Strategic Management:

Concepts and Cases

Part I: Strategic Management Inputs

Chapter 1: Strategic Management and Strategic
Competitiveness

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 Chapter 1: Strategic Management and
Strategic Competitiveness

 Overview: Eight content areas

 Nature of Competition
 The 21st Century Competitive Landscape
 I/O Model of Above-Average Returns (AAR)
 Resource-Based Model of AAR
 Strategic Vision and Mission
 Stakeholders
 Strategic Leaders
 The Strategic Management Process

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 Nature of Competition: Boeing vs. Airbus

 Boeing
 Historically a global leader in airplane manufacturing
 Revenue from commercial aircraft division & gov’t contracts
 Regained supremacy in 2006: more 787 super jumbo
orders vs. Airbus’s more efficient A-380
 Changed strategy and design
 Different production process
 Smaller plane (787 Dreamliner)
 Airbus
 EU Government owned and subsidized
 Won competitor battle with Boeing between 2001 & 2005
 Responded to customer demands with more efficient A-380
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aircraft
 Nature of Competition: Basic concepts
 Strategic Competitiveness
 Achieved when a firm formulate & implements a value-creating
strategy
 Strategy
 Integrated and coordinated set of commitments and actions designed
to exploit core competencies and gain a competitive advantage
 Competitive Advantage (CA)
 Implemented strategy that competitors are unable to duplicate or find
too costly to imitate
 Above Average Returns
 Returns in excess of what investor expects in comparison to other
investments with similar risk
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 Nature of Competition: Basic concepts (Cont’d)

 Risk
 Investor’s uncertainty about economic gains/losses
resulting from a particular investment
 Average Returns
 Returns equal to what investor expects in comparison to
other investments with similar risk
 Strategic Management Process (SMP)
 Full set of commitments, decisions and actions required for
a firm to achieve strategic competitiveness and earn above
average returns
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The Strategic Management Process

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 Chapter 1: Strategic Management and
Strategic Competitiveness

 Overview: Eight content areas

 Nature of Competition
 The 21st Century Competitive Landscape
 I/O Model of Above-Average Returns (AAR)
 Resource-Based Model of AAR
 Strategic Vision and Mission
 Stakeholders
 Strategic Leaders
 The Strategic Management Process

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 21st Century Competitive Landscape
 Introduction: The Competitive Landscape (CL)
 Pace of change is rapid
 Partnerships created by mergers & acquisitions (M&As)
 Other CL characteristics: Economies of scale, advertising
budgets not as effective as before, change in managerial
mind-set from “traditional” to more flexible and innovative

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 21st Century Competitive Landscape (Cont’d)

 Introduction: The Competitive Landscape (CL)

 Hypercompetition – extremely intense rivalry among
competing firms, characterized by
 Escalating & increasingly aggressive competitive moves

 Assumptions of market stability replaced with notion of

INstability and change

 Two primary drivers of the competitive landscape:
 The global economy

 Technology

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 21st Century Competitive Landscape (Cont’d)

 The Global Economy

 Goods, services, people, skills and ideas move freely
across geographic borders
 Europe, through the European Union (EU) is the world’s
largest single market
 EU vs U.S. GDP: 35% higher
 Emerging major competitive forces: China & India
 In summary: globalization increased economic
interdependence among countries as reflected in the flow
of goods and services, financial capital, and knowledge
across country borders
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 21st Century Competitive Landscape (Cont’d)

 Technology and Technological Changes

 3 categories:
 1. Technology diffusion & disruptive
technologies
 2. The information age

 3. Increasing knowledge intensity

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 21st Century Competitive Landscape (Cont’d)

 Technology and Technology Changes (Cont’d)

 Technology diffusion
 Perpetual innovation: describes how new information-
intensive technologies are replacing older forms
 Speed to market may be primary competitive advantage
 12 – 18 month timeframe to gather info re: competitor R&D
 Disruptive technologies
 Technologies that
 Destroy value of existing technology
 Create new markets

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 21st Century Competitive Landscape (Cont’d)

 Technology and Technology Changes (Cont’d)

 1. Technology diffusion & disruptive technologies

 2. The information age
 3. Increasing knowledge intensity

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 21st Century Competitive Landscape (Cont’d)

 Technology and Technology Changes (Cont’d)

 The information age

 Dramatic changes over last several years

 Major technological developments: computers, phones, artificial

intelligence, virtual reality

 Internet provides infrastructure for information anytime,

anywhere
 Increasing knowledge intensity
 Defined as information, intelligence & expertise and is the basis

of technology and its application

 Gained through experience, observations and inferences

 Strategic Flexibility – set of capabilities used to respond to

various demands and opportunities existing in a dynamic and

uncertain competitive environment
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 Chapter 1: Strategic Management and
Strategic Competitiveness

 Overview: Eight content areas

 Nature of Competition
 The 21st C Competitive Landscape
 I/O Model of Above-Average Returns (AAR)
 Resource-Based Model of AAR
 Strategic Vision and Mission
 Stakeholders
 Strategic Leaders
 The Strategic Management Process

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 Industrial
Organizational
(I/O) Model of
Above-
Average
Returns (AAR)

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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)

 Basic Premise – to explain the dominant

influence of the external environment on a
firm's strategic actions and performance

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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)

 Underlying Assumptions
 External environment imposes pressures and constraints
that determine the strategies resulting in AAR
 Most firms compete within a particular industry/segment
Control similar strategically relevant resources


 Pursue similar strategies in light of those resources

 Resources for implementing strategies are highly mobile

across firms
 Therefore any resource differences between firms will be short-

lived
 Organizational decision makers are rational and committed
to acting in the firm's best interests, as shown by their profit-
maximizing behaviors
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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)

 Five-Forces Model (Michael Porter)

 The 5 Forces includes
 Suppliers, buyers, competitive rivalry, product substitutes
and potential entrants
 Reinforces the importance of economic theory
 Analytical tool previously lacking in the field of strategy
 Determines the nature/level of competition and profit
potential in an industry
 Suggests an industry’s profitability is an interaction
between these 5 forces

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 Industrial Organizational (I/O) Model of
Above-Average Returns (AAR) (Cont’d)
 Limitations
 Only two strategies are suggested:
 Cost Leadership
 THE low-cost leader
 Differentiation
 Customer willing to pay the premium price for ‘being
different’
 Internal resources & capabilities not considered

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 The
Resource-
Based
Model of
AAR

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The Resource-Based Model of AAR (Cont’d)

 Basic Premise - a firm's unique [internal]

resources & capabilities, in combination, is the
basis for firm strategy and AAR
 Each firm’s performance difference across time
emerges (vs industry’s structural characteristics)
 Combined uniqueness should define the firms’
strategic actions
 Resources are tangible and intangible

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The Resource-Based Model of AAR (Cont’d)

 Resources
 Inputs into a firm's production process
 Includes capital equipment, employee skills, patents,
high-quality managers, financial condition, etc.
 Basis for competitive advantage: When resources are
valuable, rare, costly to imitate and nonsubsitutable
 Internal/firm-specific resources (N=3)
 Physical
 Things you can touch/feel = tangible
 Human
 People / employees
 Organizational capital
 Relative to the firm itself 23
 The Resource-Based Model of AAR (Cont’d)

 Capability
 Capacity for a set of resources to perform a task or
activity in an integrative manner
 Core Competency
 A firm’s resources and capabilities that serve as sources
of competitive advantage over its rival
 Summary
 A firm has superior performance because of
 Unique resources and capabilities, and the combination
makes them different, and better, than their competition –
driving the competitive advantage
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 Chapter 1: Strategic Management and
Strategic Competitiveness

 Overview: Eight content areas

 Nature of Competition
 The 21st C Competitive Landscape
 I/O Model of Above-Average Returns (AAR)
 Resource-Based Model of AAR
 Strategic Vision and Mission
 Stakeholders
 Strategic Leaders
 The Strategic Management Process

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 Vision and Mission

 Vision
 Picture of what the firm wants to be
 What the firm ultimately wants to achieve
 An effective vision statement is the responsibility of the leader
who should work with others to form it
 Foundation for the mission

 Mission
 Specifics business(es) in which firm intends to compete and
customers it intends to serve
 More specific than the vision

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 Stakeholders

 Basic Premise – a firm can effectively manage

stakeholder relationships to create a competitive
advantage and outperform its competitors
 Stakeholders are individuals and groups
 They can affect, and are affected by, the strategic
outcomes/performance a firm achieves
 Three (3) classifications

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The Three Stakeholder Groups

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 Stakeholders (Cont’d)

 Classifications of Stakeholders
 Capital Market
 Expect returns commiserate with risk accepted by
investments
 Higher the dependency relationship, the more direct
and significant firm’s response
 Product Market
 The 4 groups benefit due to competitive battles
 Organizational
 The employees
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 Chapter 1: Strategic Management and
Strategic Competitiveness

 Overview: Eight content areas

 Nature of Competition
 The 21st C Competitive Landscape
 I/O Model of Above-Average Returns (AAR)
 Resource-Based Model of AAR
 Strategic Vision and Mission
 Stakeholders
 Strategic Leaders
 The Strategic Management Process

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 Strategic Leaders

 People located in different parts of the firm using

the strategic management process to help the firm
reach its vision and mission
 Decisive and committed to nurturing those around them
 Create and sustain organizational culture
 Organizational culture emerges from & sustained by
leaders
 Complex set of ideologies, symbols and core values
shared throughout the firm
 Affects leaders/their work which in-turn shapes culture
 Influences how the firm conducts business
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 Strategic Leaders (Cont’d)

 The Work of Effective Strategic Leaders

 Work long hours
 Must be able to “think seriously and deeply…about
the purposes of the organizations they head or
functions they perform, about strategies, tactics,
…..and people…and about the important questions
… they need to ask.”
 Predicting Outcomes: Profit Pools (PP)
 Anticipates their decisions relative to the PP
 Entails the total profits earned in an industry at all
points along the value chain
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 Strategic Management Process

 Rational approach used by firms to achieve

strategic competitiveness and earn above
average returns (AAR)
 Figure 1.1 (Diagram of chapter relationships)
 Part 1: Strategic Mgmt Inputs
 Part 2: Strategic Actions: Strategy Formulation
 Part 3: Strategic Actions: Strategy Implementation
 Part 4: Cases

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