Chapter 1. strategic management and strategic competitiveness

Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy.

A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. When choosing a strategy, firms make choices among competing alternatives as the pathway for deciding how they will pursue strategic competitiveness.

A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate.

Above average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. Risk is an investor uncertainty about the economic gains or losses that will result from a particular investment. The most successful companies learn how to effectively manage risk. Effectively manage risks reduces investor uncertainty about the result of their investment.

Return are often measured in terms of accounting figures, such as return on assets, return on equity, or return on sales. Alternatively, returns can be measured on the basis of stock market returns, such as monthly returns.

Firms without a competitive advantage or that are not competing in an attractive industry earn, at best, average returns. Average returns are returns equal to those an investor expects to earn from other investments with a similar amount of risk.

The strategic management process is the full of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.

The competitive landscape

The fundamental nature of competition in many of the world’s industries is changing. Conventional sources of competitive advantage such as economics of scale and huge advertising budgets are not as effective as they once were in terms of helping firms earn above-average returns. Hypercompetition is a term often used to capture the realities of the competitive landscape. Under the condition of hypercompetition, assumptions of market stability are replaced by notions of inherent instability and change. Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants. It is a condition of rapidly escalating competition based on price-quality positioning, competition to create new know-how and establish first-mover advantage, and competition to protect or invade established product or geographic markets.

Several factors create hypercompetitive environments and influence the nature of the current competitive landscape. The emergence of global economy and technology, specifically rapid technological change, are the two primary drivers of hypercompetitive environments and the nature of today’s competitive landscape.

The global economy.

Is one in which goods, services, people, skills, and ideas move freely across geographic borders. Relatively unfettered by artificial constraints, such as tariffs, the global economy significantly expands and complicates a firm’s competitive environment.

The march of globalization

Globalization is the 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 product of a large number of firms competing against one another in an increasing number of global economies.

Technology and technological changes. Technology-realted trends and conditions can be placed into three categories.

- Technology diffusion and disruptive technologies. The rate of diffusion, which is the speed at which new technologies become available and are used, has increased substantially over the past 15 to 20 years. Perpetual innovation is a term used to describe how rapidly and consistently new, information-intensive technologies replace older ones. The shorter product life cycles resulting from these rapid diffusions of new technologies place a competitive premium on being able to quickly introduce new, innovative goods and services into marketplace. Disruptive technologies-the technologies that destroy the value of an existing technology and create new market-surface frequently in today’s competitive markets. A disruptive or radical technology can create what is essentially a new industry or can harm industry incumbents. Some incumbents though, are able to adapt based on their superior resources, experience, and ability to gain access to the new technology through multiple sources.

- The information age. The internet is another technological innovation contributing to hypercompetition.

- The increasing knowledge intensity. Knowledge is gained through experience, observation, and inference and is an intangible resource. The value of tangible resources, including knowledge is growing as a proportion of total shareholder value in today competitive language. The probability of achieving strategic competitiveness is enhanced for the firm that realizes that its survival depends on the ability to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the company. Therefore, firms must develop and acquire knowledge, integrate it into the organization to create capabilities, and then apply it to gain a competitive advantage.

Strategic flexibility is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment. Thus, strategic flexibility involves coping with uncertainty and its accompanying risks. To be strategically flexible on a continuing basis and to gain the competitive benefits such flexibility, a firm has to develop the capacity to learn. Firms capable of rapidly and broadly applying what they have learned exhibit the strategic flexibility and the capacity to change in ways that will increase the probability of successfully dealing with uncertain, hypercompetitive environments.

The I/O model of above-average returns.

The firms performance is believed to be determined primarily by a range of industry properties, including economics of scale, barriers to entry, diversification, product differentiation, and the degree of concentration of firms in the industry.

The I/O model has four underlying assumptions.

1. The external environment is assumed to impose pressures and constraints that determine the strategies that would result in above-average returns.

2. Most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources.

3. Resources, used to implement strategies are assumed to be highly mobile across firms, so any resource differences that might develop between firms will be short-lived.

4. Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interest, as shown by their profit-maximizing behaviors.

The I/O model challenges firms to find the most attractive industry in which to compete. Because most firms are assumed to have similar valuable resources that are mobile across companies, their performance generally can be increased only when they operate in the industry with the highest profit potential and learn how to use their resources to implement the strategy required by the industry structural characteristics.

The resource based model of above average returns

Vision and mission

- Vision- Mission

Stakeholders

- Classification of stakeholderso Capital market stakeholderso Product market stakeholderso Organizational stakeholders

Strategic leaders

- The work of effective strategic leaders- Predicting outcomes of strategic decisions: profit pools

Strategic management process