Strategic Competitiveness & Stratgey Lecture.ppt

Strategy and competitiveness are very important in any strategic management framework.

1. PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Copyright © 2004 South-Western
All rights reserved.
Chapter 1Chapter 1
Strategic
Management and
Strategic
Competitiveness

2. Copyright © 2004 South-Western. All rights reserved. 1–2
Knowledge Objectives
•Studying this chapter should provide you
with the strategic management knowledge
needed to:
Define strategic competitiveness competitive
advantage, and above-average returns.
Describe the 21st-century 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.

3. Copyright © 2004 South-Western. All rights reserved. 1–3
Knowledge Objectives (cont’d)
•Studying this chapter should provide you
with the strategic management knowledge
needed to:
Use the resource-based model to explain how
firms can earn above-average returns.
Describe strategic intent and strategic 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.

4. Copyright © 2004 South-Western. All rights reserved. 1–4
Definitions
•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
•Strategic Management Process
The full set of commitments, decisions, and
actions required for a firm to achieve strategic
competitiveness and earn above-average returns

5. Copyright © 2004 South-Western. All rights reserved. 1–5
Definitions (cont’d)
•Risk
An investor’s uncertainty about the economic
gains or losses that will result from a particular
investment
•Average Returns
Returns equal to those an investor expects to
earn from other investments with a similar
amount of risk
•Above-average Returns
Returns in excess of what an investor expects to
earn from other investments with a similar
amount of risk

6. Copyright © 2004 South-Western. All rights reserved. 1–6
Figure 1.1Figure 1.1
The Strategic
Managemen
t Process
Copyright © 2004 South-Western. All rights reserved.

7. Copyright © 2004 South-Western. All rights reserved. 1–7
Current Competitive Landscape
•A Perilous Business World
Investments required to compete on a global
scale are enormous
Consequences of failure are severe
•Important Elements of Success
Developing strategy
Implementing strategy

8. Copyright © 2004 South-Western. All rights reserved. 1–8
Global Global
economyeconomy
Rapid Rapid
technological technological
changechange
Competitive Landscape
Strategic maneuvering
among global and
innovative
combatants

9. Copyright © 2004 South-Western. All rights reserved. 1–9
Competitive Landscape:
Hypercompetition
HypercompetitionHypercompetition
Hypercompetition
A condition of rapidly escalating
competition based on
•Price-quality positioning
•Competition to create
new know-how and
establish first-mover
advantage
•Competition to protect or
invade established
product or geographic
markets

10. Copyright © 2004 South-Western. All rights reserved. 1–10
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

11. Copyright © 2004 South-Western. All rights reserved. 1–11
Global Economy (cont’d)
•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. Copyright © 2004 South-Western. All rights reserved. 1–12
Country Competitiveness Rankings (Population over 20 Million)
Country 2002 2003
United States 1 2
Australia 2 3
Canada 3 2
Malaysia 4 6
Germany 5 4
Taiwan 6 7
United Kingdom7 5
France 8 9
Spain 9 8
Thailand 10 10
Japan 11 11
China 12 12
Brazil 13 0
China 14 0
Korea 15 10
Country 2002 2003
Colombia 16 20
Italy 17 14
South Africa 18 16
India 19 0
India 20 17
Brazil 21 15
Philippines 22 18
Romania 23 0
Mexico 24 19
Turkey 25 23
Russia 26 21
Poland 27 22
Indonesia 28 25
Argentina 29 26
Venezuela 30 24
SOURCE: From World Competitiveness Yearbook 2003, IMD, Switzerland.
http://www.imd.ch.wcy.esummary, April. Reprinted by permission.
Table 1.1Table 1.1

13. Copyright © 2004 South-Western. All rights reserved. 1–13
Technology and 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

14. Copyright © 2004 South-Western. All rights reserved. 1–14
Technological Change
•The Information Age
The ability to effectively and efficiently access
and use information has become an important
source of competitive advantage
Technology includes personal computers,
cellular phones, artificial intelligence, virtual
reality, massive databases, electronic networks,
internet trade

15. Copyright © 2004 South-Western. All rights reserved. 1–15
Technological Changes
•Increasing Knowledge Intensity
Strategic flexibility: set of capabilities used to
respond to various demands and opportunities
in dynamic and uncertain competitive
environments
Organizational slack: slack resources that allow
the firm flexibility to respond to environmental
changes
Capacity to learn

16. Copyright © 2004 South-Western. All rights reserved. 1–16
I/O Model of Above-Average Returns
•The industry in which a firm competes has a
stronger influence on the firm’s performance
than do the choices managers make inside
their organizations
Industry properties include
economies of scale
barriers to market entry
diversification
product differentiation
degree of concentration of firms in the industry

17. Copyright © 2004 South-Western. All rights reserved. 1–17
Four Assumptions of the I/O Model
External environment imposes pressures and
constraints that determine strategies leading to
above-average returns
1
2
Most firms competing in an industry control similar
strategically relevant resources and pursue similar
strategies
Resources used to implement strategies are
highly mobile across firms
3
4
Organizational decision makers are assumed to be
rational and committed to acting in the firm’s best
interests (profit-maximizing)

18. Copyright © 2004 South-Western. All rights reserved. 1–18
I/O Model of Above-Average Returns
1.1.Strategy dictated by the Strategy dictated by the
external environment of external environment of
the firm (what the firm (what
opportunities exist in opportunities exist in
these environments?)these environments?)
2.2.Firm develops internal Firm develops internal
skills required by skills required by
external environment external environment
(what can the firm do (what can the firm do
about the about the
opportunities?)opportunities?)
External Environments
General
Environment

19. Copyright © 2004 South-Western. All rights reserved. 1–19
The I/O Model of
Above-Average Returns
Adapted from Figure 1.2Adapted from Figure 1.2
The External
Environment
1.1.Study the external Study the external
environment, especially the environment, especially the
industry environmentindustry environment
•The general environmentThe general environment
•The industry environmentThe industry environment
•The competitor The competitor
environmentenvironment

20. Copyright © 2004 South-Western. All rights reserved. 1–20
An Attractive
Industry
2.2.Locate an attractive Locate an attractive
industry with a high industry with a high
potential for above-potential for above-
average returnsaverage returns
•An industry whose An industry whose
structural characteristics structural characteristics
suggest above-average suggest above-average
returnsreturns
The External
Environment
The I/O Model of
Above-Average Returns
Adapted from Figure 1.2Adapted from Figure 1.2

21. Copyright © 2004 South-Western. All rights reserved. 1–21
The I/O Model of
Above-Average Returns
3.3.Identify the strategy called for Identify the strategy called for
by the attractive industry to by the attractive industry to
earn above-average returnsearn above-average returns
•Selection of a strategy Selection of a strategy
linked with above-linked with above-
average returns in a average returns in a
particular industryparticular industry
The External
Environment
An Attractive
Industry
Strategy
Formulation
Adapted from Figure 1.2Adapted from Figure 1.2

22. Copyright © 2004 South-Western. All rights reserved. 1–22
Assets and Skills
The I/O Model of
Above-Average Returns
4.4.Develop or acquire assets Develop or acquire assets
and skills needed to and skills needed to
implement the strategyimplement the strategy
•Assets and skills Assets and skills
required to implement a required to implement a
chosen strategychosen strategy
The External
Environment
An Attractive
Industry
Strategy
Formulation
Adapted from Figure 1.2Adapted from Figure 1.2

23. Copyright © 2004 South-Western. All rights reserved. 1–23
Strategy
Implementation
The I/O Model of
Above-Average Returns
5. Use the firm’s strengths 5. Use the firm’s strengths
(its developed or acquired (its developed or acquired
assets and skills) to assets and skills) to
implement the strategyimplement the strategy
•Selection of strategic Selection of strategic
actions linked with actions linked with
effective implementation effective implementation
of the chosen strategyof the chosen strategy
The External
Environment
An Attractive
Industry
Strategy
Formulation
Assets and Skills
Adapted from Figure 1.2Adapted from Figure 1.2

24. Copyright © 2004 South-Western. All rights reserved. 1–24
Superior Returns
The I/O Model of
Above-Average Returns
The External
Environment
An Attractive
Industry
Strategy
Formulation
Assets and Skills
Strategy
Implementation
•Superior returns: earning Superior returns: earning
of above-average returnsof above-average returns
Adapted from Figure 1.2Adapted from Figure 1.2

25. Copyright © 2004 South-Western. All rights reserved. 1–25
Five Forces Model of Competition
•An industry’s profitability results from
interaction among
Suppliers
Buyers
Competitive rivalry among firms currently in the
industry
Product substitutes
Potential entrants to the industry

26. Copyright © 2004 South-Western. All rights reserved. 1–26
Five Forces Model of Competition (cont’d)
•Firms earn above average returns by
Producing standardized products or services
Manufacturing differentiated products for which
customers are willing to pay a price premium

27. Copyright © 2004 South-Western. All rights reserved. 1–27
Resource-Based Model of Above-Average
Returns
•Each organization is a collection of unique
resources and capabilities that provides the
basis for its strategy and that is the primary
source of its returns
•Capabilities evolve and must be managed
dynamically

28. Copyright © 2004 South-Western. All rights reserved. 1–28
Resource-Based Model of Above-Average
Returns (cont’d)
•Differences in firms’ performances are due
primarily to their unique resources and
capabilities rather than structural
characteristics of the industry
•Firms acquire different resources and
develop unique capabilities

29. Copyright © 2004 South-Western. All rights reserved. 1–29
Resource-Based Model of Above-Average
Returns (cont’d)
1.1.Strategy dictated by the Strategy dictated by the
firm’s unique resources firm’s unique resources
and capabilitiesand capabilities
2.2.Find an environment in Find an environment in
which to exploit these which to exploit these
assets (where are the assets (where are the
best opportunities?)best opportunities?)
Firm’s ResourcesFirm’s Resources

30. Copyright © 2004 South-Western. All rights reserved. 1–30
Resources and Capabilities
•Resources
Inputs into a firm’s
production process
Capital equipment
Skills of individual
employees
Patents
Finances
Talented managers
•Capabilities
Capacity of a set of
resources to perform
in an integrative
manner
A capability should
not be
So simple that it is
highly imitable
So complex that it
defies internal
steering and
control

31. Copyright © 2004 South-Western. All rights reserved. 1–31
The Resource-Based Model of
Above-Average Returns
Adapted from Figure 1.3Adapted from Figure 1.3
Resources
1.1.Identify the firm’s resources. Identify the firm’s resources.
Study its strengths and Study its strengths and
weaknesses compared with weaknesses compared with
those of competitorsthose of competitors
•Inputs into a firm’s Inputs into a firm’s
production processproduction process

32. Copyright © 2004 South-Western. All rights reserved. 1–32
The Resource-Based Model of
Above-Average Returns
Adapted from Figure 1.3Adapted from Figure 1.3
Capability 2.2.Determine the firm’s Determine the firm’s
capabilities. What do the capabilities. What do the
capabilities allow the firm to capabilities allow the firm to
do better than its competitors.do better than its competitors.
•Capacity of an integrated Capacity of an integrated
set of resources to set of resources to
integratively perform a integratively perform a
task or activitytask or activity
Resources

33. Copyright © 2004 South-Western. All rights reserved. 1–33
The Resource-Based Model of
Above-Average Returns
Adapted from Figure 1.3Adapted from Figure 1.3
3.3.Determine the potential of the Determine the potential of the
firm’s resources and firm’s resources and
capabilities in terms of a capabilities in terms of a
competitive advantage.competitive advantage.
•Ability of a firm to Ability of a firm to
outperform its rivalsoutperform its rivals
Competitive
Advantage
Capability
Resources

34. Copyright © 2004 South-Western. All rights reserved. 1–34
The Resource-Based Model of
Above-Average Returns
Adapted from Figure 1.3Adapted from Figure 1.3
An Attractive
Industry
4.4.Locate an attractive Locate an attractive
industry.industry.
•An industry with An industry with
opportunities that can opportunities that can
be exploited by the be exploited by the
firm’s resources and firm’s resources and
capabilitiescapabilities
Competitive
Advantage
Capability
Resources

35. Copyright © 2004 South-Western. All rights reserved. 1–35
The Resource-Based Model of
Above-Average Returns
Adapted from Figure 1.3Adapted from Figure 1.3
Strategy
Implementation
5. Select a strategy that best 5. Select a strategy that best
allow the firm to utilize its allow the firm to utilize its
resources and capabilities resources and capabilities
relative to opportunities in relative to opportunities in
the external environment.the external environment.
•Strategic actions taken to Strategic actions taken to
earn above-average earn above-average
returnsreturns
An Attractive
Industry
Competitive
Advantage
Capability
Resources

36. Copyright © 2004 South-Western. All rights reserved. 1–36
The Resource-Based Model of
Above-Average Returns
Adapted from Figure 1.3Adapted from Figure 1.3Superior Returns
•Superior returns: earning Superior returns: earning
of above-average returnsof above-average returns
Strategy
Implementation
An Attractive
Industry
Competitive
Advantage
Capability
Resources

37. Copyright © 2004 South-Western. All rights reserved. 1–37
Key Criteria of Resources and Capabilities
Valuable
Resources and capabilities are valuable when
they allow a firm to take advantage of
opportunities or neutralize threats in external
environment
•Rare
Resources and capabilities are rare when
possessed by few, if any, current and potential
competitors

38. Copyright © 2004 South-Western. All rights reserved. 1–38
Key Criteria of Resources and Capabilities
•Costly to Imitate
Resources and capabilities are costly to imitate
when other firms either cannot obtain them or
are at a cost disadvantage in obtaining them
•Nonsubstitutable
Resources and capabilities are nonsubstitutable
when they have no structural equivalents

39. Copyright © 2004 South-Western. All rights reserved. 1–39
Core Competencies
•When the four key criteria of resources and
capabilities are met, they become core
competencies
•Core competencies serve as a source of
competitive advantage
•Managerial competencies are especially
important

40. Copyright © 2004 South-Western. All rights reserved. 1–40
How Resources and Capabilities Provide
Competitive Advantage
The firm is organized appropriately to The firm is organized appropriately to
obtain the full benefits of the resources in obtain the full benefits of the resources in
order to realize a competitive advantage order to realize a competitive advantage
ValuableValuableAllow the firm to exploit opportunities or Allow the firm to exploit opportunities or
neutralize threats in its external neutralize threats in its external
environmentenvironment
RareRarePossessed by few, if any, current and Possessed by few, if any, current and
potential competitorspotential competitors
Costly to imitateCostly to imitateWhen other firms cannot obtain them or When other firms cannot obtain them or
must obtain them at a much higher costmust obtain them at a much higher cost
NonsubstitutablNonsubstitutabl
ee

41. Copyright © 2004 South-Western. All rights reserved. 1–41
Resources and Capabilities, Core
Competencies, and Outcomes
Core Core
CompetenciesCompetencies
Competitive Competitive
AdvantageAdvantage
Value CreationValue Creation
Above Average Above Average
ReturnsReturns
ValuableValuable
RareRare
Costly to ImitateCostly to Imitate
NonsubstitutableNonsubstitutable

42. Copyright © 2004 South-Western. All rights reserved. 1–42
Strategic Intent
•Internally focused
•The leveraging of a firm’s resources,
capabilities and core competencies to
accomplish the firm’s goals
•Exists when all employees and levels of a
firm are committed to the pursuit of a
specific, significant performance criterion

43. Copyright © 2004 South-Western. All rights reserved. 1–43
Strategic Mission
•Externally focused
•A statement of a firm’s unique purpose and
the scope of its operations in product and
market terms
Establishes a firm’s individuality and is inspiring
and relevant to all stakeholders
Provides general descriptions of the firm’s
intended products and its markets

44. Copyright © 2004 South-Western. All rights reserved. 1–44
Stakeholders
•Individuals and groups who can affect, and
are affected by, the strategic outcomes
achieved and who have enforceable claims
on a firm’s performance
•Claims are enforced by the stakeholder’s
ability to withhold essential participation

45. Copyright © 2004 South-Western. All rights reserved. 1–45
The Three
Stakeholder
Groups
Figure 1.4Figure 1.4

46. Copyright © 2004 South-Western. All rights reserved. 1–46
Capital Market Stakeholders
•Shareholders and lenders expect the firm to
preserve and enhance the wealth they have
entrusted to it
•Returns should be commensurate with the
degree of risk to the shareholder

47. Copyright © 2004 South-Western. All rights reserved. 1–47
Product Market Stakeholders
•Customers
Demand reliable products at low prices
•Suppliers
Seek loyal customers willing to pay highest
sustainable prices for goods and services
•Host communities
Want companies willing to be long-term
employers and providers of tax revenues while
minimizing demands on public support services
•Union officials
Want secure jobs and desirable working
conditions

48. Copyright © 2004 South-Western. All rights reserved. 1–48
Organizational Stakeholders
•Employees
Expect a dynamic, stimulating and rewarding
work environment
Are satisfied by a company that is growing and
actively developing their skills

49. Copyright © 2004 South-Western. All rights reserved. 1–49
Stakeholder Involvement
•Two issues affect the extent of stakeholder
involvement in the firm
How to divide returns How to divide returns
to keep stakeholdersto keep stakeholders
involved?involved?
Capital
Market
Product
Market
Organizational
How to increase How to increase
returns so everyone returns so everyone
has more to share?has more to share?

50. Copyright © 2004 South-Western. All rights reserved. 1–50
Strategic Leaders
•People responsible for the design and
execution of strategic management
processes
•Decisions they make include
How resources will be developed or acquired
At what price resources will be obtained
How resources will be used

51. Copyright © 2004 South-Western. All rights reserved. 1–51
Organizational Culture
•The complex set of
Ideologies
Symbols
Core values
that are shared throughout the firm,
that influence how the firm conducts
business

52. Copyright © 2004 South-Western. All rights reserved. 1–52
Mapping an Industry’s Profit Pools
•Define the pool’s boundaries
•Estimate the pool’s overall size
•Estimate the size of the value-chain activity
in the pool
•Reconcile the calculations

53. Copyright © 2004 South-Western. All rights reserved. 1–53
Strategic Management Process
•Study the external and internal environments
•Identify marketplace opportunities and threats
•Determine how to use core competencies
•Use strategic intent to leverage resources,
capabilities and core competencies and win
competitive battles
•Integrate formulation and implementation of
strategies
•Seek feedback to improve strategies