CH01 Hitt

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
The Competitive Landscape
• Introduction: The Competitive Landscape (CL)

– Pace of change is rapid
– Industry boundaries are blurring
– Financial capital is more scarce and markets are
increasingly volatile
– 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
The 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
• 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
• 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
• Technology and Technology Changes (Cont’d)

– The information age
• Dramatic changes over last several years
• Major technological developments effect how information is
used and disseminated
• 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
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
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
The Resource-Based Model of AAR
The Resource-Based Model of AAR (Cont’d)
• Basic Premise - a firm's unique [internal]

resources & capabilities, in combination, are 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
• 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 nonsubstitutable
– Internal/firm-specific resources can be classified into
three categories:
• Physical
– Things you can touch/feel = tangible
• Human
– People / employees
• Organizational capital
– Relative to the firm itself
• 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
Stakeholders
• Basic Premise – a firm can effectively manage

stakeholder relationships to create a competitive
advantage and outperform its competitors
• Stakeholders are both individuals and groups
– They can affect, and are affected by, the strategic
outcomes/performance a firm achieves
• Firms are not equally dependent on all
stakeholders
The Three Stakeholder Groups
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
• Customers, suppliers, host communities, unions
– Organizational
• The employees
•

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Nature of Competition: Basic concepts

• Introduction: The Competitive Landscape (CL)

• Introduction: The Competitive Landscape (CL)

• The Global Economy

• Technology and Technology Changes (Cont’d)

• Technology and Technology Changes (Cont’d)

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

• Basic Premise – a firm can effectively manage

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