1. strategic management text & cases University of Bahrain College of Business Administration MGT 434 Strategic Management MGT 434 1

2. Chapter one Strategic Management: Creating Competitive Advantage Part 1: strategic analysis McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. MGT 434 2

3. Learning Objectives After reading this chapter, you should have a good understanding of: – The definition of strategic management and its four key attributes. – The strategic management process and its three interrelated and principal activities. – The vital role of corporate governance and stakeholder management as well as how “symbiosis” can be achieved among an organization’s stakeholders. MGT 434 3

4. Learning Objectives After reading this chapter, you should have a good understanding of: The key environmental forces that are creating more unpredictable change and requiring greater empowerment throughout the organization. How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction. MGT 434 4

5. Two Perspectives of Leadership Leaders can make a difference – Must be aware of opportunities and threats faced in external environment – Must have thorough understanding of the firm’s resources and capabilities MGT 434 5

6. Strategic Management 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 MGT 434 6

7. Strategic Management 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 MGT 434 7

8. Strategic Management Concepts Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Key attributes of strategic management – Directs the organization toward overall goals and objectives. – Includes multiple stakeholders in decision making – Needs to incorporate short-term and long-term perspectives – Recognizes trade-offs between efficiency and effectiveness Adapted from Exhibit 1.1 Strategic Management Concepts MGT 434 8

9. 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. MGT 434 9

10. Strategic Analysis Starting point in the strategic management process Precedes effective formulation and implementation of strategies Exhibit 1.3 The Strategic Management Process MGT 434 10

11. Strategic Analysis (cont.) Clear goals and objectives permit effective allocation of resources Hierarchy of goals – Vision – Mission – Strategic objectives Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 11

12. Strategic Analysis (cont.) Managers – Scan the environment – Analyze competitors General environment Industry environment Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 12

13. Strategic Analysis (cont.) Frameworks for analyzing a firm’s internal environment – Strengths – Weaknesses Analyzing strengths can uncover potential sources of competitive advantage Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 13

14. Strategic Analysis (cont.) Intellectual assets are drivers of – Competitive advantages – Wealth creation Networks and relationships among – Employees – Customers – Suppliers – Alliance partners Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 14

15. Strategic Formulation Successful firms develop bases for competitive advantage – Cost leadership – Differentiation – Focusing on narrow or industry-wide market segments Sustainability Industry life cycle Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 15

16. Strategic Formulation (cont.) 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 Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 16

17. Strategic Formulation (cont.) Appropriate entry strategies Sustain competitive advantage in global markets Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 17

18. Strategic Formulation (cont.) Digital technologies change the way business is conducted – Added value – Impact on performance Digital technologies can enhance – Cost leadership – Differentiation Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 18

19. Strategic Implementation 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 Adapted from Exhibit 1.3 The Strategic Management Process MGT 434 19

20. Corporate Governance and Stakeholder Management Corporate governance: the relationship among various participants in determining the direction and performance of corporations – Shareholders – Management (led by the CEO) – Board of directors MGT 434 20

21. Corporate Governance and Stakeholder Management Board of directors – Elected represent- atives of the owners – Ensure interests and motives of the management are aligned with those of the owners Effective and engaged board of directors Shareholder activism Proper managerial rewards and incentives Exhibit 1.4 The Key Elements of Corporate Governance MGT 434 21

22. Stakeholder Management Two views of stakeholder management – Zero sum Stakeholders compete for attention and resources of the organization Gain of one is a loss to the other – Symbiosis Stakeholders are dependent upon each other Mutual benefits MGT 434 22

23. Social Responsibility Social responsibility: the expectation that businesses or individuals will strive to improve the overall welfare of society – Managers must take active steps to make society better – Socially responsible behavior changes over time – Triple bottom line – Financial – Ecological and material – Human MGT 434 23

24. Strategic Management Perspective Integrative view of the organization Assess how functional areas and activities “fit together” to achieve goals and objectives All managers and employees must take an integrative, strategic perspective of issues facing the organization MGT 434 24

25. Strategic Management Perspective Key driving forces increasing the need for strategic perspective and involvement – Globalization – Technology – Intellectual capital These forces are – Interrelated – Accelerating the rate of change and uncertainty MGT 434 25

26. Hierarchy of Goals 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 Company vision MGT 434 26

27. Visionary Companies Patterns Alba: Alba: Ensure our ongoing contribution to the sustainable development of Bahrain and of our stakeholders. Sony: Sony: Respecting and encouraging each individual’s ability and creativity. Batelco: Batelco: To enrich our customers’ lifestyle and enable business to excel. Wal*Mart: Wal*Mart: We exist to provide value to our customers, to make their lives better via lower prices and greater selection. MGT 434 27

28. 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 Mission statements MGT 434 28

29. Missionary Companies Patterns Batelco: Batelco: We deliver an enhanced customer experience through competitive communication solutions and people excellence. Sony: Sony: Establish Sony Ericsson as the most attractive and innovative global brand in the mobile handset industry. Wal*Mart: Wal*Mart: We are a global retailer committed to saving people money so they can live better and serving communities around the world. We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices while fostering a culture that rewards and embraces mutual respect, integrity and diversity. MGT 434 29

30. 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 Strategic objectives MGT 434 30

31. Coherence in Strategic Direction Measurable Specific Appropriate Realistic Timely Challenging Resolve conflicts that arise Yardstick for rewards and incentives Strategic objectives Hierarchy of Goals Company vision Mission statements Strategic objectives MGT 434 31