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Strategic Management and Strategic Competitiveness

Michael A. Hitt R. Duane Ireland Robert E. Hoskisson
2000 South-Western College Publishing

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Strategic Competitiveness
Achieved when a firm successfully formulates and implements a value-creating strategy

Sustained Competitive Advantage

Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to earn from other investments with similar risk

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The Strategic Management Process

Involves the full set of:

Commitments

Decisions

Actions

which are required for firms to achieve:

Strategic Competitiveness Sustained Competitive Advantage Above-Average Returns

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Strategic Inputs

Chapter 2 External Environment Chapter 3 Internal Environment

Strategic Intent Strategic Mission

The Strategic Management Process

Strategy Implementation
Chapter 10 Corporate Governance Chapter 12 Strategic Leadership Chapter 11 Structure & Control
Entrepreneurship

Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 7 Acquisitions & Restructuring Chapter 5 Competitive Dynamics Chapter 8 International Strategy Chapter 6 Corporate-Level Strategy Chapter 9 Cooperative Strategies

Strategic Actions

Chapter 13

& Innovation

Strategic Outcomes

Feedback

Strategic Competitiveness Above Average Returns

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Chapter One: Key Themes

Challenge of Strategic Management Changing Competitive Landscape Two Models of Superior Profitability Industrial Organization Model Resource-Based Model Key Stakeholder Groups

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Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is taken to preserve competitive position

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Challenge of Strategic Management

Best Stocks of the Decade

The goals of achieving strategic competitiveness and earning aboveaverage returns are challenging The performance of some companies more than meets strategic management's challenge

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21st Century Competitive Landscape

Fundamental nature of competition is changing
Rapid technological changes Rapid technology diffusions Dramatic changes in information and communication technologies Increasing importance of knowledge

The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as...
Computers Telecommunications

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21st Century Competitive Landscape

The global economy is changing
People, goods, services and ideas move freely across geographic boundaries New opportunities emerge in multiple global markets Markets and industries become more internationalized

Traditional sources of competitive advantage no longer guarantee success New keys to success include:
Flexibility Innovation Speed Integration

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21st Century Competitive Landscape

A countrys competitiveness is achieved through the accumulation of individual firms strategic competitiveness in the global economy Achieving improved competitiveness allows a country's citizens to have a higher standard of living Country Competitiveness Rankings
1999 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1998 1 3 2 6 5 8 10 4 7 11 15 14 13 12 9 17 16 30 23 20 18 19 22 27 24 25 Country Singapore United States Hong Kong Taiwan Canada Switzerland Luxembourg United Kingdom Netherlands Ireland Finland Australia New Zealand Japan Norway Malaysia Denmark Iceland Sweden Austria Chile Korea France Belgium Germany Spain Competitiveness Index 1999 2.12 1.58 1.41 1.38 1.33 1.27 1.25 1.17 1.13 1.11 1.11 1.04 10.1 1.00 0.92 0.86 0.85 0.59 0.58 0.37 0.57 0.46 0.44 0.39 0.37 0.16 Competitiveness Index 1998 2.16 1.41 1.91 1.19 1.27 1.10 1.05 1.29 1.13 1.05 0.70 0.79 0.84 0.97 1.09 0.59 0.61 -0.18 0.25 0.37 0.57 0.39 0.25 -0.03 0.15 0.02

Alternative Models of Superior Returns

Industrial Organization Model
The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns

Resource-Based Model
Resources Capability Competitive Advantage An Attractive Industry Strategy Implementation Superior Returns

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I/O Model of Superior 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.

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I/O Model of Superior Returns

External Environment
General Environment Industry Environment Competitive Environment

Action required: Study the external environment, especially the industry environment.

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I/O Model of Superior Returns

External Environment An Attractive GeneralIndustry Environment
Industry Environment An industry whose Competitive structural characteristics Environment above-average suggest returns are possible

Action required: Locate an industry with high potential for aboveaverage returns.

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I/O Model of Superior Returns

External Environment Attractive GeneralIndustry Environment Industry Environment Strategy An industry whose Formulation Competitive structural characteristics Action required: Identify strategy called for by the industry to earn above-average returns.

Environment above-average a strategy Selection of suggest returns are linked with abovepossible average returns in a particular industry

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I/O Model of Superior Returns

Action required: External Develop or acquire assets Environment Attractive and skills needed to GeneralIndustry Environment implement the strategy. Strategy Industry Environment An industry whose Formulation Competitive structural characteristics Environment above-averageAssets and Skills Selection of a strategy suggest
returns arelinked with abovepossible Assets and average returns in a skills required particular industry to implement a chosen strategy

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I/O Model of Superior Returns

Action required: External Use the firms strengths Environment Attractive (its assets or skills) to GeneralIndustry Environment implement the strategy. Strategy Industry Environment An industry whose Formulation Competitive structural characteristics Environment above-averageAssets and Skills Selection of a strategy suggest
returns arelinked with abovepossible Assets and skills average returns in a Strategy required Implementation particular industry to implement a chosen strategy Selection of strategic actions linked with effective implementation of the chosen strategy

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I/O Model of Superior Returns

Action required: External Maintain selected strategy Environment Attractive in order to outperform GeneralIndustry Environment industry rivals. Strategy Industry Environment An industry whose Formulation Competitive structural characteristics Environment above-averageAssets and Skills Selection of a strategy suggest
returns arelinked with abovepossible Assets and skills average returns in a Strategy required Implementation particular industry to implement a chosen strategy Superior Returns Selection of strategic actions linked with Earning of aboveeffective implementation average returns of the chosen strategy

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Resource-Based Model of Superior 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.

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Resource-Based Model of Superior Returns

Resources
Inputs to a firms production process.

Action required: Identify firm resources. Study strengths and weaknesses relative to rivals.

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Resource-Based Model of Superior Returns

Resources Capability Action required: Determine what firm capabilities allow it to do better than rivals.

Inputs to a firms production process. an integrated Capacity for set of resources to perform a task or activity.

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Resource-Based Model of Superior Returns

Resources Capability Action required: Determine how firms resources and capabilities may create competitive advantage.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform a Ability task or activity. of a firm to outperform its rivals

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Resource-Based Model of Superior Returns

Resources Capability Action required: Locate an attractive industry.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivals Location of an industry with opportunities that can be exploited by the firms resources and capabilities

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Resource-Based Model of Superior Returns

Resources Capability Action required: Select strategy that best exploits resources and capabilities relative to opportunities in environs.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivalsStrategy Location of an Formulation and industry with opportunities that can Implementation be exploited by the Strategic actions taken to firms resources and earn capabilities above-average returns

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Resource-Based Model of Superior Returns

Resources Capability Action required: Maintain selected strategy in order to outperform industry rivals.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivalsStrategy Location of an Formulation and industry with Superior opportunities that can Implementation Returns be exploited by the Strategic actions taken to firms resources and Earning of aboveearn average capabilities above-averagereturns returns

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Resources and capabilities lead to Competitive Advantage when they are:

Valuable Rare
allow the firm to exploit opportunities or neutralize threats in its external environment possessed by few, if any, current and potential competitors

Costly to Imitate when other firms either cannot obtain them

or must obtain them at a much higher cost

Nonsubstitutable the firm must be organized appropriately to

obtain the full benefits of the resources in order to realize a competitive advantage

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When these four criteria are met, Resources and Capabilities become:

Core Competencies

Core Competencies are resources and capabilities that can serve as a source of Competitive Advantage. The Resource-Based model argues that Core Competencies are the basis for a firms Competitive Advantage, Strategic Competitiveness and Ability to Earn Above-average Returns.

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Strategic Intent
Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies.

Strategic Mission
An application of strategic intent in terms of products to be offered and markets to be served.

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Strategic Intent
BUSINESS WEEKSS 10 Top Managers of the Year, 1999

The most effective strategists provide a vision (strategic intent) to effectively elicit the help of others in creating a firm's competitive advantage.

Name Minoru Arakawa

Company Nintendo America

Strategic Accomplishment Scored huge hit by bringing Pok mon to U.S. over objections of co-workers and negative market research From just 23 in Oct. 98, LVMHs U.S. shares have vaulted 280%, to about 87 Profits should jump 46%, to $2.3 billion for fiscal year 1999. Sales are expected to grow 25%, to $38 billion After his company was labeled racist, attracted minorities to key jobs, including treasurer Ira Hall, a former IBM executive Boosted stock price by around 100% last year, to about $54 Deals to broaden AOLs availability and services will help boost income 102% this fiscal year, to $800 million Broadened Cisco into strategic businesses such as software, consulting, and fiber-optic communications Reduced internal conflicts and spurred growth through management changes Acquired rival French oil company ELF Aquitaine for $44 billion. Shares up about 35% in 99, as profits expected to grow 20%, to $3.1 billion Turned toward more profitable data, Internet, and international operations

Bernard Arnault Arthur Blank

LVMH Home Depot

Peter Bijur

Texaco

Gordon Binder Steve Case

Amgen America Online

John Chambers

Cisco Systems

Jim Curvey Thierry Desmarest

Fidelity Investments Totalfina

Bernie Ebbers

MCI Worldcom

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Stakeholders:

Groups who are affected by a firms performance and who have claims on its wealth

The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders

Capital Market

Firm
Product Market
Primary Customers Suppliers

Stock market/Investor Debt suppliers/Banks

Organizational
Employees Managers Non-Managers

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Stakeholder Involvement
Each of the key stakeholders wants a piece of the same pie

How do you divide the pie in order to keep all of the stakeholders involved?

How do you increase the size of the pie so that there is more to go around?

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Strategic Inputs

Chapter 2 External Environment Chapter 3 Internal Environment

Strategic Intent Strategic Mission

The Strategic Management Process

Strategy Implementation
Chapter 10 Corporate Governance Chapter 12 Strategic Leadership Chapter 11 Structure & Control
Entrepreneurship

Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 7 Acquisitions & Restructuring Chapter 5 Competitive Dynamics Chapter 8 International Strategy Chapter 6 Corporate-Level Strategy Chapter 9 Cooperative Strategies

Strategic Actions

Chapter 13

& Innovation

Outcomes

Strategic

Feedback

Strategic Competitiveness Above Average Returns

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