Strategic

Management
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson

SRI YUNAN BUDIARSI

 Chapter 1

Strategic Management and

Strategic Competitiveness

Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson

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 Studying this chapter should provide you with the
strategic management knowledge needed to:
• Define strategic competitiveness, strategy, competitive
advantage, above-average returns, and the strategic
management process.
• Describe the competitive landscape and explain how
globalization and technological changes shape it.
• Use the industrial organization (I/O) model to explain how
firms can earn above-average returns.
• Use the resource-based model to explain how firms can earn
aboveAverage returns.
• Describe vision and mission and discuss their value.
• Define stakeholders and describe their ability to influence
organizations.
• Describe the work of strategic leaders.
• Explain the strategic management process.
 DEFINITIONS

Strategic Management Process

The full set of commitments,
decisions, and actions required for
a firm to achieve strategic
competitiveness and earn above-
average returns
Strategic Competitiveness
Achieved when a firm successfully formulates
and implements a value-creating strategy

Above-Average Returns
Occurs when a firm develops a strategy that
competitors are not simultaneously
implementing

Provides benefits which current and potential

competitors are unable to duplicate
• Risk
An investor’s uncertainty about the
economic gains or losses that will result from
a particular investment
• Average Returns
Returns that are equal to those an investor
expects to earn from other investments with
a similar amount of risk
 Competitive Landscape
Hypercompetitive environments
Fundamental nature of
competition is changing
Dynamics of strategic
maneuvering among
global and innovative
combatants
Price-quality
positioning, new know-
how, first mover
Protect or invade
established product or
geographic markets
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 Competitive Landscape

Goods, services, people,

Emergence of skills, and ideas move
global economy freely across geographic
borders.

Spread of economic
innovations around the
world.
Hypercompetitive environments
Political and cultural
adjustments are
Fundamental nature of required.
competition is changing
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 Competitive Landscape

Increasing rate of
Emergence of technological change and
global economy diffusion
Rapid technological The information age
change
Increasing knowledge
intensity
Hypercompetitive environments

Fundamental nature of
competition is changing
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 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

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 Strategic Flexibility

Organizational
slack

Strategic Strategic
reorientation Flexibility
flexibility

Capacity to
learn

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 I/O Model of Above-Average Returns
1. External Environments
General
1. Strategy dictated by the
Global external environments
of the firm (what
Industry opportunities exist in
Environment
these environments?)
2. Firm develops internal
skills required by
Competitor external environment
Environment (what can the firm do
Technological about the
Environment opportunities?) 14
 Four Assumptions of the I/O Model

1. The external environment is assumed to possess

pressures and constraints that determine the
strategies that would result in above-average returns
2. Most firms competing within a particular 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

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 Four Assumptions of the I/O Model

3. Resources used to implement strategies are highly

mobile across firms
4. 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

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I/O Model of Above-Average Returns
Industrial Organization 1. Study the external environment,
especially the industry environment
Model • economies of scale
• barriers to market entry
The External Environment • diversification
• product differentiation
• degree of concentration of firms in
the industry

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I/O Model of Above-Average Returns
Industrial Organization 2. Locate an attractive industry with a
high potential for above-average
Model returns

The External Environment

An Attractive Industry Attractive industry: one whose structural

characteristics suggest above-average
returns

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I/O Model of Above-Average Returns
Industrial Organization 3. Identify the strategy called for by the
attractive industry to earn above-
Model average returns

The External Environment

An Attractive Industry

Strategy Formulation Strategy formulation: selection of a

strategy linked with above-average
returns in a particular industry

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I/O Model of Above-Average Returns
Industrial Organization 4. Develop or acquire assets and skills
needed to implement the strategy
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Assets and skills: those assets and skills
required to implement a chosen strategy

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I/O Model of Above-Average Returns
Industrial Organization 5. Use the firm’s strengths (its developed or
acquired assets and skills) to implement the
Model strategy

The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy implementation: select strategic
Strategy Implementation actions linked with effective
implementation of the chosen strategy

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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Superior returns: earning
Strategy Implementation
of above-average returns

Superior Returns
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 Resource-based Model of Above Average
Returns

1. Firm’s Resources 1. Strategy dictated by

unique resources and
capabilities of the firm
(what can the firm do
best?)
2. Find an environment in
which to exploit these
assets (where are the
best opportunities?)
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Resource-based Model of Above Average
Returns
Resource-based 1. Identify the firm’s resources-- strengths
and weaknesses compared with
Model competitors

Resources
Resources: inputs into a firm’s production
process

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Resource-based Model of Above Average
Returns
Resource-based 2. Determine the firm’s capabilities--what
it can do better than its competitors
Model
Resources

Capability Capability: capacity of an integrated set

of resources to integratively perform a
task or activity

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Resource-based Model of Above Average
Returns
Resource-based 3. Determine the potential of the firm’s
resources and capabilities in terms of a
Model competitive advantage

Resources

Capability

Competitive Advantage Competitive advantage: ability of a firm

to outperform its rivals

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Resource-based Model of Above Average
Returns
Resource-based 4. Locate an attractive industry

Model
Resources

Capability

Competitive Advantage

An Attractive Industry An attractive industry: an industry with

opportunities that can be exploited by the
firm’s resources and capabilities

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Resource-based Model of Above Average
Returns
Resource-based 5. Select a strategy that best allows the
firm to utilize its resources and
Model capabilities relative to opportunities in
the external environment
Resources

Capability

Competitive Advantage

An Attractive Industry
Strategy formulation and implementation:
Strategy Form/Impl strategic actions taken to earn above
average returns

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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
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 Four Attributes of Resources and Capabilities
(Competitive Advantage)
allow the firm to exploit opportunities or neutralize
Valuable threats in its external environment

possessed by few, if any, current and potential

Rare
Resources and Capabilities
competitors

when other firms cannot obtain them or must obtain

Costly to imitate them at a much higher cost

the firm is organized appropriately to obtain the full

Nonsubstitutable benefits of the resources in order to realize a
competitive advantage

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 Resources and capabilities that meet these
four criteria become a source of:

Valuable

Rare
Resources and Capabilities

Core Competencies
Costly to imitate

Nonsubstitutable

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 Core Competencies are the basis for a firm’s

Competitive
advantage

Strategic
competitiveness Core Competencies
Ability to earn
above-average
returns

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 VISION
Vision
is a picture of what the firm wants to be and, in broad terms, what it
wants to achieve. Thus, a vision statement articulates the ideal
description of an organization and gives shape to its intended future.
In other words, a vision statement points the firm in the direction of
where it would like to be in the years to come. An effective vision
stretches and challenges people as well.
EX. :
Our vision is to be the world’s best quick service restaurant.
(McDonald’s)
To make the automobile accessible to every American. (Ford Motor
Company’s vision when established by Henry Ford)
Delivering happiness to customers, employees, and vendors.
(Zappos.com)
 MISSION
• The vision is the foundation for the firm’s mission.
A specifies the businesses in which the firm
intends to compete and the customers it intends
to serve.
• The firm’s mission is more concrete than its vision.
EX.
• 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)
• Provide the best customer service possible. Deliver
WOW through service. (Zappos.com)
 The Firm and Its Stakeholders

Stakeholders

Groups
The firmwho
mustaremaintain
affected by a
firm’s
performance
performance
at an adequate
and who
have
level in
claims
orderontoits
retain
wealth
the
participation of key
stakeholders

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The Firm and Its Stakeholders

Stakeholders
Capital Market Stakeholders
Shareholders
Major suppliers of capital
•Banks
•Private lenders
•Venture capitalists

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The Firm and Its Stakeholders
Stakeholders

Capital Market Stakeholders

Primary customers
Product Market Stakeholders Suppliers
Host communities
Unions

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The Firm and Its Stakeholders
Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Employees
Organizational Stakeholders Managers
Nonmanagers

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 Stakeholder Involvement

Two issues affect the

extent of stakeholder
involvement in the firm Capital
Organizational Market

1
How do you divide the returns to Product
keep stakeholders involved? Market

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Stakeholder Involvement

Two issues affect the

extent of stakeholder
involvement in the firm Capital
Organizational Market

2
How do you increase the returns Product
so everyone has more to share? Market

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 Strategic Leaders
• are people located in different areas and
levels of the firm using the strategic
management process to select actions that
help the firm achieve its vision and fulfill its
mission.
Strategic Inputs
Chapter 2
The External
The Strategic
Environment
Strategic Intent
Strategic Mission
Management
Chapter 3
The Internal
Environment
Process
Strategy Formulation Strategy Implementation

Chapter 5 Chapter 11
Chapter 4 Chapter 6 Chapter 10
Competitive Rivalry Organizational
Strategic Actions

Business-Level Corporate- Corporate

and Competitive Structure and
Strategy Level Strategy Governance
Dynamics Controls

Chapter 7
Chapter 8 Chapter 9 Chapter 12 Chapter 13
Acquisition and
International Cooperative Strategic Strategic
Restructuring
Strategy Strategy Leadership Entrepreneurship
Strategies
Strategic Outcomes

Strategic
Competitiveness
Above-Average
Returns
Feedback 45