You are on page 1of 34

Copyright 2014 McGraw-Hill Education. All rights reserved.

. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


Strategic
Management:
Creating
Competitive
Advantages
chapter 1
1-2
After reading this chapter, you should have a
good understanding of:
LO1.1 The definition of strategic management and
its four key attributes.
LO1.2 The strategic management process and its
three interrelated and principal activities.
LO1.3 The vital role of corporate governance and
stakeholder management as well as how symbiosis
can be achieved among an organizations
stakeholders.


After reading this chapter, you should have a
good understanding of:
LO1.4 The importance of social responsibility,
including environmental sustainability, and how it
can enhance a corporations innovation strategy.
LO1.5 The need for greater empowerment
throughout the organization.
LO1.6 How an awareness of a hierarchy of strategic
goals can help an organization achieve coherence in
its strategic direction.


1-3
Consider
Maintaining competitive success or even
surviving over long periods of time is
difficult for companies of any size.
SO how much credit (or blame) does a leader
deserve?
1-4
Leader is the key
force in the
organizations
success
i.e. Steve Jobs
External forces
determine the
organizations
success
i.e. economic
downturns
Romantic View
External Control
Perspective
OR?
1-5
Must be proactive - anticipate change
Continually refine strategies
Be aware of external opportunities and
threats
Thoroughly understand their firms
resources and capabilities
Make strategic management both a
process and a way of thinking throughout
the organization
1-6
Strategic Management involves
Analysis
Strategic goals (vision, mission, strategic objectives)
Internal and external environment
Decisions - Formulation
What industries should we compete in?
How should we compete in those industries?
Actions - Implementation
Allocate necessary resources
Design the organization to bring intended strategies
to reality
1-7
1. How should we compete in order to
create competitive advantages in the
marketplace?
2. How can we create competitive
advantages in the marketplace that are
unique, valuable, and difficult for rivals
to copy or substitute?
NOTE: Operational effectiveness is not enough to
sustain a competitive advantage.

1-8
Key Attributes of strategic management
Directs the organization toward overall goals
and objectives.
Includes multiple stakeholders in decision
making.
Needs to incorporate short-term and long-
term perspectives.
Recognizes trade-offs between efficiency
and effectiveness.
1-9
Strategic Management Trade-offs
Focusing on
short-term
efficiency
Aligning resources
to take advantage
of existing
product markets
Focusing on long-
term effectiveness
Expanding
product-market
scope by
proactively
exploring new
opportunities
Managers need to be ambidextrous
1-10
Organizational
decisions are
determined only by
analysis

Intended strategy
rarely survives in its
original form
Decisions are
determined by both
analysis (deliberate) &
unforeseen
environmental
developments,
unanticipated resource
constraints, and/or
changes in managerial
preferences (emergent)
Intended Strategy Realized Strategy
The Business Environment is far from predictable.
versus
1-11
#-12
Taken from Kroll Notes
Exhibit 1.3 The Strategic
Management Process
1-13
Starting point in the strategic
management process
Precedes effective formulation and
implementation of strategies
Involves careful analysis of the
overarching goals of the organization
Requires a thorough analysis of the
organizations external and internal
environment
1-14
Analyzing Organizational Goals & Objectives
Establish a hierarchy of goals
Vision
Mission
Strategic Objectives
Analyzing the External Environment of the Firm
Managers must monitor & scan the
environment as well as analyze competitors
The General Environment
The Industry Environment
1-15
Assessing the Internal Environment of the Firm
Analyzing strengths & relationships among
activities that constitute a firms value chain
Can uncover potential sources of competitive
advantage
Assessing a Firms Intellectual Assets
Knowledge workers & other intellectual assets
drive competitive advantage & wealth creation
Networks & relationships plus technology
enhances collaboration, accumulates & stores
knowledge
1-16
Based on strategy analysis
Developed at several levels
Involves decisions that can create and
sustain competitive advantage
Investment decisions
Commitment of resources
Operational synergies
Recognizing viable opportunities
1-17
Formulating Business-Level Strategy
Successful firms develop bases for sustainable
competitive advantage through
Cost leadership and/or
Differentiation, as well as
Focusing on a narrow or industrywide market segment
Formulating Corporate-Level Strategy
Addresses a firms portfolio (or group) of
businesses
What business(es) should we compete in?
How can we manage this portfolio of businesses to
create synergies?
1-18
Formulating International Strategy
What is the appropriate entry strategy?
How do we go about attaining competitive
advantage in international markets?
Entrepreneurial Strategy and Competitive
Dynamics
How do we recognize viable opportunities?
How do we formulate effective strategies?

1-19
Implements the formulated strategy
Ensures proper strategic control systems
Establishes an appropriate organizational design -
coordinates & integrates activities within the firm
Coordinates activities with suppliers, customers,
alliance partners
Leadership ensures organizational commitment to
excellence & ethical behavior
Promotes learning & continuous improvement
Acts entrepreneurially in creating new
opportunities
1-20
Strategic Control & Corporate Governance
Informational control
Monitor & scan the environment
Respond effectively to threats & opportunities
Behavioral control
Proper balance of rewards & incentives
Appropriate cultures & boundaries (or constraints)
Effective corporate governance
1-21
Creating Effective Organizational Designs
Organizational structures must be consistent
with strategy
Organizational boundaries must be flexible &
permeable
Strategic alliances must capitalize on
capabilities of other organizations
1-22
Creating a Learning Organization & an
Ethical Organization
Effective leaders
Set a direction
Design the organization
Develop an organization committed to excellence
& ethical behavior
Create a learning organization
Benefit from individual & collective talents
1-23
Fostering Corporate Entrepreneurship
Firms must continually improve & grow
Firms must find new ways to renew
themselves
Entrepreneurship & innovation provide for
new opportunities
Enhance a firms innovative capacity
Allow autonomous entrepreneurial behavior
1-24
Corporate Governance & Stakeholder
Management
Corporate Governance: the relationship
among various participants in determining
the direction and performance of
corporations.
Primary participants:
The shareholders
The management (led by the Chief Executive
Officer)
The Board of Directors (BOD)
1-25
Board of Directors
Elected representatives of
the owners
Ensure interests &
motives of management
are aligned with those of
the owners
Need an effective and
engaged Board
Shareholder activism
Proper managerial rewards &
incentives
External control mechanisms
Exhibit 1.4 The Key Elements of
Corporate Governance
1-26
Exhibit 1.5 An Organizations Key Stakeholders & the Nature of Their Claims
1-27
Social responsibility: the expectation that
businesses or individuals will strive to improve
the overall welfare of society.
Firms have multiple stakeholders and must go
beyond a focus solely on financial results
Firms must create shared value identify & expand
connections between societal & economic progress
Firms can measure a triple bottom line
Assessing financial, social, AND environmental
performance
Embracing environmental sustainability.
1-28
Coherence in Strategic Direction
Organizations express priorities best
through stated goals & objectives that
form a hierarchy of goals
Vision evokes powerful & compelling
mental images of a shared future
Mission encompasses the organizations
current purpose, basis of competition, &
competitive advantage
Strategic Objectives operationalize the
mission statement with specific yardsticks
1-29
Coherence in Strategic Direction
Exhibit 1.6 A Hierarchy of Goals
1-30
Coherence in Strategic Direction
Organizational Vision
A massively inspiring goal
Overarching, long term
A destination driven by & evoking passion
Developed & implemented by leadership
A fundamental statement of an
organizations values, aspirations, and goals
Captures both the minds & hearts of
employees
1-31
Coherence in Strategic Direction
Organizational Visions can backfire
The Walk Doesnt Match the Talk
Irrelevance
Not the Holy Grail
Too Much Focus Leads to Missed
Opportunities
An Ideal Future Irreconciled with the Present

1-32
Coherence in Strategic Direction
Mission Statement
States the purpose of the company & builds a
common understanding of that purpose
More specific than the vision
Focused on the means by which the firm will
compete
Incorporates stakeholder management
Communicates why an organization is special
& different
Can & should change when competitive
conditions change
1-33
Coherence in Strategic Direction
Strategic Objectives
Used to operationalize the mission statement
Provide guidance on how to fulfill mission &
vision
Are measurable, specific, appropriate,
realistic & timely
Can be short-term action plans
Can be both financial and nonfinancial
Should be challenging, yet help resolve
conflicts
Provide a yardstick for rewards & incentives
1-34