Strategic

Management:
Creating
Competitive
Advantages

Module 1

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill

Education .
 Learning Objectives
1-2

After reading this chapter, you should have a

good understanding of:
LO1.1 The definition of strategic management and
its four key attributes.
LO1.2 The strategic management process and its
three interrelated and principal activities.
LO1.3 The vital role of corporate governance and
stakeholder management as well as how
“symbiosis” can be achieved among an
organization’s stakeholders.
 Learning Objectives
1-3

After reading this chapter, you should have a

good understanding of:
LO1.4 The importance of social responsibility,
including environmental sustainability, and how it
can enhance a corporation’s innovation strategy.
LO1.5 The need for greater empowerment
throughout the organization.
LO1.6 How an awareness of a hierarchy of strategic
goals can help an organization achieve coherence in
its strategic direction.
 The Importance of Leadership
1-4

Consider…
Maintaining competitive success or even
surviving over long periods of time is
difficult for companies of any size.
SO how much credit (or blame) does a leader
deserve?
 Two Perspectives of Leadership
1-5

External Control
Romantic View
Perspective
 Leader is the key  External forces
force in the determine the
organization’s organization’s
success success
 i.e. Steve Jobs  i.e. economic
downturns

OR?
 Leaders can make a difference
1-6

 Must be proactive - anticipate change

 Continually refine strategies
 Be aware of external opportunities and
threats
 Thoroughly understand their firm’s
resources and capabilities
 Make strategic management both a
process and a way of thinking throughout
the organization
 Defining Strategic Management
1-7

 Strategic Management involves

 Analysis
 Strategic goals (vision, mission, strategic objectives)
 Internal and external environment
 Decisions - Formulation
 What industries should we compete in?
 How should we compete in those industries?
 Actions - Implementation
 Allocate necessary resources
 Design the organization to bring intended strategies
to reality
 Two Fundamental Questions
1-8

1. How should we compete in order to

create competitive advantages in the
marketplace?
2. How can we create competitive
advantages in the marketplace that are
unique, valuable, and difficult for rivals
to copy or substitute?
NOTE: Operational effectiveness is not enough to
sustain a competitive advantage.
 Strategic Management
1-9

 Key Attributes of strategic management

 Directs the organization toward overall goals
and objectives.
 Includes multiple stakeholders in decision
making.
 Needs to incorporate short-term and long-
term perspectives.
 Recognizes trade-offs between efficiency
and effectiveness.
 Strategic Management Trade-offs
1-10

Managers need to be ambidextrous

 Focusing on Wh  Focusing on long-
il e
short-term also term effectiveness
efficiency  Expanding
 Aligning resources product-market
to take advantage scope by
of existing proactively
product markets exploring new
opportunities
 Question?
1-11

 According to Henry Mintzberg, the realized

strategies of a firm
A. are a combination of deliberate and emergent
strategies.
B. are a combination of deliberate and
differentiation strategies.
C. must be based on a company’s strategic plan.
D. must be kept confidential for competitive
reasons.
 Intended vs Realized Strategies
1-12

The Business Environment is far from predictable.

Intended Strategy Realized Strategy
 Organizational  Decisions are
decisions are determined by both
determined only by analysis (deliberate) &
analysis unforeseen
versus environmental
developments,
 Intended strategy
unanticipated resource
rarely survives in its
constraints, and/or
original form
changes in managerial
preferences (emergent)
 Strategic Management Process
1-13

Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: Mintzberg, H. & Waters, J.A., “Of Strategies: Deliberate and Emergent,” Strategic Management Journal,
Vol. 6, 1985, pp. 257-272. Copyright © John Wiley & Sons Limited. Reproduced with permission.
 Example: Failure of Intended Strategy
1-14

 BORDERS bookstore focused on its intended

strategy – a physical retail presence.

 Sticking to what you know best can be very

dangerous.
 BORDERS found the consumer shift away from
brick & mortar book stores to online book buying
and digital books an overwhelming environmental
force against which they had few defenses.
 Unanticipated developments can often have very
negative consequences for businesses regardless
of how well formulated their strategies are.
 Strategic Management Process
1-15

Exhibit 1.3 The Strategic

Management Process
 Strategy Analysis
1-16

 Starting point in the strategic

management process
 Precedes effective formulation and
implementation of strategies
 Involves careful analysis of the
overarching goals of the organization
 Requires a thorough analysis of the
organization’s external and internal
environment
 Strategy Analysis cont.
1-17

 Analyzing Organizational Goals & Objectives

 Establish a hierarchy of goals
 Vision
 Mission
 Strategic Objectives

 Analyzing the External Environment of the Firm

 Managers must monitor & scan the
environment as well as analyze competitors
 The General Environment
 The Industry Environment
 Strategy Analysis cont.
1-18

 Assessing the Internal Environment of the Firm

 Analyzing strengths & relationships among
activities that constitute a firm’s value chain
 Can uncover potential sources of competitive
advantage
 Assessing a Firm’s Intellectual Assets
 Knowledge workers & other intellectual assets
drive competitive advantage & wealth creation
 Networks & relationships plus technology
enhances collaboration, accumulates & stores
knowledge
 Strategy Formulation
1-19

 Based on strategy analysis

 Developed at several levels
 Involves decisions that can create and
sustain competitive advantage
 Investment decisions
 Commitment of resources
 Operational synergies
 Recognizing viable opportunities
 Strategy Formulation cont.
1-20

 Formulating Business-Level Strategy

 Successful firms develop bases for sustainable
competitive advantage through
 Cost leadership and/or
 Differentiation, as well as
 Focusing on a narrow or industrywide market segment

 Formulating Corporate-Level Strategy

 Addresses a firm’s portfolio (or group) of
businesses
 What business(es) should we compete in?
 How can we manage this portfolio of businesses to
create synergies?
 Strategy Formulation cont.
1-21

 Formulating International Strategy

 What is the appropriate entry strategy?
 How do we go about attaining competitive
advantage in international markets?
 Entrepreneurial Strategy and Competitive
Dynamics
 How do we recognize viable opportunities?
 How do we formulate effective strategies?
 Strategy Implementation
1-22

 Implements the formulated strategy

 Ensures proper strategic control systems
 Establishes an appropriate organizational design -
coordinates & integrates activities within the firm
 Coordinates activities with suppliers, customers,
alliance partners
 Leadership ensures organizational commitment to
excellence & ethical behavior
 Promotes learning & continuous improvement
 Acts entrepreneurially in creating new
opportunities
 Strategy Implementation cont.
1-23

 Strategic Control & Corporate Governance

 Informational control
 Monitor & scan the environment
 Respond effectively to threats & opportunities
 Behavioral control
 Proper balance of rewards & incentives
 Appropriate cultures & boundaries (or constraints)
 Effective corporate governance
 Strategy Implementation cont.
1-24

 Creating Effective Organizational Designs

 Organizational structures must be consistent
with strategy
 Organizational boundaries must be flexible &
permeable
 Strategic alliances must capitalize on
capabilities of other organizations
 Strategy Implementation cont.
1-25

 Creating a Learning Organization & an

Ethical Organization
 Effective leaders
 Set a direction
 Design the organization
 Develop an organization committed to excellence
& ethical behavior
 Create a “learning organization”
 Benefit from individual & collective talents
 Strategy Implementation cont.
1-26

 Fostering Corporate Entrepreneurship

 Firms must continually improve & grow
 Firms must find new ways to renew
themselves
 Entrepreneurship & innovation provide for
new opportunities
 Enhance a firm’s innovative capacity
 Allow autonomous entrepreneurial behavior
 Corporate Governance & Stakeholder
Management
1-27

 Corporate Governance: the relationship

among various participants in determining
the direction and performance of
corporations.
 Primary participants:
 The shareholders
 The management (led by the Chief Executive
Officer)
 The Board of Directors (BOD)
 Corporate Governance cont.
1-28

 Board of Directors
 Elected representatives of
the owners
 Ensure interests &
motives of management
are aligned with those of
the owners
 Need an effective and
engaged Board
 Shareholder activism
 Proper managerial rewards &
incentives
Exhibit 1.4 The Key Elements of
 External control mechanisms Corporate Governance
 Stakeholder Management
1-29

Exhibit 1.5 An Organization’s Key Stakeholders & the Nature of Their Claims
 Stakeholder Management
1-30

Two views of stakeholder management

Zero Sum Symbiosis

 Stakeholders  Stakeholders are
compete for dependent upon
attention & OR? each other for
resources success & well-
 Gain of one is a loss being
to the other  Receive mutual
benefits
 Question?
1-31

 Outback Steakhouse has developed a

sophisticated quantitative model and found
that there were positive relationships
between employee satisfaction, customer
satisfaction, and financial results. According
to the text, this is an example of ___________.
A. zero-sum relationship among stakeholders
B. stakeholder symbiosis
C. rewarding stakeholders
D. emphasizing financial returns
 Social Responsibility
1-32

 Social responsibility: the expectation that

businesses or individuals will strive to improve
the overall welfare of society.
 Firms have multiple stakeholders and must go
beyond a focus solely on financial results
 Firms must create shared value – identify & expand
connections between societal & economic progress
 Firms can measure a triple bottom line
 Assessing financial, social, AND environmental
performance
 Embracing environmental sustainability.
 Example: Making Sustainability Profitable
1-33

 Rapidly developing economies are often seen as

sustainability laggards, due to weak regulatory bodies,
resource shortages, competition from more
industrialized countries & firms.
 Yet Sekem’s leadership had a vision: as Egypt’s first
organic farm, of growing organic cotton.
 Sekem’s farming techniques reclaimed arable land from
the Sahara, and decreased greenhouse gases. It also
meant cotton needed 20%-40% less water.
 Responding to worldwide demand, from 2006 until the
Arab Spring of 2011, Sekem improved cotton yields by
30%, & increased revenues by 14%.
 Sekem took the long-term view of strategy & it paid off.
 Empowered Strategic
1-34
Management
 Strategic management requires an
integrative view of the organization
 ALL functional areas & activities must fit
together to achieve goals & objectives
 Leaders are needed throughout:
 Local line leaders – have profit & loss
responsibility
 Executive leaders – champion & guide ideas
 Internal networkers – hold little positional
power, but have conviction & clarity of ideas
 Coherence in Strategic Direction
1-35

 Organizations express priorities best

through stated goals & objectives that
form a hierarchy of goals
 Vision – evokes powerful & compelling
mental images of a shared future
 Mission – encompasses the organization’s
current purpose, basis of competition, &
competitive advantage
 Strategic Objectives – operationalize the
mission statement with specific yardsticks
 Coherence in Strategic Direction
1-36

Exhibit 1.6 A Hierarchy of Goals

 Coherence in Strategic Direction
1-37

 Organizational Vision
 A “massively inspiring” goal
 Overarching, long term
 A destination driven by & evoking passion
 Developed & implemented by leadership
 A fundamental statement of an
organization’s values, aspirations, and goals
 Captures both the minds & hearts of
employees
 Coherence in Strategic Direction
1-38

 Organizational Visions can backfire

 The Walk Doesn’t Match the Talk
 Irrelevance
 Not the Holy Grail
 Too Much Focus Leads to Missed
Opportunities
 An Ideal Future Irreconciled with the Present
 Coherence in Strategic Direction
1-39

 Mission Statement
 States the purpose of the company & builds a
common understanding of that purpose
 More specific than the vision
 Focused on the means by which the firm will
compete
 Incorporates stakeholder management
 Communicates why an organization is
special & different
 Can & should change when competitive
conditions change
 Coherence in Strategic Direction
1-40

 Strategic Objectives
 Used to operationalize the mission statement
 Provide guidance on how to fulfill mission &
vision
 Are measurable, specific, appropriate,
realistic & timely
 Can be short-term “action plans”
 Can be both financial and nonfinancial
 Should be challenging, yet help resolve
conflicts
 Provide a yardstick for rewards & incentives