Ch 1 Strategic Management: Creating Competitive Advantages

two perspectives of leadership
– romantic view of leadership
– external control view of leadership
romantic view of leadership
situations in which leader = key force determining organization’s success/lack of success
external control view of leadership
situations in which external forces (where leader has limited influence) determine (affect) organization’s success
examples of
romantic view of leadership
+ Steve Jobs & Apple
– Borders’ leaders
+- HP’s CEO’s
examples of
external control view of leadership
– economic downturns, governmental regulations, major conflict/war, natural disasters; unanticipated events/developments, bank bailouts, oil spill,…
Strategy Spotlight
Economic crisis in Europe:
The fallout continues
Some implications of the economic crisis so far:
– led to widespread political protests
– political resentment led to changes in govts

Major cause & consequence of financial crisis:
– weakening of European banks
– less govt spending, inability of banks to lend, & civil unrest –> higher unemployment rate among youth –> social problems (increased crime rates, drug use, & depression, outward migration)
– decline in tourism

successful executives
are often able to…
navigate around the difficult circumstances that they face
incremental management
view job as making a series of small, minor changes to improve efficiency of their firm’s operations
strategic management
the analyses, decisions, & actions an organization undertakes in order to create & sustain competitive advantages

-be proactive, anticipate change, continually refine, make changes to strategies when necessary

3 ongoing processes involved
in strategic management
1) analyses
– of strategic goals (vision, mission, strategic objectives)
– of internal & external environment of organization
2) decisions
– make strategic decisions that address 2 basic questions:
1. What industries should we compete in?
2. How should we compete in those industries?
– answers usually involve org’s domestic & international operations
3) actions
– take actions to implement strategies
– requires leaders to allocate the necessary resources & to design the org to bring make strategies into reality
the ideas, decisions, & actions that enable a firm to succeed
strategic management – essentially the study of why some firms outperform others; managers need to determine how a firm is to compete so that it can obtain advantages sustainable over long term —-> focus on 2 fundamental questions:
1. How should we compete in order to create competitive advantages in the marketplace?
– how to position itself

2. How can we create competitive advantages in the marketplace that’re unique, valuable, & difficult for rivals to copy or substitute?
– how to make advantages sustainable

competitive advantage
a firm’s resources & capabilities that enable it to overcome the competitive forces in its industry(ies)
how to achieve sustainable
competitive advantage?
perform different activities from rivals or perform similar activities in different ways
– involves operational effectiveness
– strategy = being different
operational effectiveness
performing similar activities better than rivals
The four key attributes of
strategic management
1) directs organization toward overall goals & objectives
– effort directed at what’s best for total organization, not just a single functional area (organization vs individual rationality)

2) includes multiple stakeholders in decision making

3) needs to incorporate ST & LT perspectives
– Peter Senge: “creative tension” = managers must maintain vision for future of org & focus on its present operating needs
– made difficult by pressures to meet ST performance targets

4) recognizes trade-offs btw efficiency & effectiveness
– difference btw “doing the right thing” (effectiveness) & “doing things right” (efficiency)
– must allocate & use resources wisely while still direct efforts toward the attainment of overall organizational objectives (ST + LT)
– make trade-offs
– ambidexterity

the challenge managers face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities
Strategy Spotlight –
Ambidextrous behaviors:
Combining Alignment & Adaptability
4 ambidextrous behaviors in individuals
1) they take time & are alert to opportunities beyond the confines of their own jobs
2) they are cooperative & seek out opportunities to combine their efforts w/ others
3) they are brokers, always looking to build internal networks
4) they are multitaskers who are comfortable wearing more than one hat

Harvard Business Review article- questions to consider to become a more ambidextrous leader:
– do you meet your numbers?
– do you help others?
– what do you do for peers?
– when you manage up, do you bring problems OR problems w/ solutions
– are you transparent?
– are you developing a group of senior-managers who know you & are willing to back your original ideas w/ resources?

Strategic Management Process :
3 key processes
1. strategy analysis
2. strategy formulation
3. strategy implementation

– processes are highly interdependent; no sequential order

Intended VS Realized Strategies
because business environment is far from predictable …

Intended strategy
-organizational decisions are determined only by analysis
-rarely survives in its original form

Realized Strategy
– organizational decisions are determined by both analysis (deliberate) & unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences (emergent)
– final realized strategy = combination of deliberate & emergent strategies

intended strategy —deliberate strategy—> realized strategy

intended strategy ——–>unrealized strategy

emergent strategy ——-> realized strategy

strategy analysis
study of firms’ external & internal environments, & their fit w/ organizational vision & goals

– starting point in strategic management process
– precedes effective formulation & implementation of strategies
– involves careful analysis of overarching goals of organization
– requires thorough analysis of organization’s external & internal environment

4 Analyses of
strategy analysis
1) analyzing organizational goals & objectives
– establish hierarchy of goals: vision, mission, strategic objectives (broad statements of intent/ bases for competitive advantage to specific, measurable strategic objectives)

2) analyzing the external environment of the firm
– managers must monitor & scan environment and analyze competitors
– 2 frameworks:
– the General Environment: incl. demographic & economic segments
– the Industry Environment: consists of competitors & other orgs that may threaten the success of the firm’s products & services

3) 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

4) assessing Firm’s Intellectual Assets
– Knowledge workers & other intellectual assets drive competitive advantage & wealth creation
– Networks & relationships + technology enhances collaboration, accumulates & stores knowledge

Strategy Formulation
decisions made by firms regarding investments, commitments, & other aspects of operations that create & sustain competitive advantage

– Based on strategy analysis
– Developed at several levels
– Involves decisions that can create & sustain competitive advantage
– Investment decisions
– Commitment of resources
– Operational synergies
– Recognizing viable opportunities

4 levels of development
of Strategy Formulation
1) 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

2) 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?

3) formulating International Strategy
– What is the appropriate entry strategy?
– How do we go about attaining competitive advantage in international markets?

4) Entrepreneurial Strategy & Competitive Dynamics
– How do we recognize viable opportunities?
– How do we formulate effective strategies?

Strategy Implementation
actions made by firms that carry out the formulated strategy, including:
– strategic controls (proper strategic control systems)
– organizational design (coordinates & integrates activities w/in firm)
– leadership (ensures organizational commitment to excellence & ethical behavior)

– coordinates activities w/ suppliers, customers, alliance partners
– promotes learning & continuous improvement
– acts entrepreneurially in creating new opportunities

4 actions of
Strategy Implementation
1) Strategic Control & Corporate Governance
– must exercise 2 types of strategic control:
– Informational control
-Monitor & scan the environment
– Respond effectively to threats & opportunities
– Behavioral control
– Proper balance of rewards & incentives
– Appropriate cultures & boundaries (or constraints)
– practice Effective corporate governance

2) Creating Effective Organizational Designs
– organizational structures consistent w/ strategy
– organizational boundaries (internal & external) are flexible & permeable
– strategic alliances capitalize on capabilities of other organizations

3) 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

4) Fostering Corporate Entrepreneurship
– firms continually improve & grow
– firms find new ways to renew themselves
– entrepreneurship & innovation provide for new opportunities
– enhance firm’s innovative capacity
– allow autonomous entrepreneurial behavior

According to economist Milton Friedman, the overall purpose of a public corporation is to…
maximize the LT return to the shareholders/owners
Corporate governance
the relationship among various participants in determining the direction and performance of corporations
Key Elements/Primary Participants of Corporate Governance
1) shareholders (owners)
2) management (led by Chief Executive Officer-CEO)
3) Board of Directors (BOD; elected by shareholders to represent their interests)
– ensure interests & motives of management are aligned w/ those of owners
3 important mechanisms to ensure effective corporate governance (internal controls)
1) an effective & engaged board of directors
2) shareholder activism
3) proper managerial rewards & incentives
external control mechanisms of corporate governance
incl. auditors, banks, analysts, active financial press, threat of hostile takeovers
Stakeholder Management
a firm’s strategy for recognizing & responding to the interests of all its salient stakeholders
an individual or group, inside or outside the company, that has a stake in & can influence an organization’s performance

-each stakeholder group makes various claims on the company

Two views of stakeholder management
1) Zero Sum
2) Symbiosis
Zero Sum
-stakeholders compete for attention & resources
– gain of one is a loss to the other
– stakeholders are dependent upon each other for success & well-being
– receive mutual benefits
-a way stakeholders can fulfill multiple roles
= practice wherein the Internet is used to tap a broad range of individuals & groups to generate ideas & solve problems
Strategy Spotlight
NGOS as Monitors of MNCs
Social Responsibility
the expectation that businesses or individuals will strive to improve the overall welfare of society

-firms have multiple stakeholders & must go beyond a focus solely on financial results

-managers must take active steps to make society better by virtue of the business being in existence

-key stakeholder group particularly susceptible to corporate social responsibility (CSR) initiatives = customers
-strong positive relationship btw CSR behaviors and consumers’ reactions to a firm’s products & services

Shared Value
policies & operating practices that enhance the competitiveness of a company while simultaneously advancing the economic & social conditions in which it operates

– identify & expand connections btw societal & economic progress
-businesses are creators of value that they then share w/ society in a mutually beneficial relationship

Triple Bottom Line
assessment of a firm’s financial, social, & environmental performance
-accounting for the environmental & societal costs of doing business

-embrace environmental sustainability
– implies an economy that the planet is capable of supporting indefinitely

-a study finds sustainability increasingly recognized as a source of cost efficiencies & revenue growth

SRI (socially responsible investing)
a broad-based approach to investing
-recognizes that corporate responsibility & societal concerns are considerations in investment decisions
-investors have opportunity to put their $ to work to build a more sustainable world while earning competitive returns
Strategy Spotlight:
The Business Case for Sustainability
corporate sustainability (green) movement
-a business philosophy that goes beyond legal compliance w/ environmental regulations
-sustainability as a source of innovation & improving operational effectiveness
-opportunity cost represented by waste

-retailing; Walmart w/ competitive advantage: reduce waste & weight of packaging
-International Paper; planted trees for steady supply, cut fossil fuel use

Strategic Management requires:
-an integrative view of the organization

-all functional areas & activities fit together to achieve goals & objectives

-leaders throughout the strategic management process (3 types):
-Local line leaders – have profit & loss responsibilities
– Executive leaders – champion & guide ideas, create learning infrastructure, establish domain for taking action
– Internal networkers – hold little positional power, but have conviction & clarity of ideas

– Top-level executives set tone for empowerment of employees

-extensive communication, incentives, training, development
-Whirlpool: encouraged innovation

Strategy Spotlight:
Strategy & The Value of Inexperience
-Mandalay Entertainment
-Gorillas in the Mist
-intern’s suggestion resulted in cost to shoot= half of what was budgeted & nominations for Academy Awards
Hierarchy of goals
organization goals ranging from, at the top, those that’re less specific yet able to evoke powerful & compelling mental images, to , at the bottom, those that’re more specific & measureable

-organizations express priorities best through stated goals & objectives that form it

-vision -> mission statement -> strategic objectives
– general -> specific
– long time horizon -> short time horizon

organizational goal(s) that evokes powerful & compelling mental images of a shared future

-massively inspiring
-overarching, LT
-destination drive by & evoking passion
-developed & implemented by leadership
-fundamental statement of an org’s values, aspirations, & goals
-captures minds & hearts of employees
-can contain slogan, diagram, picture

-can backfire:
– The Walk Doesn’t Match the Talk
– management’s behavior not consistent w/ vision
– Irrelevance
– not realistic, unrelated to environmental threats or opportunities, or not a match for org’s resources & capabilities
– Not the Holy Grail
– managers continually search for the ONE elusive solution that’ll solve the firm’s problems
– Too Much Focus Leads to Missed Opportunities
– by directing people & resources toward a grandiose vision, losses can be devastating
– Samsung & automobile mfg
– An Ideal Future Irreconciled w/ the Present
– visions should be anchored in current reality, need to account for the often hostile environment in which the firm competes

Mission Statement
set of organizational goals that includes org’s current purpose, scope of operations, basis of competition & competitive advantage

-states purpose of the company & builds 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 org is special & different
-can & should change when competitive conditions change
-most successful firms don’t mention profits in mission statement (it’s already assumed)

Strategy Spotlight:
How the James Irvine Foundation Redefined Its Mission
-original mission: to promote the welfare of the people of CA
-too broad -> collected data -> focused on 3 critical org values: addressing root causes rather than crises, enabling Californians to help themselves, & working on problems that might attract like-minded partners/funders -> REDEFINED MISSION: primary beneficiaries = youths aged 14-24 & education = primary lever for change
-still contributed to the arts
Strategic Objectives
set of organizational goals that’re used to operationalize the mission statement & that’re specific & cover a well-defined time frame
-specific yardsticks to measure fulfillment of objectives
-provide guidance on how to fulfill mission & mission
– can be ST action plans
– can be both financial & nonfinancial
-Criteria to be meaningful; must be:
1) Measurable-at least 1 indicator (yardstick) that measures progress against fulfilling objective
2) Specific – provides clear message as to what needs to be accomplished
3) Appropriate – consistent w/ org’s vision & mission
4) Realistic – an achievable target given the org’s capabilities & opportunities in the environment (challenging but doable/help resolve conficts)
5) Timely – time frame for achieving objective

-provide yardstick for rewards & incentives