BB309 STRATEGIC MANAGEMENT

Table of Contents
CHAPTER 1 – STRATEGIC MANAGEMENT & STRATEGIC COMPETITIVENESS.............................................................................................................. 2
Strategic Management............................................................................................................................................................................................................... 2
Important Decision.................................................................................................................................................................................................................... 2
Rational..................................................................................................................................................................................................................................... 2
Twenty-First Century Competition............................................................................................................................................................................................ 2
Strategic Competitiveness......................................................................................................................................................................................................... 2
The Strategic Management Process........................................................................................................................................................................................... 3
The Global Competitive Landscape........................................................................................................................................................................................... 3
Hypercompetition...................................................................................................................................................................................................................... 3
Competitive Success Factor...................................................................................................................................................................................................... 4
Technology and Technological Changes................................................................................................................................................................................... 4
Strategic Flexibility................................................................................................................................................................................................................... 4
The Industry Organization (I/O) Model of Above-Average Returns.......................................................................................................................................... 4
The I/O Model of Above-Average Returns............................................................................................................................................................................... 4
I/O Model Assumptions............................................................................................................................................................................................................ 5
Five Forces Model of Competition............................................................................................................................................................................................ 5
Five Forces Model Assumptions............................................................................................................................................................................................... 5
The Resource-Based Model of Above-Average Returns........................................................................................................................................................... 5
Resource-Based Model Assumptions........................................................................................................................................................................................ 5
Resources As Core Competencies............................................................................................................................................................................................. 6
Strategic Decision Making........................................................................................................................................................................................................ 6
Organizational Stakeholders...................................................................................................................................................................................................... 6
CHAPTER 2 – THE EXTERNAL ENVIRONMENT: OPPORTUNITIES, THREATS, INDUSTRY COMPETITION, & COMPETITOR ANALYSIS.............7
The External Environment........................................................................................................................................................................................................ 7
The Importance......................................................................................................................................................................................................................... 7
General Environment................................................................................................................................................................................................................ 7
The General Environment: Segments and Elements.................................................................................................................................................................. 7
Industry Environment................................................................................................................................................................................................................ 8
Competitor Analysis.................................................................................................................................................................................................................. 8
External Environmental Analysis.............................................................................................................................................................................................. 8
Components of the External Environmental Analysis................................................................................................................................................................ 8
Opportunities and Threats......................................................................................................................................................................................................... 8
Segments of the General Environment...................................................................................................................................................................................... 8
Industry Environment Analysis............................................................................................................................................................................................... 10
The Five Forces of Competition Model................................................................................................................................................................................... 10
Threat of New Entrants: Barriers to Entry............................................................................................................................................................................... 10
Bargaining Power of Suppliers................................................................................................................................................................................................ 11
Bargaining Power of Buyers.................................................................................................................................................................................................... 11
Threat of Substitute Products.................................................................................................................................................................................................. 11
Intensity of Rivalry Among Competitors................................................................................................................................................................................. 12
Interpreting Industry Analyses................................................................................................................................................................................................ 12
Strategic Groups...................................................................................................................................................................................................................... 12
Competitor Analysis................................................................................................................................................................................................................ 12
Competitor Analysis Components........................................................................................................................................................................................... 13
CHAPTER 3 – THE INTERNAL ORGANIZATION: RESOURCES, CAPABILITIES, CORE COMPETENCIES, & COMPETITIVE ADVANTAGES........14
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CHAPTER 1 – STRATEGIC MANAGEMENT & STRATEGIC

COMPETITIVENESS

Strategic Management
Strategic management: the continuous process of creating, implementing, and evaluating decisions
that enable an organization to achieve its objectives.

Important Decision
Strategic competitiveness: achieved when a firm successfully formulates and implements a value-
creating strategy.
Strategy: an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage.
Competitive advantage: when a firm implements a strategy that creates superior value for customers;
competitors are unable to duplicate it or find too costly to imitate it.
Risk: an investor’s uncertainty about the economic gains or losses that will result from a particular
investment.
Above-average returns: returns in excess of what an investor expects to earn from other investments
with a similar amount of risk.
Average returns: returns equal to those an investor expects to earn from other investments with a
similar amount of risk.

Rational
Rational: the approach firms use to achieve strategic competitiveness and earn above-average returns
Formulation and implementation: the 2 types of strategic actions that must be simultaneously
integrated to successfully employ the strategic management process.

Twenty-First Century Competition

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Strategic Competitiveness

The Strategic Management Process

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
- 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

- Traditional sources of competitive advantage
- Traditional managerial mindset
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Hypercompetition

Competitive Success Factor

Technology and Technological Changes

Strategic Flexibility
- involves coping with the uncertainty and risks of hypercompetitive environments.
- must first overcome built-up organizational inertia (resistance for change).
- requires developing the capacity for continuous learning and applying the new and updated
skills sets and competencies to the firm’s competitive advantage.

The Industry Organization (I/O) Model of Above-Average Returns

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The I/O Model of Above-Average Returns

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.
assumptions = believe

Five Forces Model of Competition

Five Forces Model Assumptions

- Industry profitability (i.e., rate of return on invested capital relative to cost of capital) is a
function of interactions among the five forces. (depend)
- Industry attractiveness equates to its profitability potential for earning above-average returns
by:
o Producing standardized goods or services at costs below competitor costs (a cost
leadership strategy).
o Producing differentiated goods or services for which customers are willing to pay a price
premium (a differentiation strategy).
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The Resource-Based Model of Above-Average Returns

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

The Resource-Based Model of Above-Average Returns

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Strategic Decision Making

Organizational Stakeholders

CHAPTER 2 – THE EXTERNAL ENVIRONMENT:

OPPORTUNITIES, THREATS, INDUSTRY COMPETITION, &
COMPETITOR ANALYSIS

The External Environment

The Importance
- Firms cannot directly CONTROL the general environment’s segments.
- Influence the ACTIONS & RESPONSE that firms take. (strategy)
- Affect strategic DECISION – SC & AAR (profit potential)
- Opportunity & Threat

General Environment
Dimensions in the broader society that influence an industry and the firms within it:
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- Demographic - Technological
- Economic - Global
- Political/legal - Physical
- Sociocultural

The General Environment: Segments and Elements

Industry
Environment
The set of factors directly influencing a firm and its competitive actions and competitive responses
- Threat of new entrants
- Power of suppliers
- Power of buyers
- Threat of product substitutes
- Intensity of rivalry among competitors

Competitor Analysis
- Gathering and interpreting information about all of the companies that the firm competes
against.
- Understanding the firm’s competitor environment complements the insights provided by
studying the general and industry environments.

External Environmental Analysis

- General environment: Focused on the future
- Industry environment: Focused on factors and conditions influencing a firm’s profitability
within an industry
- Competitor environment: Focused on predicting the dynamics of competitors’ actions,
responses and intentions
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Components of the External Environmental Analysis

Opportunities and Threats

- Opportunity: A condition in the general environment that, if exploited effectively, helps a
firm achieve strategic competitiveness.
- Threat: A condition in the general environment that may hinder a firm’s efforts to achieve
strategic competitiveness.

Segments of the General Environment

The Economic Segment

Uncertainty in
- Market growth rates - Budget deficits or surpluses
- Consumer demand - Personal and business savings rates
- Inflation and interest rates - Gross domestic product
- Trade deficits or surpluses

The Political/Legal Segment

- Regulations
- Consumer privacy laws
- Lobbying
- Antitrust, deregulation laws
- Taxation

The Sociocultural Segment

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- Changing attitudes and cultural values

o Attitudes and approaches to health care
o Attitudes about quality of work life
o Diverse and aging workforce
o Women in the workplace
o Concerns about environment
o Shifts in work and career preferences
o Shifts in product and service preferences

The Technological Segment

- Product innovations
- Rapid technological change and the risk of disruption
- Knowledge application
- Growth of the Internet
- New communication technologies

The Physical Environment Segment

- Emerging trends oriented to sustaining the world’s physical environment
- Recognition of the interactive influence of ecological, social, and economic systems
- Growing concerns for sustainable industry development and increased corporate social
responsibility for the future effects of globalized operations

Industry Environment Analysis

Industry Defined
- A group of firms producing products that are close substitutes.
- Firms use a rich mix of different competitive strategies to pursue above-average returns
when competing in a particular industry.
- An industry’s structural characteristics influence a firm’s choice of strategies
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The Five Forces of Competition Model

Tool for understanding the competitiveness of your business environment, and for identifying your
strategy's potential

Threat of New Entrants: Barriers to Entry

Economies of scale
- Marginal improvements in efficiency that a firm experiences as it incrementally increases its
size
- Factors (advantages and disadvantages) related to large- and small-scale entry
o Flexibility in pricing and market share
o Costs related to scale economies
o Competitor retaliation

Product differentiation
- Unique products
- Customer loyalty
- Products at competitive prices
Capital requirements
- Physical facilities
- Inventories
- Marketing activities
- Availability of capital
Switching costs
- One-time costs customers incur buying from a different supplier
o New equipment
o Retraining employees
o Psychic costs of ending a relationship

Access to distribution channels

- Stocking or shelf space
- Price breaks
- Cooperative advertising allowances
Cost disadvantages independent of scale
- Proprietary product technology
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- Favorable access to raw materials

- Desirable locations
Government policy
- Licensing and permit requirements
- Deregulation of industries
Expected retaliation
- Responses by existing competitors may depend on a firm’s present stake in the industry
(available business options)

Bargaining Power of Suppliers

Supplier power increases when:
- Suppliers are large and few in number.
- Suitable substitute products are not available.
- Individual buyers are not large customers of suppliers and there are many of them.
- Suppliers’ goods are critical to the buyers’ marketplace success.
- Suppliers’ products create high switching costs.
- Suppliers pose a threat to integrate forward into buyers’ industry.

Bargaining Power of Buyers

Buyer power increases when:
- Buyers are large and few in number.
- Buyers purchase a large portion of an industry’s total output.
- Buyers’ purchases are a significant portion of a supplier’s annual revenues.
- Buyers’ switching costs are low.
- Buyers can pose threat to integrate backward into the sellers’ industry.

Threat of Substitute Products

The threat of substitute products increases when:
- Buyers face few switching costs.
- The substitute product’s price is lower.
- Substitute product’s quality and performance are equal to or greater than the existing product.
Differentiated industry products that are valued by customers reduce this threat.

Intensity of Rivalry Among Competitors

Industry rivalry increases when:
- There are numerous or equally balanced competitors.
- Industry growth slows or declines.
- There are high fixed costs or high storage costs.
- There is a lack of differentiation opportunities or low switching costs.
- When the strategic stakes are high.
- When high exit barriers prevent competitors from leaving the industry.

Interpreting Industry Analyses

Unattractive industry (low profit potential)
- Low entry barriers
- Suppliers and buyers have strong positions
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- Strong threats from substitute products

- Intense rivalry among competitors
Attractive industry (high profit potential)
- High entry barriers
- Suppliers and buyers have weak positions
- Few threats from substitute products
- Moderate rivalry among competitors

Strategic Groups
Strategic Groups: set of firms emphasizing similar strategic dimensions and using similar strategies.
- Intra-strategic group competition is more intense than is inter-strategic group competition due
to:
o Similar market positions
o Similar products
o Similar strategic actions

Strategic Dimensions
- Extent of technological leadership
- Product quality
- Pricing Policies
- Distribution channels
- Customer service
Implications
- Intense competitive rivalry within a group threatens profitability of all group members.
- Strengths of the five forces differ across strategic groups.
- The closer the groups are in their strategies, the greater the rivalry between groups.

Competitor Analysis
Competitor Intelligence: The ethical gathering of needed information and data that provides
understanding of:
- What drives the competitor, as shown by its future objectives.
- What the competitor is doing and can do, as revealed by its current strategy.
- What the competitor believes about the industry, as shown by its assumptions.
- What the competitor’s capabilities are, as shown by its strengths and weaknesses.

Competitor Analysis Components

1. Future objectives
- How do our goals compare with our competitors’ goals?
- Where will the emphasis be placed in the future?
- What is the attitude toward risk?

2. Current strategy
- How are we currently competing?
- Does this strategy support changes in the competitive structure?

3. Assumptions
- Do we assume the future will be volatile?
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- Are we operating under a status quo?

- What assumptions do our competitors hold about the industry and themselves?

4. Capabilities
- What are our strengths and weaknesses?
- How do we rate compared to our competitors?
Response
- What will our competitors do in the future?
- Where do we hold an advantage over our competitors?
- How will this change our relationship with our competitors?
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CHAPTER 3 – THE INTERNAL ORGANIZATION:

RESOURCES, CAPABILITIES, CORE COMPETENCIES, &
COMPETITIVE ADVANTAGES