MGNT428 WK1 - S05 Overview & Hitt Chapter 1 Lecture - Lachowicz

8/14/2019 MGNT428 WK1 - S05 Overview & Hitt Chapter 1 Lecture - Lachowicz

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Business Policy & Strategy an introduction to the COBE BBA degree

capstone foundations course . . .

MGNT428Spring 2006

Dr. Tom Lachowicz, Instructor


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Instructional techniques

Hitt Text Chapter

readings + lectures +

Supplemental

readings

Five Harvard

Business School

Case Studies Meg Whitman & E-Bay

The Walt Disney Company

Apple Computer

Airborne Express

Husky Injection MoldingSystems


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Course Overview

Learning objectives:

1. To apply tools for

analyzing the financial

and competitive

positioning of firms andindustries.

2. To comprehend the

complexities facing

managers in

implementing strategicplans.

3. To comprehend methods

used for matching a firms

internal capabilities with

the demands ofcompetitive constraints.

4. To examine methods

used to determine where,

how, and for how long a

firm can create its

competitive advantage.


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Learning objectives (contd.)

5. To develop useful

adm inistrat ive and

indiv idual and

group

communicat ion

ski l lsrequired for

achieving successful

outcomes for your

firm in theBSG.


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Any questions?


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The Hitt Text:

Chapter 1 Notes

MGNT428Business Policy

& Strategy

Dr. Tom Lachowicz, Instructor


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When we have completed this chapter

you should be able to:

Define strategic

competitiveness competitive

advantage, and above-

average returns.

Describe the 21st-centurycompetitive landscape and

explain how globalization

and technological changes

shape it.

Use the industrialorganization (I/O) model to

explain how firms can earn

above-average returns.

Use the resource-based

model to explain how

firms can earn above-

average returns.

Describe strategic intentand strategic mission

and discuss their value.

Desc r ibe strategic intent

and strategic m ission

and disc uss their value.

Define stakeholders and

descr ib e their abi l ity to

inf luence organizat ions .


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Learning Objectives (contd)

- Use the resou rce-based model to explain how

firms can earn above-average returns .

- Describ e the work of strategic leaders.

- Explain the strategic management process .


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Lets start by asking some key questions!

1. What is a management

strategy course all

about?

2. Just what is strategy?3. What is happening in

the business strategic

environment?

4. What is the industrial

organization (IO)

model?

5. What is the resource-

based model?

6. Who are a firms key

stakeholders?7. What affects do firm

stakeholders have on

strategy?

8. Who is it who creates

strategy in

organizations?


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Some Important Definitions

Strategic Competitiveness

When a firm successfully formulates and implements a

value-creating strategy.

Sustainable Competitive Advantage

When competitors are unable to duplicate a

companys 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.


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Definitions (contd)

Risk An investors uncertainty about the economic gainsor losses that will result from a particular investment.

Average Returns

Returns equal to those an investor expects to earnfrom 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.


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Figure 1.1

Hitts Strategic

Management

Process

Copyright 2004 South-Western. All rights reserved.


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Current Competitive Landscape

Its a tough world out there!A Perilous BusinessWorld for the faint hearted . . .

Investments required to compete on a global scale are

enormous.

Consequences of failure are severe/

Important Elements of Success

Developing an effective strategy [game plan!] Implementing that strategy [executing the plan!]


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Globaleconomy

Rapid

technologicalchange

Competitive Landscape

Strategicmaneuvering amongglobal and innovative

combatants


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Competitive Landscape: Hypercompetition

Hypercompetition

Hypercompetition . . . A condition of rapidlyescalating competition based on:

Price-quality positioning.

Competition to create newknow-how and establish

first-mover advantage.

Competition to protect or

invade established product

or geographic markets.


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Our Global Economy

The Global Economy is

Goods, people, skills, and ideas move freely

across geographic borders.

Movement is relatively unfettered by artificial

constraints.

Expansion into global arena complicates afirms competitive environment.


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The Global Economy (contd.)

Globalization provides:

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-centurycompetitive landscape.


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Technology and

Technological Changes

Rate of change of technology and speedat which new technologies becomeavailable

Perpetual innovationhow rapidly andconsistently new, information-intensivetechnologies replace older ones.

The development of disruptive technologiesthat destroy the value of existing technologyand create new markets.


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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, electronicnetworks, internet trade.


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Technological Changes

Increasing Knowledge Intensity

Strategic flexibility:set of capabilities used torespond to various demands and

opportunities in dynamic and uncertaincompetitive environments

Organizational slack:slack resources thatallow the firm flexibility to respond toenvironmental changes

Capacity to learn


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Two Approaches to

Above-Average Returns . . .

Hitts I/O Model of

strategic planning . . .

The Resource-BasedModel of strategic

planning . . .


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Hitts I/O Model of

Above-Average Returns

The industry in which a firm competes has a

stronger influence on the firms performance than

dothe 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


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Four Assumptions of the I/O Model

External environment imposes pressures andconstraints that determine strategies leading to above-average returns.

1

2

Most firms competing in an industry control similar

strategically relevant resources and pursue similarstrategies.

Resources used to implement strategies are

highly mobile across firms.3

4Organizational decision makers are assumed to be

rational and committed to acting in the firms best

interests (profit-maximizing.).


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I/O Model of Above-Average Returns

1. Strategy is dictated by

the external

environment of the

firm (what

opportunitiesexist in

these environments?)

2. Firm develops

internal skills requiredby external

environment (what

can the firm do about

the opportunities?)

External Environments

General

Environment


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The I/O Model of


Adapted from Figure 1.2

The External

Environment

1. Study the externalenvironment, especiallythe industry environment.

The general environment The industry environment The competitor environment


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An Attractive

Industry2. Locate an attractive

industry with a highpotential for above-average returns.

An industry whosestructural characteristics

suggest above-averagereturns.

The External

Environment

The I/O Model of




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The I/O Model of


3. Identify the strategy called

for by the attractive

industry to earn above-average returns.

Selection of a strategylinked with above-

average returns in aparticular industry.

The External

Environment

An Attractive

Industry

StrategyFormulation



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Assets and Skills

The I/O Model of


4. Develop or acquireassets and skillsneeded to implementthe strategy.

Assets and skillsrequired to implement a

chosen strategy.

The External

Environment

An Attractive

Industry

StrategyFormulation



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StrategyImplementation

The I/O Model of


5. Use the firms strengths(its developed oracquired assets andskills)to implement thestrategy.

Selection of strategicactions linked witheffective implementationof the chosen strategy.

The External

Environment

An Attractive

Industry

StrategyFormulation

Assets and Skills



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Superior Returns

The I/O Model of

Above-Average ReturnsThe External

Environment

An Attractive

Industry

StrategyFormulation

Assets and Skills


Superior returns: earning

of above-averagereturns.



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Michael PortersFive Forces Model

of Competition

An industrys profitability results from

interaction among:

Suppliers

Buyers

Competitive rivalry among firms currently in

the industry

Product substitutes Potential entrants to the industry


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Porters Five Forces Model of Competition (contd.)

Firms earn above average returns by:

Producing standardized products or services.

Manufacturing differentiated products for

which customers are willing to pay a pricepremium.


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The 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 primarysource of its returns.

Capabilities evolve and must be managed

dynamically.


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Resource-Based Model of Above-Average

Returns (contd.)

Differences in firms performances are due

primarily to their unique resources and

capabilities rather than structuralcharacteristics of the industry.

Firms acquire different resources and

develop unique capabilities.


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Resource-Based Model

of Above-Average Returns (contd.)

1.Strategy is dictated by

the firms uniqueresources and

capabilities.

2.Find an environment in

which to exploit these

assets(where are the

best opportunities?)

Firms Resources


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Resources and Capabilities

Resources Inputs into a firms

production process:

Capital equipment Skills of individual

employees

Patents

Finances

Talented managers

Capabilities Capacity of a set of

resources toperform in an

integrative manner.A capability should

notbe:

So simple that it ishighly imitable

So complex that itdefies internalsteering and

control


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Resources

1. Identify the firmsresources. Study itsstrengths and weaknessescompared with those ofcompetitors.

Inputs into a firms

production process


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Capability 2. Determine the firmscapabilities. What do thecapabilities allow the firm to

do better than itscompetitors.

Capacity of an integrated

set of resources tointegratively perform atask or activity.

Resources


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3. Determine the potential of

the firms resources and

capabilities in terms of a


Ability of a firm to

outperform its rivals.

CompetitiveAdvantage

Capability

Resources


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An Attractive

Industry

4. Locate an attractiveindustry.

An industry withopportunities that canbe exploited by thefirms resources andcapabilities.


Capability

Resources


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5. Select a strategy thatbest allow the firm toutilize its resources and

capabilities relative toopportunities in theexternal environment.

Strategic actions taken toearn above-averagereturns.

An Attractive

Industry


Capability

Resources


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Adapted from Figure 1.3Superior Returns

Superior returns: earning

of above-average returnsStrategyImplementation

An Attractive

Industry


Capability

Resources


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Key Criteriaof Resources and

Capabilities . . .

Valuable

Resources and capabilities are valuable when

they allow a firm to take advantage of

opportunities or neutralize threats in externalenvironment.

Rare

Resources and capabilities are rare whenpossessed by few, if any, current and potential

competitors.


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Key Criteriaof Resources and Capabilities [cont.]

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.


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The all-important Core Competencies

When the four key criteria of resources and

capabilities are met, they become core

competencies.

Core competenciesserve as a source of


Managerial competencies are especiallyimportant.


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How Resources and Capabilities Provide

Competitive Advantage . . .

The firm is organized appropriately to obtainthe full benefits of the resources in order torealize a competitive advantage.

Valuable Allow the firm to exploit opportunities orneutralize threats in its external environment.

Rare Possessed by few, if any, current andpotential competitors.

Costly to imitate When other firms cannot obtain them ormust obtain them at a much higher cost.

Nonsubstitutable


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Resources and Capabilities, Core

Competencies, and Outcomes

CoreCompetencies


Value Creation

Above AverageReturns

Valuable

Rare

Costly to Imitate

Nonsubstitutable


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Strategic Intent

Its internallyfocused.

It requires the leveraging of a firms resources,

capabilities and core competencies to accomplish

the firms goals.

It only exists when all employees and levels of a

firm are committed to the pursuit of a specific,

significant performance criterion.


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Strategic Mission

Is externally focused.

Is a statement of a firms unique purpose

and the scope of its operations in productand market terms.

It establishes a firms individuality and is

inspiring and relevant to all stakeholders.

It provides general descriptions of the firms

intended products and its markets.


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Stakeholders

Are all those individuals, groups and

entitieswho can affect, and are affected

by, the strategic outcomes achieved and

who have enforceable claims on a firmsperformance.

Stakeholder claimsare enforced by their

ability to withhold essential participation.


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The Three

Stakeholder

Groups

Figure 1.4


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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.


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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 and their members Want secure jobs and desirable working conditions.


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Organizational Stakeholders

Employees [The worker-bees!]

Expect a dynamic, stimulating and rewarding

work environment.

Are satisfied by a company that is growing

and actively developing their skills.


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Stakeholder Involvement

Two issues affect the extent of stakeholder

involvement in the firm

How to divide returns

to keep stakeholdersinvolved? Capital

Market

ProductMarket

Organizational

How to increase

returns so everyonehas more to share?


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Strategic Leaders

People in the enterprise who are

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.


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Organizational Culture

The complex set of

Ideologies

Symbols

Core values

that are shared throughout the firm,

that influence how the firm conducts

business.


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Mapping an Industrys Profit Pools

Define the pools boundaries.

Estimate the pools overall size.

Estimate the size of the value-chain activityin the pool.

Reconcile the calculations.


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The Strategic Management Process

1. Study the external and internal environments.

2. Identify marketplace opportunities and threats.

3. Determine how to use core competencies.4. Use strategic intent to leverage resources,

capabilities and core competencies and win

competitive battles.

5. Integrate formulation and implementation of

strategies.

Documents

MGNT428 WK1 - S05 Overview & Hitt Chapter 1 Lecture - Lachowicz