Strategic Management and Strategic Competitiveness Chapters 1 & 13 Strategic Management and Strategic Competitiveness How do we begin?

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 9

Defining Entrepreneurship Corporate Entrepreneurship Firm’s capabilities to develop new goods or services and manage the innovation process Creating or developing a new product or process idea Invention Creating a commercializable product from invention Innovation Adoption of innovation by a population of similar firms Imitation 6

Internal Corporate Venturing Corporate Intrapreneurship can occur as either a bottom-up process or as a top-down process Autonomous strategic behavior is a bottom-up process through which Product Champions pursue new product ideas to commercialization Induced strategic behavior is a top-down process in which the current strategy and structure foster product innovations that are closely associated with the current strategy Product Champions are individuals who have an entrepreneurial vision for a new product and seek support for its commercialization 16

Strategic Intent Strategic Mission Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies. An application of strategic intent in terms of products to be offered and markets to be served. Strategic Mission 55

The Strategic Management Process Strategic Intent must ask: Where are we now? Involves thinking strategically about the company’s external market and internal situation and capabilities? Involves thinking strategically about what top management wants to be like in 5-10 years - what level of performance to reach - what financial outcomes to achieve - what strategic outcomes to achieve Where do we want to go? Involves thinking about what STRATEGY the company should pursue to perform successfully and get from where it wants to go? How will we get there? 9

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

I/O Model of Above-Average Returns 1. External Environments General Environment Global Technological Economic Sociocultural Political/Legal Demographic 1. Strategy dictated by the external environments of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?) Industry Environment Competitor Environment

Industrial Organization Model I/O Model of Above-Average Returns Industrial Organization Model 1. Study the external environment, especially the industry environment economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry The External Environment

Industrial Organization Model I/O Model of Above-Average Returns Industrial Organization Model 2. Locate an attractive industry with a high potential for above-average returns The External Environment An Attractive Industry Attractive industry: one whose structural characteristics suggest above-average returns

Industrial Organization Model I/O Model of Above-Average Returns Industrial Organization Model 3. Identify the strategy called for by the attractive industry to earn above-average returns The External Environment An Attractive Industry Strategy Formulation Strategy formulation: selection of a strategy linked with above-average returns in a particular industry

Industrial Organization Model I/O Model of Above-Average Returns Industrial Organization Model 4. Develop or acquire assets and skills needed to implement the strategy The External Environment An Attractive Industry Strategy Formulation Assets and Skills Assets and skills: those assets and skills required to implement a chosen strategy

Industrial Organization Model I/O Model of Above-Average Returns Industrial Organization Model 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy Strategy Implementation

Industrial Organization Model 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 returns Strategy Implementation Superior Returns

Resource-based Model of Above Average Returns 1. Strategy dictated by unique resources and capabilities of the firm (what can the firm do best?) 2. Find an environment in which to exploit these assets (where are the best opportunities?) 1. Firm’s Resources The Firm

Resource-based Model of Above Average Returns 1. Identify the firm’s resources-- strengths and weaknesses compared with competitors Resources Resources: inputs into a firm’s production process

Resource-based Model of Above Average Returns 2. Determine the firm’s 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

Four Attributes of Resources and Capabilities (Competitive Advantage) Valuable allow the firm to exploit opportunities or neutralize threats in its external environment Rare possessed by few, if any, current and potential competitors Resources and Capabilities 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

Resources and capabilities that meet these four criteria become a source of: Valuable Rare Core Competencies Core Competencies Resources and Capabilities Costly to imitate Nonsubstitutable

Core Competencies are the basis for a firm’s Competitive advantage Strategic competitiveness Core Competencies Ability to earn above-average returns

Competitive Advantage Resource-based Model of Above Average Returns Resource-based Model 3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Resources Capability Competitive Advantage Competitive advantage: ability of a firm to outperform its rivals

Resource-based Model of Above Average Returns 4. Locate an attractive industry Resources Capability Competitive Advantage An Attractive Industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities

Resource-based Model of Above Average Returns 5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Resources Capability Competitive Advantage An Attractive Industry Strategy formulation and implementation: strategic actions taken to earn above average returns Strategy Form/Impl

Resource-based Model of Above Average Returns Resources Capability Competitive Advantage An Attractive Industry Superior returns: earning of above-average returns Strategy Form/Impl Superior Returns

Stakeholders: Groups who are affected by a firm’s 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 Stock market/Investors Debt suppliers/Banks Firm Product Market Primary Customers Suppliers Organizational Employees Managers Non-Managers 59

Stakeholder Involvement Each of the key stakeholders wants a piece of the same pie 1 How do you divide the pie in order to keep all of the stakeholders involved? 2 How do you increase the size of the pie so that there is more to go around? 62