You are on page 1of 46

Introduction to Strategic

Management

HCAD 5390
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

External
The firm
Environment
Goals & Values
Competitors
Resources &
Strategy Customers
Capabilities
Suppliers
Structures &
Systems 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 investor’s 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 Protect or invade
environments established product or
Fundamental nature of geographic markets
competition is changing
Competitive Landscape
Goods, services, people,
Emergence of skills, and ideas move
global economy freely across geographic
borders

Spread of economic
innovations around the
world
Hypercompetitive Political and cultural
environments adjustments are
Fundamental nature of required
competition is changing
Competitive Landscape
Increasing rate of
Emergence of technological change and
global economy diffusion
Rapid technological The information age
change
Increasing knowledge
intensity
Hypercompetitive
environments
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
Organizational
slack

Strategic Strategic
reorientation Flexibility
flexibility

Capacity to
learn
I/O Model of Above-Average Returns
1. External Environments
General 1. Strategy dictated by the
Global external environment of
the firm (what
Industry
opportunities exist in
Environment
these environments?)
2. Firm develops internal
skills required by
Competitor external environment
Environment (what can the firm do
Technological about the opportunities?)
Environment
Four Assumptions of the I/O Model

1. The external environment is assumed to possess


pressures and constraints that determine the
strategies that would result in above-average returns
2. 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

3. Resources used to implement strategies are highly


mobile across firms
4. Organizational decision makers are assumed to be
rational and committed to acting in the firm’s best
interests, as shown by their profit-maximizing
behaviors
I/O Model of Above-Average Returns

Industrial Organization 1. Study the external


Model environment, especially the
industry environment
The External 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 2. Locate an attractive industry


Model with a high potential for
above-average returns
The External Environment

An Attractive Industry Attractive industry: one whose


structural characteristics
suggest above-average returns
I/O Model of Above-Average Returns

Industrial Organization 3. Identify the strategy called


Model for by the attractive industry
to earn above-average returns
The External Environment

An Attractive Industry

Strategy Formulation Strategy formulation: selection


of a strategy linked with
above-average returns in a
particular industry
I/O Model of Above-Average Returns

Industrial Organization 4. Develop or acquire assets and


Model skills needed to implement
the strategy
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Assets and skills: those assets


and skills required to
implement a chosen strategy
I/O Model of Above-Average Returns

Industrial Organization 5. Use the firm’s strengths (its


Model developed or acquired assets
and skills) to implement the
The External Environment strategy
An Attractive Industry

Strategy Formulation

Assets and Skills


Strategy implementation: select
Strategy Implementation strategic actions linked with
effective implementation of the
chosen strategy
I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Superior returns: earning


of above-average returns
Strategy Implementation

Superior Returns
Resource-based Model of Above Average
Returns

1. Firm’s Resources 1. Strategy dictated by the


firm’s unique resources
and capabilities
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?)
Resource-based Model of Above Average Returns

Resource-based 1. Identify the firm’s resources--


Model strengths and weaknesses
compared with competitors
Resources
Resources: inputs into a firm’s
production process
Resource-based Model of Above Average Returns

Resource-based 2. Determine the firm’s


Model capabilities--what it can do
better than its competitors
Resources

Capability Capability: capacity of an


integrated set of resources to
integratively perform a task or
activity
Four Attributes of Resources and Capabilities
(Competitive Advantage)

Valuable allow the firm to exploit opportunities or


neutralize threats in its external

Resources and Capabilities


environment

Rare possessed by few, if any, current and


potential competitors

Costly to imitate when other firms cannot obtain them or


must obtain them at a much higher cost

Nonsubstitutable the firm is organized appropriately to


obtain the full benefits of the resources in
order to realize a competitive advantage
Resources and capabilities that meet
these four criteria become a source of:

Valuable

Resources and Capabilities


Rare
Core Competencies
Costly to imitate

Nonsubstitutable
Core Competencies are the basis for a firm’s

Competitive
advantage

Value Creation
Core Competencies
Ability to earn
above-average
returns
Resource-based Model of Above Average Returns

Resource-based 3. Determine the potential of the


Model firm’s resources and
capabilities in terms of a
Resources competitive advantage
Capability

Competitive Advantage Competitive advantage: ability


of a firm to outperform its
rivals
Resource-based Model of Above Average Returns

Resource-based 4. Locate an attractive industry


Model
Resources

Capability

Competitive Advantage

An Attractive Industry An attractive industry: an


industry with opportunities that
can be exploited by the firm’s
resources and capabilities
Resource-based Model of Above Average Returns

Resource-based 5. Select a strategy that best


Model allows the firm to utilize its
resources and capabilities
Resources relative to opportunities in
Capability the external environment

Competitive Advantage

An Attractive Industry
Strategy formulation and
Strategy Form/Impl 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 Superior returns: earning


of above-average returns
Strategy Form/Impl

Superior Returns
Strategic Intent & Mission

 Strategic Intent
 Winning competitive battles by leveraging the firm’s
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 Deliberate Realized


Strategy Strategy Strategy

Unrealized Emergent
Strategy 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 Strategic Internal


Analysis Choice Analysis

INTENDED STRATEGY

Organizing for
Implementation
Strategic Management Process for Emergent
Strategies
External Missions Internal
Analysis and Goals Analysis

Strategic Choice
Does It Fit?

EMERGENT STRATEGY

Organizational
Grassroots
The Firm and Its Stakeholders

Stakeholders

Groups
The firmwho
mustaremaintain
affected by a
firm’s performance
performance and who
at an adequate
have
level claims
in orderontoits
retain
wealth
the
participation of key
stakeholders
The Firm and Its Stakeholders
Stakeholders
Shareholders
Capital Market Stakeholders Major suppliers of capital
•Banks
•Private lenders
•Venture capitalists
The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Primary customers
Product Market Stakeholders Suppliers
Host communities
Unions
The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Employees
Organizational Stakeholders Managers
Nonmanagers
Values

Johnson & Johnson’s 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
•Functional-Level Strategy

– Manufacturing
– Marketing
– Materials Management
– Research and Development
– Human Resources
• Business-Level Strategy

– Cost Leadership
– Differentiation
– Market Niche Focus
• Global Strategies

– Multidomestic
– International
– Global
– Transnational
• Corporate-Level Strategy

– Vertical Integration
– Diversification
– Strategic Alliances
– Acquisitions
– New Ventures
– Business Portfolio
Restructuring