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 4

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

The Strategic Management Process Strategy Formulation Chapter 3 Internal Environment Chapter 2 External Strategic Intent Strategic Mission The Strategic Management Process Strategic Outcomes Actions Strategic Inputs Strategy Formulation Strategy Implementation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Chapter 8 International Chapter 9 Cooperative Strategies Chapter 7 Acquisitions & Restructuring Chapter 10 Corporate Governance Chapter 11 Structure & Control Chapter 12 Strategic Leadership Chapter 13 Entrepreneurship & Innovation Strategic Competitiveness Above Average Returns Feedback 10

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 22

Challenge of Strategic Management Best Stocks of the Decade The goals of achieving strategic competitiveness and earning above-average returns are challenging The performance of some companies more than meets strategic management's challenge

21st Century Competitive Landscape Rapid technological changes Rapid technology diffusions Dramatic changes in information and communication technologies Increasing importance of knowledge Fundamental nature of competition is changing The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as... Computers Telecommunications 25

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 30

21st Century Competitive Landscape Country Competitiveness Rankings A country’s 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

Alternative Models of Superior Returns Industrial Organization Model Resource-Based Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns Resources Capability Competitive Advantage An Attractive Industry Strategy Implementation Superior Returns 31

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. 33

I/O Model of Superior Returns Action required: External Environment Study the external environment, especially the industry environment. General Environment Industry Environment Competitive Environment 34

I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Action required: Locate an industry with high potential for above-average returns. An Attractive Industry An industry whose structural characteristics suggest above-average returns are possible 35

I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Action required: Identify strategy called for by the industry to earn above-average returns. Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Selection of a strategy linked with above-average returns in a particular industry Strategy Formulation 36

I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Action required: Develop or acquire assets and skills needed to implement the strategy. Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy 37

I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Action required: Use the firm’s strengths (its assets or skills) to implement the strategy. Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy 38

I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Action required: Maintain selected strategy in order to outperform industry rivals. Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy Superior Returns Earning of above-average returns 39

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. 41

Resource-Based Model of Superior Returns Action required: Identify firm resources. Study strengths and weak- nesses relative to rivals. Resources Inputs to a firm’s production process. 42

Resource-Based Model of Superior Returns Action required: Determine what firm capabilities allow it to do better than rivals. Resources Inputs to a firm’s production process. Capability Capacity for an integrated set of resources to perform a task or activity. 43

Resource-Based Model of Superior Returns Action required: Resources Inputs to a firm’s production process. Determine how firm’s resources and capabilities may create competitive advantage. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals 44

Resource-Based Model of Superior Returns Action required: Resources Inputs to a firm’s production process. Locate an attractive industry. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals An Attractive Industry Location of an industry with opportunities that can be exploited by the firm’s resources and capabilities 45

Resource-Based Model of Superior Returns Action required: Resources Inputs to a firm’s production process. Select strategy that best exploits resources and capabilities relative to opportunities in environs. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals An Attractive Industry Location of an industry with opportunities that can be exploited by the firm’s resources and capabilities Strategy Formulation and Implementation Strategic actions taken to earn above-average returns 46

Resource-Based Model of Superior Returns Action required: Resources Inputs to a firm’s production process. Maintain selected strategy in order to outperform industry rivals. Capability Capacity for an integrated set of resources to integratively perform a task or activity. Competitive Advantage Ability of a firm to outperform its rivals An Attractive Industry Location of an industry with opportunities that can be exploited by the firm’s resources and capabilities Strategy Formulation and Implementation Strategic actions taken to earn above-average returns Superior Returns Earning of above-average returns 47

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 firm’s Competitive Advantage, Strategic Competitiveness and Ability to Earn Above-average Returns. 53

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

The Strategic Management Process Strategy Formulation Chapter 2 The Strategic Management Process External Strategic Inputs Environment Strategic Intent Strategic Mission Chapter 3 Internal Environment Strategy Formulation Strategy Implementation Chapter 4 Chapter 5 Chapter 6 Chapter 10 Chapter 11 Business-Level Competitive Corporate-Level Corporate Structure Strategy Dynamics Strategy Governance & Control Strategic Actions Chapter 7 Chapter 8 Chapter 9 Chapter 12 Chapter 13 Acquisitions & International Cooperative Strategic Entrepreneurship & Innovation Restructuring Strategy Strategies Leadership Strategic Outcomes Strategic Competitiveness Above Average Feedback Returns 63