Issues in Strategic Management

  • Lecture 1 Introduction

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

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

  • 2 Discuss the challenge of strategic management

  • 3 Describe the 21st-century competitive landscape and how global and technological changes shape it

  • 4 Use the industrial organization (I/O) model to explain how firms can earn above-average returns

  • 5 Use the resource-based model to explain how firms can earn above-average returns

6 Describe strategic intent and strategic mission, and discuss their value to the strategic management process

  • 6 Describe strategic intent and strategic mission, and discuss their value to the strategic management process

  • 7 Define stakeholders, and describe the three primary stakeholder groups’ ability to influence organizations

  • 8 Describe strategists’ work

  • 9 Explain the strategic management process

Strategic competitiveness

  • Strategic competitiveness

    • When a firm successfully formulates and implements a value-creating strategy
  • Competitive advantage

    • A sustained or sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate

Above-average returns

  • Above-average returns

    • Returns in excess of what an investor expects to earn from other investments with a similar amount of risk
  • By achieving strategic competitiveness and successfully exploiting its competitive advantage a firm is able to gain its primary objective:

    • The earning of above-average returns

Average returns

  • Average returns

    • Are returns equal to those an investor expects to earn from other investments with a similar amount of risk
  • Risk

    • An investor’s uncertainty about the economic gains or losses that will result from other investments with a similar amount of risk
  • Firms that are without a competitive advantage or that are not competing in an attractive industry earn, at best, only average returns

Strategic management process

  • Strategic management process

    • The strategic management process is the full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above-average returns

The challenge of strategic management (cont’d)

  • The rigours of change and competition

    • In Australia, only 10 of the largest 100 enterprises (in 2004) were in business in 1900
    • Developing and implementing strategy successfully is a primary responsibility of CEOs
    • Current success is no guarantee of future competitiveness and above-average returns

The nature of competition in many of the world’s industries is changing

  • The nature of competition in many of the world’s industries is changing

  • Conventional sources of competitive advantage –economies of scale and huge advertising budgets– are not so effective as they were in the 1900s

  • Rapid technological change

  • The size of investments required for global business can be enormous

  • Hypercompetition

Definition

  • Definition

    • A condition of rapidly escalating competition arising from strategic manoeuvring among global and innovative combatants.
  • Competition is based on:

    • Price–quality positioning
    • New know-how
    • First-mover advantage
    • Protecting and invading product or geographic markets

Definition

  • Definition

    • Economy in which goods, services, people, skills and ideas move freely across geographic borders
  • Europe is now the world’s largest single market with 700 million potential customers and a GDP of US$8 trillion

  • China’s GDP is predicted to be greater than Japan’s by 2015

  • The development of emerging and transitional economies is changing the global competitive landscape

Globalization is the spread of economic innovations around the world and the political and cultural adjustments that accompany this diffusion

  • Globalization is the spread of economic innovations around the world and the political and cultural adjustments that accompany this diffusion

  • Globalization encourages international integration and increased economic interdependence among countries as reflected in the flow of goods and services, financial capital and knowledge across country borders

There is an increasing rate of technological change and diffusion

  • There is an increasing rate of technological change and diffusion

  • Both the rate of change of technology and the speed at which new technologies become available and are used have increased substantially over the last 20 years

  • Perpetual innovation

    • The rapid and consistent replacement of new information-intensive technologies
    • Disruptive technologies are developed that destroy the value of existing technology and create new markets

The information age

  • The information age

    • The ability to effectively and efficiently access and use information has become an important source of competitive advantage
    • Technology includes personal computers, cellular phones, artificial intelligence, virtual reality, massive databases, electronic networks, Internet trade

Increasing knowledge intensity

  • Increasing knowledge intensity

    • Firms must be able to adapt quickly to achieve strategic competitiveness and earn above-average returns. Firms must have strategic flexibility
  • Strategic flexibility

    • Strategic flexibility is the set of capabilities firms use to respond to various demands and opportunities that are a part of dynamic and uncertain competitive environments

Strategic flexibility (cont’d)

  • Strategic flexibility (cont’d)

    • To achieve strategic flexibility, many firms have to develop organizational slack
    • Slack resources offer some flexibility to respond to environmental changes
    • To be strategically flexible on a continuing basis, a firm has to develop the capacity to learn

Specifies that the industry in which a firm chooses to compete has a stronger influence on the firm’s performance than do the choices managers make inside their organisations

    • Specifies that the industry in which a firm chooses to compete has a stronger influence on the firm’s performance than do the choices managers make inside their organisations
    • Industry characteristics:
      • Economies of scale
      • Barriers to market entry
      • Diversification
      • Product differentiation
      • Degree of concentration of firms in the industry

The external environment

  • The external environment

    • The general, industry and competitor environments
  • An attractive industry

    • An industry whose structural characteristics suggest above-average returns
  • Strategy formulation

    • Selection of a strategy linked with above-average returns in a particular industry

Assets and skills

  • Assets and skills

    • An industry whose structural characteristics suggest above-average returns
  • Strategy implementation

    • Selection of a strategy linked with above-average returns in a particular industry
  • Superior returns

    • Earning of above-average returns

Definition

  • Definition

    • The five forces model of competition is an analytical tool that assumes an industry’s profitability is a function of interactions among five forces:
      • Threat of new entrants
      • Suppliers
      • Buyers
      • Product substitutes
      • Competitive rivalry among firms currently in the industry

This tool is intended to assist with understanding:

    • This tool is intended to assist with understanding:
      • An industry’s profit potential
      • The strategy that should be implemented to establish a defensible competitive position, given the industry’s structural characteristics
    • Firms earn above-average returns by:
      • Producing standardised products or services
      • Manufacturing differentiated products for which customers are willing to pay a price premium

The resource-based model assumes that:

  • The resource-based model assumes that:

The resource based model proposes that:

  • The resource based model proposes that:

    • Capabilities evolve and must be managed dynamically
    • Firms acquire different resources and may develop unique capabilities
    • Strategy is dictated by resources and capabilities
    • Firms must find an environment in which to exploit these assets:
      • Where are the best opportunities?

Definitions

  • Definitions

    • Resources
      • Are inputs into a firm’s production process, such as capital, equipment, the skills of individual employees, patents, finance and talented managers
    • Capabilities
      • Are the capacities for a set of resources to integratively perform a task or activity
      • Capabilities evolve and must be managed dynamically

Definition

  • Definition

  • Strategic intent

    • Is the leveraging of a firm’s internal resources, capabilities and core competencies to accomplish the firm’s goals in a competitive environment
    • Strategic intent exists when all employees and levels of a firm are committed to the pursuit of specific (and significant) performance criteria

Definition

  • Definition

  • Strategic mission

    • The strategic mission is a statement of a firm’s unique purpose and the scope of its operations in product and market terms
    • An effective strategic mission establishes a firm’s individuality and is exciting, inspiring and relevant to all stakeholders

Capital market

  • Capital market

    • Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it
    • Returns should be commensurate with the degree of risk to the shareholder

Product market stakeholders

  • Product market stakeholders

    • Customers
      • Demand reliable products at low prices
    • Suppliers
      • Seek loyal customers willing to pay the highest sustainable prices for goods and services
    • Host communities
      • Want companies willing to be long-term employers and providers of tax revenues while minimising demands on public support services
    • Union officials
      • Want secure jobs and desirable working conditions

Employees

  • Employees

    • Expect a dynamic, stimulating and rewarding work environment
    • Are satisfied by a company that is growing and actively developing their skills

Strategic inputs

  • Strategic inputs

  • Firm analyses its external and internal environments:

    • Identifies marketplace opportunities and threats
    • Determines how to make use of core competencies
  • Firm establishes its strategic intent and strategic mission:

    • Leveraging resources, capabilities and core competencies to win competitive battles

Strategic actions

  • Strategic actions

  • The integration, formulation and implementation of strategies

    • Formulating strategies
      • Business-level strategy, competitive dynamics, corporate-level strategy, acquisition and restructuring strategy, international strategy, cooperative strategy
    • Implementing strategies
      • Seek feedback to improve selected strategies
      • Corporate governance, organisational structure and controls, strategic leadership, strategic entrepreneurship
  • Strategic outcomes

  • Strategic competitiveness and above-average returns

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