Chapter 1: Strategic Management and Strategic Competitiveness

Chapter 1 Strategic Management and Strategic Competitiveness

KNOWLEDGE OBJECTIVES 1. 2. 3. &. '. (. *. ,. Define strategic competitiveness, competitive advantage and above-average returns. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it. se the industrial organization !"#$% model to explain how firms can earn above-average returns. se the resource-based model to explain how firms can earn above average-returns. Describe strategic intent and strategic mission and discuss their value. Define sta)eholders and describe their ability to influence organizations. Describe strategists+ wor). -xplain the strategic management process.

CHAPTER OUTLINE Opening Case "n .ad /imes, 0ood 1ompanies 2tand $ut /3- 13455-60- $7 2/84/-0"1 94640-9-6/ Strategic Focus /he "mpermanence of 2uccess /3- 21st-1-6/ 8: 1$9;-/"/"<- 546D214;/he 0lobal -conomy /he 9arch of 0lobalization /echnology and /echnological 1hanges "ncreasing 8ate of /echnological 1hange and Diffusion /he "nformation 4ge "ncreasing =nowledge "ntensity /3- "#$ 9$D-5 $7 4.$<--4<-840- 8-/ 862 Strategic Focus 7lawed 2trategies, 3ubris, and -ntrenchment /3- 8-2$ 81--.42-D 9$D-5 $7 4.$<--4<-840- 8-/ 862 2/84/-0"1 "6/-6/ 46D 2/84/-0"1 9"22"$6 2trategic "ntent 2trategic 9ission 2/4=-3$5D-82 Strategic Focus 1an 1isco 2atisfy 4ll of "ts 2ta)eholders> 1lassification of 2ta)eholders 1apital 9ar)et 2ta)eholders ;roduct 9ar)et 2ta)eholders $rganizational 2ta)eholders $8046"?4/"$645 2/84/-0"2/2 /he @or) of -ffective 2trategists ;redicting $utcomes of 2trategic Decisions /3- 2/84/-0"1 94640-9-6/ ;8$1-22 2 9948: 8-<"-@ A -2/"$62 -B;-8"-6/"45 -B-81"26$/-2

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Chapter 1: Strategic Management and Strategic Competitiveness OPENING CASE In Bad Times, Good Companies S and O! 2ome companies actually perform better during economic downturns. 2ome examples include the followingC /he wea)ened .2. economy in 2DD1 led to an increase in coffee sales, especially institutional sales to offices. /he president of 4ramar) 1orporation commented that coffee is a relatively inexpensive way to )eep people in the office and stimulated. 8estaurant owner, .rin)er "nternational, allows their individual restaurant chains to operate entrepreneurially, which permits flexibility when challenging times reEuire creative adFustments. e.ay does well during downturns because it is the best at what it does, and auction services are in great demand when the economy is sluggish. 2outhwest 4irlines does well during poor economic conditions because it operates using a strategy that delivers excellent service and with low fares.

4s implied by the 1hapter titleG Strategic Management and Strategic Competitiveness Gand illustrated by the discussion of changes ta)ing place as a result of the "nternet, the primary purpose of the strategic management process is to enable firms to achieve strategic competitiveness and earn above-average returns. 4n in-depth discussion of international !global% strategies will be found in 1hapter ,.

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Define strategic competitiveness, competitive advantage and above-average returns.

Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. .y implementing a value-creating strategy that current and potential competitors are not simultaneously implementing and that competitors are unable to duplicate, a firm achieves a sustained or sustainable competitive advantage . 2o long as a firm can sustain !or maintain% a competitive advantage, investors will earn above-average returns. Above-average returns represent returns that exceed returns that investors expect to earn from other investments with similar levels of risk !investor uncertainty about the economic gains or losses that will result from a particular investment%. "n other words, above average-returns exceed investorsH expected levels of return for given levels of ris). 4 framewor) that can assist firms in their Euest for strategic competitiveness is the strategic management process, the full set of commitments, decisions and actions reEuired for a firm to systematically achieve strategic competitiveness and earn above-average returns. /his process is illustrated in Figure 1.1. FIGU E !"! T#e S $a e%i& 'ana%emen P$o&ess Figure 1.1 illustrates the dynamic, interrelated nature of the elements of the strategic management process and provides an outline of where the different elements of the process are covered in this text. 7eedbac) lin)ages among the three primary elements indicate the dynamic nature of the strategic management processC strategic inputs, strategic actions and strategic outcomes. S $a e%i& inp! s, in the form of information gained by scrutinizing the internal environment and scanning the external environment, are used to develop the firmHs strategic intent and strategic mission. S $a e%i& a& ions are guided by the firmHs strategic intent and strategic mission, and are represented by strategies that are formulated or developed and subseEuently implemented or put into action. Desired s $a e%i& o! &omesGstrategic competitiveness and above-average returnsGresult when a firm is able to successfully formulate and implement value-creating strategies that others are unable to duplicate. (eed)a&* lin)s the elements of the strategic management process together and helps firms continuously

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Chapter 1: Strategic Management and Strategic Competitiveness adFust or revise strategic inputs and strategic actions in order to achieve desired strategic outcomes. THE CHALLENGE O( STRATEGIC 'ANAGE'ENT 4s noted in earlier comments, all firmsGand managersGare challenged to achieve strategic competitiveness and earn above-average returns. /his challenge can be formidable. 4 primary challenge facing managers today from large firms such as ".9, but also for those as small as a local computer retail outlet or dry cleaner, is the need to recognize that the strategic management process and the striving for strategic competitiveness ta)es place in a dynamic economy. 4s a result of this ongoing struggle, success today does not necessarily eEuate with success tomorrow. /his would explain why 3',32' .2. businesses failed in 2DDD, with more than &D,DDD filing for ban)ruptcy in 2DD1. S# A#EGIC FOCUS T#e Impe$manen&e o+ S!&&ess Berox+s ;alo 4lto 8esearch 1enter pioneered many of the products that we now ta)e for grantedGe.g., the personal computer, the laser printer, and the -thernetGbut management did not recognize the importance of these brea)throughs. /heir strategy problems have persisted. e/oys experienced similar declines in performance until its assets were eventually bought at auction by =. toys, which later relaunched the e/oys website. "t should be noted that even firms such as Dell, "ntel, 4mazon, 7ederal -xpress, 2un 9icrosystems, and 7ordGmust be prepared to compete flexibly and anticipate the unexpected if they hope to achieve longterm strategic competitiveness. $ne )ey to success will be which firms+ strategies will represent the best fit between the demands of the external environment and the resources and capabilities in their respective internal environments. Review Question 1. What are strategic competitiveness, competitive advantage, and above-average returns?

Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it.

THE ,"s -CENTUR. CO'PETITIVE LANDSCAPE /his $!st-centur% competitive landscape can be described as one in which the fundamental nature of competition is changing in a number of the world+s industries. 7urther, the boundaries of industries are becoming blurred and more difficult to define. 1onsider recent changes that have ta)en place in the telephone and 1able /< industriesGe.g., broadcasters such as 4.1, 6.1, 1.2 and 3.$ now must compete with each other and firms including 4/I/, 9icrosoft, and 2ony. /he 21st-century competitive landscape thus implies that traditional sources of competitive advantageG economies of scale and large advertising budgetsGmay not as important in the future as they were in the past. /he rapid and unpredictable technological change that characterizes this new competitive landscape implies that managers must adopt new ways of thin)ing. /he new competitive mind set must value flexibility, speed, innovation and integration. 4 term often used to describe the new realities of competition is &%percompetition, a condition that results from the dynamics of strategic moves and countermoves among innovative, global firmsC a condition of rapidly escalating competition that is based on price-Euality positioning, battles to create new )now-how and achieve first-mover advantage, and battles to protect or to invade established product or geographic mar)ets !that will be discussed in more detail in 1hapter '%. T#e G/o)a/ E&onom0

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Chapter 1: Strategic Management and Strategic Competitiveness

4 global econom% is one in which goods, services, people, s)ills and ideas move freely across geographic borders. /he emergence of this global economy results in a number of challenges and opportunities. 7or instance, -urope is now the world+s largest single mar)et !despite the difficulties of adapting to multiple national cultures and the lac) of a single currency%. "ncluding the nations that ma)e up the former 2oviet nion and the rest of the -astern bloc, the -uropean economy has a gross domestic product !0D;% of J, trillion, comparable to the 2, with *DD million potential customers. "n addition, 1hina is seen as an emerging giant that is expected to have a higher 0D; !but a lower per capita output% than Kapan by 2D1' or sooner. #A'(E !"! Co!n $0 Compe i i1eness Ran*in%s Table 1.1 shows the recent competitiveness ran)ings for 3D nations. /he table indicates that many of the 4sian economies have maintained their levels of competitiveness, despite the 1LL* 4sian financial crisis. 4dditionally, several -uropean nations have recently improved their competitiveness, while others from the region have dropped in ran). "n recent years, the Kapanese economy has lagged those of the .2. and some -uropean countries. 3owever, 2ingapore and 3ong =ong have retained their ran)ings, despite the 4sian economic crisis in 1LL*. "mproving a nation+s competitiveness involves several factors and outcomesC "t creates a higher standard of living for a country+s citizens "t reEuires firms to view the world as its mar)etplace "t involves both additional benefits and ris)s 5arge firms may commit resources to global mar)ets more Euic)ly than small and mid-size firms. 6everthelessC (DM of .2. firms involved in exporting employ fewer than 1DD people 1ompanies with fewer than 'DD employees now sell approximately J2DD billion annually to non- .2. customers T#e 'a$&# o+ G/o)a/i2a ion Globali)ation is the increasing economic interdependence among countries as reflected in the flow of goods and services, financial capital, and )nowledge across country borders. /his is illustrated by the followingC 7inancial capital might be obtained in one national mar)et and used to buy raw materials in another one. 9anufacturing eEuipment bought from another mar)et produce products sold in yet another mar)et. 0lobalization enhances the available range of opportunities for firms. @al-9art and Daimler1hrysler are two firms that have adFusted to rising globalization, the former by expanding sales into several other countries and the latter by integrating the operations of 9ercedes .enz and 1hrysler located around the globe. 4lso 1onsider that the globalization of mar)ets and industries ma)es it difficult to classify many firms as purely domestic. 7or example, 3onda is a maFor player in the global automobile industry thatC builds over *DM of cars for the .2. mar)et in the .2. recently decided to build a fourth .2. plant in 4labama to build 2 <s N while another automa)er, /oyotaC continues to reduce its Kapanese employment while expanding its global wor)force builds its 4valon sedan, 1amry coupe and station wagon, and 2ienna minivan in =entuc)y has constructed more than one million truc)s on a single assembly line.

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Chapter 1: Strategic Management and Strategic Competitiveness

4utomobile firms are more properly thought of as global companies striving for strategic competitiveness in the 21st-century competitive landscape. .ecause of the economic benefits, it is li)ely that the trend toward further globalization of industries will be unstoppable. 7or example, using the -urope- .2.-Kapan /riad as an example, free trade is expected to positively impact the /riad with aC ' to 1DM increase in annual economic outputs of manufactured goods and a 1' to 2DM additional increase in economic outputs from free trade in services /his potential for continued economic growth means that all industrialized nations must continue to see) the expansion of agreementsGsuch as the -uropean nion, 647/4 and 04//Gthat will eliminate national laws that impede free trade among all nations. 1ompanies of all sizes and in all industries will continue to feel continuing pressure from globalization, especially as 4sian mar)ets continue to develop outside of Kapan. 4nd the continuing increase of globalization and the spread of technology will li)ely enable other countries to develop their industrial bases as well. @hile globalization seems an attractive strategy for competing in the 21st-century competitive landscape, there are ris)s as well. /hese include such factors asC the Oliability of foreignnessP !i.e., the ris) of international diversification that exceeds control% overdiversification beyond the firm+s ability to successfully manage operations in multiple foreign mar)ets the difficulties that may accompany venturing into too many international mar)ets too Euic)ly Note* "ndicate that the ris)s that often accompany internationalization and strategies for minimizing their impact on firms will be discussed in more detail in 1hapter ,. Te&#no/o%0 and Te&#no/o%i&a/ C#an%e /hree technological trends and conditions are significantly altering the nature of competitionC increasing rate of technological change and diffusion the information age increasing )nowledge intensity Increasing ate o+ #ec&nological C&ange and ,i++usion .oth the rate of change and the introduction of new technologies have increased significantly over the last 1' to 2D years. 4 term that is used to describe rapid and consistent replacement of current technologies by new, information-intensive technologies is perpetual innovation. /his implies that innovationGto be discussed in more detail in 1hapter 13Gmust be continuous and carry a high priority for all organizations. /he shorter product life cycles that result from rapid diffusion of innovation often means that products may be replicated within very short time periods, placing a competitive premium on a firm+s ability to rapidly introduce new products into the mar)etplace. "n fact, speed-to-mar)et may become the sole source of competitive advantage. "n fact, this rapid diffusion of innovation may have made patents a source of competitive advantage only in the pharmaceutical and chemical industries as many firms do not file patent applications to safeguard !for at least a time% the technical )nowledge that would be disclosed explicitly in a patent application. Disruptive technologies !in line with the 2chumpeterian notion of Ocreative destructionP% can destroy the value of existing technology by replacing them with new ones. #&e In+ormation Age

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Chapter 1: Strategic Management and Strategic Competitiveness 1hanges in information technology have made rapid access to information available to firms all over the world, regardless of size. 1onsider the rapid growth in the following technologiesC personal computers !;1s%, wireless phones, computer, personal digital assistants !;D4s%, artificial intelligence, virtual reality, and massive data bases. /hese examples show how information is used differently as a result of new technologies. /he ability to access and use information has become an important source of competitive advantage in almost every industry. 1ompanies are being wired to lin) themselves to customers, employees, vendors and suppliers around the globe !e-business%. --business increased dramatically from J*., billion in 1LL* to J2'1 trillion in 2DDD. /he number of ;1s is expected to grow to 2*, million by 2D1D. /he "nternet and @orld @ide @eb provide an information-carrying infrastructure available to individuals and firms worldwide. /he ability to access a high level of relatively inexpensive information has created strategic opportunities for many information-intensive businesses. 7or example, retailers now can use the @eb to provide shopping to customers virtually anywhere. Increasing -no.ledge Intensit% "t is becoming increasingly apparent that )nowledgeGinformation, intelligence and expertiseGis a critical organizational resource, and increasingly, a source of competitive advantage. 4s a result, many companies are wor)ing to convert the accumulated )nowledge of employees into a corporate asset shareholder value is increasingly influenced by the value of a firm+s intangible assets, such as )nowledge Note* "ntangible assets will be discussed more fully in 1hapter 3. /he implication of this discussion is that, to achieve strategic competitiveness and earn above-average returns, firms must develop the ability to adapt rapidly to change or achieve strategic flexibility. Strategic +le/ibilit% represents the set of capabilitiesGin all areas of their operationsGthat firms use to respond to respond to the various demands and opportunities that are found in dynamic, uncertain environments. /his implies that firms must develop certain capabilities, includingC $rganizational slac) that affords firms with the ability to respond to environmental changes /he capacity to learn continuously, which provide the firm with new s)ill sets /wo models describing )ey strategic inputs to a firmHs strategic actions are discussed nextC the "ndustrial $rganization !or externally-focused% model and the 8esource-based !or internally-focused% model. Review Question 2. What are the characteristics o the 21st-centur! competitive "andscape? What two actors are the primar! drivers o this "andscape?

se the industrial organization !"#$% model to explain how firms can earn above-average returns.

THE I4O 'ODEL O( ABOVE AVERAGE RETURNS /he "#$ or "ndustrial $rganization model adopts an external perspective to explain that forces outside of the organization represent the dominant influences on a firmHs strategic actions. "n other words, this model presumes that the characteristics of and conditions present in the external environment determine the appropriateness of strategies that are formulated and implemented in order for a firm to earn above-average returns. "n short, the "#$ model specifies that the choice of industries in which to compete has more influence on firm performance than the decisions made by managers inside their firm. /he "#$ model is based on the following four assumptionsC

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Chapter 1: Strategic Management and Strategic Competitiveness 1. /he external environmentG the general, industry and competitive environments impose pressures and constraints on irms and determines strategies that !ill result in superior returns . "n other words, the external environment pressures the firm to adopt strategies to meet that pressure while simultaneously constraining or limiting the scope of strategies that might be appropriate and eventually successful. 9ost firms competing in an industry or in an industry segment control similar sets of strategically relevant resources and thus pursue similar strategies. /his assumption presumes that, given a similar availability of resources, the maFority of firms competing in a specific industryGor in a segment of the industryGhave similar capabilities and thus follow strategies that are similar. "n other words, there are few significant differences among firms in an industry. 8esources used to implement strategies are highly mobile across firms. 2ignificant differences in strategically relevant resources among firms in an industry tend to disappear because of resource mobility. /hus, any resource differences soon disappear as they are observed and acEuired or learned by other firms in the industry. $rganizational decision-ma)ers are assumed to be rational and committed to acting only in the best interests of the firm. /he implication of this assumption is that organizational decision-ma)ers will consistently exhibit profit-maximizing behaviors.

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S# A#EGIC FOCUS (/a5ed S $a e%ies, H!)$is, and En $en&#men -xciteQ3ome was formed in 1LLL by the J(.* billion merger of "nternet service provider 4t 3ome and -xcite.com, an "nternet portal. 7ounded on a Euestionable business plan, the combined firm ran up against rising debt, intense competition, service delivery problems, disagreements among board members, executive turnover, and sagging morale. /hese led to the firm+s ban)ruptcy in 2DD1. ;2"6et was an "nternet service provider that served as many as 1DD,DDD companies in 2* countries. "ts rapid growth through acEuisition was funded largely with debt, sometimes with Fun) bonds. /his burden led to the decline of firm performance as its acEuisition strategy failed to pan out. 3ewlett-;ac)ard has been needing to implement changes to adapt to its new environment, but it has encountered substantial internal retrenchment and external impatience. 1-$ 7iorina has attempted to implement substantial strategic and structural changes, but these have been resisted by internal managers and professional employees. 4s a result, firm performance has dropped considerably.

4ccording to the "#$ modelGwhich was a dominant paradigm from the 1L(Ds through the 1L,DsGfirms must pay careful attention to the characteristics of the industry in which they choose to compete, searching for one that is the most attractive to the firm, given the firmHs strategically relevant resources. /hen, the firm must be able to successfully implement strategies reEuired by the industryHs characteristics to be able to increase their level of competitiveness. /he ive orces model is an analytical tool used to address and describe these industry characteristics. FIGU E !"$ T#e I4O 'ode/ o+ A)o1e-A1e$a%e Re !$ns .ased on its four underlying assumptions, the "#$ model prescribes a five-step process for firms to achieve above-average returnsC 1. 2tudy the external environmentGgeneral, industry and competitiveGto determine the characteristics of the external environment that will both determine and constrain the firmHs strategic alternatives.

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Chapter 1: Strategic Management and Strategic Competitiveness 2. 2elect an industry !or industries% with a high potential for returns based on the structural characteristics of the industry. 4 model for assessing these characteristics, the Five Forces Model o Competition, will be discussed in 1hapter 2. .ased on the characteristics of the industry in which the firm chooses to compete, strategies that are lin)ed with above-average returns should be selected. 4 model or framewor) that can be used to assess the reEuirements and ris)s of these strategies, the "eneric Strategies #cost leadership $ di erentiation%, will be discussed in detail in 1hapter &. 4cEuire or develop the critical resourcesGs)ills and assetsGneeded to successfully implement the strategy that has been selected. 4 process for scrutinizing the internal environment to identify the presence or absence of critical s)ills will be discussed in 1hapter 3. 2)illenhancement strategies, including training and development will be discussed in 1hapter 11. /he "#$ model indicates that above-average returns will accrue to firms that successfully implement relevant strategic actions that enable the firm to leverage its strengths !s)ills and resources% to meet the demands or pressures and constraints of the industry in which they have elected to compete. /he implementation process will be described in 1hapters 1D through 13.

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/he "#$ model has been supported by research indicatingC 2DM of firm profitability can be explained by industry characteristics 3(M of firm profitability can be attributed to firm characteristics and the actions ta)en by the firm $verall, this indicates a reciprocal relationshipGor even an interrelationshipGbetween industry characteristics !attractiveness% and firm strategies that result in firm performance Review Question #. $ccording to the %&' mode", what shou"d a irm do to earn aboveaverage returns?

se the resource-based model to explain how firms can earn above average-returns.

THE RESOURCE-BASED 'ODEL O( ABOVE-AVERAGE RETURNS /he 8esource-.ased model adopts an internal perspective to explain how a firmHs uniEue bundle or collection of internal resources and capabilities represent the foundation upon which value-creating strategies should be built. esources are inputs into a firmHs production process, such as capital eEuipment, individual employeeHs s)ills, patents, brand names, finance and talented managers. /hese resources can be tangible or intangible. Capabilities are the capacity for a set of resources to integrativelyGor in combinationGperform a tas) or activity. FIGU E !"0 T#e Reso!$&e-Based 'ode/ o+ A)o1e-A1e$a%e Re !$ns /he 8esource-.ased model of above-average returns is grounded in the uniEueness of a firmHs internal resources and capabilities. /he five-step model describes the lin)ages between resource identification and strategy selection that will lead to above-average returns. 1. 2. Firms should identi y their internal resources and assess their strengths and !ea&nesses . /he strengths and wea)nesses of firm resources should be assessed relative to competitors. Firms should identi y the set o resources that provide the irm !ith capabilities that are uni'ue to the irm, relative to its competitors . /he firm

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Chapter 1: Strategic Management and Strategic Competitiveness should identify those capabilities that enable the firm to perform a tas) or activity better than its competitors. Firms should assess or determine the potential or their uni'ue sets o resources and capabilities to outper orm its competitors in terms o returns. Determine how a firm+s resources and capabilities can be used to gain competitive advantage. (ocate and compete in an attractive industry. Determine the industry that provides the best fit between the characteristics of the industry and the firm+s resources and capabilities. To attain a sustainable competitive advantage and earn above)average returns, irms should ormulate and implement strategies that enable them to better exploit their resources and capabilities to ta&e advantage o opportunities in the external environment than can their competitors .

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Review Question (. What does the Resource-)ased mode" suggest a irm shou"d do to earn above-average returns?

Describe strategic intent and strategic mission and discuss their value.

STRATEGIC INTENT AND STRATEGIC 'ISSION S $a e%i& In en Strategic intent is internally focused and is concerned with leveraging the firmHs internal resources, capabilities and core competencies to accomplish what at first may appear to be unattainable goals in the competitive environment. "t reflects what the firm is capable of doing given its core competencies and the uniEue ways these core competencies can be used to develop a sustainable competitive advantage that will result in above-average returns. 7rom a competitive perspective, strategic intent is about winningGbeating the competitionGin the battle for mar)et share and global dominance. 2trategic intent focuses employee performance through a firmwide commitment to achieve specific and significant performance measures. /o be effective, firms also must identify their competitorsH strategic intent!s% and extent of commitment to it. S $a e%i& 'ission 4 firmHs strategic mission is an externally focused application of its strategic intent that states the firmHs uniEue purpose and the scope of its operations in product and mar)et terms. "n competitive terms, the strategic mission provides general descriptions of products to be provided and mar)ets to be served using its uniEue sets of resources and capabilitiesGits core competencies. 4 firmHs strategic intent and strategic mission must provide the guidance that enables the firm to achieve the desired strategic outcomesGstrategic competitiveness and above-average returnsGillustrated in Figure 1.1 that enable the firm to satisfy the demands of those parties having an interest in the firmHs successC organizational sta)eholders. Review Question *. What are strategic intent and strategic mission? What is their va"ue or the strategic management process?

Define sta)eholders and describe their ability to influence organizations.

STAKEHOLDERS Stake&olders are the individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a firmHs performance.

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Chapter 1: Strategic Management and Strategic Competitiveness

C/assi+i&a ion o+ S a*e#o/de$s /he sta)eholder concept reflects that individuals and groups have a Rsta)eR in the strategic outcomes of the firm because they can be either positively or negatively affected by those outcomes and because achieving the strategic outcomes may be dependent upon the support or active participation of certain sta)eholder groups. FIGU E !"1 T#e T#$ee S a*e#o/de$ G$o!ps Figure 1.* provides a definition of a sta)eholder and illustrates the three general classifications and members of each sta)eholder groupC 1apital mar)et sta)eholders ;roduct mar)et sta)eholders $rganizational sta)eholders S# A#EGIC FOCUS Can Cis&o Sa is+0 A// o+ I s S a*e#o/de$s9 "n the 1LLDs, 1isco 2ystems generated more wealth for its shareholders than any other firm, and this allowed it to satisfy all of its maFor sta)eholders. .ut during the economic downturn, its stoc) price fell by almost *, percent and 1isco had to lay off employees. -scalating inventory only exacerbated concerns. /he firm+s performance seemed to stabilize in the latter part of 2DD1, and this may provide significant satisfaction for sta)eholders. Capi a/ 'a$*e S a*e#o/de$s P$od!& 'a$*e S a*e#o/de$s O$%ani2a iona/ S a*e#o/de$s Stake&older Groups2 3embers&ip and Primar% E/pectation or ,emand Stake&older group Capi a/ ma$*e P$od!& ma$*e 3embers&ip 2hareholders 5enders 1ustomers 2uppliers 3ost communities nions O$%ani2a iona/ -mployees Primar% e/pectation4demand @ealth enhancement @ealth preservation ;roduct reliability at lowest possible price 8eceive highest sustainable prices 5ong-term employment, tax revenues, minimum use of public support services "deal wor)ing conditions and Fob security for membership 2ecure, dynamic, stimulating and rewarding career environment

"f the firm is strategically competitive and earns above average returns, it can afford to simultaneously satisfy all sta)eholders. @hen earning average or below-average returns, tradeoffs must be made. 4t the level of average returns, firms must minimally satisfy all sta)eholders. @hen returns are below average, some sta)eholders can be minimally satisfied, while others may be dissatisfied.

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Chapter 1: Strategic Management and Strategic Competitiveness

7or example, reducing the level of research and development expenditures !to increase short-term profits% enables the firm to pay out the additional short-term profits to shareholders as dividends. 3owever, if reducing 8ID expenditures results in a decline in the long-term strategic competitiveness of the firmHs products or services, it is possible that employees will not enFoy a secure or rewarding career environment !this also violates a primary union expectation or demand for Fob security for its membership%. 4t the same time, customers may be offered products that are less reliable at unattractive prices, relative to those offered by firms that did not reduce 8ID expenditures. /hus, the sta)eholder management process may involve a series of trade-offs that is dependent on the extent to which the firm is dependent on the support of each affected sta)eholder and the firmHs ability to earn above-average returns. Review Question +. What are sta,eho"ders? -ow do the three primar! sta,eho"der groups in "uence organi.ations?

Describe strategists+ wor).

ORGANI;ATIONAL STRATEGISTS @ho are organizational strategists> @hile it is dependent on the size of the organization, all organizations have a 1-$ or top manager and this individual is the primary organizational strategist in every organization. 2mall organizations may have a single strategistC the 1-$ or owner. 5arge organizations may have few or several top-level managers, executives or a top management team. 4ll of these individuals are organizational strategists. @hat are the responsibilities of organizational strategists> /op managers play decisive roles in firms+ efforts to achieve their desired strategic outcomes. 4s organizational strategists, top managers are responsible for deciding how resources will be developed or acEuired, at what cost and how they will be used or allocated throughout the organization. 2trategists also must consider the ris)s of actions under consideration, along with the firm+s strategic intent and managers+ strategic orientations. $rganizational strategists also are responsible for determining ho! the organization does business. /his responsibility is reflected in the organi)ational culture, which refers to the complex set of ideologies, symbols, and core values shared throughout the firm and that influences the way it conducts business. /he organization+s culture is the social energy that drivesGor fails to driveGthe organization. T#e Wo$* o+ E++e& i1e S $a e%is s @hile it seems simplistic, performing their role effectively reEuires strategists to wor) hard, perform thorough analyses of available information, be brutally honest, exercise common sense, thin) clearly, and as) Euestions and listen. 4dditionally, the proliferation of e-commerce reEuires strategists to emphasize speed and flexibilityG)ey sources of competitive advantage. 2trategists face ambiguous decision situations, but also have opportunities to dream and act in concert with a compelling strategic intent that motivates others in creating competitive advantage. P$edi& in% O! &omes o+ S $a e%i& De&isions /op-level managers try to predict the outcomes of their strategic decisions before they are implemented, but this is sometimes very difficult to do. /hose firms that do a better Fob of anticipating the outcomes of strategic moves will obviously be in a better position to succeed. $ne way to do this is by mapping out the profit pools of an industry. P$o+i poo/s are the total profits earned in an industry at all points along the value chain. 7our steps are involvedC 1. Define the pool+s boundaries

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Chapter 1: Strategic Management and Strategic Competitiveness 2. 3. &. -stimate the pool+s overall size -stimate the size of the value-chain activity in the pool 8econcile the calculations

Review Question /. -ow wou"d !ou describe the wor, o organi.ationa" strategists?

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-xplain the strategic management process.

THE STRATEGIC 'ANAGE'ENT PROCESS 1hapters 2 and 3 will provide more detail regarding the strategic inputs to the strategic management processC assessments of the firmHs external and internal environments that must be performed so that sufficient )nowledge is developed regarding external opportunities and internal capabilities. /his enables the development of the firmHs strategic intent and strategic mission. 1hapters & through L discuss the strategy formulation stage of the process. /opics covered includeC Deciding on business-level strategy, or how to compete in a given business !1hapter &% nderstanding competitive dynamics, in that strategies are not formulated and implemented in isolation but reEuire understanding and responding to competitorsH actions !1hapter '% 2etting corporate-level strategy, or deciding in which industries or businesses the firm will compete, how resources will be allocated and how the different business units will be managed !1hapter (% /he acEuisition of business units and the restructuring of the firm+s portfolio of businesses !1hapter *% 2electing appropriate international strategies that are consistent with the firmHs resources, capabilities and core competencies, and external opportunities !1hapter ,% Developing cooperative strategies or advantageous relationships with other firms to gain competitive advantage !1hapter L% /he final section of the text, 1hapters 1D-13, examines actions necessary to effectively implement strategiesC 9ethods for governing to ensure satisfaction of sta)eholder demands and attainment of strategic outcomes !1hapter 1D% 2tructures that are used and actions ta)en to control a firmHs operations !1hapter 11% ;atterns of strategic leadership that are most appropriate given the competitive environment !1hapter 12% 5in)ages among corporate entrepreneurship, innovation and strategic competitiveness !1hapter 13% Review Question 0. What are the e"ements o the strategic management process? -ow are the! interre"ated?

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