Hitt, Ireland and Hoskisson, 2007 7e Edition Daniel Degravel

Hitt, Ireland and Hoskisson, 20077e EditionDaniel Degravel

Strategic Strategic ManagementManagement

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Ch.1 Strategic Management and CompetitivenessCh.1 Strategic Management and Competitiveness

StrategyStrategyStrategic CompetitivenessStrategic CompetitivenessCompetitive AdvantageCompetitive AdvantageAverage Return ARAverage Return ARAbove Average Return AARAbove Average Return AARRiskRiskStrategic Management Strategic Management ProcessProcess

Strategic FlexibilityStrategic FlexibilityOrganizational SlackOrganizational Slack

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Stakholders (three groups)Stakholders (three groups)

Corporate CultureCorporate Culture

Strategic Leaders (Who are Strategic Leaders (Who are they, What’s their work, they, What’s their work, Prediction of outcomes)Prediction of outcomes)

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Challenges of Strategic Challenges of Strategic ManagementManagement

Necessity of Necessity of Strategy?Strategy?

Hyper Hyper CompetitionCompetition

GlobalizationGlobalization

TechnologyTechnology-Rate of ChangeRate of Change-InformationInformation-Knowledge Knowledge IntensityIntensity

Two basic Strategic ApproachesTwo basic Strategic Approaches

Definitions …Definitions …

I/O ModelI/O Model RB ModelRB Model

Ch.2 External Environment: O,T Competition and Competitor AnalysisCh.2 External Environment: O,T Competition and Competitor Analysis

General EnvironmentGeneral EnvironmentIndustry EnvironmentIndustry EnvironmentCompetitor AnalysisCompetitor AnalysisOpportunityOpportunityThreatThreatIndustryIndustryMarket micro structureMarket micro structure

P5F ModelP5F ModelNew EntrantsNew EntrantsProducts SubstitutionProducts SubstitutionBarriers to Entry BTEBarriers to Entry BTEEconomies of Scale EoScaEconomies of Scale EoScaSwitching CostsSwitching Costs

Strategic GroupStrategic Group

Competitor AnalysisCompetitor AnalysisCompetitor IntelligenceCompetitor Intelligence

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General EnvironmentGeneral EnvironmentPEST ModelPEST Model

DemographicDemographicGlobal Global SegmentSegment

TechnologyTechnology

Definitions BoxDefinitions Box

PoliticalPolitical

EconomicEconomic

Socio-Socio-CulturalCultural

Industry EnvironmentIndustry EnvironmentP5F ModelP5F ModelStrategic Mapping Strategic Mapping (Strategic Groups)(Strategic Groups)Competitor AnalysisCompetitor Analysis

Ch.2 External Environment: O,T Competition and Competitor Analysis (Ctd.)Ch.2 External Environment: O,T Competition and Competitor Analysis (Ctd.)4

General EnvironmentGeneral Environment

Industry EnvironmentIndustry EnvironmentP5F ModelP5F Model

BPS

S

R BPC

PS

NE

Strategic Mapping Strategic Mapping (Strategic Groups)(Strategic Groups)

Competitor AnalysisCompetitor Analysis

Firms

-

-

+

+

Ch.3 Internal Environment: Resources and CompetencesCh.3 Internal Environment: Resources and Competences

Firm = Bunch of Firm = Bunch of resourcesresources

ValueValue

Competitive Competitive AdvantageAdvantageStrategic Strategic CompetitivenessCompetitiveness

ResourceResourceCompetence or Competence or CapabilityCapability

Value ChainValue Chain

OutsourcingOutsourcing

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ResourcesResourcesEnvironments:Environments:MIGHT DO vs. MIGHT DO vs. CAN DOCAN DO

Value Value CreationCreation

Resource Resource

Definition Box…Definition Box…

Competences Competences (Core)(Core)

……

CompetitiveCompetitiveAdvantageAdvantage

Strategic Strategic CompetitivenessCompetitiveness

Choice of Business StrategyChoice of Business Strategy

Core Competence + Position in PxM = Competitive Core Competence + Position in PxM = Competitive AdvantageAdvantage

TangibleTangibleFinanceFinancePhysical assetsPhysical assetsTechnologyTechnology

Intangible Intangible HRHROrganizationOrganizationReputationReputationPatentsPatentsNetworkNetwork

CompetenceCompetence

C = R+A+RC = R+A+R

Characteristics Characteristics ValuableValuableRareRareCostly-to-imitateCostly-to-imitateNon SubstituableNon Substituable

OutsourcingOutsourcing

Advantages Disadvantages

Concept of Value-ChainConcept of Value-Chain

Primary

Support

Core

Rig

idit

ies

Decisions concerning R&C:-Uncertainty-Complexity-Intra-Org. Conflict

LIMITED LIFE

Ch.4 Business-level StrategiesCh.4 Business-level Strategies

BL Strategy = integrated and BL Strategy = integrated and coordinated set of commitments and coordinated set of commitments and actions the firm uses to gain a actions the firm uses to gain a competitive advantage by exploiting competitive advantage by exploiting core competencies in specific core competencies in specific businesses p.105businesses p.105Deliberate choie about how firm will Deliberate choie about how firm will perform the value chain activities in perform the value chain activities in ways that create unique value p.111ways that create unique value p.111

Market segmentation p.108Market segmentation p.108

FMS p.127FMS p.127Information networks (CRM, ERP) p.129Information networks (CRM, ERP) p.129TQM p.130TQM p.130

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Customer = keyCustomer = key

CL Strategy: Which businesses in CL Strategy: Which businesses in portfolio?portfolio?BL Strategy: How do you compete in BL Strategy: How do you compete in each business?each business?Creation of value for stakeholdersCreation of value for stakeholdersPurposefulPurposefulLinked with Mission and IntentLinked with Mission and Intent

Alignment R&C with environmentAlignment R&C with environment

3 Attributes3 AttributesReachReachRichnessRichnessAffiliationAffiliation

3 dimensions 3 dimensions Who?Who?What?What?How?How?

Clients are the foundationReturns earned from relationships with customers is lifeblood of organizations

Perform different or differentlyPerform different or differentlySuperior fit among activities of the value-chainSuperior fit among activities of the value-chain

Integrated C-D

COST DIFF

FocusedCOST

FocusedDIFF

Five generic BL strategies M. PorterFive generic BL strategies M. Porter

AnalysiAnalysis of s of COST COST and and DIFF DIFF with the with the value-value-chainchain

Analysis of Analysis of the five the five generic generic strategies for strategies for each of the each of the five forces of five forces of P5F modelP5F modelBPS, BPC, BPS, BPC, NE, PS and RNE, PS and R

Success

Ch.5 Competitive Dynamics and RivalryCh.5 Competitive Dynamics and Rivalry7

CompetitiveCompetitive- Rivalry- Rivalry- Behavior- Behavior- Dynamics- Dynamics

Multimarket CompetitionMultimarket Competition

Market CommonalityMarket CommonalityResource SimilarityResource SimilarityDependence on the Dependence on the marketmarket

First MoverFirst MoverSecond MoverSecond MoverLate MoverLate Mover

CompetitiveCompetitive- Action- Action- ResponseResponseStrategicStrategicTacticalTactical

ReputationReputationSlow-Fast marketsSlow-Fast markets

Definition Box…Definition Box… Strategic behavior

Anticipation

Action

Model of competitive Rivalry (Competitors)

MCMS

DriversA, M, A, DPerceived Gain/Loss

RivalryLikelihood of attackLikelihood of response

Movers-Quality-Size

Type of competitive actionReputationDependence

Competitive Dynamism (All firms)

Slow-cycle marketStandard-cycle marketFast-cycle market

Corporate-level strategy = actions taken to gain a competitive advantage by selecting and managing a group of different businesses competing in different industries, the portfolio of businesses

Objective: Earn AAR

Degree to which the businesses are worth more under the management of the firm than they would be under any other (separate) ownership(s)

DIV has best effect if interaction of resources, motives and incentives DIV appropriate for the R&C and O&T

Model of Related Diversification and performance p193

Ch.6 Corporate-level StrategiesCh.6 Corporate-level Strategies

ConcentrationCON

DiversificationDIV

Fundamental Option: Increase or Decrease Portfolio by engaging in new businesses or exiting businesses you are presently running

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I Value-creating I Value-creating DiversificationDiversification

Economies of ScopeRDIV

II Value-Neutral II Value-Neutral DiversificationDiversification

III Value-III Value-Reducing Reducing

DiversificationDiversification

Operational relatedness (sharing activities)

Corporate relatedness (transferring competences)

Market PowerRDIV

Multipoint Competition (blocking competitors)

Vertical Integration

Financial Economies

Efficient internal capital allocation (asymmetry of access to information)

Business Restructuring

Anti trust regulationTax lawLow performanceUncertain future cash flowRisk reduction for firmsTangible resourcesIntangible resources

Reduction of top management employment risk

Size and complexity increase compensation


Reasons for Diversification

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Corporate Strategy


ConcentrationCON

DiversificationDIV

The big Picture

Stability Retrenchment Development

No Change

STOP GO

Directio

nal

Strategy

Port

folio

Str

ate

gy

No strategic changeImprovement of operational efficiency

Sell out/DivestmentBankruptcyTurnaround (contraction/expansion)

Product

Market

Old

Old

New

New

ExpansionDiversification Marketing ProductDIVMP

Diversification Marketing MarketDIVMM

Strategic DiversificationDIV

Dep

loym

en

t S

trate

gyInternal growth

External growth

Partnerships…

Vertical IntegrationHorizontal IntegrationInternationalization…

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Merger = Integration of operations on a relatively co-equal basisAcquisition = a firm controls 100% interests in another firmTake over = special type of acquisition in herein the target firm does not solicit the acquiring firm’s bid. Many are referred as hostile

Ch.7 Acquisition and Restructuration StrategiesCh.7 Acquisition and Restructuration Strategies

Popular means of developmentSeveral waves of Acquisition and Mergers

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AcquisitionReasons for Acquisition

Restructuring

Problems

Ways of dealing with problems

Ch.7 Acquisition and Restructuration Strategies (Ctd.)Ch.7 Acquisition and Restructuration Strategies (Ctd.)

REASONS FOR ACQUISITION

1- Market power Horizontal, Vertical and related Acquisition

2- Overcoming BTE

3- Cost of Product development and speed to market

4- Increased diversification

5- Reshaping firm competitive scope

6- Learning and developing capacities

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Reasons for Acquisition

RestructuringRestructuring =

1- Downsizing

2- Downscoping

3- Leveraged Buyouts

Ch.7 Acquisition and Restructuration Strategies (Ctd.)Ch.7 Acquisition and Restructuration Strategies (Ctd.)

POTENTIAL PROBLEMS…

Lots of failures or very incomplete achievements1- Integration phase2- Inadequate evolution of target3- Debt4- Instability to achieve synergySynergyTransaction cost5- Over-diversification6- Over-focus of managers on acquisition7- Too large acquisition

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Ways of dealing with problems

Problems

TO ENHANCE SUCCESS…

1- Complementary assets2- Groomed before (test)3- Friendly acquisition4- Effective dire diligence process5- Financial slack6- Innovation7- Flexibility8- Adaptability9- experience of managers10- Effective integration

Ch.8 Internationalization StrategiesCh.8 Internationalization Strategies

1- Why do you Internationalize?Opportunities

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Contents of chapter 8

2- What type of International strategy do you choose?International strategies

3- What does the environment “tell” you?Environmental trends

4- How do you make it practically?Choice of international entry mode

5- What are consequences for you in terms of competitiveness?Strategic competitiveness outcomes

6- How hard is it?Complexity of managing multinational firms

CLASSIC RATIONALE FOR INTERNATIONAL DIVERSIFICATION

1- Product life-cycle2- Secure needed resources3- More universal product demand and globalization4- EoSca5- Pressure for cost reduction6- Size of potential market7- Currency fluctuations, decreasing risk of devaluation8- Need for local operations9- Laws and regulations

15Ch.8 Internationalization Strategies (Ctd.)Ch.8 Internationalization Strategies (Ctd.)

FOUR BASIC BENEFITS

1- Increased market size2- Return On InvestmentRecoup more rapidly R&D and development expenses

3- EoSca, EoSco and learning4- Location advantages

1- Why do you Internationalize?


BASIC OUTCOMES

1- INT DIV increases Returns2- INT DIV increases Innovation

5- What are consequences for you in terms of competitiveness?

2- What type of International strategy do you choose?International strategies

INTERNATIONAL STRATEGIES

1- Business level strategiesPorter’s Diamond of competitiveness (factors of production)

2- Corporate level strategies-Multi-domestic (several independent countries)-Transnational (global integration)-Global (Both multi-domestic and Transnational)

ENVIRONMENTAL TRENDS


RegionalizationTriad

Liability of foreigners

RISKS and LIMITS

Political RiskEconomic Risk

Organizational limitEconomic limit

3- What does the environment “tell” you?Environmental trends

6- How hard is it?Complexity of managing multinational firms

Ch.8 Internationalization Strategies (Ctd.)Ch.8 Internationalization Strategies (Ctd.)

Exporting

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Entry Modes

Licensing

Strategic Alliances

Acquisitions

New wholly owned subsidiary

Time

Degree of Involvement

+

+

0

0

- Dynamics of mode of entry- Mode best suited to situation- Sequentially or back-and-forth or

skip entry modes

4- How do you make it practically?Choice of international entry mode


Another typology of international mode of entry

1- Exportation

2- Foreign Direct Investment FDI

3- Contractual arrangements

Direct and indirect exportation

Commercial, administrative, production or research subsidiaries

License sale or leasingFranchiseSale of technology“Turn-key” contracts and engineering and international consultancy

18Ch.9 Cooperative StrategiesCh.9 Cooperative Strategies

Cooperative strategy = organizations working together to achieve a shared objective

Collusive strategy = organizations cooperating to raise prices above the fully competitive level

Strategic alliance = cooperative strategy in which organizations combine some of their resources and capabilities to create a competitive advantage

Strategic Alliances

Joint Venture

Equity strategic alliance

Non-Equity strategic alliance

Why?Because you create value together that you could not create alone

-Slow-cycle market-Standard-cycle market-Fast-cycle market

19Ch.9 Cooperative Strategies (Ctd.)Ch.9 Cooperative Strategies (Ctd.)

B-L Cooperative Strategies

Complementary Strategic alliance

-Share R&C-Vertical-Horizontal

Competitive Strategy

-Strategic response-Response to attack

Reducing uncertainty Strategy

Hedge against risk and uncertainty

Reducing Competition Strategy

-Explicit collusion-Tacit collusion-Mutual forbearance


C-L Cooperative Strategies

Diversifying Strategic alliance

-DIV or CON on core businesses

Synergetic Strategic alliance

EoSca

Franchising

Cross-border Strategic alliance

To grow through means different than M&AFewer resources neededGreater flexibilityTesting process for future potential M&A

International Corporate strategy

Network Cooperative strategy

-Multiple partnerships-Stable alliance network-Dynamic alliance network


Risks

1- Partner acts opportunistically

2- Organization has misrepresented R&C it can bring

3- Organization will not make it available for its partners

4- Organization makes a specific investment to the alliance and the partner does not

Cost minimization management

Opportunity maximization management

Importance of Trust

Effectively managed, cooperative strategy can be rich and effective

Managing Cooperative strategies

Corporate Governance = relationhip between stakeholders used to Corporate Governance = relationhip between stakeholders used to dsetermine and control the strategic direction and performance of the dsetermine and control the strategic direction and performance of the OrganizationOrganization

Ensure that strategic Ensure that strategic decisions are made decisions are made effectivelyeffectively

Ch.10 Corporate GovernanceCh.10 Corporate Governance

Four roles of Corporate Governance

Establish order Establish order between partiesbetween parties

Reflects and Reflects and reinforce Valuesreinforce Values

Oversight when Oversight when stakeholders stakeholders may have a may have a conflict of conflict of interestinterest

Corporate Governance sometimes fails but well-functioning Corporate Governance sometimes fails but well-functioning CG can create a competitive advantageCG can create a competitive advantage

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Ownership Ownership ConcentrationConcentration

Ch.10 Corporate Governance (Ctd.)Ch.10 Corporate Governance (Ctd.)

Four CG mechanisms (3 internal, 1 external)

Board of Board of DirectorsDirectors

Executive Executive CompensationCompensation

Market for Market for Corporate Corporate ControlControl

Corporate Governance in International contextsCorporate Governance in International contextsExamples of Germany and JapanExamples of Germany and Japan

Corporate Governance and EthicsCorporate Governance and EthicsAt least the minimal interests of Stakeholders should be metAt least the minimal interests of Stakeholders should be metOrganization is very much vulnerable to its agents’ unethical Organization is very much vulnerable to its agents’ unethical behavior behavior

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Ownership Ownership ConcentrationConcentration


Board of Board of DirectorsDirectors

Separation Ownership and management

Agency relationship

Diversification as a problem

Agency costs

Managerial opportunism

Ownership concentration

Institutional owners

SHo activism

Board of DirectorsInsiderOutsiderRelated Outsider

Enhancing effectiveness of Board:1- Diversity2- Internal management and accounting control systems3- Formal process to evaluate Board’s performance4- “Lead” Director5- Compensation of Directors (Decrease stock options)

Three characteristics for Directors

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Executive Executive CompensationCompensation


Market for Market for Corporate Corporate ControlControl

Executive Compensation

Align Organization and top managers’ interests

Complicated CG mechanism because difficult to link managers’ Action and Performance

Variations in compensation (direct vs. indirect, short term vs long term)

Market for corporate control

Loss of job?Managerial defense tactics

MfCC may not be totally efficient

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Structure = formal reporting relationships, procedures, controls and Structure = formal reporting relationships, procedures, controls and authority and decision-making processes: « how to do the job ».authority and decision-making processes: « how to do the job ».

Structure is the Framework within which strategies are designed and Structure is the Framework within which strategies are designed and implementedimplementedNecessary Fit « Strategy-Structure »Necessary Fit « Strategy-Structure »

STABILITY vs FLEXIBILITYSTABILITY vs FLEXIBILITY

Change of Strategy implies Change of Strategy implies often Change of Structureoften Change of StructureBut Organizational InertiaBut Organizational Inertia

CONTROLCONTROL

Actual – ExpectedActual – ExpectedACtual – Reference Point ACtual – Reference Point (Industry)(Industry)

Strategic ControlStrategic ControlFinancial ControlFinancial Control

Ch.11 Organizational Structure and ControlsCh.11 Organizational Structure and Controls

Strategy Structure

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Structure and Strategy evolve:Structure and Strategy evolve:-VolumeVolume-GeographyGeography-Vertical IntegrationVertical Integration-DiversificationDiversification

So in responseSo in response::

SimpleSimple

FunctionalFunctional

DivisionalDivisional

Three main Three main Dimensions:Dimensions:

Ch.11 Organizational Structure and Controls (Ctd.)Ch.11 Organizational Structure and Controls (Ctd.)

Structure

Formalization Centralization

Departmentalization

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Ch.11 Organizational Structure and Controls (Ctd.)Ch.11 Organizational Structure and Controls (Ctd.)

StructureStructure StrategiesStrategies

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BUSINESS LEVELBUSINESS LEVEL

FF COSTCOSTDIFFDIFFINTEGINTEG

CORPORATE LEVELCORPORATE LEVEL

D D CooperativeCooperative

DD SBU Form SBU Form

DD Competitive Competitive

DIV Related ConstrainedDIV Related Constrained

DIV Related LinkedDIV Related Linked

DIV UnrelatedDIV Unrelated

INTERNATIONALINTERNATIONAL

INTINTGeographic AreaGeographic Area

INTINT Product Product DivisionalDivisional

INTINT CombinationCombination

INT MultidomesticINT Multidomestic

INT GlobalINT Global

INT TransnationalINT Transnational

COOPERATIVECOOPERATIVE

NN

N N AllianceAlliance

N N FranchiseFranchise

NN International International

CooperativeCooperative

Alliance (Vertical Alliance (Vertical Horizontal)Horizontal)

FranchiseFranchise

Strategic NetworkStrategic Network

Ch.11 Organizational Structure and Controls (Ctd.)Ch.11 Organizational Structure and Controls (Ctd.)29

Ch.12 Strategic LeadershipCh.12 Strategic Leadership

Model #1 SIY p.375Model #1 SIY p.375Leadership and the SMPLeadership and the SMPRole of Leaders in the Role of Leaders in the processprocess

Model #2 EOM p.377Model #2 EOM p.377Determinants of Managerial Determinants of Managerial DiscretionDiscretionWhich variables influence Which variables influence managers’ decisions / managers’ decisions / actions? actions?

Key Strategic Key Strategic Leadership ActionsLeadership Actions

Ethics Ethics and CSRand CSR

DirectionsDirections

Resources Resources Portfolio MagtPortfolio Magt

Culture MagtCulture Magt

Models …Models …

Control of the Control of the OrganizationOrganization

IssueIssue: Top Management teams and role of : Top Management teams and role of stakeholders (Corporate Governance)stakeholders (Corporate Governance)

IssueIssue: Managers as a key organizational : Managers as a key organizational ResourceResource

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Documents

Hitt, Ireland and Hoskisson, 2007 7e Edition Daniel Degravel