Welcome To A Session On Strategic Management and Strategic Competitiveness

Dr.D.Bhattacharjee

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Reference : Chapter 1

Strategic Management and Strategic Competitiveness

Michael A. Hitt R. Duane Ireland Robert E. Hoskisson
Dr.D.Bhattacharjee

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Learning Objectives
What is meant by strategy ? What are strategic competitiveness, competitive advantage, and above average returns ? What is meant by strategic management process ? What is competitive landscape and how is it being shaped by global and technological changes ? What are the models that may be used to explain how the firm can earn above average returns ?
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What is meant by strategy?

A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. A strategy of a firm may also be viewed as a comprehensive plan stating how the firm will achieve its mission and objectives.

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What are objectives?

Objectives are the end results of planned activity. They state what is to be accomplished. The achievement of corporate objectives should result in the fulfillment of the corporations mission.

What is meant by goal?

A goal is an open-ended statements of what one wishes to accomplish that are temporal, time-

phased and intended to be superseded by subsequent goals.

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The difference between goals and objectives may be stated in terms of the following points:
Time frame: Objectives are timeless, enduring and unending; while goals are temporal, time-phased and intended to be superseded by subsequent goals. Specificity: Objectives are stated in broad general terms, dealing with matters of image, style and self perception, while goals are specific, stated in terms of a particular result that will be accomplished by a specific date.

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The difference between goals and objectives may be stated in terms of the following points:
Focus: Objectives are usually stated in terms of some relevant environment which is external to the firm, while goals are more internally focused and carry important implications about how resources of the organization are utilized or will be utilized in future.

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Strategic flexibility?
Strategic flexibility is a set of capabilities firms use to respond to various demands and opportunities that are a part of dynamic and uncertain competitive environment. Strategic Competitiveness
It is achieved when a firm successfully formulates and implements a value-creating strategy

Sustained Competitive Advantage

This occurs when a firm develops a strategy that competitors are not simultaneously implementing and provides benefits which current and potential competitors are unable to duplicate Dr.D.Bhattacharjee

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Average Returns
Average returns refer to returns equal to those an investor expects to earn from other investments with a similar amount of risk .

Above-Average Returns
Above average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk .

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What is strategic management ?

Strategic management is an ongoing process in which the organization defines the nature of the business in which the firm will be active, the kind of economic and human organization it intends to be, and the nature of the contribution it intends to make to its various constituents. [ White and Bruton ]

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What is strategic management ?

The strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn aboveaverage returns .

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The Strategic Management Process

Involves the full set of:

Commitments

Decisions

Actions

which are required for firms to achieve:

Strategic Competitiveness Sustained Competitive Advantage Above-Average Returns

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Behavioral Effects of Strategic Management

Strategy formulation activities enhance the problem prevention capabilities of the firm Group-based strategic decisions are most likely to reflect the best available alternatives Employee motivation is improved as employees better appreciate the productivity-reward relationship inherent in every strategic plan Gaps and overlaps in activities among diverse individuals and groups are reduced as participation in strategy formulation leads to clarification of role differentiations Resistance to change is reduced. Dr.D.Bhattacharjee

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What are the parts of the strategic management process ? How are these parts interrelated?

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Strategic Inputs

External Environment

Vision Mission

Internal Environment

The Strategic Management Process

Strategy Implementation
Corporate Governance Structure & Control
Entrepreneurship

Strategy Formulation
Business-Level Strategy Competitive Dynamics International Strategy Corporate-Level Strategy

Strategic Actions

Acquisitions & Restructuring

Cooperative Strategies

Strategic Leadership

& Innovation

Strategic Outcomes

Feedback

Strategic Competitiveness Above Average Returns

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What is meant by a company mission?

A company mission is defined as the fundamental, unique purpose that sets a business apart from other firms of its type and identifies the scope of its operations in product and market terms.

What a company mission is designed to accomplish ?

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The need for an explicit mission

To ensure unanimity of purpose within the organization To provide a basis for motivating the use of organizations sources To develop a basis, or standard, for allocating organizational resources To establish a general tone or organizational climate, e.g., to suggest a businesslike operation

Continued Dr.D.Bhattacharjee

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The need for an explicit mission

To serve as a focal point for those who can identify with the organizations purpose and direction ; and to deter those who cannot from participating further in the organizations activities To facilitate the translation of objectives and goals into a work structure involving the assignment of tasks to responsible elements within the organization To specify organizational purposes and the translation of these purposes into goals in such a way that cost , time , and performance parameters can be assessed and controlled

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What are fundamental elements of a mission statement ?

Belief that products or service can provide benefits at least equal to its price Belief that the products or services can satisfy a customer need currently not met adequately for specific market segments Belief that the technology to be used in production will provide a products or service that is cost and quality competitive Continued Dr.D.Bhattacharjee

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What are fundamental elements of a mission statement ?

Belief that with hard work and the support of others that business can do better than just survive , it can grow and be profitable Belief that the management philosophy of the business will result in a favorable public image and will provide financial and psychological rewards for those willing to invest their labor and money in helping the farm to succeed Belief that the entrepreneurs self concept of the business can be communicated to and adopted by employees and stockholders

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Key Themes
Challenge of Strategic Management Changing Competitive Landscape Two Models of Superior Profitability Industrial Organization Model Resource-Based Model Key Stakeholder Groups
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Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed Competitive success is transient...unless care is taken to preserve competitive position
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Challenge of Strategic Management

Best Stocks of the Decade

The goals of achieving strategic competitiveness and earning aboveaverage returns are challenging The performance of some companies more than meets strategic management's challenge
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21st Century Competitive Landscape

Fundamental nature of competition is changing
Rapid technological changes Rapid technology diffusions Dramatic changes in information and communication technologies Increasing importance of knowledge Dr.D.Bhattacharjee

The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as...
Computers Telecommunications

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21st Century Competitive Landscape

The global economy is changing
People, goods, services and ideas move freely across geographic boundaries New opportunities emerge in multiple global markets Markets and industries become more internationalized Dr.D.Bhattacharjee

Traditional sources of competitive advantage no longer guarantee success New keys to success include:
Flexibility Innovation Speed Integration

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21st Century Competitive Landscape

A countrys competitiveness is achieved through the accumulation of individual firms strategic competitiveness in the global economy Achieving improved competitiveness allows a country's citizens to have a higher standard of living Country Competitiveness Rankings
1999 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1998 1 3 2 6 5 8 10 4 7 11 15 14 13 12 9 17 16 30 23 20 18 19 22 27 24 25 Country Singapore United States Hong Kong Taiwan Canada Switzerland Luxembourg United Kingdom Netherlands Ireland Finland Australia New Zealand Japan Norway Malaysia Denmark Iceland Sweden Austria Chile Korea France Belgium Germany Spain Competitiveness Index 1999 2.12 1.58 1.41 1.38 1.33 1.27 1.25 1.17 1.13 1.11 1.11 1.04 10.1 1.00 0.92 0.86 0.85 0.59 0.58 0.37 0.57 0.46 0.44 0.39 0.37 0.16 Competitiveness Index 1998 2.16 1.41 1.91 1.19 1.27 1.10 1.05 1.29 1.13 1.05 0.70 0.79 0.84 0.97 1.09 0.59 0.61 -0.18 0.25 0.37 0.57 0.39 0.25 -0.03 0.15 0.02

What are models of superior returns?

Industrial organization Model Resource-based model

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I/O Model of Superior Returns

The Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.

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What are the underlying assumptions of I/O Model?

Industrial organization Model Resource-based model

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I/O Model of Superior Returns

External Environment
General Environment Industry Environment Competitive Environment

Action required: 1. Study the external environment, especially the industry environment.

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I/O Model of Superior Returns

External Environment An Attractive GeneralIndustry Environment
Industry Environment An industry whose Competitive structural characteristics Environment above-average suggest returns are possible

Action required: 2. Locate an industry with high potential for aboveaverage returns.

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I/O Model of Superior Returns

External Environment Attractive GeneralIndustry Environment Industry Environment Strategy An industry whose Formulation Competitive structural characteristics Action required: 3. Identify strategy called for by the industry to earn above-average returns.

Environment above-average a strategy Selection of suggest returns are linked with abovepossible average returns in a particular industry

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I/O Model of Superior Returns

Action required: External 4. Develop or acquire Environment Attractive assets and skills needed to GeneralIndustry Environment implement the strategy. Strategy Industry Environment An industry whose Formulation Competitive structural characteristics Environment above-averageAssets and Skills Selection of a strategy suggest
returns arelinked with abovepossible Assets and average returns in a skills required particular industry to implement a chosen strategy

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I/O Model of Superior Returns

Action required: External 5. Use the firms Environment Attractive strengths (its assets or GeneralIndustry Environment skills) to implement the Strategy Industry Environment strategy. An industry whose Formulation Competitive structural characteristics Environment above-averageAssets and Skills Selection of a strategy suggest
returns arelinked with abovepossible Assets and skills average returns in a Strategy required Implementation particular industry to implement a chosen strategy Selection of strategic actions linked with effective implementation of the chosen strategy

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I/O Model of Superior Returns

Action required: External 6. Maintain selected strategy Environment Attractive in order to outperform GeneralIndustry Environment industry rivals. Strategy Industry Environment An industry whose Formulation Competitive structural characteristics Environment above-averageAssets and Skills Selection of a strategy suggest
returns arelinked with abovepossible Assets and skills average returns in a Strategy required Implementation particular industry to implement a chosen strategy Superior Returns Selection of strategic actions linked with Earning of aboveeffective implementation average returns of the chosen strategy

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Resource-Based Model of Superior Returns

The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

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Resource-Based Model of Superior Returns

Resources
Inputs to a firms production process.

Action required: 1.Identify firm resources. Study strengths and weaknesses relative to rivals.

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Resource-Based Model of Superior Returns

Resources Capability Action required: 2. Determine what firm capabilities allow it to do better than rivals.

Inputs to a firms production process. an integrated Capacity for set of resources to perform a task or activity.

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Resource-Based Model of Superior Returns

Resources Capability Action required: 3. Determine how firms resources and capabilities may create competitive advantage.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform a Ability task or activity. of a firm to outperform its rivals

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Resource-Based Model of Superior Returns

Resources Capability Action required: 4. Locate an attractive industry.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivals Location of an industry with opportunities that can be exploited by the firms resources and capabilities

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Resource-Based Model of Superior Returns

Resources Capability Action required: 5. Select strategy that best exploits resources and capabilities relative to opportunities in environs.

Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivalsStrategy Location of an Formulation and industry with opportunities that can Implementation be exploited by the Strategic actions taken to firms resources and earn capabilities above-average returns

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Resource-Based Model of Superior Returns

Action required: Resources Capability
Inputs to a firms production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivalsStrategy Location of an Formulation and industry with Superior opportunities that can Implementation Returns be exploited by the Strategic actions taken to firms resources and Earning of aboveearn average capabilities above-averagereturns returns

6. Maintain selected strategy in order to outperform industry rivals.

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Alternative Models of Superior Returns

Industrial Organization Industrial Organization Model Model
The External Environment The External Environment An Attractive Industry An Attractive Industry Strategy Formulation Strategy Formulation Assets and Skills Assets and Skills Strategy Implementation Strategy Implementation Superior Returns Superior Returns Dr.D.Bhattacharjee

Resource-Based Resource-Based Model Model

Resources Resources Capability Capability Competitive Advantage Competitive Advantage An Attractive Industry An Attractive Industry Strategy Implementation Strategy Implementation Superior Returns Superior Returns

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When do resources and capabilities lead to competitive advantage?

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Resources and capabilities lead to Competitive Advantage when they are:

Valuable Rare
allow the firm to exploit opportunities or neutralize threats in its external environment possessed by few, if any, current and potential competitors

Costly to Imitate when other firms either cannot obtain them

or must obtain them at a much higher cost

Nonsubstitutable the firm must be organized appropriately to

obtain the full benefits of the resources in order to realize a competitive advantage Dr.D.Bhattacharjee

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When these four criteria are met, Resources and Capabilities become:

Core Competencies

Core competencies are resources and capabilities that can serve as a source of competitive advantage for a firm over its rivals. The resource-based model argues that core competencies are the basis for a firms competitive advantage, strategic competitiveness and ability to earn above-average returns.
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Strategic Intent
Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies.

Strategic Mission
An application of strategic intent in terms of products to be offered and markets to be served.
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Strategic Intent
BUSINESS WEEKSS 10 Top Managers of the Year, 1999

The most effective strategists provide a vision (strategic intent) to effectively elicit the help of others in creating a firm's competitive advantage.

Name Minoru Arakawa

Company Nintendo America

Strategic Accomplishment Scored huge hit by bringing Pok mon to U.S. over objections of co-workers and negative market research From just 23 in Oct. 98, LVMHs U.S. shares have vaulted 280%, to about 87 Profits should jump 46%, to $2.3 billion for fiscal year 1999. Sales are expected to grow 25%, to $38 billion After his company was labeled racist, attracted minorities to key jobs, including treasurer Ira Hall, a former IBM executive Boosted stock price by around 100% last year, to about $54 Deals to broaden AOLs availability and services will help boost income 102% this fiscal year, to $800 million Broadened Cisco into strategic businesses such as software, consulting, and fiber-optic communications Reduced internal conflicts and spurred growth through management changes Acquired rival French oil company ELF Aquitaine for $44 billion. Shares up about 35% in 99, as profits expected to grow 20%, to $3.1 billion Turned toward more profitable data, Internet, and international operations

Bernard Arnault Arthur Blank

LVMH Home Depot

Peter Bijur

Texaco

Gordon Binder Steve Case

Amgen America Online

John Chambers

Cisco Systems

Jim Curvey Thierry Desmarest

Fidelity Investments Totalfina

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Bernie Ebbers

MCI Worldcom

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Stakeholders
Stakeholders are the individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforeseeable claims on a firms performance .
What are various categories of stakeholders ? What are their expectations ? How would you match the expectations with those of companys strategies?
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Stakeholders:

Groups who are affected by a firms performance and who have claims on its wealth

The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders

Capital Market

Firm
Product Market
Primary Customers Suppliers

Stock market/Investor Debt suppliers/Banks

Organizational
Employees Managers Non-Managers

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Stakeholder Involvement
Each of the key stakeholders wants a piece of the same pie

How do you divide the pie in order to keep all of the stakeholders involved?

How do you increase the size of the pie so that there is more to go around? Dr.D.Bhattacharjee

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Who are responsible for the design and execution of an effective strategic management process?
Strategists themselves, people with opportunities to dream and to act, are responsible for the said job.

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Strategic Inputs

External Environment

Strategic Intent Strategic Mission

Internal Environment

The Strategic Management Process

Strategy Implementation
Corporate Governance Structure & Control
Entrepreneurship

Strategy Formulation
Business-Level Strategy Competitive Dynamics International Strategy Corporate-Level Strategy

Strategic Actions

Acquisitions & Restructuring

Cooperative Strategies

Strategic Leadership

& Innovation

Outcomes

Strategic

Feedback

Strategic Competitiveness Above Average Returns

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Thank You For Attending the Session

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