Strategic Management:

Creating Competitive Advantages

Chapter One
What is the purpose of a
setting firm?
Why Some Firms Do No
Strategic Planning
 Why Some Firms Do No Strategic
Planning

• Lack of knowledge of strategic planning

• Poor reward structures
• Fire fighting
• Waste of time
• Too expensive
• Laziness
• Content with success
 Why Some Firms Do No Strategic
Planning (continued)
• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Fear of the unknown
• Honest difference of opinion
• Suspicion
The Resource-Based Model
 The Resource-Based Model
• Basic Premise - a firm's unique [internal]
resources & capabilities, in combination,
are the basis for firm strategy and AAR
 Each firm’s performance difference across
time emerges (vs industry’s structural
characteristics)
 Combined uniqueness should define the firms’
strategic actions
 Resources are tangible and intangible
 The Resource-Based Model
(Cont’d)
• Resources
 Inputs into a firm's production process
 Includes capital equipment, employee skills,
patents, high-quality managers, financial condition,
etc.
 Basis for competitive advantage: When
resources are valuable, rare, costly to imitate
and non substitutable
 The Resource-Based Model of
AAR (Cont’d)
• Summary
 A firm has superior performance because
of
 Unique resources and capabilities, and the
combination makes them different, and better,
than their competition – driving the competitive
advantage
Industrial Organizational (I/O)
Model)
 Industrial Organizational (I/O)
Model
• Basic Premise – to explain the dominant
influence of the external environment on a
firm's strategic actions and performance
 Industrial Organizational (I/O)
Model
• Underlying Assumptions
 External environment imposes pressures
and constraints that determine the
strategies resulting in AAR
 Most firms compete within a particular
industry/segment
 Control similar strategically relevant resources
 Pursue similar strategies in light of those
resources
 Industrial Organizational (I/O)
Model (cont)
• Underlying Assumptions (cont)
 Resources for implementing strategies are
highly mobile across firms
 Therefore any resource differences between
firms will be short-lived
 Organizational decision makers are
rational and committed to acting in the
firm's best interests, as shown by their
profit-maximizing behaviors
 Two Fundamental Questions
1. How should we 2. How can we create
compete in order to competitive
create competitive advantages in the
advantages in the marketplace that are
marketplace? unique, valuable,
and difficult for rivals
to copy or
substitute?

1-14
A Hierarchy of Goals

1-15
 Strategic
Management
Process

1-16
 What is Strategic Management?
• Strategic management • Leaders must be
must become both a proactive, anticipate
process and a way of change, and
thinking throughout continually refine
the organization changes to their
strategies

1-17
Strategic Management Perspective
All managers and employees must:
• Take an integrative, strategic perspective
of issues facing the organization
• Assess how functional areas and activities
“fit together” to achieve goals and
objectives

1-18
 Defining Strategic Management
• Strategic management
 Analyses, decisions, and actions an
organization undertakes in order to create
and sustain competitive advantages

1-19
 Defining Strategic Management
• Analysis
 Strategic goals
 Internal and external environment of the firm
• Strategic decisions
 What industries should we compete in?
 How should we compete in those industries?

1-20
 Defining Strategic Management
• Actions
 Allocate necessary resources
 Design the organization to bring intended
strategies to reality

1-21
 Key Attributes of Strategic
Management
1. Directs the organization toward overall
goals and objectives
2. Includes multiple stakeholders in decision
making

1-22
 Key Attributes of Strategic
Management (cont.)
3. Needs to incorporate short-term and
long-term perspectives
4. Recognizes trade-offs between efficiency
and effectiveness

1-23
 Key Attributes of Strategic
Management
• Ambidexterity
 The challenge managers face of both
aligning resources to take advantage of
existing product
markets as well
as proactively
exploring new
opportunities

1-24
 Strategic Management Process

Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257-
72.

1-25
 Strategic
Management
Process

1-26
 Strategic Analysis
• Consists of “advance work” that must be
done in order to effectively formulate and
implement strategies
• Starting point

1-27
 Strategy Formulation
A firm’s strategy formulation is developed at
several levels:
• Business-level
• Corporate level
• International
• Entrepreneurial

1-28
 Strategy Implementation
• Ensuring proper • Establishing effective
strategic controls and means to coordinate
organizational and integrate
designs activities within the
firm as well as with
suppliers, customers,
and alliance partners

1-29
 Corporate Governance and
Stakeholder Management
• Corporate governance
 The relationship among various participants
in determining the direction and performance
of corporations

1-30
 Stakeholder Management
• Stakeholder symbiosis view
 Stakeholders are dependent upon each other
for their success and well-being
 Mutual benefits

1-31
The Three Stakeholder Groups
 Social Responsibility
• Social responsibility
 The expectation that businesses or
individuals will strive to improve the overall
welfare of society
• Triple bottom line
 Assessment of a company’s performance in
financial, social, and environmental
dimensions

1-33
 Three Types of Leaders
• Local line leaders
 Have significant profit-and-loss responsibility
• Executive leaders
 Champion and guide ideas, create a learning
infrastructure, establish a domain for taking
action
• Internal networkers
 Generate power through the conviction and clarity of
their ideas

1-34
 Coherence in Strategic Direction
• Hierarchy of goals
 Goals ranging from those that are less
specific yet able to evoke powerful and
compelling mental images those that are
more specific and measurable
• Vision, mission statement, strategic
objectives

1-35
 Coherence in Strategic Direction
• Strategic objectives
 Goals that are used to operationalize the
mission statement
 Specific, measurable, appropriate, realistic,
timely

1-36
Thank you
 Learning Objectives
After reading this chapter, you should have a good
understanding of:
LO1 The definition of strategic management and its four
key attributes.
LO2 The strategic management process and its three
interrelated and principal activities.
LO3 The vital role of corporate governance and
stakeholder management as well as how “symbiosis” can
be achieved among an organization’s stakeholders.

1-38
 Learning Objectives (cont.)
LO4 The importance of social responsibility, including
environmental sustainability, and how it can enhance a
corporation’s innovation strategy.
LO5 The need for greater empowerment throughout the
organization.
LO6 How an awareness of a hierarchy of strategic goals
can help an organization achieve coherence in its
strategic direction.

1-39
 Two Perspectives of Leadership
• Romantic view
 Leader is the key
force in organization’s
success
• External control
perspective
 Focus is on external
factors that affect an
organization’s
success

1-40
 Strategic Management Process
• Intended strategy
 Decisions are determined only by analysis
• Realized strategy
 Decisions are determined by both analysis
and unforeseen environmental
developments, unanticipated resource
constraints, and/or changes in managerial
preferences

1-41
 Corporate Governance and
Stakeholder Management (cont.)
• Board of Directors
 Elected
representatives of the
owners
 Ensure interests and
motives of
management are
aligned with those of
the owners

1-42
 Why Do Visions Fail?
• The walk doesn’t • Not the holy grail
match the talk • An ideal future
• Irrelevance irreconciled with the
• Too much focus leads present
to missed
opportunities

1-43
 Example:
Elements of Caplan’s turnaround
• Cut costs by reducing the advertising
budget and selling unrelated businesses
• Changed the firm’s culture and instilled
more discipline
• Refocused the firm on its core banking
operations

1-44
Ambidextrous Behaviors in Individuals
• They take time and • They are cooperative
are alert to and seek out
opportunities beyond opportunities to
the confines of their combine their efforts
own jobs with others

1-45
 Stakeholder Management
• Zero sum view
 Stakeholders compete for attention and
resources of the organization
 Gain of one is a loss to the other

1-46
 Coherence in Strategic Direction
• Organizational
vision
 Goal that is
“massively inspiring,
overarching, and long
term”
 Represents a
destination that is
driven by and evokes
passion

1-47
 Coherence in Strategic Direction
• Mission statement
 Set of goals that include both the purpose of
the organization, its scope of operations, and
the basis of its competitive advantage
• Has the greatest impact when it reflects an
organization’s enduring, overarching strategic
priorities and competitive positioning

1-48
 Corporate Governance
Three mechanisms ensure effective
corporate governance:
• An effective and engaged board of
directors
• Shared activism
• Proper managerial rewards and incentives

1-49
 Example: Social Responsibility
• Starbucks Coffee Company defines CSR as:
 Conducting business in ways that produce social,
environmental and economic benefits for the
communities in which we operate and for the
company’s stakeholders, including shareholders.

• Some tangible benefits include attracting and retaining

our partners, customer loyalty, reducing operating costs,
and creating a sustainable supply chain.

1-50
 Nature of Competition: Basic
concepts
• Strategic Competitiveness
 Achieved when a firm formulate &
implements a value-creating strategy
• Strategy
 Integrated and coordinated set of
commitments and actions designed to
exploit core competencies and gain a
competitive advantage
 Nature of Competition: Basic
concepts
• Competitive Advantage (CA)
 Implemented strategy that competitors are
unable to duplicate or find too costly to
imitate
• Above Average Returns
 Returns in excess of what investor
expects in comparison to other
investments with similar risk
 Nature of Competition: Basic
concepts (Cont’d)
• Risk
 Investor’s uncertainty about economic
gains/losses resulting from a particular
investment
• Average Returns
 Returns equal to what investor expects in
comparison to other investments with
similar risk
 Nature of Competition: Basic
concepts (Cont’d)
• Strategic Management Process (SMP)
 Full set of commitments, decisions and
actions required for a firm to achieve
strategic competitiveness and earn above
average returns