Strategic Management:

Concepts and Cases

Part I: Strategic Management Inputs

Chapter 1: Strategic Management and Strategic
Competitiveness

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 Chapter 1: Strategic Management and Strategic
Competitiveness

• Overview: Eight content areas

– Nature of Competition
– The 21st Century Competitive Landscape
– I/O Model of Above-Average Returns (AAR)
– Resource-Based Model of AAR
– Strategic Vision and Mission
– Stakeholders
– Strategic Leaders
– The Strategic Management Process
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 Nature of Competition: Boeing vs. Airbus

• Boeing
– Historically a global leader in airplane manufacturing
– Revenue from commercial aircraft division & gov’t contracts
– Regained supremacy in 2006: more 787 super jumbo orders vs.
Airbus’s more efficient A-380
– Changed strategy and design
• Different production process
• Smaller plane (787 Dreamliner)
• Airbus
– EU Government owned and subsidized
– Won competitor battle with Boeing between 2001 & 2005
– Responded to customer demands with more efficient A-380
aircraft
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 Nature of Competition: Basic concepts

• Strategic Competitiveness
– Achieved when a firm formulate & implements a value-creating strategy
• Strategy
– Integrated and coordinated set of commitments and actions designed to
exploit core competencies and gain a competitive advantage
• Competitive Advantage (CA)
– Implemented strategy that competitors are unable to duplicate or find too
costly to imitate
• Above Average Returns
– Returns in excess of what investor expects in comparison to other
investments with similar risk

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 Nature of Competition: Basic concepts (Cont’d)

• Risk
– Investor’s uncertainty about economic gains/losses resulting
from a particular investment
• Average Returns
– Returns equal to what investor expects in comparison to other
investments with similar risk
• Strategic Management Process (SMP)
– Full set of commitments, decisions and actions required for a
firm to achieve strategic competitiveness and earn above
average returns
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The Strategic Management Process

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 Chapter 1: Strategic Management and Strategic
Competitiveness

• Overview: Eight content areas

– Nature of Competition
– The 21st Century Competitive Landscape
– I/O Model of Above-Average Returns (AAR)
– Resource-Based Model of AAR
– Strategic Vision and Mission
– Stakeholders
– Strategic Leaders
– The Strategic Management Process
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 21st Century Competitive Landscape

• Introduction: The Competitive Landscape (CL)

– Pace of change is rapid (lawyer, M&A consultant)
– Partnerships created by mergers & acquisitions (M&As)
– Other CL characteristics: Economies of scale, advertising
budgets not as effective as before, change in managerial mind-
set from “traditional” to more flexible and innovative

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 21st Century Competitive Landscape (Cont’d)

• Introduction: The Competitive Landscape (CL)

– Hypercompetition – extremely intense rivalry among competing
firms, characterized by
• Escalating & increasingly aggressive competitive moves
• Assumptions of market stability replaced with notion of
INstability and change
– Two primary drivers of the competitive landscape:
• The global economy
• Technology

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 21st Century Competitive Landscape (Cont’d)

• The Global Economy

– Goods, services, people, skills and ideas move freely across
geographic borders
– Europe, through the European Union (EU) is the world’s largest
single market
• EU vs U.S. GDP: 35% higher
– Emerging major competitive forces: China & India
– In summary: globalization increased economic interdependence
among countries as reflected in the flow of goods and services,
financial capital, and knowledge across country borders

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 21st Century Competitive Landscape (Cont’d)

• Technology and Technological Changes

– 3 categories:
• 1. Technology diffusion & disruptive
technologies
• 2. The information age
• 3. Increasing knowledge intensity

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 21st Century Competitive Landscape (Cont’d)

• Technology and Technology Changes (Cont’d)

– Technology diffusion
• Perpetual innovation: describes how new information-
intensive technologies are replacing older forms
• Speed to market may be primary competitive advantage
• 12 – 18 month timeframe to gather info re: competitor R&D
– Disruptive technologies
• Technologies that
– Destroy value of existing technology
– Create new markets

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 21st Century Competitive Landscape (Cont’d)

• Technology and Technology Changes (Cont’d)

– 1. Technology diffusion & disruptive technologies

– 2. The information age
– 3. Increasing knowledge intensity

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 21st Century Competitive Landscape (Cont’d)

• Technology and Technology Changes (Cont’d)

– The information age

• Dramatic changes over last several years
• Major technological developments: computers, phones, artificial
intelligence, virtual reality
• Internet provides infrastructure for information anytime, anywhere
– Increasing knowledge intensity
• Defined as information, intelligence & expertise and is the basis of
technology and its application
• Gained through experience, observations and inferences
• Strategic Flexibility – set of capabilities used to respond to various
demands and opportunities existing in a dynamic and uncertain
competitive environment

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 Chapter 1: Strategic Management and Strategic
Competitiveness

• Overview: Eight content areas

– Nature of Competition
– The 21st C Competitive Landscape
– I/O Model of Above-Average Returns (AAR)
– Resource-Based Model of AAR
– Strategic Vision and Mission
– Stakeholders
– Strategic Leaders
– The Strategic Management Process
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 Industrial
Organizational
(I/O) Model of
Above-
Average
Returns (AAR)

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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)

• Basic Premise – to explain the dominant

influence of the external environment on a
firm's strategic actions and performance

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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)

• Underlying Assumptions
– External environment imposes pressures and constraints that
determine the strategies resulting in AAR
– Most firms compete within a particular industry/segment
• Control similar strategically relevant resources
• Pursue similar strategies in light of those resources
– Resources for implementing strategies are highly mobile across
firms
• Therefore any resource differences between firms will be short-
lived
– Organizational decision makers are rational and committed to
acting in the firm's best interests, as shown by their profit-
maximizing behaviors
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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)

• Five-Forces Model (Michael Porter)

– The 5 Forces includes
• Suppliers, buyers, competitive rivalry, product substitutes and
potential entrants
– Reinforces the importance of economic theory
– Analytical tool previously lacking in the field of strategy
– Determines the nature/level of competition and profit
potential in an industry
• Suggests an industry’s profitability is an interaction between
these 5 forces

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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR) (Cont’d)

• Limitations
– Only two strategies are suggested:
• Cost Leadership
– THE low-cost leader
• Differentiation
– Customer willing to pay the premium price for ‘being different’
– Internal resources & capabilities not considered

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 The
Resource-
Based
Model of
AAR

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 The Resource-Based Model of AAR (Cont’d)

• Basic Premise - a firm's unique [internal]

resources & capabilities, in combination, is the
basis for firm strategy and AAR
– Each firm’s performance difference across time emerges
(vs industry’s structural characteristics)
– Combined uniqueness should define the firms’ strategic
actions
– Resources are tangible and intangible

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 The Resource-Based Model of AAR (Cont’d)

• Resources
– Inputs into a firm's production process
• Includes capital equipment, employee skills, patents, high-
quality managers, financial condition, etc.
– Basis for competitive advantage: When resources are
valuable, rare, costly to imitate and nonsubsitutable
– Internal/firm-specific resources (N=3)
• Physical
– Things you can touch/feel = tangible
• Human
– People / employees
• Organizational capital
– Relative to the firm itself 23
 The Resource-Based Model of AAR (Cont’d)

• Capability
– Capacity for a set of resources to perform a task or activity in
an integrative manner
• Core Competency
– A firm’s resources and capabilities that serve as sources of
competitive advantage over its rival
• Summary
– A firm has superior performance because of
• Unique resources and capabilities, and the combination makes
them different, and better, than their competition – driving the
competitive advantage
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 Chapter 1: Strategic Management and Strategic
Competitiveness

• Overview: Eight content areas

– Nature of Competition
– The 21st C Competitive Landscape
– I/O Model of Above-Average Returns (AAR)
– Resource-Based Model of AAR
– Strategic Vision and Mission
– Stakeholders
– Strategic Leaders
– The Strategic Management Process
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 Vision and Mission

• Vision
– Picture of what the firm wants to be
– What the firm ultimately wants to achieve
– An effective vision statement is the responsibility of the
leader who should work with others to form it
– Foundation for the mission
• Mission
– Specifics business(es) in which firm intends to compete and
customers it intends to serve
– More specific than the vision

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 Stakeholders

• Basic Premise – a firm can effectively manage

stakeholder relationships to create a
competitive advantage and outperform its
competitors
• Stakeholders are individuals and groups
– They can affect, and are affected by, the strategic
outcomes/performance a firm achieves
– Three (3) classifications

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The Three Stakeholder Groups

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 Stakeholders (Cont’d)

• Classifications of Stakeholders
– Capital Market
• Expect returns commiserate with risk accepted by
investments
• Higher the dependency relationship, the more direct and
significant firm’s response
– Product Market
• The 4 groups benefit due to competitive battles
– Organizational
• The employees
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 Chapter 1: Strategic Management and Strategic
Competitiveness

• Overview: Eight content areas

– Nature of Competition
– The 21st C Competitive Landscape
– I/O Model of Above-Average Returns (AAR)
– Resource-Based Model of AAR
– Strategic Vision and Mission
– Stakeholders
– Strategic Leaders
– The Strategic Management Process
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 Strategic Leaders

• People located in different parts of the firm

using the strategic management process to help
the firm reach its vision and mission
– Decisive and committed to nurturing those around them
– Create and sustain organizational culture
– Organizational culture emerges from & sustained by leaders
• Complex set of ideologies, symbols and core values shared
throughout the firm
• Affects leaders/their work which in-turn shapes culture
• Influences how the firm conducts business

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 Strategic Leaders (Cont’d)

• The Work of Effective Strategic Leaders

– Work long hours
– Must be able to “think seriously and deeply…about the
purposes of the organizations they head or functions
they perform, about strategies, tactics,…..and people…
and about the important questions … they need to ask.”
• Predicting Outcomes: Profit Pools (PP)
– Anticipates their decisions relative to the PP
– Entails the total profits earned in an industry at all points
along the value chain

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 Strategic Management Process

• Rational approach used by firms to achieve

strategic competitiveness and earn above
average returns (AAR)
• Figure 1.1 (Diagram of chapter relationships)
– Part 1: Strategic Mgmt Inputs
– Part 2: Strategic Actions: Strategy Formulation
– Part 3: Strategic Actions: Strategy Implementation
– Part 4: Cases

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