1. Chapter 1 – Strategic Management & Competitiveness

2. The Strategic Management Process
Strategy Implementation
Chapter 10 Corporate Governance
Chapter 11 Organizational Structure and Controls
Chapter 13 Strategic Entrepreneurship

3. Agenda What is strategy? Current competitive landscape
I/O model of above-average returns
Resource-based model of above-average returns
Strategic management process

4. What is Strategy? Greek origin: stratos = army, agos = leader
Strategy as “the basic characteristics of the match an organization achieves with its environment” (Hofer & Schendel, 1978, Strategy Formulation: Analytical Concepts; the field’s first textbook).
Strategy as “the basic characteristics of the match an organization achieves with its environment.” (Hofer & Schendel, 1978, Strategy formulation: Analytical concepts; the field’s first textbook)
Strategy as “plan, pattern, position, perspective, and ploy” (Henry Mintzberg, 1987, Five P’s for Strategy).
Strategy as “plan, pattern, position, perspective, and ploy.” (Henry Mintzberg, 1987, Five P’s for Strategy)
Strategy is “the great work of the organization. In situations of life or death, it is the Tao of survival or extinction. Its study cannot be neglected.” Sun Tzu ( b.c.)
Strategy is “the great work of the organization. In situations of life or death, it is the Tao of survival or extinction. Its study cannot be neglected.” (Sun Tzu, approx. 500 BC)
Strategy as a “pattern of objectives, purposes, or goals, and major policies and plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be” (Kenneth Andrews, 1971, The Concept of Corporate Strategy).
Strategy as a “pattern of objectives, purposes, or goals, and major policies and plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.” (Kenneth Andrews, 1971, The concept of corporate strategy)
“Everyone has a strategy until you get punched in the mouth” (Mike Tyson).
“Everyone has a plan ‘till they get punched in the mouth.” (Mike Tyson)

5. Strategy
Strategy has been defined as “the match an organization achieves between
its internal resources and skills […] and
the opportunities and risks created by its external environment.”
“Know yourself, know your opponents; encounter a hundred battles, win a hundred victories.”
Sun Tzu, “The Art of War”, approx. 500 BC
Source: Hofer, C. W. & Schendel, D. (1978). “Strategy formulation: Analytic concepts”, St. Paul, MN: West: 12.

6. Goals of Strategy Above-Average Returns
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk
Example: The theoretical value of a firm is the discounted present value of all its future free cash flows.
Accordingly a shortcut stock price formula is simply a growing perpetuity (Gordon Model):
So to increase a firms stock price, the growth rate has to increase, because the current growth rate is already factored into the price!.
Strategic Competitiveness
When a firm successfully formulates and implements a value-creating strategy
Sustainable Competitive Advantage
When competitors are unable to duplicate a company’s value-creating strategy

7. Strategy: Deliberate and Emergent
Source: Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998). “Strategy safari”, London, UK: Prentice Hall: 12.

8. Agenda What is strategy? Current competitive landscape
I/O model of above-average returns
Resource-based model of above-average returns
Strategic management process

9. Changes in the Competitive Landscape

10. Today’s Competitive Environment
Global economy
Rapid technological change

11. Rapid technological change
Global economy
Rapid technological change
Global Economy
Global Economy
Goods, people, skills, and ideas move freely across geographic borders
Movement is relatively unfettered by artificial constraints
Expansion into global arena complicates a firm’s competitive environment
Globalization
Increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders
Increased range of opportunities for companies competing in the 21st-century competitive landscape

12. World’s Largest Economic Entities
Global economy
Rapid technological change
Source: Peng, M. W. (2006). “Global Strategy”, Mason, OH: South-Western: 23.

13. Technological Changes
Global economy
Rapid technological change
Technological Changes
Rate of change of technology and speed at which new technologies become available
Perpetual innovation – how rapidly and consistently new, information-intensive technologies replace older ones
The development of disruptive technologies that destroy the value of existing technology and create new markets (Schumpeterian innovation)

14. Technological Changes
Global economy
Rapid technological change
Technological Changes
Moore’s Law (Gordon Moore, co-founder of Intel):
At our rate of technological development, the complexity of an integrated circuit (i.e. number of transistors per square inch), with respect to minimum component cost will double every 24 months.

15. Technological Changes
Source: New York Times, February 10, 2008

16. Source: Hitt, M. A. , Keats, B. W. , & DeMarie, S. M. (2006)
Source: Hitt, M. A., Keats, B. W., & DeMarie, S. M. (2006). “Navigating in the new competitive landscape: Building strategic flexibility and competitive advantage in the 21st century”, Academy of Management Executive, 12(4):

17. Organizational analysis Environmental analysis
SWOT Analysis
Strengths
Weaknesses
Organizational analysis
Opportunities
Threats
Environmental analysis
How does a strategy allow us to exploit our strengths, avoid or fix our weaknesses, exploit our opportunities, and neutralize our threats?
Strategic choices

18. Agenda What is strategy? Current competitive landscape
I/O model of above-average returns
Resource-based model of above-average returns
Strategic management process

19. Organizational analysis Environmental analysis
I/O Model Focus
Strengths
Weaknesses
Organizational analysis
Opportunities
Threats
Environmental analysis

20. I/O Model: Above-Average Returns
External Environments
Strategy dictated by the external environment of the firm (what opportunities exist in these environments?)
Firm develops internal skills required by external environment (what can the firm do about the opportunities?)
General
Environment
“Outside-in”

21. The I/O Model of Above-Average Returns
The External Environment
Study the external environment, especially the industry environment.
The general environment
The industry environment
The competitor environment

22. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
2. Locate an attractive industry with a high potential for above-average returns.
An industry whose structural characteristics suggest above-average returns

23. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
3. Identify the strategy called for by the attractive industry to earn above-average returns.
Strategy Formulation
Selection of a strategy linked with above-average returns in a particular industry

24. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
4. Develop or acquire assets and skills needed to implement the strategy.
Strategy Formulation
Assets and Skills
Assets and skills required to implement a chosen strategy

25. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy.
Strategy Formulation
Assets and Skills
Selection of strategic actions linked with effective implementation of the chosen strategy
Strategy Implementation

26. The I/O Model of Above-Average Returns
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Superior returns: Earning of above-average returns
Strategy Implementation
Superior Returns

27. Agenda What is strategy? Current competitive landscape
I/O model of above-average returns
Resource-based model of above-average returns
Strategic management process

28. Resource-Based Model Focus
Strengths
Weaknesses
Organizational analysis
Opportunities
Threats
Environmental analysis

29. Resource-Based Model
Each organization is a collection of unique resources and capabilities that provides the basis for its strategy
Capabilities evolve and must be managed dynamically (acquired and/or developed)
Differences in firms’ performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry

30. Resource-Based Model – cont’d
Strategy dictated by the firm’s unique resources and capabilities
Find an environment in which to exploit these assets (where are the best opportunities?)
Differences in firms’ performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry
Firm’s Resources
THE FIRM
“Inside-out”

31. Criteria for Resources and Capabilities That Become Core Competencies
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Possessed by few, if any, current and potential competitors
Allow the firm to exploit opportunities or neutralize threats in its external environment
Core Competencies
The firm is organized to obtain the full benefits of the resources
When other firms cannot obtain them or must obtain them at a much higher cost

32. The RBV Model of Above-Average Returns
Resources
Identify the firm’s resources. Study its strengths and weaknesses compared with those of competitors.
Inputs into a firm’s production process

33. The RBV Model of Above-Average Returns
Resources
Capability
2. Determine the firm’s capabilities. What do the capabilities allow the firm to do better than its competitors.
Capacity of an integrated set of resources to integratively perform a task or activity

34. The RBV Model of Above-Average Returns
Resources
Capability
3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage.
Competitive Advantage
Ability of a firm to outperform its rivals

35. The RBV Model of Above-Average Returns
Resources
Capability
4. Locate an attractive industry.
Competitive Advantage
An industry with opportunities that can be exploited by the firm’s resources and capabilities
An Attractive Industry

36. The RBV Model of Above-Average Returns
Resources
Capability
5. Select a strategy that best allow the firm to utilize its resources and capabilities relative to opportunities in the external environment.
Competitive Advantage
An Attractive Industry
Strategic actions taken to earn above-average returns
Strategy Implementation

37. The RBV Model of Above-Average Returns
Resources
Capability
Competitive Advantage
An Attractive Industry
Superior returns: Earning of above-average returns
Strategy Implementation
Superior Returns

38. The I/O Model The RBV Model The External Environment Resources
Capability
An Attractive Industry
Competitive Advantage
Strategy Formulation
An Attractive Industry
Assets and Skills
Strategy Implementation
Strategy Implementation
Superior Returns
Superior Returns

39. Environmental analysis Organizational analysis
SWOT Analysis
Framework: RBV Model
Framework: I/O Model
Opportunities
Threats
Environmental analysis
Strengths
Weaknesses
Organizational analysis

40. Agenda What is strategy? Current competitive landscape
I/O model of above-average returns
Resource-based model of above-average returns
Strategic management process

41. Vision Picture of what the firm wants to be and ultimately achieve
Reflects a firm’s values and aspirations
“Big Picture” thinking with passion that helps people feel what they are supposed to be doing
Should be tied to the conditions in the firm’s external and internal environments

42. Vision - Examples
“We must be a great company with great people” (LG Electronics)
“Our vision is to be the world’s best quick service restaurant” (McDonald’s)
“To make the automobile accessible to every American” (Ford Morot Company’s vision from Henry Ford)
“We want to become the Harvard of the West Coast” (Stanford University)

43. Mission Externally focused application of its vision
A statement of a firm’s unique purpose and the scope of its operations in product and market terms
Provides general descriptions of the firm’s intended products and its markets
Establishes a firm’s individuality and is inspiring and relevant to all stakeholders

44. Mission - Examples
“To bring people together anytime and anywhere” (AT&T)
“To experience the emotion of competition, winning, and crushing competitors” (Nike)
“To give ordinary folk the chance to buy the same things as rich people” (Wal-Mart)
“To make people happy” (Disney)
“Putting a Coke within arm's reach of every consumer in the world” (Coca-Cola)

45. From Intent & Mission to Action
Mission/Intent
Fundamental purposes
Objectives
Measurable performance targets
Strategies
Means to accomplish objectives
Tactics/Policies
Actions to implement strategies

46. The Three Stakeholder Groups

47. Stakeholder Management
Two issues affect the extent of stakeholder involvement in the firm
How to divide returns to keep stakeholders involved?
How to increase returns so everyone has more to share?
Capital Market
Organizational
Product Market

48. Strategic Management Process
Study the external and internal environments
Identify marketplace opportunities and threats
Determine how to use strengths (core competencies) and avoid/improve weaknesses
Leverage resources, capabilities, and core competencies and win competitive battles
Integrate formulation and implementation of strategies
Seek feedback to improve strategies

49. Strategic Leaders Strategic Leaders
People located in different parts of the firm who are using the strategic management process to help the firm reach its vision and mission.
Prerequisites for Effective Strategic Leadership
Hard work
Thorough analyses
Honesty
Desire for accomplishment
Common sense

50. To Do’s
Purchase class text (from PSU bookshop or online) – ensure that it includes the cases!
Turn in a one page personal bio
Review HIH Chapters 1-3
Form your Case Analysis Groups and Let Me Know Who They Are.
Meet with your Case Analysis Group