2. Strategic Management: Creating Competitive Advantages1
Strategic Management: Creating Competitive Advantages
McGraw-Hill/Irwin
Strategic Management: Text and Cases, 4e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

3. Two Perspectives of Leadership
Romantic view
Leader is the key force in organization’s success
External control perspective
Focus is on external factors that affect an organization’s success
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

4. Strategic Management Analysis Strategic decisions Actions
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

5. 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
Characteristics of strategic decisions…
Important
Involve a significant commitment of resources
Not easily reversible

6. Key Attributes 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

7. Question The final realized strategy of a firm is a combination of:
Intended and unrealized strategies
Unrealized and emergent strategies
Emergent and deliberate strategies
Deliberate and unrealized strategies
Answer: C

8. Strategic Management Process for Intended Strategies
Missions and Goals
External Analysis
Strategic Choice
Internal Analysis
INTENDED STRATEGY
Organizing for Implementation 31

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

10. Strategic Management Process for Emergent Strategies
Missions and Goals
Internal Analysis
External Analysis
EMERGENT STRATEGY
Strategic Choice
Does It Fit?
Organizational Grassroots 32

11. Strategic Analysis Starting point in the strategic management process
Precedes effective formulation and implementation of strategies

12. Strategic Analysis (cont.)
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

13. Strategic Analysis (cont.)
Frameworks for analyzing a firm’s internal environment
Strengths
Weaknesses
Analyzing strengths can uncover potential sources of competitive advantage

14. Strategic Analysis (cont.)
Intellectual assets are drivers of
Competitive advantage
Wealth creation
Networks and relationships among
Employees
Customers
Suppliers
Alliance partners

15. Strategy Formulation 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

16. Strategy Formulation (cont.)
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

17. Strategy Formulation (cont.)
International Strategy
Appropriate entry strategies for foreign markets
Sustain competitive advantage in global markets
Effective strategies for entrepreneurial initiatives

18. Strategy 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
Organizational structure and design

19. Strategy Implementation (cont.)
Organizational boundaries
Flexible
Permeable
Strategic Alliances
Develop organization that is committed to
Excellence
Ethical behavior

20. Strategy Implementation (cont.)
Learning organization responsive to
Rapid and unpredictable change
Corporate entrepreneurship and innovation
New opportunities
Enhance innovative capacity
Autonomous entrepreneurial behavior
Product champions

21. 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

22. Corporate Governance and Stakeholder Management (cont.)
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

23. Example: New Rules for Directors
In light of numerous corporate scandals, the role and rules for board of directors are being redefined. Few areas of focus :
Numbers Knowledge
Strategy Focus
Time & Understanding
Watchdog
New Rules for Directors
Numbers Knowledge -- In 2007, companies will be reporting the CEO pay in their SEC filings, Board of Directors need to know and be able to explain the numbers
Strategy Focus -- In addition to compliance, Boards need to focus on the strategy and leadership
Time & Understanding -- Even non-financial members of the board need to keep an eye on the numbers; the number of earnings restatement hit an all time high in 2006
Watchdog -- About 120 companies are being investigated for options backdating and more than 50% of the 100 largest companies have replaced their CEOs in last 5 years – Boards need to become a watchdog instead of relying on crisis management
Source: Tipsheet, Business Week, January 22, 2007
Source: Tipsheet, Business Week, January 22, 2007

24. 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

25. 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

26. Example: Social Responsibility
Starbucks Coffee Company
Corporate social responsibility is embedded throughout the organization.
The following are some of the commitments they have made to be socially responsible:
Commitment to origins
Helping protect the environment
Starbucks in your community
Commitment to partners
Starbucks Coffee Company
Commitment to Origins: Starbucks makes an investment into their worldwide suppliers of coffee to improve their local communities, families, and environment.
Helping protect the environment: Starbucks believes in being at the forefront of the environmental movement towards being "green".  The intent is to preserve and restore the lush natural resources around the world.
Starbucks in your community: Starbucks actively attempts to improve the local communities where their employees live by volunteering for local events and providing programs that can positively affect community members.
Commitment to partners: Starbucks refers to its 100,000 employees worldwide as "partners" in order promote a sense of commitment and passion for the organization. The company is committed to treat their employees the same way they treat their partners.
Source:
Source:

27. Example: Social Responsibility
Johnson & Johnson’s credo sets its responsibilities to:
J&J product users.
J&J employees.
Communities in which J&J employees live and work.
J&J stockholders.
Source: Courtesy of Johnson & Johnson.

28. 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 and integrative, strategic perspective of issues facing the organization

29. 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

30. 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

31. 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

32. 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