Chapter 1: Creating Chapter 1: Creating Competitive AdvantagesCompetitive AdvantagesMNGT 4800MNGT 4800Dr. ShookDr. Shook

AgendaAgenda

Strategic management definedStrategic management defined Strategic management process Strategic management process Schools of thoughtSchools of thought Corporate governance and Corporate governance and

stakeholder managementstakeholder management Environmental forces creating Environmental forces creating

change change Hierarchy of strategic goalsHierarchy of strategic goals

Two Perspectives of Two Perspectives of LeadershipLeadership

Strategic Choice Perspective Strategic Choice Perspective (Romantic view)(Romantic view) Leader is the key force in Leader is the key force in

organization’s successorganization’s success Population EcologyPopulation Ecology

(External control perspective)(External control perspective) Focus is on external factors that affect Focus is on external factors that affect

an organization’s successan organization’s success

Two Perspectives of Two Perspectives of LeadershipLeadership

Leaders can make a differenceLeaders can make a difference Must be aware of opportunities and Must be aware of opportunities and

threats faced in external environmentthreats faced in external environment Must have thorough understanding of Must have thorough understanding of

the firm’s resources and capabilitiesthe firm’s resources and capabilities

Strategic ManagementStrategic Management

Definition:Definition: Strategic management consists of the Strategic management consists of the analysis, decisions, and actions an organization analysis, decisions, and actions an organization undertakes in order to create and sustain competitive undertakes in order to create and sustain competitive advantages.advantages.Key attributes of strategic managementKey attributes of strategic management Directs the organization toward overall goals and Directs the organization toward overall goals and

objectives.objectives. Includes multiple stakeholders in decision makingIncludes multiple stakeholders in decision making Needs to incorporate short-term and long-term Needs to incorporate short-term and long-term

perspectivesperspectives Recognizes trade-offs between efficiency and effectivenessRecognizes trade-offs between efficiency and effectiveness

Strategic ManagementStrategic Management

Analysis (Chs. 1, 2, 3, and 4)Analysis (Chs. 1, 2, 3, and 4) Strategic goals (vision, mission, strategic Strategic goals (vision, mission, strategic

objectives)objectives) Internal and external environment of the firmInternal and external environment of the firm

Strategic decisions (Chs 5, 6, 7, and 8)Strategic decisions (Chs 5, 6, 7, and 8) In which industry(ies) should we compete?In which industry(ies) should we compete? How should we compete in those industries?How should we compete in those industries?

Actions (Chs 9, and 10)Actions (Chs 9, and 10) Allocate necessary resourcesAllocate necessary resources Design the organization to bring intended Design the organization to bring intended

strategies to realitystrategies to reality

Strategic ManagementStrategic Management

Strategic management is the study of Strategic management is the study of why some firms outperform otherswhy some firms outperform others How to compete in order to create How to compete in order to create

competitive advantages in the competitive advantages in the marketplacemarketplace

How to create competitive advantages in How to create competitive advantages in the market placethe market place Unique and valuableUnique and valuable Difficult for competitors to copy or substituteDifficult for competitors to copy or substitute

Strategic IntentionsStrategic Intentions

IntendedStrategy

DeliberateStrategy

UnrealizedStrategy

EmergentStrategy

RealizedStrategy

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Two Foundational Schools of ThoughtTwo Foundational Schools of Thought

Industrial Organization ModelIndustrial Organization Model11

Resource-Based ModelResource-Based Model

– Assumptions:Assumptions: The external environment imposes constraints that The external environment imposes constraints that

determine the strategies that can result in superior determine the strategies that can result in superior

profitability.profitability. Competing firms control similar resources and pursueCompeting firms control similar resources and pursue

similar strategiessimilar strategies Resources utilized by firms are highly mobile Resources utilized by firms are highly mobile

thus homogeneousthus homogeneous

I/O Model of Superior ReturnsI/O Model of Superior Returns

I/O Model of Superior ReturnsI/O Model of Superior Returns

The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.

The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.

I/O Model of Superior ReturnsI/O Model of Superior Returns

The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.

The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.

The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.

The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.

Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns

–Assumptions:Assumptions: Firms acquire different resources over timeFirms acquire different resources over time Resources heterogeneity within a particular Resources heterogeneity within a particular

industryindustry Resources may not be highly mobile acrossResources may not be highly mobile across

firmsfirms Difference in resources and how they are used Difference in resources and how they are used

form the basis of competitive advantageform the basis of competitive advantage

The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns

The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns

Corporate Governance and Corporate Governance and Stakeholder ManagementStakeholder Management

Corporate governance: the Corporate governance: the relationship among various relationship among various participants in determining the participants in determining the direction and performance of direction and performance of corporationscorporations ShareholdersShareholders Management (led by the CEO)Management (led by the CEO) Board of directorsBoard of directors

Corporate Governance and Corporate Governance and Stakeholder ManagementStakeholder Management

Board of directorsBoard of directors Elected represent-Elected represent-

atives of the ownersatives of the owners Ensure interests Ensure interests

and motives of man- and motives of man- agement are aligned agement are aligned with those of the owners with those of the owners Effective and engaged board of directorsEffective and engaged board of directors Shareholder activismShareholder activism Proper managerial rewards and incentivesProper managerial rewards and incentives

Exhibit 1.4 The Key Elements of Corporate Governance

Stakeholder ManagementStakeholder Management

Two views of stakeholder Two views of stakeholder managementmanagement Zero sumZero sum

Stakeholders compete for attention and Stakeholders compete for attention and resources of the organizationresources of the organization

Gain of one is a loss to the otherGain of one is a loss to the other SymbiosisSymbiosis

Stakeholders are dependent upon each Stakeholders are dependent upon each otherother

Mutual benefitsMutual benefits

Social ResponsibilitySocial Responsibility

Social responsibility: the Social responsibility: the expectation that businesses or expectation that businesses or individuals will strive to improve the individuals will strive to improve the overall welfare of societyoverall welfare of society Managers must take active steps to Managers must take active steps to

make society bettermake society better Socially responsible behavior changes Socially responsible behavior changes

over timeover time Triple bottom lineTriple bottom line

Four Additional Types of Four Additional Types of CapitalCapital

In addition to financial capitalIn addition to financial capital

Type of Capital Description

Ecological Renewable resources generated by living systems, such as wood or animal by-products

Material Nonrenewable or geological resources such as mineral ores and fossil fuels

Human People’s knowledge, skills, health, nutrition, safety, security, and motivation

Social Assets of civil society, such as social cohesion, trust, reciprocity, equity, and other values that provide mutual benefit

Strategic Management Strategic Management PerspectivePerspective

Integrative view of the organizationIntegrative view of the organization Assess how functional areas and Assess how functional areas and

activities “fit together” to achieve activities “fit together” to achieve goals and objectivesgoals and objectives

All managers and employees must All managers and employees must take and integrative, strategic take and integrative, strategic perspective of issues facing the perspective of issues facing the organizationorganization

Strategic Management Strategic Management PerspectivePerspective

Key driving forces increasing the Key driving forces increasing the need for strategic perspective and need for strategic perspective and involvementinvolvement GlobalizationGlobalization TechnologyTechnology Intellectual capitalIntellectual capital

These forces are These forces are InterrelatedInterrelated Accelerating the rate of change and Accelerating the rate of change and

uncertaintyuncertainty

Hierarchy of Goals

Coherence in Strategic Coherence in Strategic DirectionDirection

Company visionCompany vision Massively inspiringMassively inspiring OverarchingOverarching Long-termLong-term Driven by and evokes Driven by and evokes

passionpassion Fundamental statement of Fundamental statement of

the organization’sthe organization’s ValuesValues AspirationAspiration GoalsGoals

Company visionCompany vision

Hierarchy of Goals

Company visionCompany vision

Coherence in Strategic Coherence in Strategic DirectionDirection

Mission statementsMission statements Purpose of the Purpose of the

companycompany Basis of competition Basis of competition

and competitive and competitive advantagesadvantages

More specific than More specific than visionvision

Focused on the means Focused on the means by which the firm will by which the firm will competecompete

Mission statementsMission statements

Hierarchy of Goals

Company visionCompany vision

Mission statementsMission statements

Coherence in Strategic Coherence in Strategic DirectionDirection

Strategic objectivesStrategic objectives Operationalize the Operationalize the

mission statementmission statement Provide guidance on Provide guidance on

how the organization how the organization can fulfill or move can fulfill or move toward the “higher toward the “higher goals”goals”

More specificMore specific Cover a more well-Cover a more well-

defined time framedefined time frame

Strategic objectivesStrategic objectives

Coherence in Strategic Coherence in Strategic DirectionDirection

MeasurableMeasurable SpecificSpecific AppropriateAppropriate RealisticRealistic Timely Timely ChallengingChallenging Resolve conflicts that ariseResolve conflicts that arise Yardstick for rewards and Yardstick for rewards and

incentivesincentives

Strategic objectives

Hierarchy of Goals

Company visionCompany vision

Mission statementsMission statements

Strategic objectivesStrategic objectives