Chapter 1

Introduction to
Strategic Management

1
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. 2
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 5
Competitive Landscape
Goods, services, people,
Emergence of skills, and ideas move
global economy freely across geographic
borders

Spread of economic
innovations around the
world
Hypercompetitiv Political and cultural
e environments adjustments are
Fundamental nature required
competition
of is changing 6
Competitive Landscape
Increasing rate of
Emergence of technological change and
global economy diffusion
Rapid technological The information age
change
Increasing knowledge
intensity
Hypercompetitiv
e
environments
Fundamental nature of
competition is changing 7
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

8
Strategic Flexibility
Organizationa
l slack

Strategic Strategic
reorientation Ff
lexibility

Capacity to
learn
9
Two Models of Superior Returns
 Industrial organization (I/O) model
 Resource-based Model
I/O Model of Above-average Returns
The Industrial Organization model
suggests that above-average returns
for any firm are largely
determined by characteristics
outside the firm.

This model largely focuses on industry

structure or attractiveness of the
external environment rather than
internal characteristics of the firm.
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
Technologica about the opportunities?)
l 13
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

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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

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 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

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 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
Strategy Implementation
returns
Superior Returns
20
Resource-Based Model of Above-average
Returns

The Resource-Based model suggests

that above-average returns for any
firm are largely determined by
characteristics inside the firm.
This model focuses on developing or
obtaining valuable resources and
capabilities which are difficult or
impossible for rivals to imitate.
 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?)

22
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

23
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

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 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
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 Resources and capabilities that
meet
these four criteria become a source of:

Valuable

Resources and Capabilities

Rare
Core Competencies
Costly to imitate

Nonsubstitutable

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Core Competencies are the basis for
afirm’s

Competitive

advantage
Value Creation
Core Competencies
Ability to
earn above-
average
returns
27
Resource-based Model of Above Average
Returns
Resource-based
Model
Resources

Capability

Competitive

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

32
Mission vs. Strategic
Vision
 A mission statement  A strategic vision
focuses on current concerns a firm’s future
business activities -- business path
“who we are and what (roadmap) -- “where we
we do” are going”
– Current product and – Markets to be pursued
service offerings – Future technology-
– Customer needs product-customer
being served focus
– Technological and – Kind of company that
business capabilities management is
trying to create
Strategic intent and mission
 Together, strategic intent and
strategic mission yield the insights
required to formulate and implement
the firm’s strategies.

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The Five Tasks of Strategic
Management
Task 1 Task 2 Task 3 Task 4 Task
5
Monitor,
Crafting a Implementing
Strategic a
Developing Evaluate,
Setting Strategy and
Vision and Take
Objectives to Achieve the Executing the
and Corrective
Objectives Strategy
Mission Action

Revise as Revise as Improve/ Improve/ Recycle

Needed Needed Change Change as Needed
 The Firm and Its Stakeholders
Stakeholders

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participation of key
stakeholders

40
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Shareholders
Major suppliers of capital
•Banks
•Private lenders
•Venture capitalists

41
The Firm and Its Stakeholders
Stakeholders

Capital Market Stakeholders

Primary customers
Product Market Stakeholders Suppliers
Host communities
Unions

42
The Firm and Its Stakeholders
Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Employee
Organizational Stakeholders s
Managers
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Stakeholder Involvement

Two issues affect the

extent of
stakeholder
involvement in the firm Capital
Organizational
Market

1 Product
How do you divide the Market
returns to keep stakeholders
involved?
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Stakeholder Involvement

Two issues affect the

extent of
stakeholder
involvement in the firm Capital
Organizational
Market

2 Product
How do you increase the
returns so everyone has Market
more to share?
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