Chapter 1

Strategic Management &

Strategic Competitiveness

Learning Objectives
Studying this chapter should provide you with the
strategic management knowledge needed to:
1. Define strategic competitiveness, strategy, competitive
advantage, above-average returns, & the strategic
management process.
2. Describe the competitive landscape & explain how
globalization & technological changes shape it.
3. Use the industrial organization (I/O) model to explain how
firms can earn above-average returns.
4. Use the resource-based model to explain how firms can
earn above-average returns.
5. Describe vision & mission & discuss their value.
6. Define stakeholders & describe their ability to influence
organizations.
7. Describe the work of strategic leaders.
8. Explain the strategic management process.

Twenty-First Century Competition

Globalization

The global
economy

Rapid
technological
change

Todays
Competitiv
e Markets

Increasing
importance
of
knowledge
and people

Strategic Competitiveness
Formulation &
implementation
of
a superior
value-creating
strategy
Commitments & actions to achieve
above-average performance &
returns

What the
firm will do

Competitive
advantage

What the
firm will not
do

Figure 1.1
The
Strategic
Manageme
nt
Process

Increasing
Increasing

The Global Competitive Landscape

Market volatility & instability due to
the rapid pace of change in markets
Blurring of market boundaries
Globalized flow of financial capital
Need for flexibility, speed, innovation,
& integration in the use of technology
Strategic & operational complexity
of global-scale competition
Rising product quality standards

Decreasi
Decreasi
ng
ng

Traditional time for adapting to

change
Traditional sources of competitive
advantage
Traditional managerial mindset

Hypercompetition

Global
economy

Use of
price-quality
positioning to
build market
presence

Strategic options
in
hypercompetitiv
e environments

Creation of new
know-how &
use of firstmover
advantage

Technolog
y

Protection or
invasion of
established
geographic or
product
markets

Competitive Success Factors

Are market/
customerneeds
oriented

Have an
entrepreneurial
/
opportunistic
mindset

Make effective
use of valuable
competencies

Top
Corporate
Performer
s

Offer new
and innovative
products &
services

Technology & Technological

Changes

Technology
trends
impacting the
global
competitive
environment

Increasing rate of
technology diffusion & the
emergence
of disruptive technologies
The information age:
Internet & the global
proliferation of low-cost
computing power
Increasing knowledge
intensity
as an intangible source of
competitive advantage

Strategic Flexibility
Strategic Flexibility
involves coping with the uncertainty & risks of
hypercompetitive environments.
must first overcome built-up organizational
inertia.
requires developing the capacity for
continuous learning & applying the new &
updated skills sets & competencies to the
firms competitive advantage.

The Industry Organization (I/O) Model

of Above-Average Returns
Diversificatio
n

Product
differentiatio
n

Industry
concentratio
n

Barriers to
market entry

Economies
of scale

The Firms
Strategic
Choices

Market
frictions

Figure 1.2
The I/O Model of
Above-Average
Returns

I/O Model Assumptions

1. The external environment imposes pressures &
constraints that determine strategic choices.
2. Similarity in strategically relevant resources
causes competitors to pursue similar strategies.
3. Resource differences among competitors are
short-lived due to resource mobility across firms.
4. Strategic decision makers are rational & engage
in profit-maximizing behaviors.

Five Forces Model of Competition

Substitutes
Substitutes

Supplier
Supplier
ss

Industry
Industry
Rivalry
Rivalry

Potential
Potential
Entrants
Entrants

Buyers
Buyers

Five Forces Model Assumptions

Industry profitability (i.e., rate of return on
invested capital relative to cost of capital) is a
function of interactions among the five forces.
Industry attractiveness equates to its profitability
potential for earning above-average returns by:
Producing standardized goods or services at costs
below competitor costs (a cost leadership strategy).
Producing differentiated goods or services for which
customers are willing to pay a price premium (a
differentiation strategy).

The Resource-Based Model

of Above-Average Returns

e
v
i
t
i
t
e
p
m
o
c
e
g
g
n
a
i
Core
t
d
l
n
i
a
u
v
B
ad Capability competenc
e
An integrated
set of
Resources
resources
Physical, human, &
organizational
capital
(tangible &
intangible)

A source of
competitive
advantage

Resource-Based Model Assumptions

1. Firms acquire different resources.
2. Firms develop unique capabilities based
on how they combine & use resources.
3. Resources & certain capabilities are not
highly mobile across firms.
4. Differences in resources & capabilities
are the bases of competitive advantage &
a firms performance rather than its
industrys structural characteristics.

Resources As Core Competencies

Costly to imitate

Rare

How resources
become core
competencies

Nonsubstitutable

Valuable

Figure 1.3
The Resource-Based
Model of Above-Average
Returns

Strategic Decision Making

Industry Organization
(I/O) Model

Competitive
Strategy
Decision

Resource-Based
Model

Vision Statement
A Successful Vision
is an enduring word picture of what the firm
wants to be & expects to achieve in the future.
stretches & challenges its people.
reflects the firms values & aspirations.
is most effective when its development includes
all stakeholders.
recognizes the firms internal & external
competitive environments.
is supported by upper management decisions &
actions.

Mission Statement
An Effective Mission
specifies the present business or businesses in which
the firm intends to compete & customers it intends to
serve.
has a more concrete, near-term focus on current
product markets & customers than the firms vision.
should be inspiring & relevant to all stakeholders.

Stakeholders
Can affect development of the
firms vision & mission

Primary
stakeholders
(individuals,
groups, &
organizations)

Are affected by the strategic

outcomes achieved by the firm
Can have enforceable claims
on the firms performance
Are influential when in control
of critical or valued resources

Classification of Stakeholders

Categories of
stakeholders

Capital Market
Stakeholders

Product Market
Stakeholders

Organizational
Stakeholders

Figure 1.4
The Three
Stakeholder
Groups

Capital Market Stakeholders

Preservation
of investment

Influence

Conflicting
expectations of
shareholders &
lenders

Enhanced wealth

Risk/return

Product Market Stakeholders

Types of product
market stakeholders

Suppliers

Customers

Host
communities

Unions

Organizational Stakeholders

Responsibilities of strategic leaders for development &

effective use of the firms human capital

Education
and skills of
employees

Organizational
culture &
ethical work
environment

Strategic goals
& global
standards

International
assignments

The Work of Effective Strategic Leaders

Strategic Leaders
have a strong strategic orientation that relies on
thorough analysis when taking action.
are located at various levels throughout the firm.
want the firm & its people to accomplish more.
are innovative thinkers who promote innovation.
can leverage relationships with external parties while
simultaneously promoting exploratory learning.
have an ambicultural (global mindset) approach to
management.

Predicting Outcomes of Strategic

Decisions: Profit Pools
Profit Pool
entails the total profits earned in an industry at all
points along the value chain.
helps a firm see what others do not see & to
understand primary sources of profits in an industry.

Identifying profit pools:

1.
2.
3.
4.

Define the pools boundaries

Estimate the pools overall size
Estimate the size of the pools value-chain activity
Reconcile the calculations

The Strategic Management Process:

The ASP Process
Analyses
C2: The external environment
C3: The internal organization

Strategies
C4: Business-level strategies
C5: Marketplace competition
C6: Corporate-level strategies

Strategies (contd)
C7: Diversified portfolio management
C8: International strategies
C9: Cooperative strategies

Performance

C10: Governance mechanisms

C11: Organizational structure
C12: Strategic leadership
C13: Strategic entrepreneurship