Chapter 1

STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS

Learning Objectives:

1. Define strategic competitiveness, strategy, competitive advantage, above-average returns, and

Lecture Notes

 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.
• The fundamental nature of competition is different in the 21stcentury 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 produce 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 21st-century competitive landscape.
• Firms use two major models to help them form their vision and mission and then choose
one or more strategies to use in the 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 supporting the I/O model suggests that above-average
returns are earned when the firm locates an attractive 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. Aboveaverage returns are earned
 when the firm uses its valuable, rare, costly-to-imitate, and nonsubstitutable 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.
• 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 signals
important descriptive information to 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 least minimally simultaneously satisfy the interests of all stakeholders.
However, when earning only average returns, different stakeholder groups must be
carefully managed in order to retain their support. A firm earning below-average returns
must minimize the amount of support it loses from dissatisfied stakeholders.
• 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
increases 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, be brutally and consistently
honest, and ask the right questions of the right people at the right time.
• Strategic leaders must predict the potential outcomes of their strategic decisions. To do so,
they must first calculate profit pools in their industry that are linked to value chain
activities. In so doing, they are less likely to formulate and implement ineffective strategies.
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 1. The firm’s first step in the process is to analyze its external and internal environments to
determine its resources, capabilities, and core competencies—the sources of its “strategic inputs.”
With this information, the firm develops its vision and mission and formulates its strategy. To
implement this strategy, the firm takes actions toward achieving strategic competitiveness and
above-average returns.
 2. The second step is the discussion of the different strategies firms may choose to use. First, is to
examine business-level strategies (describes a firm’s actions designed to exploit its competitive
advantage over rivals), For the diversified firm, corporate-level strategy is concerned with
determining the businesses in which the company intends to compete as well as how resources,
capabilities, and core competencies are to be allocated among the different businesses. Other topics
vital to strategy formulation, particularly in the diversified corporation, include acquiring other
companies and, as appropriate, restructuring the firm’s portfolio of businesses and selecting an
international strategy. With cooperative strategies, firms form a partnership to share their resources
and capabilities in order to develop a competitive advantage. Cooperative strategies are becoming
increasingly important as firms try to find ways to compete in the global economy’s array of
different markets.
 3. To examine actions taken to implement strategies, the third step is to examine the different
mechanisms used to govern firms . With demands for improved corporate governance being voiced
today by many stakeholders, organizations are challenged to learn how to simultaneously satisfy
their stakeholders’ different interests. Finally, the organizational structure and actions needed to
control a firm’s operations, the patterns of strategic leadership appropriate for today’s firms and
competitive environments, and strategic entrepreneurship as a path to continuous innovation are
addressed.