12/2/2015Strategic Management -Session One 1 Strategic Management Session - One.

04/18/23 Strategic Management -Session One

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Strategic Management

Session - One


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Nature of Competition: Boeing vs. Airbus

• Boeing– Historically a global leader in airplane manufacturing– Revenue from commercial aircraft division & gov’t contracts– Regained supremacy in 2006: more 787 super jumbo

orders vs. Airbus’s more efficient A-380 – Changed strategy and design

• Different production process • Smaller plane (787 Dreamliner)

• Airbus– EU Government owned and subsidized – Won competitor battle with Boeing between 2001 & 2005– Responded to customer demands with more efficient A-380

aircraft


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Nature of Competition: Basic concepts

• Strategic Competitiveness– Achieved when a firm formulate & implements a value-creating

strategy

• Strategy– Integrated and coordinated set of commitments and actions

designed to exploit core competencies and gain a competitive advantage


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• Competitive Advantage (CA)– Implemented strategy that competitors are unable

to duplicate or find too costly to imitate

• Above Average Returns– Returns in excess of what investor expects in

comparison to other investments with similar risk


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• Risk – Investor’s uncertainty about economic gains/losses

resulting from a particular investment

• Average Returns– Returns equal to what investor expects in

comparison to other investments with similar risk

• Strategic Management Process (SMP)– Full set of commitments, decisions and actions

required for a firm to achieve strategic competitiveness and earn above average returns


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Stakeholders

• Basic Premise – a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors

• Stakeholders are individuals and groups– They can affect, and are affected by, the strategic

outcomes/performance a firm achieves

– Three (3) classifications


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The Three Stakeholder Groups


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Stakeholders (Cont’d)

• Classifications of Stakeholders – Capital Market

• Expect returns commiserate with risk accepted by investments

• Higher the dependency relationship, the more direct and significant firm’s response

– Product Market• The 4 groups benefit due to competitive battles

– Organizational• The employees- Managers, Non Managers


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21st Century Competitive Landscape

• Introduction: The Competitive Landscape (CL)– Pace of change is rapid

– Partnerships created by mergers & acquisitions (M&As)

– Other CL characteristics: Economies of scale, advertising budgets not as effective as before, change in managerial mind-set from “traditional” to more flexible and innovative


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21st Century Competitive Landscape

• Introduction: The Competitive Landscape (CL)– Hypercompetition – extremely intense rivalry among

competing firms, characterized by • Escalating & increasingly aggressive competitive

moves• Assumptions of market stability replaced with notion of

Instability and change

– Two primary drivers of the competitive landscape: • The global economy • Technology


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21st Century Competitive Landscape (Cont’d) • The Global Economy

– Goods, services, people, skills and ideas move freely across geographic borders

– Europe, through the European Union (EU) is the world’s largest single market

• EU vs U.S. GDP: 35% higher

– Emerging major competitive forces: China & India

– In summary: globalization increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders


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21st Century Competitive Landscape (Cont’d)

• Technology and Technological Changes– 3 categories:

• 1. Technology diffusion & disruptive

technologies

• 2. The information age

• 3. Increasing knowledge intensity


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Industrial Organizational (I/O) Model of

Above-Average

Returns (AAR)


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Industrial Organizational (I/O) Model of Above-Average Returns (AAR)

• Basic Premise – to explain the dominant influence of the external environment on a firm's strategic actions and performance


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• Underlying Assumptions

– External environment imposes pressures and constraints

that determine the strategies resulting in AAR

– Most firms compete within a particular industry/segment

• Control similar strategically relevant resources

• Pursue similar strategies in light of those resources


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• Underlying Assumptions

– Resources for implementing strategies are highly

mobile across firms

• Therefore any resource differences between firms

will be short-lived

– Organizational decision makers are rational and

committed to acting in the firm's best interests, as

shown by their profit-maximizing behaviors


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• Five-Forces Model (Michael Porter)– The 5 Forces includes

• Suppliers, buyers, competitive rivalry, product substitutes and potential entrants

– Reinforces the importance of economic theory

– Analytical tool previously lacking in the field of strategy

– Determines the nature/level of competition and profit potential in an industry• Suggests an industry’s profitability is an interaction

between these 5 forces


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Industrial Organizational (I/O) Model of Above-Average Returns (AAR) (Cont’d)

• Limitations– Only two strategies are suggested:

• Cost Leadership – THE low-cost leader

• Differentiation– Customer willing to pay the premium price for ‘being

different’

– Internal resources & capabilities not considered


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The Resource-

Based Model of

AAR


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The Resource-Based Model of AAR (Cont’d)

• Basic Premise - a firm's unique [internal] resources & capabilities, in combination, is the basis for firm strategy and AAR– Each firm’s performance difference across time

emerges (vs industry’s structural characteristics)

– Combined uniqueness should define the firms’ strategic actions

– Resources are tangible and intangible


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• Resources– Inputs into a firm's production process

• Includes capital equipment, employee skills, patents, high-quality managers, financial condition, etc.

– Basis for competitive advantage: When resources are valuable, rare, costly to imitate and nonsubsitutable


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The Resource-Based Model of AAR

– Resources• Internal/firm-specific resources (N=3)

• Physical – Things you can touch/feel = tangible

• Human – People / employees

• Organizational capital – Relative to the firm itself


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• Capability – Capacity for a set of resources to perform a task or

activity in an integrative manner

• Core Competency– A firm’s resources and capabilities that serve as

sources of competitive advantage over its rival

• Summary– A firm has superior performance because of

• Unique resources and capabilities, and the combination makes them different, and better, than their competition – driving the competitive advantage


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Vision and Mission

• Vision – Picture of what the firm wants to be– What the firm ultimately wants to achieve– An effective vision statement is the responsibility of

the leader who should work with others to form it– Foundation for the mission

• Mission– Specifics business(es) in which firm intends to

compete and customers it intends to serve– More specific than the vision


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What Makes a Successful Strategy?What Makes a Successful Strategy?

Long-term, simple and agreed objectives

Objective appraisal of resources

EFFECTIVE IMPLEMENTATION

Successful strategy

Profound understanding of the competitive environment

© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com


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The Basic Framework Strategy: the Link between the Firm and its Environment

The Basic Framework Strategy: the Link between the Firm and its Environment

THE FIRM

• Goals & Values

• Resources & Capabilities

• Structure & Systems

THE FIRM

• Goals & Values

• Resources & Capabilities

• Structure & Systems

THE INDUSTRYENVIRONMENT

• Competitors

• Customers

• Suppliers

THE INDUSTRYENVIRONMENT

• Competitors

• Customers

• Suppliers

STRATEGYSTRATEGYSTRATEGY



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• Distinguishing strategy from tactics:– Strategy is the overall plan for deploying resources

to establish a favorable position.– Tactic is a scheme for a specific maneuver.

What is Strategy?What is Strategy?

• Characteristics of strategic decisions:– Important.– Involve a significant commitment of resources.– Not easily reversible.



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Describing Strategy:Competing for the Present;Preparing for the Future.

Describing Strategy:Competing for the Present;Preparing for the Future.

STATIC

• Where are we competing? - Product market scope- Geographical scope- Vertical scope

• How are we competing?

- What is the basis of our competitive advantage?)

DYNAMIC

• What do we want to become?

- Vision statement

• What do we want to achieve? - Mission statement

- Performance goals

• How will we get there? - Guidelines for development - Priorities for capital expenditure, R&D - Growth modes: organic growth, M&A, alliances

COMPETING FOR THEPRESENT

PREPARING FOR THEFUTURE



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12/2/2015Strategic Management -Session One 1 Strategic Management Session - One.

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Transcript of 12/2/2015Strategic Management -Session One 1 Strategic Management Session - One.