Strategic Management: Creating Competitive Advantages Chapter One McGraw-Hill/Irwin Copyright ©...

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Strategic Management: Creating Competitive Advantages Chapter One McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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Page 1: Strategic Management: Creating Competitive Advantages Chapter One McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategic Management:

Creating Competitive Advantages

Chapter One

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: Strategic Management: Creating Competitive Advantages Chapter One McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

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.

1-2

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Learning Objectives (cont.)

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.

1-3

Page 4: Strategic Management: Creating Competitive Advantages Chapter One McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Two Perspectives of Leadership

Romantic view Leader is the key force

in organization’s success

External control perspective Focus is on external

factors that may affect an organization’s success

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QUESTION

A CEO made a lot of mistakes such as committing errors in assessing the market and competitive conditions and improperly redesigning the organization into numerous business units. Such errors led to significant performance declines. This illustrates the __________ perspective of leadership. 

A. External controlB. RomanticC. Internal mechanismD.Operational

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Example: 3M

Elements of Buckley’s turnaroundSet clear business goals for the companyWanted 3M to develop lower-cost

products to compete in emerging marketsBecame an outspoken champion for 3M

labs

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What is Strategic Management?

Strategic management must become both a process and a way of thinking throughout the organization

Leaders must be proactive, anticipate change, and continually refine changes to their strategies

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Defining Strategic Management

Strategic management Analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages

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Defining Strategic Management

Analysis Strategic goals Internal and external environment of the firm

Strategic decisions What industries should we compete in? How should we compete in those industries?

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Defining Strategic Management

Actions Allocate necessary resources Design the organization to bring intended

strategies to reality

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Two Fundamental Questions

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?

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Strategic Management Concepts

1-12

Exhibit 1.1

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Key Attributes of Strategic Management

Stakeholders those individuals, groups, and organizations who

have a “stake” in the success of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, the community at large,

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Key Attributes of Strategic Management

Ambidexterity The challenge managers face of both aligning

resources to take advantage of existing product markets as well as proactively exploring new opportunities

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Ambidextrous Behaviors in Individuals

They take time and are alert to opportunities beyond the confines of their own jobs

They are brokers, always looking to build internal networks

They are cooperative and seek out opportunities to combine their efforts with others

They are multitaskers who are comfortable wearing more than one hat

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Strategic Management Process

Intended strategy Decisions are determined only by analysis

Realized strategy Decisions are determined by both analysis

and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences

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Strategic Management Process

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Exhibit 1.2

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Strategic Management

Process

Exhibit 1.3

The Strategic Management

Process

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Strategic Analysis

Consists of “advance work” that must be done in order to effectively formulate and implement strategies

Starting point

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Strategy Formulation

A firm’s strategy formulation is developed at several levels:

Business-levelCorporate levelInternational Entrepreneurial

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Strategy Implementation

Ensuring proper strategic controls and organizational designs

Establishing effective means to coordinate and integrate activities within the firm as well as with suppliers, customers, and alliance partners

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Corporate Governance and Stakeholder Management

Corporate governance The relationship among various participants

in determining the direction and performance of corporations

Shareholders, management, board of directors

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Corporate Governance and Stakeholder Management (cont.)

Board of Directors Elected

representatives of the owners

Ensure interests and motives of management are aligned with those of the owners

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Exhibit 1.4

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Corporate Governance

Three mechanisms ensure effective corporate governance:

An effective and engaged board of directors

Shared activismProper managerial rewards and incentives

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Stakeholder Management

Zero sum view Stakeholders compete for attention and

resources of the organization Gain of one is a loss to the other Rooted in the traditional conflict between

workers and management

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Stakeholder Management

Stakeholder symbiosis view Stakeholders are dependent upon each other for

their success and well-being Mutual benefits

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QUESTION

Outback Steakhouse has developed a sophisticated quantitative model and found that there were positive relationships between employee satisfaction, customer satisfaction, and financial results. This is an example of __________. A. Zero-sum relationship among stakeholdersB. Stakeholder symbiosisC. Rewarding stakeholdersD. Emphasizing financial returns

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Crowdsourcing

Crowdsourcing practice wherein the Internet is used to tap a

broad range of individuals and groups to generate ideas and solve problems.

Linux, Amazon, Wikipedia

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Social Responsibility

Social responsibility The expectation that businesses or

individuals will strive to improve the overall welfare of society

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Social Responsibility

Triple bottom line Assessment of a company’s performance in

financial, social, and environmental dimensions

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Example: Social Responsibility

Starbucks Coffee Company defines CSR as: Conducting business in ways that produce social,

environmental and economic benefits for the communities in which we operate and for the company’s stakeholders, including shareholders.

Some tangible benefits include attracting and retaining our partners, customer loyalty, reducing operating costs, and creating a sustainable supply chain.

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Strategic Management Perspective

All managers and employees must:Take an integrative, strategic perspective of

issues facing the organizationAssess how functional areas and activities

“fit together” to achieve goals and objectives

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Three Types of Leaders

Local line leaders Have significant profit-and-loss responsibility

Executive leaders Champion and guide ideas, create a learning

infrastructure, establish a domain for taking action

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Three Types of Leaders (cont.)

Internal networkers Generate power

through the conviction and clarity of their ideas

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Coherence in Strategic Direction

Hierarchy of goals organizational goals ranging from, at the top,

those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable.

Vision, mission statement, strategic objectives

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A Hierarchy of Goals

Exhibit 1.6

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Coherence in Strategic Direction

Organizational vision Goal that is

“massively inspiring, overarching, and long term”

Represents a destination that is driven by and evokes passion

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Why Do Visions Fail?

The walk doesn’t match the talk

IrrelevanceToo much focus leads

to missed opportunities

Not the holy grailAn ideal future

irreconciled with the present

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Coherence in Strategic Direction

Mission statement Set of goals that include both the purpose of

the organization, its scope of operations, and the basis of its competitive advantage

Has the greatest impact when it reflects an organization’s enduring, overarching strategic priorities and competitive positioning

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Coherence in Strategic Direction

Strategic objectives A set of organizational goals that are used to

operationalize the mission statement and that are specific and cover a well-defined time frame.

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