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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
04/18/23 Strategic Management -Session One
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Nature of Competition: Basic concepts
• 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
04/18/23 Strategic Management -Session One
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Nature of Competition: Basic concepts
• 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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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
04/18/23 Strategic Management -Session One
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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
04/18/23 Strategic Management -Session One
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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
04/18/23 Strategic Management -Session One
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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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Industrial Organizational (I/O) Model of Above-Average Returns (AAR)
• 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
04/18/23 Strategic Management -Session One
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Industrial Organizational (I/O) Model of Above-Average Returns (AAR)
• 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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Industrial Organizational (I/O) Model of Above-Average Returns (AAR)
• 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 (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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The Resource-Based Model of AAR (Cont’d)
• 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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The Resource-Based Model of AAR (Cont’d)
• 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
© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
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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.
© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
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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
© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
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