Ch.1 Reading

Strategic Management

• Firms use the strategic management process to achieve strategic competitiveness and earn above-average returns. • Strategic competitiveness is achieved when a firm has developed and learned how to implement a value-creating strategy. • Above-average returns (in excess of what investors expect to earn from other investments with similar levels of risk) provide the foundation a firm needs to simultaneously satisfy all of its stakeholders.

Strategic Models

• Firms use two major models to help them form their vision and mission and then choose one or more strategies to use in pursuit of strategic competitiveness and above-average returns. • The core assumption of the I/O model is that the firm's external environment has more of an influence on the choice of strategies than do the firm's internal resources, capabilities, and core competencies. • Thus, the I/O model is used to understand the effects an industry's characteristics can have on a firm when deciding what strategy or strategies to use to compete against rivals. • The logic supportin the I/O model suggests that above-average returns are earned when the firm locates an attractive industry or part of an industry and successfully implements the strategy dictated by that industry's characteristics. • The core assumption of the resource-based model is that the firm's unique resources, capabilities, and core competencies have more of an influence on selecting and using strategies than does the firm's external environment. • Above-average returns are earned when the firm uses its valuable, rare, costly-to-imitate, and non-substitutable resources and capabilities to compete against its rivals in one or more industries. • Evidence indicates that both models yield insights that are linked to successfully selecting and using strategies. • Thus, firms want to use their unique resources, capabilities, and core competencies as the foundation for one or more strategies that will allow them to compete in industries they understand

The Global economy

• Global economy: is one in which goods, services, people, skills and ideas move freely across geographic borders • Globalization: is the increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital and knowledge across country borders o Increases the range of opportunities

Stakeholders

• Stakeholders are those who can affect, and are affected by, a firm's strategic outcomes. Because a firm is dependent on the continuing support of stakeholders (shareholders, customers, suppliers, employees, host communities, etc.), they have enforceable claims on the company's performance. • When earning above-average returns, a firm has the resources it needs to at minimum simultaneously satisfy the interests of all stakeholders. • However, when earning only average returns, the firm must carefully manage its stakeholders in order to retain their support. • A firm earning below-average returns must minimize the amount of support it loses from unsatisfied stakeholders.

Strategic competitiveness

• Strategic competitiveness: is achieved when a form successfully formulates and implements a value of creating strategy • Strategy: is an integrated and coordinated set of actions designed to exploit core competences and gain a competitive advantage • Competitive advantage: when a firm implements a strategy that creates superior value for customers and that competitors are unable to duplicate or find it too costly to imitate • Above average return: are returns in excess of what an investor expects to earn from other investments with a similar amount of risk • Risk: is and investors uncertainty about the economic gains or losses that will result from a specific investment • Average returns: are returns equal to those an investor expects to earn form other investment with a similar amount of risk • Strategic management process: is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn an above average return

Strategic Leaders

• Strategic leaders are people located in different parts of the firm using the strategic management process to help the firm reach its vision and mission. • In the final analysis, though, CEOs are responsible for making certain that their firms properly use the strategic management process. • Today, the effectiveness of the strategic management process is increase when it is grounded in ethical intentions and behaviors. • The strategic leader's work demands decision trade-offs, often among attractive alternatives. • It is important for all strategic leaders and especially the CEO and other members of the top-management team to work hard, conduct thorough analyses of situations facing the firm, be brutally and consistently honest, and ask the right questions of the right people at the right time. • Strategic leaders predict the potential outcomes of their strategic decisions. • To do this, they must first calculate profit pools in their industry that are linked to value chain activities. • Predicting the potential outcomes of their strategic decisions reduces the likelihood of the firm formulating and implementing ineffective strategies.

1. The Competitive Landscape

• The fundamental nature of competition is changing o Recession has made industries volatile o Economics of scale o Budgets • Hypercompetition: Describes competition that is excessive such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive landscape

Competition

• The fundamental nature of competition is different in the current competitive landscape. • As a result, those making strategic decisions must adopt a different mind-set, one that allows them to learn how to compete in highly turbulent and chaotic environments that are producing disorder and a great deal of uncertainty. • The globalization of industries and their markets and rapid and significant technological changes are the two primary factors contributing to the turbulence of the competitive landscape

Vision and Mission

• Vision and mission are formed in light of the information and insights gained from studying a firm's internal and external environments. • Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. • Flowing from the vision, the mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve. • Vision and mission provide direction to the firm and signal important descriptive information to stakeholders