TOPIC 1 – Introduction to Strategic Management

Organizations or business firms would like to sustain their presence in the

industry for a long period of time. They have to set their sights on how to improve
productivity, or profitability for that matter, in order to remain in the business. There are
so many forces to consider for them to have a foothold on what they claim to be.
A strategic plan is set and pursued with the use of existing technology and
sophisticated logistics. Objectives are set and responsible individuals are placed to take
charge of the complexed tasks in order to deliver and achieve the objectives.
Competition is one of the forces that organizations have to live by. Each of them
would try to go ahead while others would fight to keep up. Everyone believes that
“Success today is no guarantee of success tomorrow.” Changes and adjustments have to
be done even if you stick with the master plan.

Strategic Competitiveness
- It is achieved when a firm successfully formulated and implements a value-creating
strategy.

What is Competitive Advantage?

It is how an organization operates with a combination of attributes that allow it to
outperform its rivals. Or comes from operating in successful ways that are difficult to
imitate.

Strategy - it is a comprehensive action plan that identifies the long-term direction for an
organization and guides resource utilization to achieve sustainable competitive
advantage.

Strategic Intent - all organizational energies directed toward a unifying and compelling
target or goal. (It is a comprehensive plan guiding resource allocation to achieve long-
term organizational goals.

Strategic Management – it is the process of formulating and implementing strategies to

accomplish long-term goals and sustain competitive advantage.

Above-average returns – these are returns in excess of what investors expect to earn
from other investments with a similar amount of risk.

Risk – it is an investor’s uncertainty about the economic gains or losses that will result
from a particular investment.

The I/O Model of Above Average Returns

The External Environment

1. Study the external environment,  The general environment
especially the industry environment  The industry environment
 The competitor environment
An Attractive Industry
2. Locate an industry with high potential  An industry whose structural
for above=average returns characteristics suggest above-average
returns
Strategy Formulation
3. Identify the strategy called for by the  Selection of a strategy linked with
attractive industry to earn above- above-average returns in a particular
average returns industry
Assets and Skills
 4. Develop or acquire assets and skills  Assets and skills required to implement
needed to implement the strategy a chosen strategy
Strategy Implementation
5. Use the firm’s strengths to implement  Selection of strategic actions linked
strategy with effective implementation of the
chosen strategy
Superior Returns
 Earning of above-average returns

Question: What does this model suggests?

The Resource-Based Model of Above-Average Returns

1. Identify the firm’s resources. Study Resources

its strengths and weaknesses  Inputs into a firm’s production
compared with those of
competitors.

2. Determine the firm’s capabilities. Capability

What do the capabilities allow the  Capacity of an integrated set of
firm to do better than its resources to perform a task or activity
competitors?

Competitive Advantage
3. Determine the potential of the  Ability of a firm to outperform its rivals
firm’s resources and capabilities in
terms of a competitive advantage.

An Attractive Industry
4. Locate an attractive industry.  An industry with opportunities that can
be exploited by the firm’s resources and
capabilities
Strategy Formulation and
5. Select a strategy that best allows Implementation
the firm to utilize its resources and  Strategic actions taken to earn above-
capabilities relative to average returns
opportunities in the external
environment.

Superior Returns
 Earning of above-average returns

Question: Explain how does the above model achieve above-average returns?

Be sure you can:

 Define the terms of competitive advantage, strategy and strategic management
 Explain the concept of sustainable competitive advantage.
 Differentiate I/O Model of Above-Average Returns and the Resource-Based Model
of Above-Average Returns.
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