CHAPTER 1

Strategic Management:
Creating Competitive
Advantages

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 Learning Objectives

After reading this chapter, you should have a good understanding of:
1-1 The definition of strategic management and its four key
attributes.
1-2 The strategic management process and its three interrelated
and principal activities.
1-3 The vital role of corporate governance and stakeholder
management as well as how “symbiosis” can be achieved among
an organization’s stakeholders.
1-4 The importance of social responsibility, including environmental
sustainability, and how it can enhance a corporation’s innovation
strategy.
1-5 The need for greater empowerment throughout the
organization.
1-6 How an awareness of a hierarchy of strategic goals can help an
organization achieve coherence in its strategic direction.

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 Two Perspectives of Leadership
1-3

External Control
Romantic View External Control
Perspective
Romantic View Perspective
▪ Leader is the key force ▪ Focus is on external
in the organization’s forces that determine
success the organization’s
▪ Steve Jobs success
• economic downturns

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 Leaders can make a difference
1-4

▪ Must be proactive - anticipate change

▪ Continually refine strategies
▪ Be aware of external opportunities and threats
▪ Thoroughly understand their firm’s resources and
capabilities
▪ Make strategic management both a process
and a way of thinking throughout the
organization

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 Defining Strategic Management
1-5

Strategic Management involves

 Analysis, decisions, and actions an
organization undertakes in order to create and
sustain competitive advantages

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 Two Fundamental Questions
1-6

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.
• Perform similar activities in different ways
• Perform different activities from rivals
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 Strategic Management Concepts

Exhibit 1.1

1-7
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 Key Attributes of Strategic
Management
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.

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 Key Attributes of Strategic
Management
1-9

 Stakeholders
 those individuals, groups, and organizations
who have a “stake” in the success of the
organization, including owners (shareholders in
a publicly held corporation), employees,
customers, suppliers, the community at large…

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 Key Attributes of Strategic
Management
1-10

 Ambidexterity
 The challenge managers face of both aligning
resources to take advantage of existing product

markets as well
as proactively
exploring new
opportunities

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 Strategic Management Trade-offs
1-11

Managers needneed
Managers to beto be ambidextrous
ambidextrous While also
▪ Focusing on short- ▪ Focusing on long-
Wh
term efficiency
ile
also
term effectiveness
▪ Aligning resources ▪ Expanding product-
to take advantage market scope by
of existing product proactively
markets exploring new
opportunities

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Ambidextrous Behaviors in Individuals

They are
takecooperative
time and areand
alert
seek
to out
opportunities
opportunities
beyond
to combine
the their
confines
efforts
of their
withown
others
jobs
They are multitaskers
brokers, alwayswholooking
are comfortable
to build internal
networksmore than one hat
wearing

#-12
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 Intended vs. Realized Strategies
The Business Environment is far from predictable.
1-13

The Business Environment is far from predictable.

Intended
Intended Strategy
Strategy RealizedStrategy
Realized Strategy
▪ Organizational ▪ Decisions are
decisions are determined by both
determined only by analysis (deliberate) &
analysis unforeseen
▪ Intended strategy environmental
rarely survives in its developments,
original form unanticipated resource
constraints, and/or
changes in managerial
preferences (emergent)

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 Strategic Management Process
1-14

Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: Mintzberg, H. & Waters, J.A., “Of Strategies: Deliberate and Emergent,” Strategic Management Journal, Vol. 6, 1985, pp. 257-
272. Copyright © John Wiley & Sons Limited. Reproduced with permission.

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1-15

Exhibit 1.3 The Strategic

Management Process

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 Strategy Analysis
1-16

 Strategy analysis
▪ 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
organization’s external and internal environment.

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 Strategy Formulation
1-17

 Strategy formulation
 decisions made by firms regarding investments,
commitments, and other aspects of operations
that create and sustain competitive advantage.

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 Strategy Formulation cont.
1-18

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 firm’s portfolio (or group) of businesses
▪ What business(es) should we compete in?
▪ How can we manage this portfolio of businesses to
create synergies?

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 Strategy Formulation cont.
1-19

Formulating International Strategy

▪ What is the appropriate entry strategy?
▪ How do we go about attaining competitive
advantage in international markets?

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 Strategy Implementation
1-20

 Strategy implementation
 actions made by firms that carry out the
formulated strategy
▪ Establishes an appropriate organizational design -
coordinates & integrates activities within the firm
▪ Ensures proper strategic control systems
▪ 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
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 Corporate Governance & Stakeholder
Management
1-21

▪ Appropriate Strategic Management requires an

effective & appropriate corporate structure
▪ 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)

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 Corporate Governance cont.
1-22

Board of Directors
▪ Elected representatives of
the owners
▪ Ensure interests &
motives of management
are aligned with those of
the owners:

Exhibit 1.4 The Key Elements of

Corporate Governance
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 Corporate Governance cont.
1-23

Three mechanisms ensure effective

corporate governance:
 An effective and engaged board of
directors
 Shared activism
 Proper managerial rewards and incentives

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 Stakeholder Management
Two views
Two views of
of stakeholder
stakeholder management
management
1-24

Zero Sum Symbiosis

Symbiosis
▪ Stakeholders compete ▪ Stakeholders are
for attention & dependent upon each
resources OR? other for success &
well-being
▪ Gain of one is a loss
to the other ▪ Receive mutual
▪ Rooted in the traditional benefits
conflict between workers  P&G Laundry detergent
and management compaction
 Crowdsourcing
• - Generate ideas & solve
Or? problems
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 Social Responsibility
1-25

▪ 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 – and share this value
with society in a mutually beneficial relationship
▪ Firms can measure a triple bottom line
▪ Assessing financial, social, AND environmental performance
▪ Embracing a sustainable global economy.

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 Empowered Strategic
Management
1-26

▪ Strategic management requires an integrative

view of the organization
▪ ALL functional areas & activities must fit together
to achieve goals & objectives
▪ Leaders are needed throughout:
▪ Local line leaders – have profit & loss
responsibility
▪ Executive leaders – champion & guide ideas
▪ Internal networkers – hold little positional
power, but have conviction & clarity of ideas

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 Coherence in Strategic Direction
1-27

▪ Organizations express priorities best through

stated goals & objectives that form a hierarchy
of goals
 organizational goals ranging from, at the top,
those that are less specific yet able to evoke
powerful and compelling mental images, to, at
the bottom, those that are more specific and
measurable.

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 Coherence in Strategic Direction
1-28

Exhibit 1.6 A Hierarchy of Goals

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 Coherence in Strategic Direction
1-29

▪ Vision – evokes powerful & compelling mental

images of a shared future
▪ Mission – encompasses the organization’s current
purpose, basis of competition, & competitive
advantage
▪ Strategic Objectives – operationalize the mission
statement with specific yardsticks

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 Coherence in Strategic Direction
1-30

Organizational Vision
▪ A “massively inspiring” goal
▪ Overarching, long term
▪ A destination driven by & evoking passion
▪ Developed & implemented by leadership
▪ A fundamental statement of an organization’s
values, aspirations, and goals
▪ Captures both the minds & hearts of employees

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 Coherence in Strategic Direction
1-31

Organizational Visions can backfire

▪ The Walk Doesn’t Match the Talk
▪ Irrelevance
▪ Not the Holy Grail
▪ Too Much Focus Leads to Missed Opportunities
▪ An Ideal Future Irreconciled with the Present

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 Coherence in Strategic Direction
1-32

Mission Statement
 Set of goals that include both the purpose of
the organization, its scope of operations, and
the basis of its competitive advantage
▪ Is more specific than the vision
▪ Focuses 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

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 Coherence in Strategic Direction
1-33

Strategic Objectives
 A set of organizational goals that are used to
operationalize the mission statement and that are
specific and cover a well-defined time frame.

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