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.

Strategic Flexibility – it is a set of capabilities used to respond to various demands and

opportunities existing in a dynamic and uncertain competitive environment.

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 (Industrial Organization) Model of Above Average Returns

- It suggests that above-average returns are earned when firms are able to effectively study
the external environment as the foundation for identifying an attractive industry and
implementing the appropriate strategy.

The External Environment

1. Study the external environment, especially  The general environment
the industry environment  The industry environment
  The competitor environment
An Attractive Industry
2. Locate an industry with high potential for  An industry whose structural characteristics
above=average returns suggest above-average returns

3. Identify the strategy called for by the
attractive industry to earn above-average
returns
4. Develop or acquire assets and skills needed
to implement the strategy
5. Use the firm’s strengths to implement
strategy
Strategy Formulation
 Selection of a strategy linked with above-
average returns in a particular industry
Assets and Skills
 Assets and skills required to implement a
chosen strategy
Strategy Implementation
 Selection of strategic actions linked with
effective implementation of the chosen
strategy
Superior Returns
 Earning of above-average returns

Question: What does this model suggests?

It suggests that above-average returns are earned when firms are able to effectively study the
external environment as the foundation for identifying an attractive industry and implementing the
appropriate strategy.

The Resource-Based Model of Above-Average Returns

- It assumes that each organization is a collection of unique resources and capabilities. The
uniqueness of its resources and capabilities is a basis of a firm’s strategy and its ability to earn
above-average returns.

Resources – are inputs into a firm’s production process, such as capital equipment, the skills of
individual employees, patents, finances, and talented managers. Three categories: physical, human
and organizational capital.
Capability – the capacity of a set of resources to perform a task or an activity in an integrative
manner.
Core Competencies – are capabilities that serve as a source of competitive advantage for a firm
over its rivals.

- This model suggests that the strategy the firm chooses should allow it to use its competitive
advantage in an attractive industry. The I/O model is used to identify an attractive industry.

1. Identify the firm’s resources. Study its Resources

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

2. Determine the firm’s capabilities. What Capability

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

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

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

Note:

Not all of a firm’s resources and capabilities have the potential to be the foundation for a
competitive advantage. This potential is realized when resources and capabilities are valuable, rare,
costly to imitate, and non-substitutable.

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.