Introduction to Strategic

Management
What is Strategy?

Strategy is the overall plan for

deploying resources to establish a
favorable position.
Tactic is a scheme for a specific
maneuver.
 Characteristics of strategic decisions…
– Important
– Involve a significant commitment of resources
– Not easily reversible
Basic Framework

External
The firm
Environment
Goals & Values
Competitors
Resources &
Strategy Customers
Capabilities
Suppliers
Structures &
Systems etc
Definitions

Strategic Management Process

The full set of commitments, decisions, and
actions required for a firm to create value and
earn above-average returns
Value Creation
What is achieved when a firm successfully
formulates and implements a strategy that
other companies are unable to duplicate or
find too costly to imitate.
Definitions

Average Returns
Returns that are equal to those an investor
expects to earn from other investments with a
similar amount of risk

Above-Average Returns
Returns that are in excess of what an investor
expects to earn from other investments with a similar
amount of risk
Definitions

Risk
An investor’s uncertainty about the economic
gains or losses that will result from a
particular investment
Competitive Landscape
Dynamics of strategic
maneuvering among global
and innovative combatants

Price-quality positioning,
new know-how, first
mover

Hypercompetitive
Protect or invade
environments
established product or
geographic markets
Fundamental nature of
competition is changing
Competitive Landscape

Emergence of global Goods, services, people,

economy skills, and ideas move
freely across geographic
borders

Spread of economic
innovations around the
world
Hypercompetitive
Political and cultural
environments
adjustments are required
Fundamental nature of
competition is changing
Competitive Landscape
Emergence of global
economy Increasing rate of
technological change and
Rapid technological
diffusion
change

The information age

Increasing knowledge
Hypercompetitive intensity
environments

Fundamental nature of
competition is changing
Strategic Flexibility

A set of capabilities used to respond to

various demands and opportunities existing
in a dynamic and uncertain competitive
environment
It involves coping with uncertainty and the
accompanying risks
Strategic Flexibility
Organizational
slack

Strategic Strategic
reorientation Flexibility
flexibility

Capacity to
learn
 I/O Model of Above-Average Returns
1. External Environments
General
Global Strategy dictated by the
external environment of
l
ega

De
Industry the firm (what
l /L

mo
ca

opportunities exist in
gra
Environment
liti

ph these environments?)
Po

ic
Firm develops internal
So

skills required by external

c
cio

mi

Competitor environment (what can

on o
cu
ltu

Environment the firm do about the

Ec
ral

Technological
opportunities?)

Environment
Four Assumptions of the I/O Model

The external environment is assumed to possess

pressures and constraints that determine the
strategies that would result in above-average returns
Most firms competing within a particular industry or
within a certain segment of it are assumed to control
similar strategically relevant resources and to pursue
similar strategies in light of those resources
Four Assumptions of the I/O Model

Resources used to implement strategies are highly

mobile across firms
Organizational decision makers are assumed to be
rational and committed to acting in the firm’s best
interests, as shown by their profit-maximizing
behaviors
 I/O Model of Above-Average Returns

Industrial Organization
Model Study the external
The External Environment environment, especially
the industry environment
economies of scale
barriers to market entry
diversification
product differentiation
degree of concentration of
firms in the industry
 I/O Model of Above-Average Returns

Industrial Organization
Locate an attractive
Model
industry with a high
The External Environment potential for above-
average returns
An Attractive Industry
Attractive industry: one
whose structural
characteristics suggest
above-average returns
 I/O Model of Above-Average Returns

Industrial Organization
Model Identify the strategy called
The External Environment for by the attractive
industry to earn above-
An Attractive Industry average returns
Strategy Formulation Strategy formulation:
selection of a strategy linked
with above-average returns
in a particular industry
 I/O Model of Above-Average Returns

Industrial Organization
Model
Develop or acquire assets
The External Environment and skills needed to
implement the strategy
An Attractive Industry

Strategy Formulation Assets and skills: those

assets and skills required to
Assets and Skills implement a chosen
strategy
 I/O Model of Above-Average Returns

Industrial Organization
Model
Use the firm’s strengths (its
The External Environment developed or acquired assets
and skills) to implement the
An Attractive Industry
strategy
Strategy Formulation
Strategy implementation:
Assets and Skills select strategic actions
linked with effective
Strategy Implementation implementation of the
chosen strategy
 I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Superior returns: earning of

above-average returns
Strategy Implementation

Superior Returns
 Resource-based Model of Above Average
Returns

1. Firm’s Resources
Strategy dictated by the
firm’s unique resources and
capabilities
Find an environment in
which to exploit these
assets (where are the best
opportunities?)
Resource-based Model of Above Average Returns

Resource-based
Model
Identify the firm’s
Resources resources-- strengths and
weaknesses compared
with competitors
Resources: inputs into a
firm’s production process
Resource-based Model of Above Average Returns

Resource-based
Model
Determine the firm’s
Resources capabilities--what it can do
better than its competitors
Capability
Capability: capacity of an
integrated set of resources
to integratively perform a
task or activity
Four Attributes of Resources and Capabilities
(Competitive Advantage)

Valuable allow the firm to exploit opportunities or

neutralize threats in its external environment

Resources and Capabilities possessed by few, if any, current and potential

Rare competitors

Costly to when other firms cannot obtain them or must

obtain them at a much higher cost
imitate
Non the firm is organized appropriately to obtain
substitutable the full benefits of the resources in order to
realize a competitive advantage
 Resources and capabilities that meet
these four criteria become a source of:

Valuable

Resources and Capabilities

Rare
Core Competencies
Costly to imitate

Nonsubstitutable
Core Competencies are the basis for a firm’s

Competitive
advantage

Value Creation
Core Competencies
Ability to earn
above-average
returns
Resource-based Model of Above Average Returns

Resource-based
Model Determine the potential of
the firm’s resources and
Resources capabilities in terms of a
Capability competitive advantage

Competitive Advantage Competitive advantage:

ability of a firm to
outperform its rivals
Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Locate an attractive industry
Capability
An attractive industry: an
Competitive Advantage industry with opportunities
that can be exploited by the
An Attractive Industry firm’s resources and
capabilities
Resource-based Model of Above Average Returns

Resource-based
Model Select a strategy that best
Resources allows the firm to utilize its
resources and capabilities
Capability relative to opportunities in
the external environment
Competitive Advantage
Strategy formulation and
An Attractive Industry
implementation: strategic
Strategy Form/Impl actions taken to earn above
average returns
Resource-based Model of Above Average Returns

Resource-based
Model
Resources

Capability

Competitive Advantage

An Attractive Industry Superior returns: earning

of above-average returns
Strategy Form/Impl

Superior Returns
Strategic Intent & Mission

 Strategic Intent
 Winning competitive battles by leveraging the firm’s
resources, capabilities, and core competencies
 Strategic Mission
 An application of strategic intent in terms of products to be
offered and markets to be served
 Emergent and Deliberate
Strategies

Intended Deliberate Realized

Strategy Strategy Strategy

Unrealized Emergent
Strategy Strategy

From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly,
Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.
Strategic Management Process for Intended
Strategies
Missions
Missions
and
andGoals
Goals

External
External Strategic
Strategic Internal
Internal
Analysis
Analysis Choice
Choice Analysis
Analysis

INTENDED STRATEGY

Organizing
Organizingfor
for
Implementation
Implementation
Strategic Management Process for Emergent
Strategies
External
External Missions
Missions Internal
Internal
Analysis
Analysis and
andGoals
Goals Analysis
Analysis

Strategic
StrategicChoice
Choice
Does
DoesItItFit?
Fit?

EMERGENT STRATEGY

Organizational
Organizational
Grassroots
Grassroots
 The Firm and Its Stakeholders

Stakeholders
The firm who
Groups mustare
maintain
affected by a
performance
firm’s at an adequate
performance and who
level in order to retain the
have claims on its wealth
participation of key
stakeholders
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Shareholders
Major suppliers of capital
•Banks
•Private lenders
•Venture capitalists
The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Primary customers
Product Market Stakeholders Suppliers
Host communities
Unions
The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Employees
Organizational Stakeholders Managers
Nonmanagers
Values

Johnson & Johnson’s credo

sets its responsibilities to:
1. J&J product users.
2. J&J employees.
3. Communities in which J&J
employees live and work.
4. J&J stockholders.

Source: Courtesy of Johnson & Johnson.

 Johnson & Johnson Credo*

 First Responsibility Is to Those Who

Use J&J Products
 Next Come Its Employees
 Next, the Communities in Which the
Employees Live and Work
 Its Final Responsibility Is
to Its Stockholders
Levels of Strategy
Functi
o nal

Business
Corp
o r a te

Global
•Functional-Level Strategy

– Manufacturing
– Marketing
– Materials Management
– Research and Development
– Human Resources
• Business-Level Strategy

– Cost Leadership
– Differentiation
– Market Niche Focus
• Global Strategies

– Multidomestic
– International
– Global
– Transnational
• Corporate-Level Strategy

– Vertical Integration
– Diversification
– Strategic Alliances
– Acquisitions
– New Ventures
– Business Portfolio
Restructuring