Nasullaev Akhatjon PhD student, cycle XXXI STRATEGY AND STRATEGIC COMPETITIVENESS Nasullaev Akhatjon PhD student, cycle XXXI

References: Volberda, H.W., Morgan, R.E., Reinmoeller, P., Hitt, M.A., Ireland , R.D. Hoskisson, R.E. (2012). “Strategic Management. Competitiveness & Globalization: Concepts Only”. Thomson Strickland (1999). “Strategic management: Concepts and cases”, McGraw-Hill International editions. Porter M.E. (1996). “What is Strategy?” Harvard Business Review, Nov-Dec. Mintzberg H. (1987). “The Strategy Concept I: Five Ps For Strategy”. California Management Review, Fall. Mintzberg H. and Waters J.A. (1985). “Of Strategies, Deliberate and Emergent”. Strategic Management Journal, 6:257-272. Rainer Feurer, Kazem Chaharbaghi, John Wargin (1995). "Analysis of strategy formulation and implementation at Hewlett Packard", Management Decision, Vol. 33 Iss: 10, pp.4 – 16

Opening case: McDonald’s competitive strategy

Competing to be the best What is strategy? Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Strategies are both plans for the future and patterns from the past. s Competing to be the best Competing to be unique The worst error in strategy is to compete with rivals on the same dimensions

Strategy is different from other agendas: Strategy is different from aspirations: -Our strategy is to be #1 or #2 -Our strategy is to grow -Our strategy is to provide superior returns to our shareholders. Strategy is different from a particular action: -Our strategy is to merger -Our strategy is internationalize -Our strategy is to double R&D budget Strategy is different from vision/values: -Our strategy is to meet the financial needs and aspirations of customers Strategy defines company’s distinctive approach to competing and competitive advantages on which it will be based

Crafting a strategy Good strategy requires good execution. Strategy making is the process of making important organizational decisions (reorganize, develop a new line, etc.). Strategy formation tended to be treated as an analytical process for establishing long-range goals and action plans for an organization. Company strategies are partly visible and partly hidden to outside view. Good strategy making is more outside-in than inside out. Failure in strategy implementation may have a side effect.

Types of strategies Strategy is both proactive (intended) and reactive (adaptive). A realized strategy can emerge in response to an evolving situation, or it can be brought about deliberately, through a process of formulation followed by implementation. Intended strategy-deliberate strategy; realized strategy-emergent strategy.

Strategy implementation and competitive advantage A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to imitate Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk Analysing external environment and internal organization is the first step of strategy formulation. Two generic models: 1) Industrial organization model of above average returns and 2) resource-based model of above average returns

The I/O model of above-average returns External environment is primary determinant of strategies. Company economic performance results from 2 distinct causes: Industry attractiveness Sustainable competitive advantage Industry structure Strategic positioning within the industry Strategic thinking must encompass both areas Good strategy analyzes include both of them

The I/O model of above-average returns

The external environment A firm’s strategic actions are influenced by the conditions in the three parts of its external environment: (1) general environment; (2) industry environment; (3) competitor environment.

General environment -is composed of dimensions in the broader society that influence an industry and the firm within it.

Industrial environment -is a set of factors that directly influences a firm and its competitive actions and responses. The state of competition in an industry depends on 5 forces:

1. Threats of new entrants New entrants threaten market share of existing competitors. New entrants bring additional production capacity. Two factors determine likelihood of firm’s entering an industry: Barriers to entry; Retaliation expected from current industry participations

2. Bargaining power of suppliers A supplier group is powerful, when: It is dominated by a few large companies and is more concentrated than the industry to which it sells. Satisfactory substitute products are not available to industry firms. - Industry firms are not a significant customer for the supplier group.

3. Bargaining power of buyers Customers are powerful when: They purchase a large portion of an industry’s total output. They could switch to another product at little, if any, cost. - The industry’s products are undifferentiated or standardized, and the buyers pose a credible threat if they were to integrate backward into the sellers’ industry.

4. Threat of substitute product Product substitutes present a strong threat to a firm when customers face few, if any, switching costs and when the substitute product lower and quality is equal/higher than this product. 5. Intensity of rivalry among competitors Competitive rivalry intensifies when a firm is challenged by a competitor’s actions or when a company recognizes an opportunity to improve its market position.

Competitor analysis

Achieving superior performance within an industry

Resource-based model of above-average returns Each organization is a collection of unique resources and capabilities.

Analyzing internal organization

Resources, capabilities and core competencies Resources are inputs into a firm’s production process, such as capital equipment, the skills of individual employees, patents, finances and talented managers. Resources alone don’t yield a competitive advantage  unique bundling of several resources. Resources can be tangible (observed and quantified) and intangible (rooted in firm’s history, difficult to imitate). Tangible resources: financial, organizational, physical and technological resources. Intangible resources: human, innovation, reputational resources.

Capabilities Is a capacity for a set of resources to perform a task or an activity in an integrative manner.

Core competencies Are capabilities that serve as a source of competitive advantage. One of the ways to build a core competencies is – 4 specific criteria of sustainable competitive advantage:

Stakeholders Are the individuals and groups who can affect firm’s vision and mission, are affected by the strategic outcomes the firm achieves through its operations, and who have enforceable claims on the firm’s performance.

Strategic leaders Are people located in different part of the firm using the strategic management process to help the firm reach its vision and mission. Successful leaders are decisive, committed to nurturing those around them, committed to helping the firm to create value for all stakeholder groups. Strategic leaders attempt to predict the outcomes of their decisions before implementing them profit pools. Profit pool- total profits earned in industry at all points along the value chain.