CHAPTER - 1

Strategic Management and Strategic

Competitiveness

After this lecture you should be able to:

• Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process

• Describe the competitive landscape and explain how globalization and technology changes shape it.

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

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

• Describe vision and mission and discuss their values.

• Define stakeholders and describe their ability to influence organizations.

• Describe the work of strategic leaders.

• Explain the strategic management process

Strategic Competitiveness

Is achieved when a firm

successfully formulates and

implements a value-creating

strategy.

Strategy

Is an integrated and coordinated

set of commitments and actions

designed to exploit core

competencies and gain a

competitive advantage.

Competitive advantage

A firm has a competitive

advantage when it implements a

strategy competitors are unable to

duplicate or find too costly to try

to imitate.

Above-Average Returns

Returns in excess of what an investor expects to earn from

other investments with a similar amount of risk

Risk

Is an investor’s uncertainty about

the economic gains or losses that

will result from a particular

investment.

Average Returns

Are returns equal to those an

investor expects to earn from

other investments with a similar

amount of risk.

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 Competitive Landscape

The Global Economy

Technology and Technological

Changes Technology Diffusion and Disruptive

Technologies

Information Age

Vision

Mission

Strategic

Strategy

Corporate

Governance

Org.

Structures

and Controls

StrategicEntrepreneurship

Strategic

Competitiveness

Above-Average

Returns

Merger and

Acquisition

Strategies

Business-

Level

Strategy

Competitive

Rivalry and

Competitive

Dynamics

Internationa

l Strategy

Cooperative

Strategy

Competitive

-Level

Strategy

The Internal

Environment

The External

Environment

Strategy Formulation Strategy Implementation

Feedback

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The I/O Model of Above –Average Returns

The External Environment•The general environment

•The industry environment

•The competitor environment

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 required to implement a

chosen strategy

Strategy Implementation•Selection of strategic actions linked with

effective implementation of the chosen

strategy

Superior Returns•Earning of above-average returns

1. Study the external environment,

especially the industry

environment

2. Locate an industry with high

potential for above-average

returns.

3. Identify the strategy called for by

the attractive industry to earn

above-average returns.

4. Develop or acquire assets and

skills needed to implement the

strategy.

5. Use the firm’s strengths (its

developed or acquired assets and

skills) to implement the strategy.

The Resource-Based Model of Above –Average Returns

Resources•Inputs into a firm’s production process

Capability•Capacity of an integrated set of resources

to integratively perform a task or activity.

Competitive Advantage•Ability of a firm to outperform its rivals

An Attractive Industry•An industry with opportunities that can be

explored by the firm’s resources and

capabilities.

Strategy Formulation and

Implementation•Strategic actions taken to earn above-

average returns

Superior Returns•Earning of above-average returns

1. Identify the firm’s resources. Study its

strengths and weaknesses compared

with those of competitors.

2. Determine the firm’s capabilities. What

do the capabilities allow the firm to do

better than its competitors?

3. Determine the potential of the firm’s

resources and capabilities in terms of a

competitive advantage.

4. Locate an attractive industry.

5. Select a strategy that best allows the

firm to utilize its resources and

capabilities relative to opportunities in

the external environment

John W. TeetsQuote

“Management’s job is not to see the company as it is….but as it can become.”

Corporate Values

Corporate values are the underlying principles

which guide and also drive the actions and activities of individual companies.

– A set of principles that further clarifying what we stand for.

– A compass for individual and collective behavior.

– A clarification of what we are prepared to be judged on by audiences.

Corporate Values

Each company or organization has their own set of values.

• “Heart and Soul” of the organization– Performance

– Reputation

• Endure throughout the life of the organization.

Developing a Corporate Values

• Question: What values or beliefs do

you want to represent your company?

• Facilitator selected top managers and key personnel to complete values form.

• Brainstorming Exercise

• Final agreement by consensus on the best values to represent company.

VALUES SELECTION FORM

Important values

Customers

Management & Employees

Living values

Vision statement

Is a picture of what the firm wants to be and,

in broad terms, what it wants to ultimately

achieve.

“What do we want to

become?”

Vision & Mission

Many organizations develop both vision & mission

statements.

Vision statement--• Should be established first and foremost

• Short – preferably one sentence

• Broad management involvement

Vision Statement Examples

Fauji Cement Company Limited:

To be a role model cement manufacturing

Company, benefiting all stake holders and

fulfilling Corporate Social Responsibilities while

enjoying public respect and goodwill.

Mission statement

-- 90% of all companies have used a mission

statement in the previous five years.

“What is our business?”

•Enduring statement of purpose

•Distinguishes one firm from another

•Declares the firm’s reason for being

Mission Statements

•Creed statement

•Statement of purpose

•Statement of philosophy

•Statement of business principles

Also referred to as:

Mission Statements

Reveal what an organization wants to be and whom it wants to serve

Essential for effectively establishing objectives and formulating strategies.

Developing Vision & Mission

Clear mission is needed before alternative

strategies can be formulated and

implemented

Participation from diverse managers is important in developing the mission.

Developing Vision & Mission

Approach to developing --

– Select several articles about vision or mission

– Read as background information

– Ask to prepare a draft statement

– A facilitator merge into document

– Request for modifications, Additions, and deletions

– Revise the document

• Reach final agreement by consensus on vision or mission of the company.

Mission Statement Examples

REEBOK'S MISSION

Always Challenge and Lead through

Creativity

At Reebok, they see the world a little differently

and throughout their history have made their

mark when they've had the courage to challenge

convention. Reebok creates products and

marketing programs that reflect the brand's

unlimited creative potential.

Mission Statement Examples

Nike’s mission statement :

“To bring inspiration and innovation to every

athlete* in the world.”

The legendary University of Oregon track and field

coach, and Nike co-founder, Bill Bowerman said, “If

you have a body, you are an athlete.”

Bowerman was a teacher who showed athletes the

secrets to achievement. Nike invites you to

experience our innovative and inspiring Nike

Products.

Mission Statement Examples

Adidas’ Mission Statement

The adidas Group strives to be the global leader in

the sporting goods industry with brands built on a

passion for sports and a sporting lifestyle. We are

committed to continuously strengthening our

brands and products to improve our competitive

position.

Importance of Mission

Mission

Resource Allocation

Unanimity of Purpose

Organizational Climate

Focal point for work

structure

Benefits from a strong mission

Effective Missions

Broad in scope

Generate strategic alternatives

Not overly specific

Reconciles interests among

diverse stakeholders

Finely balanced between

specificity & generality

Effective Missions

Arouse positive

feelings & emotions

Motivate readers to

action

Generate favorable

impression of the firm

Elements of Missions Statements

Mission

Elements

CustomersMarkets

Employees

Public

Image

Self-ConceptPhilosophy

Survival

Growth

Profit

Products

Services

Technology

PepsiCo Mission

PepsiCo’s mission is to increase the value of our

shareholders’ investment. We do this through sales

growth, cost controls, and wise investment resources.

We believe our commercial success depends upon

offering quality and value to our consumers and

customers; providing products that are safe, wholesome,

economically efficient and environmentally sound; and

providing a fair return to our investors while adhering to

the highest standards of integrity.

Ben & Jerry’s Mission

Ben & Jerry’s mission is to make, distribute and sell the finest quality all-natural ice cream and related products in a wide variety of innovative flavors made from Vermont dairy products. To operate the Company on a sound financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees. To operate the Company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community—local, national and international.

Mission Statement Evaluation Matrix

COMPONENTS

Organization Customers

Products

Services Markets

Concern for

Survival,

Growth,

Profitability Technology

PepsiCo Yes No No Yes No

Ben & Jerry's No Yes Yes Yes No

Mission Statement Evaluation Matrix

COMPONENTS

Organization Philosophy

Self-

Concept

Concern for

Public Image

Concern for

Employees

PepsiCo Yes No No No

Ben & Jerry's No Yes Yes Yes

Summary Values, Vision, Mission

• The reason for preparing Values, Vision and Mission statements is to provide a sense of purpose and direction for the organization which is much greater than simply making a profit.

• Once completed, these statements should be shared with the company’s management, employees and primary customers.

• These statements should also serve to both motivate and guide the actions of the company’s managers and employees.

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.

• The Work of Effective Strategic Leaders

• Predicting Outcomes of Strategic Decisions:

Profit Pools

Organizational Culture

Refers to the complex set of ideologies,

symbols, and core values that are shared

throughout the firm and that influence how

the firm conducts business.

Review Questions

1. What are strategic competitiveness, strategy, competitive advantages,

above-average returns, and the strategic management process?

2. What are the characteristics of the current competitive landscape? What two

factors are the primary drivers of this landscape?

3. According to the I/O model, what should a firm do to earn above-average

returns?

4. What does the resource-based model suggest a firm should do to earn

above-average returns?

5. What are vision and mission? What is their value for the strategic

management process?

6. How would you describe the work of strategic leaders?

7. What are the elements of the strategic management process? How are they

interrelated?