve goals
and objectives
• All managers and employees must take
and integrative, strategic perspective of
issues facing the organization

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 Strategic Management Perspective

• Key driving forces increasing the need for

strategic perspective and involvement
• Globalization
• Technology
• Intellectual capital
• These forces are
• Interrelated
• Accelerating the rate of change and
uncertainty
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 Enhancing Employee Involvement

Local Line • Have significant profit and

Leaders
loss responsibility

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 Enhancing Employee Involvement

Local Line • Champion and guide

Leaders
ideas
Executive • Create a learning
Leaders infrastructure
• Establish a domain for
taking action

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 Enhancing Employee Involvement

Local Line • Have little positional

Leaders
power and formal
authority
Executive
Leaders • Generate their power
through the conviction and
Internal clarity of their ideas
Networkers

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 Coherence in Strategic Direction

Company vision
• Massively inspiring
Company vision
• Overarching
• Long-term
• Driven by and evokes passion
• Fundamental statement of the
organization’s
• Values
Hierarchy of Goals
• Aspiration
• Goals

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 Coherence in Strategic Direction

Mission statements
• Purpose of the company Company vision
• Basis of competition and
Mission statements
competitive advantages
• More specific than vision
• Focused on the means Hierarchy of Goals
by which the firm will
compete

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 Coherence in Strategic Direction

Strategic objectives
• Operationalize the Company vision
mission statement
• Provide guidance on how Mission statements
the organization can fulfill
or move toward the Strategic objectives
“higher goals”
Hierarchy of Goals
• More specific
• Cover a more well-
defined time frame
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 Coherence in Strategic Direction

Strategic objectives
• Measurable
Company vision
• Specific
• Appropriate Mission statements
• Realistic
Strategic objectives
• Timely
• Challenging Hierarchy of Goals
• Resolve conflicts that arise
• Yardstick for rewards and
incentives
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