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
External
Environment
Competitors
Customers
Suppliers
etc
Strategy
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
Returns that are in excess of what an investor
expects to earn from other investments with a similar
amount of risk
Above-Average Returns
Returns that are equal to those an investor
expects to earn from other investments with a
similar amount of risk
Average Returns
Definitions
Risk
An investors uncertainty about the economic
gains or losses that will result from a
particular investment
Fundamental nature of
competition is changing
Competitive Landscape
Hypercompetitive
environments
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
Fundamental nature of
competition is changing
Hypercompetitive
environments
Competitive Landscape
Emergence of global
economy
Goods, services, people,
skills, and ideas move
freely across geographic
borders
Spread of economic
innovations around the
world
Political and cultural
adjustments are required
Hypercompetitive
environments
Competitive Landscape
Emergence of global
economy
Rapid technological
change
Increasing rate of
technological change and
diffusion
The information age
Increasing knowledge
intensity
Fundamental nature of
competition is changing
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
Strategic
Flexibility
Strategic Flexibility
Strategic
flexibility
Strategic
reorientation
Capacity to
learn
Organizational
slack
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?)
General
Environment
Global
Technological
1. External Environments
Industry
Environment
Competitor
Environment
I/O Model of Above-Average Returns
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
Industrial Organization
Model
I/O Model of Above-Average Returns
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
The External Environment
I/O Model of Above-Average Returns
Locate an attractive
industry with a high
potential for above-
average returns
Attractive industry: one
whose structural
characteristics suggest
above-average returns
Industrial Organization
Model
The External Environment
An Attractive Industry
I/O Model of Above-Average Returns
Identify the strategy called
for by the attractive
industry to earn above-
average returns
Strategy formulation:
selection of a strategy linked
with above-average returns
in a particular industry
Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
I/O Model of Above-Average Returns
Develop or acquire assets
and skills needed to
implement the strategy
Assets and skills: those
assets and skills required to
implement a chosen
strategy
Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
I/O Model of Above-Average Returns
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
Industrial Organization
Model
The External Environment
An Attractive Industry
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
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
1. Firms 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
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
Resource-based Model of Above Average Returns
Resource-based
Model
Resources
Capability
Competitive Advantage
Locate an attractive industry
An attractive industry: an
industry with opportunities
that can be exploited by the
firms resources and
capabilities
Resource-based Model of Above Average Returns
Resource-based
Model
Resources
Capability
Competitive Advantage
An Attractive Industry
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
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
Realized
Strategy
Deliberate
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
Strategic
Choice
Organizing for
Implementation
Internal
Analysis
External
Analysis
INTENDED STRATEGY
Strategic Management Process for Emergent
Strategies
Missions
and Goals
Internal
Analysis
External
Analysis
EMERGENT STRATEGY
Strategic Choice
Does It Fit?
Organizational
Grassroots
Groups who are affected by a
firms performance and who
have claims on its wealth
The firm must maintain
performance at an adequate
level in order to retain the
participation of key
stakeholders
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
The Firm and Its Stakeholders
Shareholders
Major suppliers of capital
Banks
Private lenders
Venture capitalists
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
The Firm and Its Stakeholders
Primary customers
Suppliers
Host communities
Unions
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
The Firm and Its Stakeholders
Employees
Managers
Nonmanagers
Stakeholders
Values
Johnson & Johnsons credo
sets its responsibilities to:
1. J&J product users.
2. J&J employees.
3. Communities in which J&J
employees live and work.
4. J&J stockholders.
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