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Introduction to Strategic Management

MANA 5336

What is Strategy?
Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver.

Characteristics of strategic decisions


Important Involve a significant commitment of resources Not easily reversible

Basic Framework
The firm Goals & Values Resources & Capabilities Structures & Systems Strategy External Environment

Competitors
Customers Suppliers

etc

Definitions
Strategic Management Process
The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns

Value Creation
What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate.

Definitions
Average Returns
Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk

Above-Average Returns
Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk

Definitions
Risk
An investors uncertainty about the economic gains or losses that will result from a particular investment

Competitive Landscape
Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new know-how, first mover Hypercompetitive environments Fundamental nature of competition is changing Protect or invade established product or geographic markets

Competitive Landscape
Emergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders Spread of economic innovations around the world Hypercompetitive environments Fundamental nature of competition is changing Political and cultural adjustments are required

Competitive Landscape
Emergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Hypercompetitive environments Fundamental nature of competition is changing Increasing knowledge intensity

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

Strategic Flexibility
Organizational slack

Strategic reorientation

Strategic Flexibility flexibility

Capacity to learn

I/O Model of Above-Average Returns


1. External Environments

General
Global

Industry Environment

Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) Firm develops internal skills required by external environment (what can the firm do about the opportunities?)

Competitor Environment
Technological

Environment

Four Assumptions of the I/O Model


The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns Most firms competing within a particular industry 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

Four Assumptions of the I/O Model


Resources used to implement strategies are highly mobile across firms Organizational decision makers are assumed to be rational and committed to acting in the firms best interests, as shown by their profit-maximizing behaviors

I/O Model of Above-Average Returns Industrial Organization Model


The External Environment

Study the external environment, especially the industry environment economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry

I/O Model of Above-Average Returns Industrial Organization Model


The External Environment An Attractive Industry

Locate an attractive industry with a high potential for aboveaverage returns Attractive industry: one whose structural characteristics suggest above-average returns

I/O Model of Above-Average Returns Industrial Organization Model


The External Environment An Attractive Industry

Identify the strategy called for by the attractive industry to earn aboveaverage returns Strategy formulation: selection of a strategy linked with above-average returns in a particular industry

Strategy Formulation

I/O Model of Above-Average Returns Industrial Organization Model


The External Environment An Attractive Industry

Develop or acquire assets and skills needed to implement the strategy Assets and skills: those assets and skills required to implement a chosen strategy

Strategy Formulation
Assets and Skills

I/O Model of Above-Average Returns Industrial Organization Model


The External Environment An Attractive Industry

Use the firms strengths (its developed or acquired assets and skills) to implement the strategy Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy

Strategy Formulation
Assets and Skills Strategy Implementation

I/O Model of Above-Average Returns Industrial Organization Model


The External Environment An Attractive Industry

Strategy Formulation
Assets and Skills Strategy Implementation Superior Returns
Superior returns: earning of above-average returns

Resource-based Model of Above Average Returns


1. Firms Resources Strategy dictated by the firms unique resources and capabilities

Find an environment in which to exploit these assets (where are the best opportunities?)

Resource-based Model of Above Average Returns Resource-based Model


Resources

Identify the firms resources-- strengths and weaknesses compared with competitors Resources: inputs into a firms production process

Resource-based Model of Above Average Returns Resource-based Model


Resources Capability

Determine the firms capabilities--what it can do better than its competitors Capability: capacity of an integrated set of resources to integratively perform a task or activity

Resource-based Model of Above Average Returns Resource-based Model


Resources Capability

Determine the potential of the firms resources and capabilities in terms of a competitive advantage Competitive advantage: ability of a firm to outperform its rivals

Competitive Advantage

Resource-based Model of Above Average Returns Resource-based Model


Resources Capability Locate an attractive industry An attractive industry: an industry with opportunities that can be exploited by the firms resources and capabilities

Competitive Advantage
An Attractive Industry

Resource-based Model of Above Average Returns Resource-based Model


Resources Capability

Competitive Advantage
An Attractive Industry Strategy Form/Impl

Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Strategy formulation and implementation: strategic actions taken to earn above average returns

Resource-based Model of Above Average Returns Resource-based Model


Resources Capability

Competitive Advantage
An Attractive Industry Strategy Form/Impl Superior Returns Superior returns: earning of above-average returns

Strategic Intent & Mission

Strategic Intent

Winning competitive battles by leveraging the firms resources, capabilities, and core competencies

Strategic Mission

An application of strategic intent in terms of products to be offered and markets to be served

Emergent and Deliberate Strategies


Intended Strategy Deliberate Strategy Realized Strategy

Unrealized Strategy

Emergent Strategy

From Strategy Formation in an Adhocracy by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly, Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.

Strategic Management Process for Intended Strategies


Missions and Goals

External Analysis

Strategic Choice

Internal Analysis

INTENDED STRATEGY

Organizing for Implementation

Strategic Management Process for Emergent Strategies


External Analysis

Missions and Goals

Internal Analysis

Strategic Choice Does It Fit?

EMERGENT STRATEGY

Organizational Grassroots

The Firm and Its Stakeholders


Stakeholders
The firm must maintain Groups who are affected by a performance at an adequate firms performance and who level in order to retain the have claims on its wealth participation of key stakeholders

The Firm and Its Stakeholders


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

The Firm and Its Stakeholders


Stakeholders
Capital Market Stakeholders
Primary customers Suppliers Host communities Unions

Product Market Stakeholders

The Firm and Its Stakeholders


Stakeholders
Capital Market Stakeholders

Product Market Stakeholders Employees Managers Nonmanagers

Organizational Stakeholders

Values
Johnson
1.
2. 3.

& Johnsons credo sets its responsibilities to:


J&J product users. J&J employees. Communities in which J&J employees live and work. J&J stockholders.

4.

Source: Courtesy of Johnson & Johnson.

Johnson & Johnson Credo*


First Responsibility Is to Those Who Use J&J Products Next Come Its Employees Next, the Communities in Which the Employees Live and Work Its Final Responsibility Is to Its Stockholders

Levels of Strategy