CHAPTER 1

Strategic Management:
Creating Competitive
Advantages

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 What is Strategy ?

-A company’s strategy is the set of actions that its managers take to

outperform the company's competitors and achieve superior
profitability.
- Strategy involves choosing how to compete. Managers must
determine how many and which strategic options to pursue
including:-
1. How to create products or services that attract and please
customers.
2. How to position the company in its industry.
3.How to develop and deploy resources to build valuable
competitive capabilities.
4. How each functional piece of the business (R&D, supply chain
activities, production, sales and marketing, distribution, finance, and
human resources) will be operated.
5. How to achieve the firm’s performance targets
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 Strategic Management attributes
-The Four Key Attributes of Strategic Management:
1.It directs the organization towards overall goals and objectives. That is, efforts must
be directed to what is best for the total organization, not just a single functional area.
That is, what might look “rational” or ideal for one functional area(such as operations)
may not be in the best interest of overall firm.
2. Strategic management includes multiple stakeholders in decision making.
Stakeholders are those individuals, groups, and organizations that have a “stake” in
the success of the organization, including shareholders, owners , employees,
customers, suppliers, the community at large, and so on.
3. Strategic management requires combining both short-term and long-term
perspectives. I.e., managers must maintain both a vision for future and a focus on its
present operating needs since executives should meet short-term targets.
4. Strategic management involves the recognition of trade-offs between effectiveness
and efficiency. That is, the difference between “doing the right thing ”
(effectiveness) and “doing things right”(efficiency).
-Managers should at the same time:-
A. Focus on long-term effectiveness. Ex. expanding product-market scope
by exploring new opportunities.
B. Focus on short-term efficiency. That is aligning resources to take
advantage
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Education.
 Defining Strategic Management

-The essence of Strategic management is the study of why

some firms outperform others. Managers need to know how to
compete and secure a competitive advantage over a lengthy
period of time .
-Strategic management consists of three ongoing processes:
Analyses, Decisions, and Actions that organizations undertake in
order to create and sustain competitive advantages.
1. First : Analysis of strategic goals (vision, mission, strategic
objectives) along with the analysis of internal & external environment
2. Second: Decisions – Formulation. Two questions to be asked:-
a. What industries should we compete in?
b. How should we compete in those industries?
3. Third: Actions that must be taken to implement strategy. This
requires companies to:-
a. Allocate necessary resources and to
b. Design organization to bring intended strategies to reality
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 Strategic Management Process

Exhibit 1.3 The

Strategic
Management
Process

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 Strategic Management Process
( Analyses, Decisions and Actions)

-According to Henry Mintzberg realized strategies

of a firm:-
A. Are a combination of deliberate and
emergent strategies.
B. Are a combination of deliberate and
differentiation strategies.
C. Must be based on company’s strategic plan.
D. Must be kept confidential for competitive
reasons.

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 Intended vs. Realized Strategies

-Intended strategy are organizational decisions determined

only by analysis. However, they rarely survive in their original
form for a variety of reasons:-
1. Unforeseen environmental developments,
2. Unanticipated resource constraints, or changes in
managerial preferences.
(The business environment is far from predictable).
(1) and (2) may result in at least some parts of the intended
strategy to remain unrealized.
-Accordingly, the final realized strategy is a combination of
deliberate and emergent strategies. Strategy decisions are
determined by both analysis (deliberate) and unforeseen
environmental developments, unanticipated resource
constraints, and/or changes in managerial preferences
(emergent).
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 Intended vs. Realized Strategies

In
St tend
ra ed
te
gy
Del
iber
ate
Stra
t egy

Sustained
Realized Superior
Unrealized Strategy Performance
Strategy

Emergent Strategy

8
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 Strategy Analysis

- Strategy analysis is the starting point in the

strategic management process. It should be
done effectively to formulate and implement
strategies. This step should include:-
1. Analyzing organizational goals and
objectives.
2. Analyzing the firm external
environment
3. Assessing the firm internal
environment 4. Assessing the firm’s
intellectual assets.
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 Strategy Analysis

1. Analyzing Organizational Goals and Objectives : It involves

careful analysis of the principal goals of the organization . Many
strategies fail because managers formulate and implement
strategies without a careful analysis of the all-embracing organization
goals. A firm should establish a hierarchy of goals. The firm’s vision,
mission, and strategic objectives form a hierarchy of goals that
range from broad statements of intent (vision) to bases for
competitive advantage (mission) to specific measurable strategic
objectives.

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 Ensuring Coherence in Strategic Direction

-Organizational vision: evokes powerful mental images of a shared future. Vision

describes “where the organization is going”—the course and direction management
has charted. Vision, is a “massively inspiring” goal, long term and developed &
implemented by leadership.

-Mission: is a statement that encompasses the organization’s current purpose that

gives the company its own identity, basis of competition, & competitive advantage.
More specific than the vision. It focuses on the means by which the firm will
compete and can change when competitive conditions change.

-Strategic objectives: They are organization’s performance targets—the results

management wants to achieve. Setting objectives:-
1. Operationalize the mission statement, provide guidance on how to fulfill
mission & vision.
2. Measurable, specific, realistic & timely.
3. They channel employees’ efforts toward common goals.
4. Help to resolve conflicts and provide a yardstick for rewards & incentives

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 Strategy Analysis

2. Analyzing the External Environment of the Firm. Managers must

monitor and scan the environment as well as analyze competitors. Two
frameworks are provided:
(1) The general environment which consists of several elements,
such as demographic and economic segments.
(2) The industry environment which consists of competitors and
other organizations that may threaten the success of a firm’s
products.
3. Assessing the Internal Environment of the Firm . Analyzing the
strengths and relationships among the activities that constitute firm’s
value chain. It uncover the potential sources of firm competitive
advantage.
4. Assessing a Firm’s Intellectual Assets .The knowledge workers and
firm’s other intellectual assets (e.g., patents) are important for competitive
advantages. Managers should assess how well the organization creates
networks and relationships as well as how technology can enhance
collaboration
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 Strategy Formulation

- Based on strategy analysis, strategy formulation is

developed at several levels:-
1. Business-level strategy  how to compete in a given
business to attain competitive advantage.
2. Corporate-level strategy  what businesses to
compete in; how businesses can be managed to achieve
synergy.
3. International strategy  what strategies are needed
as the business ventures beyond its national boundaries
4. Entrepreneurial initiatives  how can businesses
create new value.

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 Strategy Formulation

1. 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.

2. Formulating corporate-level strategy

• Addresses a firm’s portfolio (or group) of businesses
• What business or businesses should we compete in?
• How a portfolio of businesses is managed to create
synergies?
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 Strategy Formulation

3. Formulating international strategy When firms

enter foreign markets, they face both opportunities
and risks . Managers must decide on :-
• What is the appropriate entry strategy?
• How do they attain competitive advantage in
international markets?
4. Entrepreneurial strategy and competitive
dynamics. This activity aimed at new value creation
which is a major engine for firm growth. For
entrepreneurial initiatives to succeed:-
(a) Viable opportunities must be recognized and
(b) Effective strategies must be formulated.
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 Strategy Implementation

- Strategies are of no value if they are not properly

implemented. Strategies implementation involves:-
1. Ensuring proper strategic control systems.
2. Establishing appropriate organizational design,
coordinating & integrating activities within the firm.
3. Effective means to coordinating activities with suppliers,
customers, alliance partners.
4. Leadership which ensures organizational commitment to
excellence & ethical behavior and to promote learning and
continuous improvement.
5. Acting entrepreneurially in creating new opportunities.

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 Strategy Implementation

1. Strategic Control and Corporate Governance :

A-Strategic control: Firms must exercise two types of control:-
1. First, informational control which requires organizations
to continually monitor and scan the environment and respond to
threats and opportunities.
2. Second, behavioral control involves the proper balance of
rewards and incentives as well as cultures and boundaries and/or
constraints).
B-Corporate governance :is the relationship among various
participants in determining the direction and performance of
corporations. The primary participants are:
• Shareholders
• Management (led by the Chief Executive Officer)
• The Board of Directors (BOD)
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 Strategy Implementation

2. Creating Effective Organizational Designs: Firms must have

organizational structures and designs that are consistent with
their strategy. In today’s rapidly changing competitive
environments, boundaries should be more flexible and penetrable.
3. Creating a Learning and an Organization: Effective leadersset
a direction, design the organization, and develop an organization
that is committed to excellence and ethical behavior. In addition,
they must create a “learning organization” so that the entire
organization can benefit from individual and collective talents.
4. Fostering Corporate Entrepreneurship: Firms must continually
improve and grow and must find new ways to renew their
organizations. Corporate entrepreneurship and innovation provide
firms with new opportunities, and strategies should be formulated
that enhance a firm’s innovative capacity.

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