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Strategic Management:
Creating Competitive Advantages
McGraw-Hill/Irwin
Strategic Management: Text and Cases, 4e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
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Two Perspectives of Leadership
•
Romantic view
‾
•
Leader is the key force in organization’s success
External control perspective
‾
•
Focus is on external factors that affect an organization’s
success
Leaders can make a difference
‾
‾
Must be aware of opportunities and threats faced in
external environment
Must have thorough understanding of the firm’s resources
and capabilities
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Strategic Management
• Analysis
‾ Strategic goals (vision, mission, strategic objectives)
‾ Internal and external environment of the firm
• Strategic decisions
‾ What industries should we compete in?
‾ How should we compete in those industries?
• Actions
‾ Allocate necessary resources
‾ Design the organization to bring intended strategies to
reality
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Strategic Management
• Strategic management is the study of why some firms
outperform others
‾ How to compete in order to create competitive advantages
in the marketplace
‾ How to create competitive advantages in the market place
o Unique and valuable
o Difficult for competitors to copy or substitute
• Characteristics of strategic decisions…
- Important
- Involve a significant commitment of resources
- Not easily reversible
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Key Attributes
4 Key Attributes of strategic management:
•
•
•
•
Directs the organization toward overall goals and objectives
Includes multiple stakeholders in decision making
Needs to incorporate short-term and long-term perspectives
Recognizes trade-offs between efficiency and effectiveness
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Question
• The final realized strategy of a firm is a combination
of:
a)
b)
c)
d)
Intended and unrealized strategies
Unrealized and emergent strategies
Emergent and deliberate strategies
Deliberate and unrealized strategies
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Strategic Management Process for Intended Strategies
Missions
and Goals
External
Analysis
Strategic
Choice
INTENDED STRATEGY
Organizing for
Implementation
Internal
Analysis
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Strategic Management Process
Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 25772.
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Strategic Management Process for Emergent Strategies
External
Analysis
Missions
and Goals
Strategic Choice
Does It Fit?
EMERGENT STRATEGY
Organizational
Grassroots
Internal
Analysis
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Strategic Analysis
• Starting point in the
strategic management
process
• Precedes effective
formulation and
implementation of
strategies
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Strategic Analysis (cont.)
• Clear goals and objectives permit effective allocation
of resources
• Hierarchy of goals
- Vision
- Mission
- Strategic objectives
• Analyzing external environments
- Managers must scan the environment and analyze
competitors
- General environment
- Industry environment
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Strategic Analysis (cont.)
• Frameworks for analyzing a firm’s internal
environment
- Strengths
- Weaknesses
• Analyzing strengths can uncover potential sources of
competitive advantage
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Strategic Analysis (cont.)
• Intellectual assets are drivers of
- Competitive advantage
- Wealth creation
• Networks and relationships among
-
Employees
Customers
Suppliers
Alliance partners
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Strategy Formulation
• Business level strategy:
- Successful firms develop bases for competitive
advantage
• Cost leadership
• Differentiation
• Focusing on narrow or industry-wide market segments
- Sustainability
- Industry life cycle
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Strategy Formulation (cont.)
Corporate-level strategy addresses:
• Firm’s portfolio or group of businesses
- What business(es) should we be in?
- How can we create synergies among the businesses?
• Diversification
- Related
- Unrelated
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Strategy Formulation (cont.)
• International Strategy
- Appropriate entry strategies for foreign markets
- Sustain competitive advantage in global markets
• Effective strategies for entrepreneurial initiatives
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Strategy Implementation
• Informational control
- Monitor and scan the environment
- Respond effectively to threats and opportunities
• Behavioral control
• Effective corporate governance
- Interests of managers and owners of the firm
• Organizational structure and design
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Strategy Implementation (cont.)
• Organizational boundaries
- Flexible
- Permeable
• Strategic Alliances
• Develop organization that is committed to
- Excellence
- Ethical behavior
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Strategy Implementation (cont.)
• Learning organization responsive to
- Rapid and unpredictable change
• Corporate entrepreneurship and innovation
-
New opportunities
Enhance innovative capacity
Autonomous entrepreneurial behavior
Product champions
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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 (led by the CEO)
- 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
• Effective and engaged Board of
Directors
• Shareholder activism
• Proper managerial rewards and
incentives
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Example: New Rules for Directors
In light of numerous corporate scandals, the role and
rules for board of directors are being redefined. Few
areas of focus :
-
Numbers Knowledge
Strategy Focus
Time & Understanding
Watchdog
Source: Tipsheet, Business Week, January 22, 2007
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Stakeholder Management
• Two views of stakeholder management
- Zero sum
• Stakeholders compete for attention and resources of the
organization
• Gain of one is a loss to the other
- Symbiosis
• Stakeholders are dependent upon each other
• Mutual benefits
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Social Responsibility
• Social responsibility: the expectation that businesses
or individuals will strive to improve the overall
welfare of society
‾ Managers must take active steps to make society better
‾ Socially responsible behavior changes over time
‾ Triple bottom line
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Example: Social Responsibility
Starbucks Coffee Company
 Corporate social responsibility is embedded throughout the
organization.
 The following are some of the commitments they have
made to be socially responsible:
•
•
•
•
Commitment to origins
Helping protect the environment
Starbucks in your community
Commitment to partners
Source: www.starbucks.com
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Example: Social Responsibility
•Johnson & Johnson’s credo
sets its responsibilities to:
1. J&J product users.
2. J&J employees.
3. Communities in which J&J
employees live and work.
4. J&J stockholders.
Source: Courtesy of Johnson & Johnson.
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Strategic Management Perspective
• Integrative view of the organization
• Assess how functional areas and activities “fit
together” to achieve goals and objectives
• All managers and employees must take and
integrative, strategic perspective of issues facing the
organization
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Coherence in Strategic Direction
• Company vision
-
Massively inspiring
Overarching
Long-term
Driven by and evokes
passion
- Fundamental statement of
the organization’s
• Values
• Aspiration
• Goals
Company vision
Hierarchy of Goals
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Coherence in Strategic Direction
• Mission statements
- Purpose of the company
- Basis of competition and
competitive advantages
- More specific than vision
- Focused on the means by
which the firm will
compete
Company vision
Mission statements
Hierarchy of Goals
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Coherence in Strategic Direction
• Strategic objectives
- Operationalize the mission
statement
- Provide guidance on how
the organization can fulfill
or move toward the “higher
goals”
- More specific
- Cover a more well-defined
time frame
Company vision
Mission statements
Strategic objectives
Hierarchy of Goals
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Coherence in Strategic Direction
• Strategic objectives
-
Measurable
Specific
Appropriate
Realistic
Timely
Challenging
Resolve conflicts that arise
Yardstick for rewards and
incentives
Company vision
Mission statements
Strategic objectives
Hierarchy of Goals