Ch01 Hitt SM8e Final

7/30/2019 Ch01 Hitt SM8e Final

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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 jumboorders 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


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 21st Century Competitive Landscape








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21st Century Competitive Landscape

Introduction: The Competitive Landscape (CL) Pace of change is rapid

Partnerships created by mergers & acquisitions (M&As)

Other CL characteristics: Economies of scale, advertisingbudgets 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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The Global Economy

Goods, services, people, skills and ideas move freely

across geographic borders

Europe, through the European Union (EU) is the world‟slargest single market

EU vs U.S. GDP: 35% higher

Emerging major competitive forces: China & India

In summary: globalization increased economicinter dependence among countries as reflected in the flow

of goods and services, financial capital, and knowledge

across country borders



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Technology and Technological Changes

3 categories:

1. Technology diffusion & disruptive

technologies

2. The information age

3. Increasing knowledge intensity



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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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1. Technology diffusion & disruptive technologies

2. The information age

3. Increasing knowledge intensity



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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 tovarious demands and opportunities existing in a dynamic anduncertain competitive environment



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The 21st C Competitive Landscape








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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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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 mobileacross firms

Therefore any resource differences between firms will beshort-lived

Organizational decision makers are rational and committedto acting in the firm's best interests, as shown by their profit-maximizing behaviors



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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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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 timeemerges (vs industry‟s structural characteristics)

Combined uniqueness should define the firms‟

strategic actions

Resources are tangible and intangible



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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 arevaluable, 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



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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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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 theleader who should work with others to form it

Foundation for the mission

Mission

Specifics business(es) in which firm intends to competeand 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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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 valuesshared 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

Documents

Ch01 Hitt SM8e Final