Strategic Management Chapter 1

Strategic Management and Strategic Competitiveness

Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. When a firm can do this and others cannot duplicate it, then the firm has a sustained (or sustainable) competitive advantage. Because of the advantage they will get above average returns, more that what an investor can get in another company, because the risk, the chance of not getting the money back, is much lower. If a company does not have this advantage it will just have a normal or average return.

The full set of commitments, decisions, and actions for a firm to achieve strategic competitiveness is call the strategic management process. These are ever changing and must be adjusted as necessary to keep a company going.

The Challenge of Strategic Management

Business failure is common so the objective is to meet the goal of getting a competitive advantage so it can stay successful. Profits are often not as important as a well though out strategy. Strategy is the integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Strategy can be effective or ineffective.

The Current Competitive Landscape

The nature of competition in our current time means that companies that an organization competes against may change in the short term future. In some markets this may even result in hypercompetition. This will result in really aggressive marketing by the companies involved.

The Global Economy

A global economy is one in which goods, service, people, skills, and ideas move freely across geographic borders. While the United States is the one leading in competitiveness, other countries are moving in as boundaries break down in tariffs and the like. Many companies see the advantage in to moving into the world markets as a way to grow.

The March of Globalization

Globalization is the increasing economic interdependence among countries reflected in the flow of goods and services, financial capital and knowledge across country borders. Global markets can produce products from many countries or can make standardization of one company over many countries. Many companies are merging with companies from other countries in an order to get competitive advantage. Some of the global competitions can result in higher risks for a company so they need to be done with thought.

Technology and Technological Challenges

Increasing Rate of Technological Change and Diffusion

Both technology and the speed of technology have increased over the most recent years. Perpetual Innovation is the term for rapid and consistently new technology replacing older ones. Many companies use patents to protect a competitive advantage.

The Information Age

There are huge databases of information available for use by companies with access to them. Others build huge networks in an effort to collect the information that they need to build their own. The Internet provides an infrastructure that allows for large amounts of information to be delivered efficiently.

Increasing Knowledge Intensity

Knowledge is the basis of technology. For this reason companies that want a competitive advantage will need to take the knowledge of their employees and put it into a retrievable format. In order for a company to be competitive it will need to be able to mine that knowledge.

Strategic flexibility is a set of capabilities used to respond to various demands and opportunities. In order to do this, companies have to learn to learn. Following a flawed strategy.

The I/O Model of Above-Average Returns

In the 60's through the 80's the external environment was thought to be what influence the successfulness of a company. This was the Industrial Organization (I/O) model. Success was dependent on being in the right company to start with. It had some basic assumptions:

• The external environment is assumed to impose pressures and constraints that determine strategies that will result in above average returns.

• Most firms competing in an industry will be assumed to control some strategic resources.

• Resources used to formulate strategies are highly mobile across the firm.

• Decision makers are assumed to be rational

Above average returns can be earned when firms implement strategy dictated by the characteristics of the general industry and the competitor environments. Research shows that 20% of a firm's profitability has to do with the industry. It also shows 36% has to do with a firm's characteristics and actions.

Obviously Airline industry has shown us that this model is not a 100% fact. Hence we have other models.

The Resource-Based Model of Above-Average Returns

In this model, a firm has a collection of unique resources and capabilities that provide the basis for its strategy. Resources are inputs into a firm's production process. A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. They are either physical, human or organizational. They are also tangible or intangible in nature. Not all resources are the source of its competitive advantage, just those that are valuable, rare, costly to imitate, or nonsubstitutable. If a firm has all these they are said to have a core competency.

Strategic Intent and Strategic Mission

Strategic Intent

Strategic intent is the leveraging of a firm's resources, capabilities, and core competencies to accomplish the firm's goals in the competitive environment. Some firms may have to change their strategic intent to survive. Apple Computers no longer just make computers but also digital entertainment as well. This now means they have two competitors.

Strategic Mission

Strategic mission is a statement of a firm's unique purpose and the scope of its operations in product and market terms. Missions flow from intent. The mission clearly labels the intent of the company and who it intends to serve.

Stakeholders

Stakeholders are individuals and groups who can affect and are affected by the strategic outcomes achieved and can have enforceable claims on the firm's performance. They will stay with a firm as long as their expectations are at least being met. A firm needs to get along well with the various stakeholders.

Classification of Stakeholders

Shareholders want the return on their investment to be maximized. Short term advancements may hurt long range competitiveness of an organization.

A firm's customers want an investor to get a minimal return so they can get a lower cost, hopefully with an increase in quality.

Capital Market Stakeholders

Stakeholders and lenders have put money into a firm and therefore are important to a firm. Lenders may no longer lend and shareholders may sell their stock thereby lowering confidence in the company. If a firm is aware of this group being dissatisfied it needs to take steps to correct it.

Product Market Stakeholders

Customers demand reliable products at the lowest possible price. Suppliers want customers who are loyal and willing to pay high prices. Host communities want companies to be long term employers and provide a tax base. Union officials want secure good jobs for their members. All of these must be satisfied if a firm is to survive.

Organization Stakeholders

Employees expect a firm to provide a rewarding place to work.

Strategic Leaders

People responsible for designing and execution of strategic management processes are strategic leaders. They usually are top level managers or executives. Small firms may have one person, larger may have one but often have more. They are responsible for leading the company, and making the right decisions, or taking the blame for the failure. They are top level managers, CEOs and other managers in the company. Most leaders have some constraints due to the organizational culture. The organizational culture is the complex set of ideologies, symbols and core values that are shared throughout the firm and therefore influence how the firm conducts business. When strategic change is needed, often an organization will turn to an outsider. They have an advantage of not having the culture, but the disadvantage because they lack knowledge of the firm.

The Work of Effective Strategic Leaders

Leaders need to think clearly, deeply and ask many questions. Strategic leaders work long hours filled with ambiguous questions for a solution that may not be easy to figure out. They cannot be just dreamers or workers, they need to be both.

Predicting Outcomes of Strategic Decisions: Profit Pools

A Profit Pool entails the total profits earned in an industry at all points along the value chain. A firm needs to see where it can add to the industry by linking into some part of the chain.

The Strategic Management Process

The strategic management process is supposed to be a rational approach to help a firm. The strategic inputs provide for strategic actions to take place.