Chapter 1: Strategic Management and Strategic Competitiveness

risk

an investors uncertainty about the economic gains or losses that will result from a particular investment

Mission

*specifies the businesses in which the firm intends to compete and the customers it intends to serve* Example: "Be the best employer for our people in each community around the world and deliver operational excellence to our customers in each of our restaurants" - McDonalds

disruptive technologies

*technologies that destroy the value of an existing technology and create new markets* Examples: iPods, iPad, Wi-Fi, and the brower

Stakeholders: Organizational

*all of the firms employees, including managerial and managerial personnel* Employees expect the firm to provide a dynamic, stimulating and rewarding work environment -prefer to wok for a company that is growing and actively developing their skills, especially those skills required to be effective team members and to meet or exceed global work standards *workers who learn how to use new knowledge productively are critical* Strategic leaders are ultimately responsible fro serving the needs of these stakeholders -must effectively use the firms human capital

organizational culture

*refers to the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business* -affects the strategic leaders and their work *Example:* Southwest Airlines is known for having a unique and valuable culture. It encourages employees to work had but also to have fun Its culture entails respect for others-employees and customers alike

Core Competencies

*resources and capabilities that serve as a source of competitive advantage for a firm over its rivals* -often visible in the form of the organizational functions Example: Apples R&D function, as its ability to produce innovative new products that are perceived as valuable in the marketplace is a critical reason for Apples success

average returns

*returns equal to those an investor expects to earn from other investments with a similar amount of risk* -in the long run, an inability to earn at least average returns results first in decline and eventually failure (*occurs b/c investors withdraw their investments from those firs earning less-than average returns*)

above average returns

*returns in excess of what an investor expects to earn from other investments with similar amount of risk* -returns often measured in terms of accounting figures, such as return on assets, return on equity, or return on sales -can be measured on the basis of stock market returns, such as monthly returns (*end of stock price - the beginning stock price/ beginning stock price*, as a percentage return) -smaller, new venture firms, returns are sometimes in terms of the amount and speed of growth (in annual sales) rather than traditional profitability measures

Sigmoid Curve: Organization Lifecycle Inflection Points

*Conception/Startup:* new business (learning)- determination, enthusiasm -the curve initially declines during the learning phase, while getting the business going -The business owner may very optimistic, enthusiastic, busy and excited -They may be finance poor and learning through their mistakes, working long hours *Growth Phase*: when the business is up and running and business starts to come in, the curve rises in a period of growth and prosperity -Here the business owner has high moral, energy, seeing results and growth in the business -They may have financial and emotional return of investment *Maturity/Choice*: The product or service then reaches a point of maturity and maybe becomes out dated -This leads to the decline phase -Here the business owner may be in their comfort zone. "We have always done it this way." -They may become dissatisfied as profits are decreasing -Have low motivation and energy as their goals don't excite them anymore -The client may have a feeling of "what is the point?" *Firms can go eather way:* Renewal, Soar (New chapter): Southwest & Apple Falter (Drift): Mcdonalds (Death): Blackberry, Borders, Blockbuster

Stakeholders: Capital Market

*Shareholders and the major suppliers of capital (banks)* shareholders: individuals and groups who have invested capital in the firm in the expectation of earning a positive return on their investments -rights are grounded in laws of governing private property and private enterprise Shareholders and lenders both expect a firm to preserve and enhance the wealth they have entrusted to it. The returns they expect commensurate with the degree of risk they accept with those investments *(low returns with low risk; high returns w/ high risk)* -Dissatisfied lenders may impose stricter covenants on subsequent borrowing capital -Dissatisfied shareholders may reflect their concerns through several means, including selling their stock -Institutional owners (pension funds, mutual funds) often are willing to sell their stock returns are not what they desire or pressure managers and board directors to improve strategic decisions Managers may have to balance their desires with those of shareholders or prioritize the importance of Institutional owners with different goals *the firms response to stakeholders who are dissatisfied is affected by the nature of the dependence on them*

Gross Domestic Product (GDP)

*What makes up GDP:* Consumption (70%) + investment + government spending + (Exports - Imports)

Vision

*a picture of what the firm wants to be and, what it wants to ultimately achieve* articulates the ideal description of an org ad gives shape to its intended future -reflects a firms values and aspirations and are intended to capture the heart and mind of each employee and, hopefully many of its other stakeholders Example: "Our vision is to be the world's best quick service restaurant" - McDonalds

strategic flexibility

*a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment* -involves coping with uncertainty and its accompanying risks to be flexible on a continuing basis and gain competitive advantage: -*a firm has to develop the capacity to learn:* continuous learning provides the firm with new and up-to-date skill sets, allowing it to adapt to the changes

The Information Age

*an important outcome of these changes is that the ability to effectively and efficiently access and use info has become an important source of competitive advantage in virtually all industries* -the declining costs of info technologies and the increased accessibility to them are also evident in the current competitive landscape -the global proliferation of relatively inexpensive computing power and its linkage on a global scale via computer networks combine to increase the speed and difussion of info technologies *The Internet is another technological innovation contributing to hypercompetition* -it provides an infrastructure that allows the delivery of info to computers in any location -Access to the Internet on smaller devices, such as cell phones is having an ever growing impact on competition in a number of industries

strategy

*an integrated and coordinated set of commitments and actions designed to exploit core competencies ad gain a competitive advantage* -chosen strategy indicates what a firm *will do* as well as what a firm *will not do* *Examples*: -McDonald's continues to adapt to local environment by making major changes. It changed its name to Macca in Australia b/c people there often abbreviate names to avoid multiple syllables. So Mickie D's shortened it to two syllables and used its golden arches as a symbol of the firm *a firm's strategy also demonstrates how it differs from its competitors* -Ford devoted efforts to explain to stakeholders how the company differs from its competitors. The main idea is that Ford claims that it is "greener" and more technically advanced than its competitors such as GE Motor and Chrysler

The Resource-Based Model of Above-Average Returns

*assumes that each org is a collection of unique resources and capabilities* -the uniqueness of its resources and capabilities is the basis of a firms strategy and its ability to earn above-average returns 1) identify the firms resources. Study its strengths and weaknesses compared with those of competitors 2) determine the firms capabilities. what do the capabilities allow the firm to do better than its competitors? 3) determine the potential of the firms resources and capabilities in terms of a competitive advantage 4) Locate an attractive industry 5) Select a strategy that best allows the firm to utilize the firm its resources and capabilities relative to opportunities in the external environment *differences in firms performances across time are due primarily to their unique resources and capabilities rather than structural characteristics*

The competitive landscape

*current characteristics:* -conventional sources of competitive advantage such as economies of scale and huge advertising budgets are not as effective as hey once were in terms of helping firms earn above-average returns -traditional managerial mind-set is unlikely to lead a firm to strategic competitiveness. Managers must adopt a new mind set that values *flexibility, speed, innovation, integration, and the challenges that evolve from constantly changing conditions*

Predicting outcomes of strategic decisions: profit pools

*entails the total profits earned in an industry at all points along the value chain* strategic leaders attempt to predict the outcomes of their decision before taking efforts to implement them, which is difficult to do -Mapping an industry's profit pool is something strategic leaders can do to anticipate the possible outcomes of different decisions and to focus n growth in profits rather than strictly growth in revenues Analyzing the profit in the industry may help a firm see something other are unable to see and to understand the primary sources of profits in an industry *Four Steps to identify profit pools:* 1) define the pools boundaries 2) estimate the pools overall size 3) estimate the size the value-chain activity in the pool 4) reconcile the calculations Example: profits made by a firm and in an industry can be partially interdependent on the profits earned in adjacent industries -*profits earned in the energy industry can affect profits in other industries (airlines). When oil prices are high, it can reduce the profits earned in industries that must use a lot of energy*

Stakeholders

*individuals, groups, and organizations that can affect the firms vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firms performance* Three groups: Capital Market Product Market Organizational

Resources

*inputs into a firms production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers* Classified into three categories: 1) physical 2) human 3) organizational -either tangible or intangible Not all resources and capabilities have the potential to be a foundation for a competitive advantage: Categories 1) *Valuable:* allow a firm to take advantage of opportunities or neutralize threats in its external environment 2) *Rare:* possessed by few, if any, current and potential competitors 3) *Costly to Imitate:* other firms either cannot obtain them or are at a cost disadvantage in obtaining them compared with the firm that already possess them 4) *Nonsubstitutable:* no structural equivalents

Increasing Knowledge Intensity

*knowledge (info, intelligence, and expertise) is the basis of technology and its application* Gained through experience, observation, and inference and is an intangible resource -the value of intangible resources, including knowledge, is growing as a proportion of total shareholder value in today's competitive landscape -firms must develop (through training programs) and acquire (by hiring educated and experienced employees) knowledge, integrate it into the organization to create possibilities, and then apply it to gain competitive advantage

the global economy

*one in which goods, services, people, skills, and ideas, move freely across geographic borders* relatively unfettered by artificial constraints, such as tariffs, the global economy significantly expands and complicates a firms competitive advantage *Example:* The European Union (EU), has become one of the worlds largest markets, with 700 million customers. Today, China is an extremely competitive market in which local market seeking MNCs (multinational corporations) must fiercely compete against other MNCs and against local companies that are more cost effective and faster in product development the nature of the global economy reflects the realities of hypercompetitive business environment and challenges individual firms to seriously evaluate the markets in which they will compete -while Starbucks has substantial success in North America and Asia, it is struggling in Europe. It has substantial competition there

Strategic Leaders

*people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and mission fulfill its mission* -regardless of location, they are decisive, committed to nurturing those around them, and committed to helping the firm create value for stakeholders groups

hypercompetition

*term used to capture the realities of the competitive landscape* under these conditions, assumptions of market stability are replaced by notions of inherent instability and change -results from the dynamics of strategic maneuvering among global and innovative combatants - it is a condition of rapidly escalating competition based on price-quality, positioning, competition to create new know-how and establish first-mover advantage and competition to protect or invade established product or geographic markets -in hypercompetitive market, firms often aggressively challenge their competitors in the hopes of improving their competitive position and ultimately their performance

Perpetual innovation

*term used to describe how rapidly and consistently new, information-intensive technologies replace older ones* - the shorter product life cycles resulting from these rapid diffusions of new new technologies place a competitive premium on being able to quickly introduce new, innovative goods and services into the marketplace -the speed to market with innovative products may be the primary source of competitive advantage

risk of entering the global market

*the amount of time typically required for firms to learn how to compete in markets that are new to them* -a firms performance can suffer until this knowledge is either developed locally or transferred from home market to the newly established global location -performance also can suffer with substantial amounts of globalization; firms may overdiversify internationally beyond their ability to manage their extended operations *a major factor in the global economy in the recent years has been growth in the influence of emerging economies * -includes BRIC (Britain,Russia, India, China) but also VISTA (Vietnam, Indonesia, South Africa, Turkey, Argentina) -Mexico and Thailand also have become increasingly important markets

Capability

*the capacity for a set of resources to perform a task or an activity in an integrative manner* -evolve over time and must be managed dynamically in pursuit of above-average returns

Stakeholders: Product Market

*the firms primary customers, suppliers, host communities, and unions* -customers demand reliable products at the lowest possible prices -suppliers seek loyal customers who are willing to pay the highest substantial prices for the goods and services they receive *all product market shareholders are all important, but without customers the others are of little value* firms must understand current and potential customers -host communities: represented by national (home and abroad), state/province and local gov't entities with which the firm must deal gov't want companies willing to be long term employers and providers of tax revenue w/o pacing excessive demands on public support services; influence through laws and regulations -Union officials: interested in secure jobs, under desirable working conditions for employees *these stakeholders are generally satisfied when a firms profit margin reflects at least a balance between the returns to capital market stakeholders and the returns in which they share*

The Strategic Management Process

*the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns* The process involves 1) *analysis*: external and internal organization to determine its resources, capabilities, ad core competencies- on which its strategy likely will be based -with the info from external and internal, the firm develops its vision and mission and formulates one or more strategies 2) *strategy*: entails strategy formulation and strategy implementation 3) *performance*: to implement, the firm takes actions to enact each strategy with intent of achieving strategic competitiveness and above avg returns

globalization

*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* -a product of a large number of firms competing against one another in an increasing number of global economies in globalized markets and industries, financial capital might be obtained in one national market and used to buy raw materials in another -increases the range of possibilities for companies competing in the current competitive landscape -firms engaging in globalization must make culturally sensitive decisions when using the strategic management process

technology diffusion

*the speed at which new technologies become available and are used* has increased substantially over the past 15 to 20 years -the impact of technological changes on individual firms and industries have been broad and significant *Example:* people rented movies on videotapes at retail stores. Now, movies rentals almost electronic. The publishing industry is moving rapidly from had copy electronic form -another indicator of rapid technology diffusion is that it now takes only 12 to 18 months for firms to gather info about their competitors research and development and product decisions

two primary drivers of hypercompetitive environments and the nature of today's competitive advantage

1) the emergence of a global economy 2) technology, specifically rapid technological changes

Technology and Technological Changes

Three categories: 1) technology diffusion and disruptive technologies 2) the information age 3) increasing knowledge

the work of effective strategic leaders

a willingness to be brutally honest, a penchant for wanting the firm and its people to accomplish more, the tenacity are prerequisites to an individuals success as a strategic leader potent top management teams (human capital, management skills, and cognitive abilities) make better strategic decisions *strategic leaders:* -must have a strong strategic orientation while simultaneously embracing change in the dynamic competitive landscape -must be innovative thinkers and promote innovation in their organization -can best leverage partnerships with external parties and organizations when their organizations are ambidextrous -need to have a global mind-set, or what some refer to as an ambicultural approach to management

competitive advantage

implements a strategy that creates superior value for customers and competitors are unable to duplicate or find too costly to try to imitate

the I/O Model Of Above-Average Returns

specifies that the industry or segment of an industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their organizations 1) Study the external environment, *(general, industry, and competitor)*, especially the industry environment 2) Locate the industry with high potential for above-average returns 3) Identify the strategy called for by the attractive to earn above-average returns 4) Develop or acquire assets and skills needed to implement the strategy 5) Use the firms strengths (its developed or acquired assets and skills) to implement the strategy *the model challenges firms to find the most attractive industry in which to compete* -Most firms are assumed to have similar valuable resources that are mobile across companies, their performance generally can be increased only when they operate in the industry with the highest profit industry structural characteristics. Must imitate each other

Strategic Competitiveness

when a firm successfully formulates and implements a value-creating strategy