Strategic Management: Creating Competitive Advantages

Chapter One

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learning Objectives

After reading this chapter, you should have a good understanding of:

LO1 The definition of strategic management and its four

key attributes.

LO2 The strategic management process and its three interrelated and principal activities.

LO3 The vital role of corporate governance and stakeholder management as well as how “symbiosis” can be achieved among an organization’s stakeholders.

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Learning Objectives (cont.)

LO4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.

LO5 The need for greater empowerment throughout the organization.

LO6 How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction.

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Two Perspectives of Leadership

• Romantic view Leader is the key

force in organization’s success

• External control perspective

Focus is on external factors that affect an organization’s success

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QUESTION

A CEO made a lot of mistakes such as committing errors in assessing the market and competitive conditions and improperly redesigning the organization into numerous business units. Such errors led to significant performance declines. This illustrates the __________ perspective of leadership. 

A. External controlB. RomanticC. Internal mechanismD. Operational

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Example: E*Trade

Elements of Caplan’s turnaround

• Cut costs by reducing the advertising budget and selling unrelated businesses

• Changed the firm’s culture and instilled more discipline

• Refocused the firm on its core banking operations

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What is Strategic Management?

• Strategic management must become both a process and a way of thinking throughout the organization

• Leaders must be proactive, anticipate change, and continually refine changes to their strategies

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Defining Strategic Management

• Strategic management Analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages

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Defining Strategic Management

• Analysis Strategic goals Internal and external environment of the firm

• Strategic decisions What industries should we compete in? How should we compete in those industries?

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Defining Strategic Management

• Actions Allocate necessary resources Design the organization to bring intended

strategies to reality

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Two Fundamental Questions

1. How should we compete in order to create competitive advantages in the marketplace?

2. How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute?

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Key Attributes of Strategic Management

1. Directs the organization toward overall goals and objectives

2. Includes multiple stakeholders in decision making

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Key Attributes of Strategic Management (cont.)

3. Needs to incorporate short-term and long-term perspectives

4. Recognizes trade-offs between efficiency and effectiveness

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Key Attributes of Strategic Management

• Ambidexterity The challenge managers face of both

aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities

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Ambidextrous Behaviors in Individuals

• They take time and are alert to opportunities beyond the confines of their own jobs

• They are cooperative and seek out opportunities to combine their efforts with others

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Strategic Management Process

• Intended strategy Decisions are determined only by analysis

• Realized strategy Decisions are determined by both analysis

and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences

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Strategic Management Process

Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the SameSource: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257-72.

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Strategic Management

Process

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Strategic Analysis

• Consists of “advance work” that must be done in order to effectively formulate and implement strategies

• Starting point

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Strategy Formulation

A firm’s strategy formulation is developed at several levels:

• Business-level

• Corporate level

• International

• Entrepreneurial

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Strategy Implementation

• Ensuring proper strategic controls and organizational designs

• Establishing effective means to coordinate and integrate activities within the firm as well as with suppliers, customers, and alliance partners

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Corporate Governance and Stakeholder Management

• Corporate governance The relationship among various participants

in determining the direction and performance of corporations

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Corporate Governance and Stakeholder Management (cont.)

• Board of Directors Elected

representatives of the owners

Ensure interests and motives of management are aligned with those of the owners

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Corporate Governance

Three mechanisms ensure effective corporate governance:

• An effective and engaged board of directors

• Shared activism

• Proper managerial rewards and incentives

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Stakeholder Management

• Zero sum view Stakeholders compete for attention and

resources of the organization Gain of one is a loss to the other

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Stakeholder Management

• Stakeholder symbiosis view Stakeholders are dependent upon each other

for their success and well-being Mutual benefits

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QUESTION

Outback Steakhouse has developed a sophisticated quantitative model and found that there were positive relationships between employee satisfaction, customer satisfaction, and financial results. This is an example of __________. A. Zero-sum relationship among stakeholdersB. Stakeholder symbiosisC. Rewarding stakeholdersD. Emphasizing financial returns

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Crowdsourcing

• Crowdsourcing Tapping of the “latent of the online crowd”

• Linux, Amazon, Wikipedia

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Social Responsibility

• Social responsibility The expectation that businesses or

individuals will strive to improve the overall welfare of society

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Social Responsibility

• Triple bottom line Assessment of a company’s performance in

financial, social, and environmental dimensions

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Example: Social Responsibility

• Starbucks Coffee Company defines CSR as: Conducting business in ways that produce social,

environmental and economic benefits for the communities in which we operate and for the company’s stakeholders, including shareholders.

• Some tangible benefits include attracting and retaining our partners, customer loyalty, reducing operating costs, and creating a sustainable supply chain.

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Strategic Management Perspective

All managers and employees must:

• Take an integrative, strategic perspective of issues facing the organization

• Assess how functional areas and activities “fit together” to achieve goals and objectives

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Three Types of Leaders

• Local line leaders Have significant profit-and-loss responsibility

• Executive leaders Champion and guide ideas, create a learning

infrastructure, establish a domain for taking action

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Three Types of Leaders (cont.)

• Internal networkers Generate power through the conviction and

clarity of their ideas

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Coherence in Strategic Direction

• Hierarchy of goals Goals ranging from those that are less

specific yet able to evoke powerful and compelling mental images those that are more specific and measurable

• Vision, mission statement, strategic objectives

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A Hierarchy of Goals

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Coherence in Strategic Direction

• Organizational vision Goal that is

“massively inspiring, overarching, and long term”

Represents a destination that is driven by and evokes passion

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Why Do Visions Fail?

• The walk doesn’t match the talk

• Irrelevance• Too much focus leads

to missed opportunities

• Not the holy grail• An ideal future

irreconciled with the present

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Coherence in Strategic Direction

• Mission statement Set of goals that include both the purpose of

the organization, its scope of operations, and the basis of its competitive advantage

• Has the greatest impact when it reflects an organization’s enduring, overarching strategic priorities and competitive positioning

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Coherence in Strategic Direction

• Strategic objectives Goals that are used to operationalize the

mission statement Specific, measurable, appropriate, realistic,

timely

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