1. Competing for Advantage
PART I
STRATEGIC THINKING
Chapter 1
Introduction to Strategic Management

2. Introduction to Strategic Management
Key Terms
Competitive advantage
Derived from the successful formulation and execution of strategies which differ and create more value than competitor strategies
Strategic management process
The full set of commitments, decisions, and actions required for a firm to create value and earn returns that are higher than those of competitors
Sustainable Competitive Advantage – When a firm is able to retain a competitive advantage while competitor efforts to duplicate the value-creating strategy cease or fail.
Firms must understand how to exploit a competitive advantage to create more value than their competitors and to achieve higher returns for investors.
Strategic Management Process – In its simplest form, the process involves analyzing the firm and its environment, and then using gathered information to formulate and implement strategies which produce a competitive advantage. For a more detailed summary, refer to Figure 1.6 in the text or to Slide 50.
What role do strategic leaders play in the strategic management process?
They guide the strategic management process.
They help the organization acquire and develop needed resources.
They manage relationships with key organizational stakeholders.
They develop adequate organizational controls to ensure desired outcomes are achieved.

3. The Competitive Landscape The US Airline Industry - An Illustration
De-regulation 1978
Low-cost, limited route carriers
Terrorist attacks
Volatile economic conditions
Global alliances
High level of consolidation
The Competitive Landscape - The US airline industry is very competitive and has many participants. A discussion of the highlighted industry conditions can illustrate the impact that environmental influences – particularly global forces, economic volatility, and rapid changes in technology – have on the competitiveness and performance of industry participants.
Discussion points:
De-regulation in 1978 – led to price wars among “legacy carriers” and the entrance of new competitors.
Low-cost carriers have been very effective in the industry against larger, traditional carriers.
Attacks on 9-11 required significant technology changes to ensure security.
Unstable oil prices and fluctuating demand have a substantial impact on the ability of airlines to compete.
Global alliances have helped major carriers improve performance in difficult competitive conditions.
Merger and acquisition strategies for many airlines are attempts to achieve increased economies of scale and efficiencies.
Results of all of these efforts have been mixed. Many carriers have had to seek bankruptcy protection from creditors to remain solvent.

4. The Competitive Landscape Major Trends
Globalization
Economic volatility
Rapid technological change
Fundamental drivers in today’s competitive landscape.

5. Globalization of Markets and Industries
Key Terms
Globalization
Increasing economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders
Hypercompetition
Extremely intense rivalry among firms, characterized by escalating and aggressive competitive moves among market challengers
Globalization of Markets and Industries – Changes in the fundamental nature of competition in the world’s industries stems from a continued increase in the globalization of world markets and the way that global environmental forces have led to hypercompetitive conditions for today’s businesses.

6. Globalization of Markets and Industries
Artificial constraints on business transactions across national boundaries (such as tariffs) have been eliminated.
Restraints on the transfer of resources (such as equipment, capital, raw material, and even employees) across markets have decreased significantly.
The range of competitive opportunities available to firms has greatly increased.
Global Economic Connectedness – Globalization has led to high levels of market and industry interconnectedness.
Slides 6 and 7 address how the global economy has expanded and complicated the competitive environment for companies.

7. Globalization of Markets and Industries (cont.)
Hypercompetition has resulted from the dynamics of strategic maneuvering among global and innovative competitors in a volatile economy.
Performance standards have increased in many areas, including quality, cost, productivity, product introduction time, and operational efficiency.
Continuous improvement in all areas is necessary for continued survival.
Continued from Slide 6.
In what ways do firms aggressively challenge competitors in a hypercompetitive environment to improve performance?
Price-quality positioning
Creation of new know-how (innovation) to establish first-mover advantage
Invasion of established product or geographic market
The trend toward increased rivalry is discussed more fully in Chapter 6.
What are the consequences of globalization and hypercompetition?
Many multinational companies are now finding less relevance in traditional industry or national boundaries.
To create value, multinational enterprises now think in terms of building global enterprises which consist of a set of highly integrated businesses based on international resources and marketplaces. Example: Unilever

8. Economic Volatility National debt levels Unanticipated crises
Financial market instability
Government actions to reduce debt
Unanticipated crises
Economic Volatility – Due to global economic interconnectedness, fundamental economic factors beyond normal business cycles and broad economic influences increase the likelihood of continued economic volatility. (Additional factors, such as exchange rates and trade balances, are further discussed in Chapter 3.)
Economic volatility is not the same as economic stagnation.
Discussion points:
Amount of debt countries have accumulated and uncertainty regarding the ability to pay off their debt has a destabilizing effect on financial markets.
Actions taken by governments to reduce their debts (such as reduced expenditures, employment, etc.) threaten to have a detrimental impact on interconnected economies.
Sudden disruptive shocks or crises also lead to economic turbulence. Example: Earthquake in Japan – Discuss subsequent supply chain interruptions and nuclear energy implications.
Opportunities are possible despite economic uncertainty.
Example: Caterpillar

9. Technological Trends
Increasing rate of technological change and diffusion.
Dramatic changes in information technology and ways in which information is used.
Increasing knowledge intensity.
Rapid technological change is also associated with hypercompetition.
Three types of technological trends are significantly altering the nature of competition in today's business environment.
Discussion points:
New technologies are becoming available and are used at ever-increasing speeds. Short product life cycles place a premium on being able to quickly introduce new products into the marketplace.
The ability to effectively and efficiently access and use information has become a significant source of competitive advantage within many industries. Example: Smart phones, artificial intelligence, virtual reality, and cloud computing
Access to significant quantities of relatively inexpensive information yields strategic opportunities for a range of industries and companies.
Knowledge (information, intelligence, and expertise) is the basis for technology and its application.
Knowledge is now a critical organizational resource and an increasingly valuable source of competitive advantage.

10. Disruptive Technologies
Destroys the value of existing technologies
Creative destruction process replaces existing technologies with new ones to create new markets
Developing disruptive technologies, also known as breakthrough or radical innovations, has an impact on the marketplace. It destroys the value of existing technologies and creates new markets.
Example: Digital imaging eliminated the need and demand for photographic film.

11. Knowledge-Based Competitive Advantages
Business survival now depends on the ability to:
Capture intelligence
Transform it into useable knowledge, and
Diffuse it rapidly throughout the company
Many companies now strive to transmute the accumulated knowledge of individual employees into a corporate asset.
Success requires a shift of focus from merely obtaining information to exploiting that information to gain a competitive advantage over rival firms.

12. Effect of Technology on the Competitive Landscape
Quick competitive information needs
Shorter product life cycles
Indistinguishable products
Rapid technology replacement
Inexpensive information available
New business culture from electronic-business models
Continuous learning necessary
In what ways have advancements in technology affected today's business environment?
It has become more important for firms to quickly gather information about their competitors' research and development and subsequent product decisions.
Product life cycles are shorter.
Products can become somewhat indistinguishable.
New technologies are rapidly replacing existing technologies.
Access to significant quantities of relatively inexpensive information is now possible.
The pervasive influence of electronic-business models is creating a new business culture.
Continuous learning is necessary to provide businesses with the skills needed to adapt to changes in the environment.

13. Changes in the Competitive Landscape
Figure 1.1: Changes in the Competitive Landscape

14. Sources of Competitive Advantage
Speed to market
Access to and use of information
Rapid diffusion of new, transformed knowledge throughout the company
Innovation
Integration of new conditions into the mind set of the organization
Achieving or exceeding global standards
Improved capabilities and skills through the pursuit of higher performance standards
Strategic flexibility
New sources of competitive advantage have emerged as a result of the globalization, economic volatility, and technological advances. Traditional sources, such as economies of scale and large advertising budgets, are less effective under these new conditions.
Managers must adopt a new mind-set which values speed, innovation, and integration along with the challenges that evolve from constantly changing conditions.

15. Coping with Hypercompetitive Influences
Key Terms
Strategic flexibility
A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment
Strategic Flexibility – Firms must be able to adapt quickly to changes in the competitive landscape to achieve high performance.
Managing strategic flexibility is addressed more fully in Chapter 13.

16. Sources of Strategic Flexibility
Continuous learning
Strategic thinking
Strategic leadership
Strategic flexibility involves coping with uncertainty and its accompanying risks.
Discussion points:
Continuous learning provides the firm with new and up-to-date sets of skills which allow it to adapt to its environment as it encounters change.
Strategic thinking helps the firm remain strategically flexible.
Effective strategic leadership is essential to both strategic thinking and flexibility.

17. Early Influences on the Strategy Concept
Key Terms
Agency theory
A viewpoint which argues that agency problems exist when managers take actions that are in their own best interests rather than those of shareholders
Transactions costs economics
Examination of the efficiency of economic activity which instructs firms to purchase required resources through a market transaction unless particular conditions exist that make creating them internally more efficient
The Emergence of Strategic Management as a Business Discipline – A brief history of the field of strategic management serves as a conceptual foundation for strategic management concepts throughout the text.
Early Influences on the Strategy Concept – The strategy concept evolved from the integrated and multifunctional study of business policy, which was established to examine complicated, high-level management challenges emerging from an increasingly complex and turbulent external environment.

18. Modern Strategic Management
Key Terms
Deterministic perspective
Strategy formulation argument that firms should adapt to their environments (establishing "fit") because the environmental situation determines the most effective strategies for achieving success
Enactment
Principle that challenges the inevitability of deterministic forces in the environment by recognizing the potential of human action to influence organizational results
Modern Strategic Management – By the late 1970s, the term strategic management began to replace business policy, representing the need for a broader scope to deliver solutions to the problems facing executives.
What types of actions might represent attempts to distinguish a firm from its competitors?
Forming alliances or joint ventures with stakeholders
Investing in leading technologies, advertising, or political lobbying
Both adaptation and enactment are necessary for effective strategy formulation.

19. Foundational Concepts
The need for businesses to establish goals, formulate strategies to achieve them, set implementation and evaluation plans and controls to meet stated goals.
The integration of the external market factors into business planning.
The wisdom of balancing the conflicting needs of businesses' internal and external stakeholders.
The importance of an economic approach to identify market opportunities.
The importance of having or acquiring the resources and capabilities to achieve organizational objectives.
The Emergence of the Strategic Management Process – Early models of the fundamental activities required for an effective strategic management process began to take shape by the late 1970s. These are outlined on Slides 19 and 20.

20. Foundational Concepts (cont.)
The idea that political strategies should be used in addition to rational-deductive strategy development to address stakeholder interests and facilitate the achievement of organizational goals.
The use of organizational learning processes to achieve strategic success.
The use of agency theory to focus on shareholder returns as a primary criterion for firm success.
The use of transactions costs economics to determine whether to produce or acquire the resources needed by businesses.
The Emergence of the Strategic Management Process – Early models of fundamental activities for an effective strategic management process began to take shape by the late 1970s. These are outlined on Slides 18 and 19.

21. Three Perspectives on Value Creation
Industrial/Organization (I/O) Economic Model
Resource-Based View
Stakeholder Approach
Three Perspectives on Value Creation – Three strategic management models emerged as comprehensive ways to organize the central ideas and activities associated with strategic management and creating value (or above-average returns) for the firm.
Application of these models emphasize:
I/O – market activities
Resource-based – development and use of resources
Stakeholder – network of relationships
The most successful organizations learn how to appropriately integrate the information and knowledge gained from each perspective to determine the firm’s strategic direction.

22. The Industrial/Organization (I/O) Model of Above-Average Returns
The model explains the dominant influence of the external environment on a firm's strategic actions and performance.
“The model specifies that the industry in which a firm chooses to compete has a stronger influence on the firm’s performance than do the choices managers make inside their organizations.”
The Industrial/Organization (I/O) Model of Above-Average Returns – This model for strategy development predicts value creation when strategy selection is dictated by the characteristics of the general, industry, and competitive environments.
It considers the strategic management process to be dynamic, as ever-changing markets and competitive structures must be coordinated with a firm’s continuously evolving strategic inputs.
The firm’s performance is believed to be determined primarily by a range of industry properties (industry characteristics which are further explored in Chapter 3).
Example of how industry characteristics can influence firm performance: Pharmaceutical industry
Four underlying assumptions to the model are identified and Porter's five forces model is introduced in the following slides.

23. Underlying Assumptions of the (I/O) Model
The external environment is assumed to impose pressures and constraints that determine the strategies that would result in above-average returns.
Most firms competing within a particular industry or industry segment are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources.
There are four underlying assumptions to the I/O model. They are presented on Slides 23 and 24.

24. Underlying Assumptions of the (I/O) Model (cont.)
Resources used to implement strategies are assumed to be highly mobile across firms. Because of resource mobility, any resource differences that might develop between firms will be short lived.
Organizational decision makers are assumed to be rational and committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors.
There are four underlying assumptions to the I/O model. They are presented on slides 23 and 24.

25. The Industrial/Organization (I/O) Model of Above-Average Returns
Figure 1.2: The Industrial/Organization (I/O) Model of Above-Average Returns – The I/O model challenges firms to locate the most attractive industry in which to compete.
The I/O model suggests that above-average returns are earned when firms implement the strategy dictated by the characteristics of the general, industry, and competitor environments. Companies that develop or acquire the internal skills needed to implement strategies required by the external environment are likely to succeed, while those that do not are likely to fail. Hence, this model suggests that external characteristics rather than the firm’s unique internal resources and capabilities primarily determine financial returns.
Research findings support the I/O model. They demonstrate that much of a firm’s profitability is determined by the industry or industries in which it chooses to operate. However, they do not support the idea that industry characteristics are the primary determinant of firm profitability. Individual firm characteristics explain more of the variance than industry structure. Successful competition mandates that a firm build a unique set of resources and capabilities within the industry or industries in which the firm competes.

26. Michael Porter’s Five Forces Model
The model suggests that an industry’s profitability is a function of interactions among:
Suppliers
Buyers
Competitive rivalry among industry participants
Product substitutes
Potential entrants to the industry
This slide presents the five forces in Porter’s model of competition, which is further explained in Chapter 3.
The model suggests that firms typically can earn above-average returns by manufacturing standardized products or producing standardized services at costs below those of competitors (a cost-leadership strategy) or by manufacturing differentiated products for which customers are willing to pay a price premium (a differentiation strategy). These strategies are described more fully in Chapter 5.

27. Michael Porter’s Contributions to the I/O Model
Reinforces the importance of economic theory
Offers an analytical approach that was previously lacking in the field of strategy
Describes the forces that determine the nature/level of competition and profit potential in an industry
Suggests how an organization can use the analysis to establish a competitive advantage
Michael Porter’s Five-Forces Model makes four contributions to the I/O Model.

28. Limitations of the I/O) Model
Only 2 strategies are suggested.
Cost Leadership
Differentiation
Internal resources and capabilities are not considered.
There are two major limitations to the I/O Model.
Discussion points:
At its basic level, the model only suggests two strategies for establishing a defensible competitive position (cost-leadership and differentiation).
The model does not address the need to develop or acquire unique internal resources and capabilities to aid in success. Research shows that both the environment and internal conditions play a role in determining a firm's profitability.

29. The Resource-Based Model of Above-Average Returns
The model proposes that a firm's unique collection of resources and capabilities is the primary influence on the selection and use of a strategy or strategies to exploit opportunities in the external environment which result in successful performance.
The Resource-Based Model of Above-Average Returns – This model for strategy development predicts value creation when strategy selection is dictated by the firm's unique collection of resources and capabilities, rather than the structural characteristics of the industry in which it competes.

30. The Resource-Based Model of Above-Average Returns
Key Terms
Distinctive competencies
Firm attributes that allow it to pursue a strategy better than other firms
Resources
Inputs into a firm's production process
Capability
Capacity for a set of resources to perform a task or activity in an integrative manner
Core competencies
Resources and capabilities that serve as a source of competitive advantage for a firm over its rivals
What are some examples of internal resources?
Capital equipment
Employee skills
Patents
High-quality managers
Financial condition
Brand reputation
More details about resources are covered on Slides and in Chapter 4.
Example of firm capabilities: Discovery Communications
Through a firm’s continued use, capabilities become stronger and more difficult for competitors to understand and imitate.
Core competencies are the basis for a firm’s competitive advantage, value creation, and the ability to earn above-average returns.

31. Assumptions of the Resource-Based Model
Capabilities evolve and must be managed dynamically in pursuit of value creation and higher firm performance.
Across time, firms acquire different resources and develop unique capabilities.
Resources may not be easily transferable across firms.
The differences in resources are the basis of competitive advantage.

32. Relevance of Resources to Strategic Management Models
Resources serve as the foundation for the establishment of competencies.
Resources facilitate the implementation of a product market strategy.

33. Types of Resources in the Resource-Based Model
Physical
Human
Organizational capital
Resources may be either tangible or intangible.
Three categories of resources are identified in the Resource-Based Model.
They are described more fully in Chapter 4.

34. Two Types of Core Competencies
Managerial competencies
Product-related competencies
Core competencies, when developed, nurtured, and applied throughout a firm, contribute to the earning of above-average returns.
Discussion points:
Managerial competencies – for instance, the capability to effectively organize and govern complex and diverse operations or the capability to create and communicate a strategic vision
Example: Daniel Waterman at the Memorial Hermann Healthcare System in Houston
Product related competencies – for instance, a firm’s capability to develop innovative new products and to reengineer existing products to satisfy changing consumer tastes

35. Criteria for Providing a Competitive Advantage
Valuable
Rare
Costly to imitate
Nonsubstitutable
Competitive advantages tend to be formed through the combination and integration of sets of resources.
Not all of a firm's resources and capabilities have the potential to be a competitive advantage.
There are four criteria that determine which resources and capabilities can realize this potential.
Discussion points:
Valuable – allow the firm to exploit opportunities or neutralize threats in its external environment
Rare – possessed by few, if any, current and potential competitors
Costly to imitate – when other firms cannot obtain them or must obtain them at a much higher cost
Nonsubstitutable – have no other structural equivalents
When these criteria are met, resources and capabilities become core competencies.

36. The Resource-Based Model of Above-Average Returns
Figure 1.3: The Resource-Based Model of Above-Average Returns – Instead of focusing on the accumulation of resources necessary to successfully use the strategy dictated by conditions and constraints in the external environment (I/O model), the resource-based view suggests that a firm’s unique resources and capabilities provide the basis for a strategy. The strategy chosen should allow the firm to effectively use its competitive advantages to exploit opportunities in its external environment.
The resource-based model emphasizes strengths and weaknesses internal to the firm.

37. The Stakeholder Model of Responsible Firm Behavior and Firm Performance
The model proposes that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors.
The Stakeholder Model of Responsible Firm Behavior and Firm Performance – This model for strategy development is a framework, based on both moral and economic foundations, for understanding how firms can simultaneously manage relationships with internal and external stakeholders to create and sustain competitive advantage.

38. The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Key Terms
Stakeholders
Individuals and groups who can affect, and are affected by, the strategic outcomes a firm achieves and who have enforceable claims on a firm's performance
Strategic intelligence
The information firms collect from their network of stakeholders to deal with diverse and cognitively complex competitive situations and to stimulate innovation
Claims on a firm’s performance are enforced through the stakeholders’ ability to withhold participation essential to the organization’s survival, competitiveness, and profitability.
Knowledge-based advantages of a stakeholder-based approach can help the firm to make better strategic decisions.

39. The Three Stakeholder Groups
Figure 1.4: The Three Stakeholder Groups
From a stakeholder perspective, the firm can be envisioned as a nexus of formal and social contracts with three types of stakeholders of primary interests to the firm.
Major suppliers of capital include:
Shareholders
Banks
Private lenders
Venture capitalists
Firms which take particularly good are of their primary stakeholders will function more effectively and create more value, which can be reinvested in the firm and distributed to the stakeholders who helped create it. Research suggests that satisfied stakeholders will reciprocate with higher levels of motivation and loyalty, and they are more likely to share valuable information with the firm which can lead to innovation.
What are some ways the firm may distribute additional value back to each stakeholder group?
Customers – increased quality, safety or service of products while maintaining current prices
Employees – increased wages, benefits, profit sharing, bonuses, or in- house programs such as recreational facilities or daycare
Shareholders – increased dividends or returns to investors

40. Secondary Stakeholders
Government entities and administrators
Activists and advocacy groups
Religious organizations
Other non-governmental organizations
This second tier of stakeholders should not be ignored, but should not be given as much weight in the strategic management process.

41. Critical Problem Facing Management Today
There is a general lack of public trust for big businesses and their managers.
Discussion points:
Corporate scandals and a sense of unfairness have reduced trust among stakeholders and generally throughout society.
Societies throughout the world are demanding higher ethical performance, and governments are responding with increased legislation and regulation.
The issue is manifested by the “Occupy Wall Street” movement throughout the U.S. and similar protests early in this decade.
Beyond the re-distribution of value, respect and integrity toward primary stakeholders are necessary.
Although the stakeholder perspective is more about effective management than social responsibility, firms that practice stakeholder management also tend to score high on corporate social responsibility (CSR) scales. Primary stakeholders do care about the natural environment, diversity, fair labor practices, and other social interests. Example: Whole Foods Market

42. The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Figure 1.5: The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Research supports the idea that firms that effectively manage stakeholder relationships outperform those that do not. This research implies that stakeholder relationships can be managed in such a way as to create competitive advantage.

43. Challenges of the Stakeholder Model
Anticipating and managing additional costs associated with treating stakeholders in the manner suggested by stakeholder theory
Determining how much value to allocate without “giving away the store”
Determining how to allocate value (or returns) commensurate with stakeholder contribution
Establishing trust and mutual satisfaction of goals to increase the level of strategic intelligence available to the firm’s strategic leaders
Managers should exercise prudence when determining how much time, attention, and other resources should be allocated to any particular stakeholder.
They must determine how to divide the returns to maximize stakeholder involvement.
They must determine how to increase returns so that there is more value to share.

44. Ways Stakeholder Relationships Contribute to Competitive Advantage
Timely and high quality strategic intelligence can be gathered to improve a firm's strategic decisions.
A trustworthy reputation draws valuable customers, suppliers, and business partners which enable the firm to gain superior resources and opportunities.
A trustworthy reputation attracts investors who offer financial resources.
Fair and respectful treatment of employees attracts high quality human resources essential in today’s competitive environment.

45. Ways Stakeholder Relationships Contribute to Competitive Advantage
Transactions costs associated with making and enforcing agreements can be reduced.
Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions.
Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulation, legal suits and penalties, consumer dissatisfaction, employee work outages, and bad press.)
Reduces the need for elaborate safeguards and contingencies when defining or enforcing contractual agreements.
The stakeholder management approach can reduce firm risk.

46. Strategic Thinking Key Terms Strategic thinking competency
The knowledge, skills, and abilities needed to detect market opportunities, formulate a vision to capitalize on these opportunities, and engineer feasible strategies to realize organizational and stakeholder value
Strategic Intent
Organizational term used to describe a dream that challenges and energizes a company -- a vision which elicits the help of others in creating a firm’s competitive advantage
One of the most essential characteristics of firms that have sustained high levels of performance is their ability to innovate and make timely changes to their structures, systems, technologies, and products and services so that they continue to stay ahead of their competitors.
Example: IBM
Strategic Thinking – This is a method of viewing a firm and its environment. It is an intent-focused, comprehensive, opportunistic, hypothesis-driven medium through which the firm uses the strategic management process across multiple time horizons to pursue value creation and high financial returns. These elements are discussed further on the next slide.
Strategic Intent – This exists when employees at all levels of a firm are committed to pursuit of a specific (and significant) goal.

47. Strategic Thinking Intent focused Comprehensive Opportunistic
Considers multiple time horizons
Hypothesis driven
Involves risk
Discussion points:
Strategic intent exists when employees at all levels of the organization are entirely focused on the firm's ability to outperform its competitors.
Strategic thinking envisions the firm as a system that is part of a larger system, recognizing the interdependencies and interactions with the external environment.
Firms must learn to take advantage of unanticipated opportunities as they arise.
Strategic intent is clearly a long-term proposition. However, strategic thinking also involves learning from past experiences, determining how to exploit current competitive advantages, and considering the long-term implications of decisions and actions.
Strategic thinking is a sequential process of hypothesis testing, generating and evaluating creative ideas from inception through full market implementation.
Strategic thinking means managers are willing to take risks.

48. Encouraging Strategic Thinking
Employ top managers who are champions of change.
Establish systems and processes which capture new ideas as they occur.
Train managers and employees in strategic thinking methods and processes.
Foster an environment which rewards risk taking.
Provide flexibility in strategic management processes to allow incorporation of new ideas with potential.
Discussion points:
Discourage or eliminate managers who are protectors of the status quo.
Innovations frequently bubble up from the operating areas of an organization rather than from a department specifically charged with the task of innovating.
Retreats, workshops, and consultant intervention are frequently used to accomplish training.
All of these ideas are associated with strategic leadership and fostering an innovative culture, which is further explored in Chapter 2.
Chapter 12 on strategic entrepreneurship discusses ways to capture new ideas.

49. The Strategic Management Process
Key Terms
Strategic management process
The full set of commitments, decisions, and actions required for a firm to create value and earn returns that are higher than those of competitors
The Strategic Management Process – A logical approach for the strategic leaders of firms to effectively use in response to the challenges of today’s competitive landscape. The process is outlined on Slide 50.
Creative aspects of strategic management result in innovative strategies and organizational changes to enhance competitiveness. This is a foundation to build upon throughout the text.

50. The Strategic Management Process
Figure 1.6: The Strategic Management Process
Strategic Thinking – driven by strategic leaders who establish and use the strategic management process in their firms. Strategic direction is reflected in the firm’s vision, mission, purpose, and long-term goals.
Strategic Analysis – highlights the two key sources of information-based inputs to the strategic management process which prepare the firm to develop its strategic direction and the specific strategies it will use to create a competitive advantage.
From the external environment – opportunities and threats
Internally – strengths and weaknesses derived collectively from the firm’s resources, capabilities, and core competencies
Creating Competitive Advantage
Business-level strategy – competitive advantages the firm will use to effectively compete in specific product markets
Competitive rivalry and dynamics – analysis of competitor actions and responses is relevant input for selecting and using specific strategies
Cooperative strategy – an important trend of forming partnerships to share and develop competitive resources
Corporate-level strategy – concerns the businesses in which the company intends to compete and the allocation of resources in diversified organizations
M&A strategies – primary means used by diversified firms to create corporate-level competitive advantages
International strategy – significant sources of value creation and above-average returns
Monitoring and Creating Entrepreneurial Opportunities
Corporate governance – addresses increasing concerns and efforts to ensure that strategic decisions and actions align with values and stakeholder interests
Strategic Entrepreneurship – examines the need for firms to continuously seek entrepreneurial opportunities
Real Options Analysis – a useful tool for evaluating new ventures and maintaining strategic flexibility, which examines the real choices to pursue investments while containing perceived risks

51. Ethical Question
How should ethical considerations be included in analyses of the firm’s external environment and its internal organization?

52. Ethical Question
To what extent does a firm have an ethical responsibility to provide information to its stakeholders that they will not find agreeable? How does the amount and type of information shared vary from one stakeholder to another?
i.e., employees, shareholders, financial intermediaries, customers, and communities in which the firm operates

53. Ethical Question
Do firms face ethical challenges, perhaps even ethical dilemmas, when trying to satisfy both the short-term and long-term expectations of capital market stakeholders?

54. Ethical Question
What types of ethical issues and challenges do firms encounter when competing internationally?

55. Ethical Question
What ethical responsibilities does the firm have when it earns above-average returns? Who should make decisions regarding this issue, and why?

56. Ethical Question
What should top-level managers do to ensure that a firm’s strategic management process leads to outcomes that are consistent with the firm’s values?