Chapter 1: Strategic Management and Strategic Competitiveness

Firms without a competitive advantage or those that do not compete in an attractive industry earn, at best

average returns

As a source of competitive advantage, a capability must not

be easily imitated but also not too complex to understand and manage.

Core competencies are

capacities that serve as a source of competitive advantage for a firm over its rivals.

Globalization is a product of a large number of firms

competing against one another in an increasing number of global economies.

Risk

an investor's uncertainty about the economic gains or losses that that will result from a particular investment.

The global economy significantly

expands and complicates a firm's competitive environment.

Firms achieve strategic competitiveness by

formulating and implementing a value-creating strategy.

A Global Economy

is one in which goods, services, people, skills, and ideas move freely across geographic borders.

Rare

possessed by few, if any, current and potential competitors

Costly to imitate

are difficult for other firms to obtain

A mission specifies

the businesses in which the firm intends to compete and the customers it intends to serve.

A capability is

the capacity for a set of resources to perform a task or an activity in an integrative manner.

The I/O model suggests that returns are influenced more so by

the characteristics of the external environment than a firm's unique internal resources and capabilities

Organizational culture refers to

the complex set of ideologies, symbols, and core values that individuals throughout the firm share and that influence how the firm conducts business.

When earning only average returns,

the firm must satisfy each stakeholder group's minimal expectations.

Conditions in the firm's external environment and internal organization influence

the forming of a vision statement.

The vision and mission provide

the foundation the firm needs to choose and implement one or more strategies.

The Strategic Management Process

the full set of commitments, decisions, and actions firms take to achieve strategic competitiveness and earn above-average returns

The competitive landscape

the fundamental nature of competition in many of the world's industries is changing.

Globalization

the increasing economic interdependence among countries and their organizations as reflected in the flow of products, financial capital, and knowledge across country borders.

The I/O model challenges firms to find

the most attractive industry in which to compete

Host communities

the national, state/province, and local government entities with which the firm interacts

Digitalizaiton

the process of converting something to digital form

Technology diffusion

the speed at which new technologies become available to firms and when firms choose to adopt them.

A strategy is

an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

Vision is

a picture of what the firm wants to be and, in broad terms, what it wants to achieve.

Strategic flexibility is

a set of capabilities firms use to respond to various demands and opportunities existing in today's dynamic and uncertain competitive environment.

Hypercompetition is a condition of rapidly escalating competition based on:

-price-quality positioning -competition to create new know-how and establish first-mover advantage -competition to protect or invade established product an/or geographic markets

Globalization has led to higher performance standards with respect to:

-quality -cost -productivity -product introduction time -operational efficiency

Three categories of technology-related trends and conditions that affect today's firms:

1. Technology diffusion and disruptive technologies 2. The information age 3. Increasing knowledge intensity

Capital market Stakeholders

-Shareholders and lenders expect a firm to preserve and enhance their wealth.

The Information Age- Data and Information are vital to firms' efforts to:

-Understand customers and their needs -implement strategies in ways that satisfy customers' needs -implement strategies in ways to satisfy the interests of all other stakeholders

A vision statement:

-articulates the ideal description of an organization and gives shapes to its intended future -tends to be relatively short and concise

A mission:

-is more concrete than a firm's vision -should establish a firm's individuality -should be inspiring and relevant to all stakeholders -deals more directly with product markets and customers -should be developed by the CEO, top-level managers, and other organizational members -has a higher probability of being effective when employees have a strong sense of ethics.

Strategic flexibility:

-is not easy to build, largely because of inertia that can build over time -requires developing the capacity for continuous learning and applying quickly the new and up-to-date skill sets achieved from learning -increases the probability of dealing successfully with uncertain, hypercompetitive environments

Increasing Knowledge Intensity- Knowledge:

-consists of information, intelligence, and expertise -Is the basis of technology and its application -Is acquired through experience, observation, and inference -Is developed by firms through training programs -Is acquired by firms by hiring educated and experienced employees -Must be integrated into the organization to create capabilities and then applied to gain a competitive advantage -Is necessary to create innovations

Strategic leaders are:

-decisive -committed to nurturing those around them -committed to helping the firm create value for all stakeholder groups

Expected returns are correlated with the investments' degree of risk:

-low-risk investments= lower returns -high-risk investment= higher returns

The logic of the I/O model is that the profitability potential of an industry or a segment of it as well as the actions firms should take to operate profitably are determined by a set of industry characteristics, including:

-economies of scale -barriers to market entry -diversification -product differentiation -the degree of concentration of firms in the industry -market frictions

Organizational Stakeholders- Employees:

-expect the firm to provide a dynamic, stimulating, and rewarding work environment -generally prefer to work for a growing company in which they can develop their skills -are critical to organizational success when they learn how to use new knowledge productively

Managers must adopt a new mind-set that values:

-flexibility -speed -innovation -integration -the challenges flowing from constantly changing conditions

Prerequisites to an individual's success as a strategic leader:

-hard work -thorough analyses -a willingness to be brutally honest -a penchant for wanting the firm and its people to achieve success -tenacity

Strategic leaders must:

-have a strong strategic orientation while embracing change in today's dynamic competitive landscape -be innovative -promote innovation in their organization to deal with change effectively -have a global mind-set

Globalization is not without risks

-"liability of foreignness" -the amount of time required to learn to compete in new markets -entering too many global markets either simultaneously or too quickly

The five forces model suggests that:

-An industry's profitability is a function of interactions -firms can earn above-average returns by producing

Product Market Stakeholders

-Customers seek reliable products at the lowest possible prices. -Suppliers seek loyal customers who are willing to pay the highest sustainable prices for products -host communities want companies willing to be long-term employers and providers of tax revenue without placing excessive demands on public support services. -Unions see secure jobs and desirable working conditions for members. -Product market stakeholders are generally satisfied when a firm's profit margin reflects at least a balance between the returns to capital market stakeholders and the returns in which they share.

Organizational Stakeholders- Leaders:

-Must use the firm's human capital successfully to serve the day-to-day needs of stakeholders -help a firm's employees understand competition in the global competitive landscape through international assignments.

Firms can earn above-average returns by producing either:

-standardized products at costs below those of competitors (a cost leadership strategy) -differentiated products for which customers are willing to pay a price premium (a differentiation strategy)

An effective vision:

-stretches and challenges people -is developed by the CEO and other top-level managers, employees, suppliers, and customers -is consistent with the decisions and actions of those involved with developing it

An industry's profitability is a function of interactions among:

-suppliers -buyers -competitive rivalry among firms currently in the industry -product substitutes -potential entrants to the industry

Resources and capabilities have the potential to be the foundation for a competitive advantage when they are:

-valuable -rare -costly to imitate -non-substitutable

A key purpose of vision and mission statements is to inform stakeholders of:

-what the firm is -what it seeks to accomplish -who it seeks to serve

Firms can separate the parties involved with their operations into at least three groups:

1. Capital market stakeholders 2. Product market stakeholders 3. Organizational stakeholders

Four underlying assumptions of the resource-based model:

1. Differences in firm's performances across time are due primarily to their unique resources and capabilities rather than the industry's structural characteristics. 2.Firms acquire different resources and develop unique capabilities based on how they combine and use the resources. 3. Resources and capabilities are not highly mobile across firms. 4. Differences in resources and capabilities are the basis of competitive advantage.

Firms typically classify resources into three categories:

1. Physical capital 2. Human capital 3. Organizational capital

Four underlying assumptions of the I/O model:

1. The external environment imposes pressures and constraints that determine the strategies that would result in above-average returns. 2. Most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relelvant resources an to pursue similar strategies in light of those resources. 3. Firms assume that their resources are highly mobile, meaning that any resource differences that might develop between firms will be short-lived. 4. Organizational decision makers are rational individuals who are committed to acting in the firm's best interests, as shown by their profit-maximizing behaviors.

Two primary drivers of hypercompetition:

1. the emergence of a global economy 2. rapid technological change

The Strategic management process involves analysis, strategy, and performance (the A-S-P model).

A firm analyzes the external environment and its internal organization, then formulates and implements strategies to achieve a desired level of performance.

A firm has a competitive advantage when

By implementing a chosen strategy, it creates superior value for customers and when competitors are not able to imitate the value the firm's products create or find it too expensive to attempt imitation.

No competitive advantage is permanent

How long a competitive advantage will last depends on how quickly competitors can acquire the skills needed to duplicate the benefits of a firm's value-creating strategy.

What drives- or fails to drive- the organization?

The social energy

Hypercompetition makes it difficult for firms to maintain

a competitive advantage

Resources have a greater likelihood of being

a competitive advantage when integrated to form a capapbility.

Hypercompetition

a condition where competitors engage in intense rivalry, markets change quickly and often, and entry barriers are low.

When earning above-average returns,

a firm generally has the resources to satisfy the interests of all stakeholders.

Greater dependence gives the stakeholder more potential influence over

a firm's commitments, decisions, and actions.

The increasing opportunities available in emerging economies is

a major driver of growth in the size of the global economy.

Valuable

allow a firm to take advantage of opportunities or neutralize threats in its external environment

The five forces model of competition is

an analytical tool firms use to find the industry that is most attracive.

Conventional sources of competitive advantage such as large advertising budgets and economies of scale

are not as effective as they once were in helping firms earn above-average returns.

Strategic leaders

are people located in different areas and levels of the firm using the strategic management process to select actions that help the firm achieve its vision and fulfill its mission

The most obvious stakeholders, at least in U.S. organizations

are shareholders

Over time, an inability to earn at least average returns results first in

decline and, eventually, failure.

The most effective CEOs and top-level managers understand how to

delegate strategic responsibilities to people throughout the firm.

Firms must understand the strategic implications and integrate

digitalization effectively into their strategies.

The most effective companies learn how to manage risk effectively

doing so reduces investors' uncertainty about the outcomes of their investment.

Non-substitutable

have no structural equivalents

Perpetual innovation describes

how rapidly and consistently new, information-intensive technologies replace older ones.

When choosing a strategy, firms make choices among competing alternatives as the pathway for deciding

how they will pursue strategic competitiveness.

Shareholders

individuals and groups who have invested capital in a firm in the expectation of earning a positive return on their investments.

Stakeholders are

individuals, groups, and organizations that can affect the firm's vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firm's performance.

Resources are

inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers.

the most successful firms envision information technology-derived innovations as

opportunities to identify and serve new markets rather than as threats to the markets they serve currently.

Entry into international markets, even for firms with substantial experience in the global economy,

requires effective use of the strategic management process.

Average returns

returns equal to those an investor expects to earn from other investments possessing 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.

Because firms are not equally dependent on all stakeholders at all time,

stakeholders possess different degrees of ability to influence an organization.

Organizational culture affects

strategic leaders and their work.

Disruptive technologies

technologies that destroy the value of an existing technology and create new markets Ex.: wi-fi, ipads, the web brower

The resource-based model of above-average returns assumes

that each organization is a collection of unique resources and capabilities.

In general, CEOs are responsible for making certain

that their firms use the strategic management process properly

The uniqueness of resources and capabilities is

the basis of a firm's strategy and its ability to earn above-average returns.

A firm earning below-average returns must make trade-offs

to minimize the amount of support it loses from unsatisfied stakeholders.

The chosen strategy indicates

what the firm will and will not do.