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Chapter 1

Strategic Management
and Strategic Competitiveness

Learning Objectives
Studying this chapter should provide you with the strategic
management knowledge needed to:

1. Define strategic management, strategic competitiveness, strategy,

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.
1–2

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Strategic management

Main issues
• Business
• Strategy
• Strategic management
• Business strategy

Strategic management

Business
• Business organization:
 An organization that provides goods and
services in order to earn profits
 Business: a simple model

Business enterprise Outputs ?

Inputs ?
Processing inputs
needed to
produce products

Business functions
and activities

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Strategic management

Business
Business activities including:
• Short term and partial activities (tactic)
• Long term and comprehensive ones
(strategy)
• Functional activities

Strategic management

Strategy?
• Strategy definition
The plan of action that prescribes resource
allocation and other activities for dealing
with the environment and helping the
organization attains it goals

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Strategic management

Strategy?
• A strategic plan, give answer to key
questions
1. Where do we want to go?
2. Where are we now?
3. How are we going to get there reach
destination?

Strategic management

Strategy?

• Characteristics of strategy

Base on strategic thinking

Very important to the survive of organization
Long term plan
Comprehensive plan ..

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Strategic management

Strategic management:
• Refer to the set of decisions and actions used to
formulate and implement strategies that will
provide a competitively superiors fit between an
organization and its environment so as to achieve
organizational goals
• Art & science of formulating, implementing, and
evaluating, cross-functional decisions that enable
an organization to achieve its objectives

Strategic management

Strategic management process:

• Process: referring to:
 A logic of steps
 Flows of activities
 Action in each step
• Strategic management process
 Process, as mentioned above, involves
analysis, formulate and implement/executive
strategy

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Strategic management
The Strategic Management Process

1–11

Strategic management

The today business environment

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Strategic management
Twenty-First Century Competition

Rapid
Globalization technological
change

Increasing
The global importance of
Today’s knowledge
economy
Competitive and people
Markets

Strategic management
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
1–14

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Strategic management
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
1–15

Strategic management
Hyper competition

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

1–16

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Strategic management

Competitive Success Factors

Are market/ Make effective

customer-needs use of valuable
oriented competencies

Have an Offer new

entrepreneurial/ and innovative
opportunistic
Top products and
mindset Corporate services
Performers
1–17

Strategic management

Technology and Technological Changes

Increasing rate of technology

diffusion and the emergence
of disruptive technologies
Technology
trends impacting The information age: Internet
the global and the global proliferation of
competitive low-cost computing power
environment
Increasing knowledge
intensity as an intangible
source of competitive
advantage 1–18

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Strategic Competitiveness

• 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.

Strategic Competitiveness
Strategy models
The Industry Organization (I/O) Model of Above-Average
Returns

Diversification Product
differentiation

Barriers to Industry
market entry concentration

The Firm’s
Economies Market
of scale
Strategic frictions
Choices
1–20

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Strategic Competitiveness
Strategy models

The I/O Model of

Above-Average
Returns

1–21

Strategic Competitiveness
Strategy models

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.
1–22

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Strategic Competitiveness
Strategy models
Five Forces Model of Competition

Substitutes

Industry
Suppliers Buyers
Rivalry

Potential
Entrants
1–23

Strategic Competitiveness
Strategy models

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.
• 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).

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Strategic Competitiveness
Strategy models
The Resource-Based Model of Above-Average Returns

Core
Capability competence
An integrated set A source of
of resources competitive
Resources advantage
Physical, human, and
organizational capital
(tangible and intangible) 1–25

Strategic Competitiveness
Strategy models

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.
1–26

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Strategic Competitiveness
Strategy models

Resources As Core Competencies

Costly to imitate

How resources
Rare become core Valuable
competencies

Nonsubstitutable
1–27

Strategic Competitiveness

Figure 1.3
The Resource-Based
Model of Above-Average
Returns

1–28

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Strategic Competitiveness
Strategy models

Strategic Decision Making

Industry Organization Resource-Based

(I/O) Model Model

Competitive
Strategy
Decision

1–29

Strategy

Vision Statement
• Vision:
• A picture of what the firm want to be and,
in broad term, what it want to ultimately
achieve

• Example?

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Strategy

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. 1–31

Strategy

Mission Statement
• Mission
• Specification of business or businesses in which
the firm intend to compete and the customers
it intend to serve

• Example?

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Strategy

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.

Strategy

Stakeholders
• Individuals and groups who can affect the
firm’s vision and mission, are affected by
the strategic outcomes achieved, and have
enforceable claims on the firm’s
performance.

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Strategy
Strategy
Stakeholders
Can affect development of the
firm’s vision and mission

Primary Are affected by the strategic

stakeholder outcomes achieved by the firm
s
(individuals,
groups, and Can have enforceable claims
organizations) on the firm’s performance

Are influential when in control

of critical or valued resources

Strategy

Classification of Stakeholders

Categories of
stakeholders

Capital Market Product Market Organizational

Stakeholders Stakeholders Stakeholders

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Strategy

The Three
Stakeholder
Groups

1–37

Strategy
Capital Market Stakeholders

Preservation
of investment

Conflicting
expectations of
Influence Risk/return
shareholders
and lenders

Enhanced wealth

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Strategic management

Questions ?

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