Bps ch1 Lecture

Business Policy
Ch1 Strategic Management and Strategic

Competitiveness
By Hyun Gon Kim

Learning Objectives
Studying this chapter should provide you with
the strategic management knowledge needed to:
1. Define strategy, strategic competitiveness, competitive advantage,
above-average returns, and the strategic management process.
2. Describe the competitive landscape and explain how globalization
and technological changes shape it.
3. Use the industrial organization (I/O) model to explain how firms can
earn above-average returns.
4. Use the resource-based model to explain how firms can earn above-
average returns.
5. Describe vision and mission and discuss their value.
6. Define stakeholders and describe their ability to influence
organizations.
7. Describe the work of strategic leaders.
8. Explain the strategic management process.
Definition
• A strategy is an integrated and coordinated set of

commitments and actions designed to exploit core
competencies and gain a competitive advantage.
https://www.youtube.com/watch?v=NY4myVa5Wkw
• Strategic competitiveness is achieved when a firm
successfully formulates and implements a value
creating strategy.
• A firm has a competitive advantage when it
implements a strategy that creates superior value for
customers and that competitors are unable to
duplicate or find it too costly to try to imitate.
Definition
• Above-average returns are returns in excess of

what an investor expects to earn from other
investments with a similar amount of risk.
• The strategic management process is that full
set of commitments decisions, and actions
required for a firm to achieve strategic
competitiveness and earn above-average
returns.
Strategic Competitiveness
Formulation and
implementation of
a superior value-
creating strategy
Commitments and actions to achieve

above-average performance and returns
What the firm Competitive What the firm

will do advantage will not do
Figure 1.1 The Strategic Management Process
Case Discussion and Activity
• Opening Case Discussion: (15min.)

– Discuss the case and analyze based on the questions
in ch1 case discussion form.
– https://www.youtube.com/watch?v=5WWAHbebIsI
• Alibaba case questions:

1. What is the competitive advantage of the company?
2. How is Alibaba able to obtain above-average returns?

Learning Objectives
1. Define strategic competitiveness, strategy, competitive advantage,
average returns.
organizations.
The Global Competitive Landscape
• Market volatility and instability due to

the rapid pace of change in markets
• Blurring of market boundaries
• Globalized flow of financial capital
Increasing
• Need for flexibility, speed, innovation,

and integration in the use of technology
• Strategic and operational complexity
of global-scale competition
• Rising product quality standards
• Traditional time for adapting to change

Decreasing
• Traditional sources of competitive advantage

• Traditional managerial mindset
Hypercompetition
Strategic options in
Global
hypercompetitive Technology
economy
environments
Use of Protection or
Creation of new
price-quality invasion of
know-how and
positioning to established
use of first-mover
build market geographic or
advantage
presence product markets
Technology and Technological Changes
Increasing rate of technology

diffusion and the emergence
of disruptive technologies
Technology trends
The information age: Internet
impacting the
and the global proliferation of
global competitive low-cost computing power
environment
Increasing knowledge intensity

as an intangible source of
competitive advantage
Strategic Flexibility
• Strategic Flexibility
– involves coping with the uncertainty and risks of
hypercompetitive environments.
– must first overcome built-up organizational inertia.
– requires developing the capacity for continuous
learning and applying the new and updated skills
sets and competencies to the firm’s competitive
advantage.
• Case Discussion: (15min.)

– Discuss the case and analyze based on the questions in
ch1 case discussion form.
• Starbucks case question:

Whether Starbucks achieved strategic flexibility or
not?
If yes, which factors helped?
If no, why?
Learning Objectives
average returns.
organizations.
The Industrial Organization (I/O) Model
of Above-Average Returns
Product
Diversification
differentiation
Barriers to Industry
market entry concentration
The Firm’s
Economies Market
of scale Strategic frictions
Choices
I/O Model Assumptions
1. The external environment imposes pressures

and constraints that determine strategic choices.
2. Similarity in strategically relevant resources
causes competitors to pursue similar strategies.
3. Resource differences among competitors are
short-lived due to resource mobility across firms.
4. Strategic decision makers are rational and
engage in profit-maximizing behaviors.
Five Forces Model of Competition
Substitutes
Industry
Suppliers Buyers
Rivalry
Potential
Entrants
Five Forces Model Suggestion
• 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).
Figure 1.2
The I/O Model of
Above-Average
Returns
Learning Objectives
average returns.
organizations.
The Resource-Based Model
of Above-Average Returns
Core
Capability competence
An integrated A source of
set of resources competitive
Resources advantage
Physical, human, and
organizational capital
(tangible and intangible)
Resource-Based Model Assumptions
1. Firms acquire different resources.

2. Firms develop unique capabilities based
on how they combine and use resources.
3. Resources and certain capabilities are
not highly mobile across firms.
4. Differences in resources and capabilities
are the bases of competitive advantage
and a firm’s performance rather than its
industry’s structural characteristics.
Resources As Core Competencies
Costly to imitate
How resources
Rare become core Valuable
competencies
Nonsubstitutable
Figure 1.3
The Resource-Based
Model of Above-Average
Returns
Strategic Decision Making
Industry Organization Resource-Based

(I/O) Model Model
Competitive
Strategy
Decision
• Case Discussion: (15min.)

– Discuss the case and analyze based on the questions
in ch1case discussion form.
– Airline industry case:
https://www.youtube.com/watch?v=Szn-TbvEL2I
• Airlines industry case questions:

1. How important is the environment (I/O model) to the
performance of airlines in the airline industry?
2. How important is the resource-based model to explain

how well firms perform in the airline industry?
Learning Objectives
average returns.
organizations.
Vision Statement
• A Successful Vision
– is an enduring word picture of what the firm
wants to be and expects to achieve in the future.
– stretches and challenges its people.
– reflects the firm’s values and aspirations.
– is most effective when its development includes
all stakeholders.
– recognizes the firm’s internal and external
competitive environments.
– is supported by upper management decisions
and actions.
Vision Statement
Examples of vision statements:

• Our vision is to be the world’s best quick service
restaurant. (McDonald’s)
• To make the automobile accessible to every
American (Ford’s vision when established by Henry
Ford)
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.
Mission Statement
Examples of mission statements:

• Be the best employer for our people in each community
around the world and deliver operational excellence to
our customers in each of our restaurants. (McDonald’s)
• Our mission is to be recognized by our customers as the
leader in applications engineering. We always focus on
the activities customers’ desire; we are highly motivated
and strive to advance our technical knowledge in the
areas of material, part design and fabrication technology.
(LNP, a GE Plastics Company)
Learning Objectives
average returns.
organizations.
Stakeholders
Can affect development of the

firm’s vision and mission
Primary Are affected by the strategic

stakeholders outcomes achieved by the firm
(individuals,
groups, and
Can have enforceable claims
organizations)
on the firm’s performance
Are influential when in control

of critical or valued resources
Figure 1.4
The Three
Stakeholder
Groups
Learning Objectives
average returns.
organizations.
The Work of Effective Strategic Leaders
• Strategic Leaders
– have a strong strategic orientation that relies on
thorough analysis when taking action.
– are located at various levels throughout the firm.
– want the firm and its people to accomplish more.
– are innovative thinkers who promote innovation.
– can leverage relationships with external parties while
simultaneously promoting exploratory learning.
– have an ambicultural (global mindset) approach to
management.
Learning Objectives
average returns.
organizations.
Figure 1.1 The Strategic Management Process
• Business Strategy Exercise: (20min.)
• Name of Business:
• Vision Statement:
• Mission Statement:
Business Policy
Thank You!
By Hyun Gon Kim

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Business Policy

Ch1 Strategic Management and Strategic

By Hyun Gon Kim

• A strategy is an integrated and coordinated set of

• Above-average returns are returns in excess of

Commitments and actions to achieve

What the firm Competitive What the firm

• Opening Case Discussion: (15min.)

• Alibaba case questions:

2. How is Alibaba able to obtain above-average returns?

• Market volatility and instability due to

• Need for flexibility, speed, innovation,

• Traditional time for adapting to change

• Traditional sources of competitive advantage

Increasing rate of technology

Increasing knowledge intensity

• Case Discussion: (15min.)

• Starbucks case question:

If yes, which factors helped?

1. The external environment imposes pressures

• Industry profitability (i.e., rate of return on

1. Firms acquire different resources.

Industry Organization Resource-Based

• Case Discussion: (15min.)

• Airlines industry case questions:

2. How important is the resource-based model to explain

Examples of vision statements:

Examples of mission statements:

Can affect development of the

Primary Are affected by the strategic

Are influential when in control

• Business Strategy Exercise: (20min.)

By Hyun Gon Kim

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