PART 1: STRATEGIC MANAGEMENT INPUTS CHAPTER 1: Strategic Management & Strategic Competitiveness Authored by: Marta Szabo White Ph.D Georgia State University FIGURE 1.1 The Strategic Management Process THE STRATEGIC MANAGEMENT PROCESS ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use KNOWLEDGE OBJECTIVES ● Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process ● Describe the competitive landscape and explain how globalization and technological changes shape it ● Use the industrial organization (I/O) model to explain how firms can earn above-average returns ● Use the resource-based model to explain how firms can earn above-average returns ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use KNOWLEDGE OBJECTIVES ● Describe vision and mission and discuss their value ● Define stakeholders and describe their ability to influence organizations ● Describe the work of strategic leaders ● Explain the strategic management process ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use IMPORTANT DEFINITIONS ● STRATEGIC COMPETITIVENESS achieved when a firm successfully formulates and implements a value-creating strategy ● STRATEGY - an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage ● COMPETITIVE ADVANTAGE - when a firm implements a strategy that creates superior value for customers; competitors are unable to duplicate it or find too costly to imitate it ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use IMPORTANT DEFINITIONS ● RISK - an investor’s uncertainty about the economic gains or losses that will result from a particular investment ● ABOVE-AVERAGE RETURNS - returns in excess of what an investor expects to earn from other investments with a similar amount of risk ● AVERAGE RETURNS - returns equal to those an investor expects to earn from other investments with a similar amount of risk ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use OPENING CASE ONCE A “GIANT,” BORDERS BECAME A “WEAKLING” ON ITS KNEES INABILIT Y TO EARN AVERAGE RETURNS resulted first in decline and, eventually, failure BORDERS - OPENING CASE FAILURE EXAMPLE ●Enjoyed considerable success early on ●Tried to enrich its traditional approach with more marketing and more attractive stores, demonstrating a lack of market understanding ● Declining book sales for large chain store retailers ●Should have been entrepreneurial, innovative, and market-oriented ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use THE STRATEGIC MANAGEMENT PROCESS ■ FIRST: External environment and internal organization are analyzed to determine resources, capabilities, and core competencies—the sources of “strategic inputs.” ■ NEXT: Vision and mission are developed; strategies are formulated ■ THEN: Strategies are implemented with the goal of achieving strategic competitiveness and above-average returns ■ DYNAMIC PROCESS: Continuously changing markets and industry conditions must match evolving strategic inputs ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use THE STRATEGIC MANAGEMENT PROCESS Rational: the approach firms use to achieve strategic competitiveness and earn above-average returns FORMULATION and IMPLEMENTATION: the two types of strategic actions that must be simultaneously integrated to successfully employ the strategic management process ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use THE STRATEGIC MANAGEMENT PROCESS • Chapters 2, • Vision/Mission Chapters xt e t e Th ed d i v i is d ree th o t n i s t r a p 4, INPUTS 5, 6, 7, PART I: STRATEGIC 8& ACTIONSPART II: STRATEGIC • Chapters STRATEGY FORMULATION PART III: STRATEGIC ACTIONS10, 11, 12 STRATEGY IMPLEMENTATION 13 & ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CLASSIFICATION OF STAKEHOLDERS FIGURE 1.4 The Three Stakeholder Groups ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CLASSIFICATION OF STAKEHOLDERS Trade-offs must be made in situations where the objectives of various stakeholder groups differ or conflict Conflict examples: ● Shareholders – individuals and groups who have invested capital in a firm in the expectation of earning a positive return on their investments These stakeholders’ rights are grounded in laws governing private property and private enterprise ● Consumers – interests are maximized when the quality and reliability of a firm’s products are improved, but without high prices ● High returns to customers might come at the expense of lower returns for capital market stakeholders and vice-versa ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use MANAGING STAKEHOLDER s CONFLICT • First, a firm must thoroughly identify and understand all important stakeholders • Second, it must prioritize them, in case it cannot satisfy all of them • Power is the most critical criterion in prioritizing stakeholders • Other criteria might include the urgency of satisfying each particular stakeholder group and the degree of importance of each to the firm’s above-average returns ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ST AK ER EH OL PR D IOR IT I ES MANAGING STAKEHOLDER s CONFLICT POWER URGENCY IMPORTANC E ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use MANAGING STAKEHOLDER CONFLICT CHALLENGES: W hen earning above-average returns, a firm can more easily satisfy multiple stakeholders simultaneously W hen earning only average returns, a firm is unable to maximize the interests of all stakeholders, thus stakeholders should be at least minimally satisfied C ultural differences and societal values also influence stakeholder priorities ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CAPITAL MARKET STAKEHOLDERS BALANCING CONFLICTING SHAREHOLDER GOALS The returns that shareholders expect are commensurate with the degree of risk accepted with those investments CHALLENGING FOR MANAGERS: ● Some shareholders want short-term increases in returns ● Others desire building long-term competitiveness Often large shareholders prefer that the firm minimize its use of debt because of the risk of debt, its cost, and the possibility that debt holders have first call over shareholders on the firm’s assets in case of default ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use PRODUCT MARKET STAKEHOLDERS • T hough all product market stakeholders are important, without customers, the other product market stakeholders are of little value • C ustomers demand reliable products at the lowest possible prices • H ost communities want companies willing to be longterm employers and providers of tax revenue without placing excessive demands on public support services ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use PRODUCT MARKET STAKEHOLDERS • Suppliers seek loyal customers who are willing to pay the highest sustainable prices for the goods and services they receive • U nion officials are interested in secure jobs, under highly desirable working conditions, for the employees they represent • P roduct market stakeholders are generally satisfied when a firm’s profit margin reflects at least a balance between the returns to capital market stakeholders and goals of product market stakeholders ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ORGANIZATIONAL STAKEHOLDERS • E mployees expect the firm to provide a dynamic, stimulating, and rewarding work environment • E mployees are usually satisfied working for a company that is: ● Growing ● Actively developing their skills to be effective team members ● Meeting or exceeding global work standards ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ORGANIZATIONAL STAKEHOLDERS • I nternational assignments help cultivate employee skills for the global competitive landscape • T he process of managing expatriate employees and helping them build knowledge can have significant effects on a firm’s global competence • T o be successful, strategic leaders must effectively leverage a firm’s human capital ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use STRATEGIC LEADERS • Strategic leaders are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission • Successful strategic leaders are decisive, committed to nurturing those around them, and are committed to helping the firm create value for all stakeholder groups ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use STRATEGIC LEADERS • • • Globalization Rapid technological The global change economy Increasing importance of knowledge People as sources of competitive advantage ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use • Increasingly, CEOs delegate strategic responsibilities to include decision-makers closest to the action due to the changing competitive landscape: STRATEGIC LEADERS AND ORGANIZATIONAL CULTURE • V isionar y • O rganizational culture affects strategic leaders and Strategic Leader s emphasize not only maximizing shareholder wealth, but maximizing the interests of all stakeholders, underscoring a civic and personal commitment to corporate citizenship their work In turn, strategic leaders’ decisions and actions shape a firm’s culture • O rganizational culture is the social energy that drives—or fails to drive—the organization, the ideologies, symbols, and shared core values ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use THE WORK OF EFFECTIVE STRATEGIC LEADERS SUCCESSFUL STRATEGIC LEADERSHIP CHARACTERISTICS • Hard working ● Embraces dynamic competitive landscape • Brutally honest • Tenacious • Penchant for wanting the firm and its people to accomplish more • Strong strategic orientation ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use THE WORK OF EFFECTIVE STRATEGIC LEADERS SUCCESSFUL STRATEGIC LEADERSHIP CHARACTERISTICS • Innovative thinker • Exploratory learning of new and unique forms of knowledge • Exploitative learning, which adds incremental knowledge to existing knowledge bases • Global mindset • Dreams that challenges and energizes a company, i.e., vision ©2013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use [...]... LANDSCAPE ■ GLOBALIZATION - emergence of a global economy ■ TECHNOLOGY - rapid technological changes ■ INDUSTRY BOUNDARIES BLURRING ■ EXAMPLES - computer networks and telecommunications have blurred the boundaries of the entertainment industry ■ MSNBC is co-owned by NBC Universal and Microsoft ■ General Electric owns 49 percent of NBC Universal and Comcast owns the remaining 51 percent ■ STRATEGIC MANAGEMENT. .. geographic borders Globalization is the product of a large number of firms competing against one another in an increasing number of global economies Globalization is increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders THE MARCH OF GLOBALIZATION THE COMPETITIVE LANDSCAPE ©2 013 Cengage... to remain strategically committed to and competitive in both domestic and international markets With globalization, firms may overdiversify internationally, which can have strong negative effects on a firm’s overall performance Significant time is required for firms to learn how to compete in new markets, and performance may suffer during this time THE RISKS OF GLOBALIZATION THE COMPETITIVE LANDSCAPE... use THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Perpetual Innovation ■ Innovations must be derived from an understanding of global standards and global expectations in terms of product functionality ■ Apple - an excellent example of radical innovation by a large established firm ■ Technology Diffusion - to diffuse the technology and enhance the innovation... on a password-protected website for classroom use THE COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 Technology and Innovation Strategic Focus: Apple ■ Apple’s “legendary” market power, phenomenal growth rate, and impressive financial performance stem from its new technology development and innovation ■ Imitators - Apple is expected to retain at least 80%... CHANGES Technology Diffusion - Category 1 Technology and Innovation Strategic Focus: Apple ■ Versatility - Apple provides an example of technological entrepreneurship across multiple industries ■ Disruptive Technologies ● Innovation and industry transformation, e.g., iPod, iPad, and the iPhone ● iPod and the complementary iTunes have revolutionized how music is sold and used by consumers ● iPad, in conjunction... otherwise on a password-protected website for classroom use T WO MODELS OF STRATEGIC DECISION MAKING Firms use two major models to help develop their vision and mission and then choose one or more strategies in pursuit of strategic competitiveness and above-average returns EXTERNA L INTERNAL I/O MODEL RESOURC E-BASED MODEL ©2 013 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated,... password-protected website for classroom use THE COMPETITIVE LANDSCAPE ■ HYPERCOMPETITION - characterized by ■ Market instability and change ■ Rapidly escalating competition ■ Aggressive challengers ■ Strategic maneuvering to establish firstmover advantage ■ Technology industries ■ T WO DRIVERS - GLOBALIZATION - TECHNOLOGY ■ Strategic flexibility - important tool ©2 013 Cengage Learning All Rights Reserved May not... LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES Technology Diffusion - Category 1 ■ Technology Diffusion – the speed at which new technologies become available and are used; has increased substantially over the past 15 to 20 year ■ Examples of technology diffusion: How long it took to get the following into 25 percent of U.S homes: ● Telephone — 35 years ● TV — 26 years ● Radio — 22 years ● PCs — 16 ... COMPETITIVE LANDSCAPE TECHNOLOGY AND TECHNOLOGICAL CHANGES The Information Age - Category 2 ■ Change - both the pace of change in information technology and its diffusion will continue to increase ■ Cost - the declining costs of information technologies and the increased accessibility to them are evident in the current competitive landscape ■ Internet - contributing factor to hypercompetition ■ Speed and Diffusion ... Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process ● Describe the competitive landscape and explain how globalization and. .. PART I: STRATEGIC 8& ACTIONSPART II: STRATEGIC • Chapters STRATEGY FORMULATION PART III: STRATEGIC ACTIONS10, 11 , 12 STRATEGY IMPLEMENTATION 13 & ©2 013 Cengage Learning All Rights Reserved May not... use THE STRATEGIC MANAGEMENT PROCESS Rational: the approach firms use to achieve strategic competitiveness and earn above-average returns FORMULATION and IMPLEMENTATION: the two types of strategic