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Chapter 1
Strategic management and strategic
competitiveness
Knowledge Objectives
1. Define strategic competitiveness, strategy, competitive advantage, above-average
returns and the strategic management process.
2. Describe the competitive landscape and explain how globalisation and technological
changes shape it.
3. Use the industrial organisation (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 organisations.
7. Describe the work of strategic leaders.
8. Explain the strategic management process.
Chapter Outline
Opening case: McDonald’s and brand recognition
THE COMPETITIVE LANDSCAPE
The global economy
Strategic focus: Starbucks is a new economy multinational but has had failures in
key markets
The march of globalisation
Technology and technological changes
Strategic focus: The core of Apple: Technology and innovation
THE I/O MODEL OF ABOVE-AVERAGE RETURNS
THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS
VISION AND MISSION
Vision
Mission
STAKEHOLDERS
Classifications of stakeholders
STRATEGIC LEADERS
The work of effective strategic leaders
Predicting outcomes of strategic decisions: profit pools
THE STRATEGIC MANAGEMENT PROCESS
SUMMARY; KEY TERMS; SEARCH ME! MANAGEMENT; REVIEW QUESTIONS; EXPERIENTIAL EXERCISES;
VIDEO CASE; NOTES
Lecture Notes
Chapter Introduction: You may want to begin this lecture with a general comment
that Chapter 1 provides an overview of the strategic management process. This
chapter introduces a number of key terms and models that students will study in
more detail in Chapters 2 through 13. Stress the importance of students paying
careful attention to the concepts introduced in this chapter so that they are well-
grounded in strategic management concepts before proceeding further.
OPENING CASE
McDonald’s and brand recognition
Brand recognition is one of the most important “touch points” in the strategic
management process; the competitive advantages that have been generated by a
firm through a series of management decisions often manifests in how consumers
perceive that firm’s brand (in relation to competitor brands). The opening Case
highlights that while McDonald’s brand is recognised by almost 90% of consumers
surveyed, recent sales figures and market share modelling demonstrates that its
brand has become somewhat confusing to fast food consumers. Many fast food
consumers are now unclear whether McDonald’s is a ‘cheap fast food option’, or a
‘premium fast food offering’; whether it is a healthy fast food option, or an unhealthy
fast food option. The confusion seems to stem from McDonald’s attempt to maintain
relevance to the changes in the fast food markets, while trying to maintain the link to
its past successes; the challenge for McDonald’s is to maintain its connection to its
successful past while traversing increasingly dynamic change in the fast food market.
To initiate discussion, ask how the case lays the groundwork for the importance of
strategy as defined in the chapter – the coordinated set of commitments and actions
designed to achieve competitive advantage. Ask students how McDonald’s should
have responded to the many changes that it was experiencing in its external
environment. The case also provides a nice lead-in to discuss anticipated
environmental changes and how McDonald’s might position itself for future success
in the increasingly dynamic fast food market. Finally, the case provides the
opportunity to discuss strategic leadership. How can effective leadership protect
McDonald’s from the ongoing changes in its external environment?
So long as a firm can sustain (or maintain) a competitive advantage, investors will earn
above-average returns. Above-average returns represent returns that exceed returns
that investors expect to earn from other investments with similar levels of risk (investor
uncertainty about the economic gains or losses that will result from a particular
investment). In other words, above average-returns exceed investors’ expected levels of
return for given risk levels.
Teaching Note: Point out that in the long run, firms must earn at least average
returns and provide investors with average returns if they are to survive. If a firm
earns below-average returns and provides investors with below-average returns,
investors will withdraw their funds and place them in investments that earn at
least average returns. At this point it may be useful to highlight the role
institutional investors play in regulating above-average performances.
A framework that can assist firms in their quest for strategic competitiveness is the
strategic management process, the full set of commitments, decisions and actions
required for a firm to systematically achieve strategic competitiveness and earn above-
average returns. This process is illustrated in Figure 1.1.
FIGURE 1.1
The strategic management process
Figure 1.1 illustrates the dynamic, interrelated nature of the elements of the strategic
management process and provides an outline of where the different elements of the
process are covered in this text.
Feedback linkages among the three primary elements indicate the dynamic nature of
the strategic management process: strategic inputs, strategic actions and strategic
outcomes.
Morton 591
Phelps 119
Bradly 103
Bruce 11
Thomas 1
Harrison. Cleveland.
California 8 Alabama 10
Colorado 3 Arkansas 7
Illinois 22 Connecticut 6
Indiana 15 Delaware 3
Iowa 13 Florida 4
Kansas 9 Georgia 12
Maine 6 Kentucky 13
Massachusetts 14 Louisiana 8
Michigan 13 Maryland 8
Minnesota 7 Mississippi 9
Nebraska 5 Missouri 16
Nevada 3 New Jersey 9
New Hampshire 4 North Carolina 12
New York 36 South Carolina 9
Ohio 23 Tennessee 11
Oregon 3 Texas 13
Pennsylvania 30 Virginia 12
Rhode Island 4 West Virginia 6
Vermont 4
Wisconsin 11 168
233
168
Harrison’s majority 65
1884. 1888.
Rep. Dem. Rep. Dem.
Maine 72,209 52,140 72,659 49,730
N. Hampsh’e 43,249 39,183 45,728 43,444
Vermont 39,514 17,331 45,192 16,788
Massachus’ts 146,724 122,352 183,447 151,990
Rhode Island 19,030 12,391 21,960 17,533
Connecticut 65,923 67,199 74,584 74,920
New York 562,005 563,154 649,114 635,715
New Jersey 123,366 127,778 144,426 151,154
Penna. 473,804 392,785 526,223 446,934
Ohio 400,082 368,280 416,054 396,455
Indiana 238,463 244,990 263,361 261,013
Illinois 337,469 312,351 370,241 348,360
Michigan 192,669 149,835 236,307 213,404
Wisconsin 161,157 146,459 176,553 155,232
Iowa 197,089 177,316 211,592 177,899
Minnesota 111,685 70,065 136,359 99,664
Colorado 36,166 27,603 51,796 37,610
California 102,416 89,288 124,809 117,729
Kansas 154,406 90,132 182,610 102,580
Nebraska 76,912 54,391 108,425 80,552
Nevada 7,193 5,578 7,238 5,326
Oregon 26,860 24,604 33,293 26,524
Totals 3,608,965 3,153,912 4,081,971 3,610,556
1884. 1888.
Rep. Dem. Rep. Dem.
Delaware 12,951 16,964 12,950 16,414
Maryland 85,699 96,932 99,761 106,172
Virginia 139,356 145,497 150,442 151,977
W. Virginia 63,096 67,317 75,052 75,588
Kentucky 118,122 152,961 155,154 183,800
Tennessee 124,078 133,258 139,815 159,079
Arkansas 50,895 72,927 58,752 85,962
N. Carolina 125,068 142,950 134,784 147,902
Missouri 202,929 235,988 236,325 261,957
Totals 922,194 1,064,794 1,063,035 1,188,851
GULF STATES.
REPUBLICAN.
Territories.
Alaska 2 0 0
Arizona 1 1 0
Dist. of Columbia 0 2 0
Indian Territory 1 1 0
New Mexico 6 0 0
Oklahoma 2 0 0
Utah 2 0 0
Total 535⅙ 182⅙ 182
Absent and not voting, 1⅔.
Reed, of Maine, received 3 votes, and Lincoln, of Illinois, 1.
Major McKinley moved to make the nomination unanimous, and it
was adopted with great enthusiasm.
In response to the unanimous request of the New York delegation,
Hon. Whitelaw Reid was nominated for Vice-President by
acclamation.
[See Book II. for Platform and Comparison of Platforms; Book III.
for speech of Hon. Chauncey M. Depew.]
DEMOCRATIC.
Territories
Alaska 2 0 0 0 0
Arizona 5 0 0 1 0
Dist. of Columbia 2 0 0 0 0
New Mexico 4 1 1 0 0
Oklahoma 2 0 0 0 0
Utah 2 0 0 0 0
Indian Territory 2 0 0 0 0
Total 617⅓ 115 103 36½ 38⅔
Number of votes cast, 909½. Necessary to a choice, 607.
Of the scattering votes Campbell got two from Alabama.
Carlisle got 3 from Florida, 6 from Kentucky, 5 from Ohio. Total
14.
Stephenson got 16⅔ from North Carolina.
Pattison got 1 from West Virginia.
Russell got 1 from Massachusetts.
Whitney got 1 from Maine.
Adlai E. Stevenson, of Illinois, former Assistant Postmaster-
General, was nominated Vice-President on the first ballot, his chief
competitor being Senator Gray, of Indiana.
[See Book II. for Democratic National Platform and Comparison;
Book III. for Governor Abbett’s speech nominating Cleveland.]
A notable scene in the Convention was created by Mr. Neal, of
Ohio, who moved to substitute a radical free trade plank as a
substitute for the somewhat moderate utterances reported by ex-
Secretary of the Interior Vilas, who read the report of the Committee
on Platform. The substitute denounced the protective tariff as a
fraud.
Mr. Neal made an earnest speech in support of his substitute and
was ably seconded by Mr. Watterson.
Mr. Vilas replied defending the majority report in a vigorous
speech, which was as generously applauded as that which preceded.
The debate was animated and made specially interesting by the
suggestions and calls from the galleries. The substitute was finally
accepted by Chairman Jones on behalf of the committee, but this did
not satisfy the friends of the substitute, who persisted in having a roll
call upon its adoption.
A synopsis of the platform was submitted to and received the
approval of Mr. Cleveland, and it was reported that the Neal
substitute was prepared by the anti-Cleveland leaders, and the fact
that the roll call was persisted in by the anti-Cleveland men gave
color to this report.
There was a great deal of confusion and excitement preceding the
roll call, and its progress was watched with as much interest as
though its result was to decide the nomination. The States at the
head of the roll generally cast their votes according to what was
believed to be the feeling of their delegations on the Presidency, but
later on the order was more varied, States known to be for Cleveland
casting their solid vote for the substitute. New York was loudly
cheered when the 72 votes of the State were given for the substitute.
It was a most inconsistent vote, as Tammany is not regarded as a free
trade organization—rather as one favoring moderate tariffs. A ripple
of excitement was occasioned when Chairman Hensel cast the 64
votes of Pennsylvania against the substitute. Mr. Wallace protested
that 15 of the delegates favored the substitute, and he demanded that
the delegation be polled. A colloquy followed between Hensel and
Wallace on the rules of the Convention, and the point raised by the
former that Wallace’s motion was not in order under the unit rules
was sustained by the Chair.
The result of the vote was 564 for the substitute and 342 against it.