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If you fail this course, this may become your office.
Office
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
Strategic Management: Concepts and Cases 9e
BUSN 6200Strategy and Competition
Dr. Bert Turner
Hitt, Michael A.Ireland, R. DuaneHoskisson, Robert E.
©2011 Cengage Learning. All rights reserved. 1–3
Welcome to Strategy and Competition
• Introductions– Instructor: Bert Turner– Students: Introduce Yourself (2-5 minutes)
• Strategy and Competition– Capstone Course for MBA
• Bringing it all together• Simulate the real world
– One of my favorite courses because it is so close to real world
– Slides and other material will be available on www.websterchina.com or copy onto your thumb drive.
• My Style– Application to real world– Make you think and create your own management
style.
What Businesses Are Looking For In Managers And Leaders• The ability to communicate orally and in writing one-on-one and in groups
• A basic understanding of math, particularly math for finances and risk management
• The ability to acquire and integrate relevant information and then create usable knowledge from it
• The ability to make decisions and judgments—with messy, incomplete, isolated, and incoherent data—that solve problems
• The ability to productively work with others
• Exemplifying norms of ethical behavior
• Fluency in a variety of technologies and the foresight and ability to apply those technologies to help solve a specific customer problem or pain. All of which lead to:
• Self confidence and courage to make decisions
©2011 Cengage Learning. All rights reserved. 1–4
©2011 Cengage Learning. All rights reserved. 1–5
Where We Are Headed
• In this course, at the top level you are going to do four things:– Demonstrate your potential to manage from looking at the Big Picture– Demonstrate techniques for strategy formulation and implementation– Synthesize everything you have learned up to now– Compete against your classmates in running a simulated business
• Heavy focus on case studies and simulation – Learn by doing (pre-OJT)– Broad view of different industries, companies, and issues– There is no single right answer, but there could be a lot of wrong ones
• Giving you the best tools possible to be a GREAT manager and leader
– Make your employer and Webster proud• Follow the Syllabus!
– Let’s review it now• This class is going to move quickly. I won’t cover all slides, but they
are all important. Most of the simulation will be done outside of class.• Slides are copyrighted, but I have added in Blue.
©2011 Cengage Learning. All rights reserved. 1–6
Course Philosophy• Front-end loaded on learning, back-end loaded on doing.
Getting your first 10 combat missions done.• Very heavy workload. 2-3 hours a week just on the CapSim
simulation. Work ahead, use the Capstone Simulation Detailed Student Notes. Simulation decisions come even before we cover the subject in the text.
• We will try to simulate real-world decision-making• The business is world is highly competitive, so is this course.
Your job is to eat someone else’s lunch!• Strategic Management is like changing the fan belt on a
moving car. It is the hardest part of management!!!• You must personally show me that what you will do in the
workplace will demonstrate that a Webster MBA is an asset to the organization.
©2011 Cengage Learning. All rights reserved. 1–7
Program Level Learning Outcomes
• Webster University MBAs possess foundation knowledge in each of the primary functional areas of business.
• Webster University MBAs can solve semi-structured business problems.a. The MBA can utilize statistical analysis to assess product demand conditions.b. The MBA can utilize financial analysis to assess an organization’s financial condition.c. The MBA can utilize competitive analysis to assess market position.
• The MBA can address unstructured business problems that span multiple functional areas.
Introduce Yourself
• Name• Where you work and what you do
there• Where you want to work and what you
want to do• What you could use help with in your
work/school• How you can help the other students• Q&A
©2011 Cengage Learning. All rights reserved. 1–8
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
Strategic Management: Concepts and Cases 9e
Part I: Strategic Management Inputs
Chapter 1: Strategic Management and
Strategic Competitiveness
©2011 Cengage Learning. All rights reserved. 1–10
KNOWLEDGE OBJECTIVES
1. Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.
2. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it.
3. Use the industrial organization (I/O) model to explain how firms can earn above-average returns.
4. Use the resource-based model to explain how firms can earn above-average returns.
Studying this chapter should provide you with the strategic management knowledge needed to:
X
X
©2011 Cengage Learning. All rights reserved. 1–11
KNOWLEDGE OBJECTIVES (cont’d)
5. Describe vision and mission and discuss their value.
6. Define stakeholders and describe their ability to influence organizations.
7. Describe the work of strategic leaders.
8. Explain the strategic management process.
Studying this chapter should provide you with the strategic management knowledge needed to:
X
X
©2011 Cengage Learning. All rights reserved. 1–12
Strategic Management Past
• Military Roots (Sun Tzu [ 孫子 Sūn Zǐ] and Clausewitz primarily)– Win All Without Fighting– Avoid Strength, Attack Weakness– Deception and Foreknowledge– Speed and Preparation– Shape Your Opponent– Provide Effective Leadership
• Academic Roots– Economic Theory– Organizational Studies
• 1970s-1980s became business/management field of study
©2011 Cengage Learning. All rights reserved. 1–13
Misconceptions• Strategy and strategic planning are dead
– Myth: Internet time has made it obsolete
• Strategy is strictly for top management– But, formation is top management responsibility
• Strategy is about planning– A plan on the shelf is worthless
– Shy away from “Strategic Planners”
• Strategy is stable and constant– Core Values and Purpose NEVER change—strategy does
• Strategic management creates final destination and route
– Nope, just the curbs for getting there
– But, there can only be one strategic direction
– Plan for several possible futures
©2011 Cengage Learning. All rights reserved. 1–14
Important Definitions
• Strategy– An integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive advantage.
– Attempts to match company strengths to the right customer, market, or industry
• Competitive Advantage– When a firm implements a strategy that its competitors are
unable to duplicate or find too costly to try to imitate.– The key is to create a continuous stream of competitive
advantages to create an overall sustainable competitive advantage
– Bottom Line—Only the customer can decide what is and is not a competitive advantage
Pizza Strategy
1–15
•Domino’s•Pizza Hut•Little Caesar’s•Shotgun Dan’s•Papa John’s•US Pizza
•CiCi’s Pizza•Larry’s Pizza•Pizza for Less•What A Lot of Pizza
•DiGiorno’s•Papa Murphy’s Take N’ Bake Pizza—store assembles pizza, you take it home and bake it
•NYPD Pizza Delicatessen•Greek Pizza•Chicago Pizza
• O’Naturals is the nation’s first all natural and organic quick casual restaurant group
• Topper's Pizza On average 70% of sales come from menu items typically not offered by the competition
• Bohemian Ovens gives you a pizza pan with dough already on it and lets you go around a buffet of ingredients to put on it. Build your own pizza all for one price.
©2011 Cengage Learning. All rights reserved. 1–16
Important 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.
X
X
©2011 Cengage Learning. All rights reserved. 1–17
Important Definitions (cont’d)
• Strategic Management Process– The full set of commitments, decisions, and
actions required for a firm to achieve strategic competitiveness and earn above-average returns.
©2011 Cengage Learning. All rights reserved. 1–18
FIGURE 1.1
The Strategic Management Process
X
X
©2011 Cengage Learning. All rights reserved. 1–19
Roles and Missions for Strategic Management• Board of Directors
– Legally obligated to represent and protect stockholders– Govern
• Senior Management (C-Level Officers)– Create, adopt, set, agree to, and plan to implement the top-level
strategy• Actually “manage”, not just “administer”
– Provide effective leadership
• Managers and supervisors– Implement– Build their strategic (functional) plan to support corporate strategy– Evaluate and provide feedback on their part of the strategy
©2011 Cengage Learning. All rights reserved. 1–20
The 21st-Century Competitive Landscape• A Perilous Business World
– Rapid changes in industry boundaries and markets
– Conventional sources of competitive advantage losing effectiveness
– Enormous investments required to compete globally
– Severe consequences for failure
• Developing and Implementing Strategy– Allows for planned actions rather than reactions
– Helps coordinate business unit strategies
©2011 Cengage Learning. All rights reserved. 1–21
DynamicDynamicGlobal EconomyGlobal EconomyRapid technological Rapid technological
changechangeStrategic maneuvering Strategic maneuvering
among global and innovative among global and innovative combatantscombatants
The Competitive Landscape
HypercompetitionA 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
©2011 Cengage Learning. All rights reserved. 1–22
Global Economy
• The 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.• Short-term: Where is the fastest growth likely to occur?• Long-term: Where will sustainable growth occur?
X
©2011 Cengage Learning. All rights reserved. 1–23
Global Economy (cont’d)
• The March of Globalization
– Increased economic interdependence among countries—the flow of goods and services, financial capital, and knowledge across country borders
• Higher performance levels—quality, cost, productivity, product introduction time, and operational efficiency
– Increased range of opportunities for companies competing in the 21st-century competitive landscape
• Liability of foreignness—the risks of participating outside of a firm’s domestic country in the global economy
• The amount of time required for firms to learn how to compete in markets that are new to them.
X
Sleeping Dragon Awakening
• Today, China is seen as an extremely competitive market in which local market-seeking MNCs (multinational corporations) fiercely compete against other MNCs and local low-cost producers.
• China has long been viewed as a low-cost producer of goods, but China is now an exporter of local management talent. (YOU!)
©2011 Cengage Learning. All rights reserved. 1–24
©2011 Cengage Learning. All rights reserved. 1–25
Technology and Technological Changes• Technology Diffusion
– The speed at which new technologies become available
• Disruptive Technologies– Technologies that destroy the value of existing
technology and create new markets
• Perpetual Innovation– The rapidity and consistency with which new,
information-intensive technologies replace older ones
©2011 Cengage Learning. All rights reserved. 1–26
Technological Changes
• 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.
X
©2011 Cengage Learning. All rights reserved. 1–27
Technological Changes (cont’d)
• Increasing Knowledge Intensity
– Knowledge as a critical organizational resource for creating an intangible competitive advantage
– Strategic flexibility: the 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
– Organizational capacity to learn
©2011 Cengage Learning. All rights reserved. 1–28
Strategic Management Processes
• We’re in St. Louis (or Wuhan)–Go east, west, north, south, or
stay put
–Fly, drive, train, walk
–Lease, rent, or buy vehicle
–Portland, San Francisco, San Diego (Wulumuchi, Lhasa, Kunming)
©2011 Cengage Learning. All rights reserved. 1–29
Hedgehog Concept of Jim Collins (Good to Great, 2001)
• What are you (collectively) deeply passionate about?– Why bother getting dressed (corporately)
each and every day?• What can you be the best in the world at?
– Not “want” or “should”. An understanding of what you can and can’t be. Not just a competence, but truly the best.
• What drives your economic engine?– One denominator (profit per x, or cash flow
per x) that has the single greatest impact.©2011 Cengage Learning. All rights reserved. 1–30
©2011 Cengage Learning. All rights reserved. 1–31
Three Circles of Hedgehog Concept—Jim Collins
©2011 Cengage Learning. All rights reserved. 1–32
Industrial Organization (I/O) Model of Above-Average Returns
• Dominance of the External Environment– 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 Determining Performance– Economies of scale– Barriers to market entry– Diversification– Product differentiation– Degree of concentration of firms in the industry
©2011 Cengage Learning. All rights reserved. 1–33
Four Assumptions of the I/O Model
External environment imposes pressures and constraints that determine strategies leading to above-average returns.11
22Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies.
Resources used to implement strategies are highly mobile across firms.
33
44Organizational decision makers are assumed to be rational Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit-and committed to acting in the firm’s best interests (profit-maximizing).maximizing).
X
X
©2011 Cengage Learning. All rights reserved. 1–34
FIGURE 1.2
The I/O Model of Above-Average Returns
X
X
©2011 Cengage Learning. All rights reserved. 1–35
GlobalGlobalGlobalGlobal
TechnologicalTechnologicalTechnologicalTechnological
Eco
nom
ic
Eco
nom
ic
Eco
nom
ic
Eco
nom
ic
Dem
ograp
hic
Dem
ograp
hic
Dem
ograp
hic
Dem
ograp
hicS
ocio
cultu
ral
Socio
cultu
ral
Socio
cultu
ral
Socio
cultu
ral
Politi
cal/Le
gal
Politi
cal/Le
gal
Politi
cal/Le
gal
Politi
cal/Le
gal
IndustryIndustryEnvironmentEnvironment
IndustryIndustryEnvironmentEnvironment
CompetitorCompetitorEnvironmentEnvironmentCompetitorCompetitor
EnvironmentEnvironment
GeneralGeneral
EnvironmentEnvironment
I/O Model of Above-Average Returns
1. Strategy is dictated by the external environment of the firm—what opportunities exist in these environments?
2. Firm develops internal skills required by external environment—what can the firm do about the opportunities?
External Environments
X
X
©2011 Cengage Learning. All rights reserved. 1–36
Industrial Organization Model
1. Study the external environment, especially the industry environment:• Economies of scale• Barriers to market entry• Diversification• Product differentiation• Degree of concentration of
firms in the industry
The External EnvironmentThe External Environment
Don’t bother to analyze the situation, unless you are going to do something with/about it!–Applies to all calls for “analysis” in this course.–Be very specific when telling employees to go analyze something.
©2011 Cengage Learning. All rights reserved. 1–37
Industrial Organization Model
2. Locate an attractive industry with a high potential for above-average returns.
Attractive industry:Attractive industry:One whose structural One whose structural characteristics suggest characteristics suggest above-average returns.above-average returns.
The External EnvironmentThe External Environment
Attractive IndustryAttractive Industry
X
X
©2011 Cengage Learning. All rights reserved. 1–38
Industrial Organization Model
3. Identify the strategy called for by the attractive industry to earn above-average returns.
Strategy formulation: Strategy formulation: Selection of a strategy Selection of a strategy linked with above-average linked with above-average returns in a particular returns in a particular industry.industry.
The External EnvironmentThe External Environment
Attractive IndustryAttractive Industry
Strategy FormulationStrategy Formulation
X
X
©2011 Cengage Learning. All rights reserved. 1–39
Industrial Organization Model
4. Develop or acquire assets and skills needed to implement a chosen strategy.
Assets and skills: those Assets and skills: those assets and skills required assets and skills required to implement a chosen to implement a chosen strategy.strategy.
The External EnvironmentThe External Environment
Attractive IndustryAttractive Industry
Strategy FormulationStrategy Formulation
Assets and SkillsAssets and Skills
X
X
©2011 Cengage Learning. All rights reserved. 1–40
Industrial Organization Model
5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy.
Strategy implementation: Strategy implementation: select strategic actions select strategic actions linked with effective linked with effective implementation of the implementation of the chosen strategy.chosen strategy.
The External EnvironmentThe External Environment
Attractive IndustryAttractive Industry
Strategy FormulationStrategy Formulation
Assets and SkillsAssets and Skills
Strategy ImplementationStrategy Implementation
X
X
©2011 Cengage Learning. All rights reserved. 1–41
Industrial Organization (I/O) Model
The External EnvironmentThe External Environment
Attractive IndustryAttractive Industry
Strategy FormulationStrategy Formulation
Assets and SkillsAssets and Skills
Strategy ImplementationStrategy Implementation
Superior returns: earning above-average returns
Superior ReturnsSuperior Returns
X
X
©2011 Cengage Learning. All rights reserved. 1–42
Porter’s Five Forces Model of Competition• Industry Profitability
– The industry’s rate of return on invested capital relative to its cost of capital
– Porter’s Five Forces Model is used to predict industry profitability
• An industry’s profitability results from interaction among these five forces according to Porter:– Suppliers– Buyers– Competitive rivalry among firms currently in the
industry– Product substitutes– Potential entrants to the industry
©2011 Cengage Learning. All rights reserved. 1–43
Five Forces Model of Competition (cont’d)• Firms earn above-average returns by:
– Cost leadership• Producing standardized products or services
– Differentiation• Manufacturing differentiated products for which
customers are willing to pay a price premium
X
X
©2011 Cengage Learning. All rights reserved. 1–44
The Resource-Based Model of Above-Average Returns
• Model Assumptions– 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.
• Dominance of the Internal Environment– 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.
©2011 Cengage Learning. All rights reserved. 1–45
FIGURE 1.3
The Resource-Based Model of Above-Average Returns
X
X
©2011 Cengage Learning. All rights reserved. 1–46
EnvironmentEnvironmentEnvironmentEnvironment
Resource-Based Model of Above-Average Returns (cont’d)
1. Strategy is dictated by the firm’s unique resources and capabilities.
2. Find an environment in which to exploit these assets (where are the best opportunities?)
Strategy:Strategy:Competitive AdvantageCompetitive Advantage
Core CompetenciesCore Competencies
CapabilitiesCapabilities
ResourcesResources
X
X
©2011 Cengage Learning. All rights reserved. 1–47
Resources and Capabilities
• Resources– Inputs into a firm’s
production process:• Capital equipment
• Skills of individual employees
• Patents or other Intellectual Property
• 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.
©2011 Cengage Learning. All rights reserved. 1–48
Resource-Based Model (cont’d)
1. Identify the firm’s resources—strengths and weaknesses compared with competitors
ResourcesResources
Resources: inputs into a Resources: inputs into a firm’s production processfirm’s production process
X
X
©2011 Cengage Learning. All rights reserved. 1–49
Resource-Based Model (cont’d)
2. Determine the firm’s capabilities—what it can do better than its competitors.
ResourcesResources
CapabilityCapability
Capability: capacity of an integrated set of resources to integratively perform a task or activity.
X
X
©2011 Cengage Learning. All rights reserved. 1–50
Resource-Based Model (cont’d)
3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage.
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
Competitive advantage: Competitive advantage: ability of a firm to ability of a firm to outperform its rivals.outperform its rivals.
X
X
©2011 Cengage Learning. All rights reserved. 1–51
Resource-Based Model (cont’d)
4. Locate an attractive industry.
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
Attractive IndustryAttractive Industry
Attractive industry: an Attractive industry: an industry with opportunities industry with opportunities that can be exploited by the that can be exploited by the firm’s resources and firm’s resources and capabilities.capabilities.
X
X
©2011 Cengage Learning. All rights reserved. 1–52
Resource-Based Model (cont’d)
5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment.
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
Attractive IndustryAttractive Industry
Strategy Formulation Strategy Formulation and Implementationand Implementation
Strategy formulation Strategy formulation and implementation: and implementation: strategic actions taken strategic actions taken to earn above average to earn above average returns.returns.
X
X
©2011 Cengage Learning. All rights reserved. 1–53
Resource-Based Model (cont’d)
ResourcesResources
CapabilityCapability
Competitive AdvantageCompetitive Advantage
Attractive IndustryAttractive Industry
Strategy FormulationStrategy Formulationand Implementationand Implementation
Superior ReturnsSuperior Returns
Superior returns: earning above-average returns
X
X
©2011 Cengage Learning. All rights reserved. 1–54
Criteria for Resources and Capabilities That Become Core Competencies
Core Core CompetenciesCompetencies
Core Core CompetenciesCompetencies
ValuableValuableValuableValuable RareRareRareRare
Costly to ImitateCostly to ImitateCostly to ImitateCostly to ImitateNonsubstitutableNonsubstitutableNonsubstitutableNonsubstitutable
X
©2011 Cengage Learning. All rights reserved. 1–55
How Resources and Capabilities Provide Competitive Advantage
The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage
Valuable Allow the firm to exploit opportunities or neutralize threats in its external environment
Rare Possessed by few, if any, current and potential competitors
Costly to imitate
When other firms cannot obtain them or must obtain them at a much higher cost
Nonsubstitutable
©2011 Cengage Learning. All rights reserved. 1–56
Core Competencies
• When the four key criteria of resources and capabilities are met, they become core competencies.
• Managerial competencies are especially important.
• Core competencies serve as a source of competitive advantage, create value, and provide the opportunity for above-average returns.
• Does it provide potential access to a wide variety of markets?
• Does it significantly add to the customer value derived from the end product?
• Can different elements of the company benefit from the competency?
©2011 Cengage Learning. All rights reserved. 1–57
Why Two Models?
• Industrial Organization (I/O) Model– Focuses on the
environment outside the firm.
• Resource-Based Model– Focuses on the inside
of the firm
Successful strategy formulation and implementation actions result only when the firm properly uses both models.
©2011 Cengage Learning. All rights reserved. 1–58
Vision and Mission
• Vision– A enduring picture of what the firm wants to be and, in
broad terms, what it wants to ultimately achieve.• Stretches and challenges people and evokes
emotions and dreams.
• Effective vision statements are:– Developed by a host of people from across the
organization.– Clearly tied to external and internal environmental
conditions.– Consistent with strategic leaders’ decisions and
actions.
©2011 Cengage Learning. All rights reserved. 1–59
Vision and Mission (cont’d)
• Mission– Specifies the business or businesses in which the firm
intends to compete and the customers it intends to serve.
– Is more concrete than the firm’s vision.– Is more effective when it fosters strong ethical
standards.
©2011 Cengage Learning. All rights reserved. 1–60
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 on the firm’s performance are enforced by the
stakeholder’s ability to withhold participation essential to the firm’s survival.
– The more critical and valued a stakeholder’s participation, the greater a firm’s dependency on it.
– Managers must find ways to either accommodate or insulate the organization from the demands of stakeholders controlling critical resources.
©2011 Cengage Learning. All rights reserved. 1–61
Stakeholder Involvement
• Two issues affect the extent of stakeholder involvement in the firm:– How to divide returns
to keep stakeholdersinvolved?
– How to increase returns so everyone has more to share?
X
©2011 Cengage Learning. All rights reserved. 1–62
FIGURE 1.4 The Three Stakeholder Groups
Which stakeholder is most important?
©2011 Cengage Learning. All rights reserved. 1–63
Capital Market Capital Market StakeholdersStakeholders
ShareholdersShareholdersMajor suppliers of Major suppliers of capitalcapital
• BanksBanks
• Private lendersPrivate lenders
• Venture capitalistsVenture capitalists
Stakeholders
Capital Market Capital Market StakeholdersStakeholders
X
X
©2011 Cengage Learning. All rights reserved. 1–64
Capital Market Stakeholders
• Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it.– Want the return on their investment (and, hence, their
wealth) to be maximized.– Expect returns to be commensurate with the degree
of risk to the shareholder.
• Management must balance the interests of shareholders and lenders with its concerns for the firm’s future competitive ability.
©2011 Cengage Learning. All rights reserved. 1–65
Stakeholders (cont’d)
Capital Market Capital Market StakeholdersStakeholders
Product Market Product Market StakeholdersStakeholders
Product Market Product Market StakeholdersStakeholders
• CustomersCustomers
• SuppliersSuppliers
• Host communitiesHost communities
• UnionsUnions
X
X
©2011 Cengage Learning. All rights reserved. 1–66
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
©2011 Cengage Learning. All rights reserved. 1–67
Stakeholders (cont’d)
Capital Market Capital Market StakeholdersStakeholders
Product Market Product Market StakeholdersStakeholders
Organizational Organizational StakeholdersStakeholders
Organizational Organizational StakeholdersStakeholders
•EmployeesEmployees•ManagersManagers•NonmanagersNonmanagers
X
X
©2011 Cengage Learning. All rights reserved. 1–68
Organizational Stakeholders
• Employees – Expect a dynamic, stimulating, and rewarding work
environment.– Are satisfied by a company that is growing and
actively developing their skills.
©2011 Cengage Learning. All rights reserved. 1–69
Strategic Leaders
• Strategic Leaders– People located in different parts of the firm who are
using the strategic management process to help the firm reach its vision and mission.
• Prerequisites for Effective Strategic Leadership– Hard work– Thorough analyses– Honesty– Desire for accomplishment– Common sense
©2011 Cengage Learning. All rights reserved. 1–70
Strategic Leaders (cont’d)
• Organizational Culture
– The complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business.
• The Value of a Functional Organizational Culture
– Supports effective delegation of strategic responsibilities
– Provides support for strategic leaders
– Encourages social energy
– Fosters respect for others
©2011 Cengage Learning. All rights reserved. 1–71
Predicting Outcomes of Strategic Decisions: Profit Pools
• Profit Pool
– The total profits earned in an industry at all points along the value chain
• Identifying the components of a profit pool:
– Define the pool’s boundaries.
– Estimate the pool’s overall size.
– Estimate size of each value-chain activity in the pool.
– Reconcile the calculations—which activity provides the most profit potential?
X
©2011 Cengage Learning. All rights reserved. 1–72
Strategic Management Process
• Study the external and internal environments.
• Identify marketplace opportunities and threats.
• Determine your core competencies and how to use them.
• Use strategic intent to leverage resources, capabilities, and core competencies to win competitive battles.
• Integrate formulation and implementation of strategies.
• Seek feedback to improve strategies.
• Repeat
©2011 Cengage Learning. All rights reserved. 1–73
©2011 Cengage Learning. All rights reserved. 1–74
Professional Reading List
• Local Daily Newspaper (Front Page and Business Section)• Other current publications (Newsweek, WSJ, etc.)• TV business shows and internet research • Good to Great by Jim Collins• Built to Last by Jim Collins• Execution: The Discipline of Getting Things Done by Larry Bossidy• Competing for the Future by Gary Hamel• Leading the Revolution by Gary Hamel• The Discipline of Market Leaders by Michael Treacy• The 7 Habits of Highly Effective People by Stephen Covey• Who Moved My Cheese? By Spencer Johnson
– With Sniff, Scurry, Hem, and Haw (Who are You?)
©2011 Cengage Learning. All rights reserved. 1–75
Discussion Questions
1. What is a strategy course about?
2. What is strategy?
3. What is happening in the strategic environment?
4. What is the industrial organization (IO) model?
5. What is the resource-based model?
6. Who are a firm’s key stakeholders?
7. What affects do firm stakeholders have on strategy?
X
X