Strategic Management: Creating Competitive Advantages 1 Strategic Management: Creating Competitive Advantages test McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Strategic Management – What is it? Strategic management is the study of why some firms outperform others. It involves: Analysis Strategic decisions Actions Involves different types of leadership Strategic management is the study of why some firms outperform others How to compete in order to create competitive advantages in the marketplace How to create competitive advantages in the market place Unique and valuable Difficult for competitors to copy or substitute Analysis Strategic goals (vision, mission, strategic objectives) Internal and external environment of the firm Strategic decisions What industries should we compete in? How should we compete in those industries? Actions Allocate necessary resources Design the organization to bring intended strategies to reality

Why Strategy Focuses on goals and objectives Includes multiple stakeholders in decision making Incorporate short-term and long-term perspectives Recognizes trade-offs between efficiency and effectiveness

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.

Why Strategic Analysis Clear goals and objectives permit effective allocation of resources Hierarchy of goals Analyzing external environments Analyzing a firm’s internal environment Assessment of Strengths Clear goals and objectives permit effective allocation of resources Hierarchy of goals Vision Mission Strategic objectives Analyzing external environments Managers must scan the environment and analyze competitors General environment Industry environment

Different Levels of Strategy Business level strategy Corporate-level strategy addresses International Strategy Business level strategy: Successful firms develop bases for competitive advantage Cost leadership Differentiation Focusing on narrow or industry-wide market segments Sustainability Industry life cycle Corporate-level strategy addresses: Firm’s portfolio or group of businesses What business(es) should we be in? How can we create synergies among the businesses? Diversification Related Unrelated International Strategy Appropriate entry strategies for foreign markets Sustain competitive advantage in global markets Effective strategies for entrepreneurial initiatives

Control Levers Informational control Behavioral control Effective corporate governance Organizational structure and design Informational control Monitor and scan the environment Respond effectively to threats and opportunities Behavioral control Effective corporate governance Interests of managers and owners of the firm Organizational structure and design

Question Board of Directors Elected representatives of the owners Briefly describe the role of board of directors in corporate governance. Board of Directors Elected representatives of the owners Ensure interests and motives of management are aligned with those of the owners Answer: Board of Directors Elected representatives of the owners Ensure interests and motives of management are aligned with those of the owners Effective and engaged Board of Directors Shareholder activism Proper managerial rewards and incentives

Enhancing Employee Involvement Have significant profit and loss responsibility Local Line Leaders

Enhancing Employee Involvement Local Line Leaders Champion and guide ideas Create a learning infrastructure Establish a domain for taking action Executive Leaders

Enhancing Employee Involvement Local Line Leaders Have little positional power and formal authority Generate their power through the conviction and clarity of their ideas Executive Leaders Internal Networkers

Coherence in Strategic Direction Company vision Massively inspiring Overarching Long-term Driven by and evokes passion Fundamental statement of the organization’s Values Aspiration Goals Hierarchy of Goals Company vision

Coherence in Strategic Direction Mission statements Purpose of the company Basis of competition and competitive advantages More specific than vision Focused on the means by which the firm will compete Hierarchy of Goals Company vision Mission statements

Coherence in Strategic Direction Strategic objectives Operationalize the mission statement Provide guidance on how the organization can fulfill or move toward the “higher goals” More specific Cover a more well-defined time frame Hierarchy of Goals Company vision Mission statements Strategic objectives

Coherence in Strategic Direction Strategic objectives Measurable Specific Appropriate Realistic Timely Challenging Resolve conflicts that arise Yardstick for rewards and incentives Hierarchy of Goals Company vision Mission statements Strategic objectives