The Strategic Management Process
Strategic
Thinking
Chapter 1
Introduction to
Strategic Management
Chapter 2
Strategic Leadership
Strategic
Analysis
Chapter 3
The External
Environment
Chapter 4
The Internal
Organization
Strategic Intent
Strategic Mission
Chapter 5
Business-Level
Strategy
Chapter 6
Competitive Rivalry and
Competitive Dynamics
Chapter 7
Corporate-Level Strategy
Chapter 8
Acquisition and
Restructuring Strategies
Chapter 9
International Strategy
Chapter 10
Cooperative Strategy
Creating
Competitive
Advantage
Monitoring
And Creating
Entrepreneurial
Opportunities
Chapter 11
Corporate Governance
Chapter 12
Strategic Entrepreneurship
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Chapter 1
Introduction to
Strategic Management
Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
©2004 by South-Western/Thomson Learning
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Determinants of Firm Respectability
1. Strong and well-thought-out strategy
2. Maximize customer satisfaction and
loyalty
3. Business leadership
4. Quality products and services
5. Strong and consistent profits
3
Definitions
Strategic Management Process
The full set of commitments, decisions,
and actions required for a firm to create
value and earn above-average returns
Value Creation
What is achieved when a firm
successfully formulates and implements a
strategy that other companies are unable
to duplicate or find too costly to imitate.
4
The Firm and Its Stakeholders
Stakeholders
Groups
The firmwho
must
aremaintain
affected by a
firm’s
performance
performance
at an adequate
and who
have
level claims
in orderontoits
retain
wealth
the
participation of key
stakeholders
5
The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Shareholders
Major suppliers of capital
•Banks
•Private lenders
•Venture capitalists
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The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Primary customers
Suppliers
Host communities
Unions
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The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
Employees
Managers
Nonmanagers
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Stakeholder Involvement
Two issues affect the
extent of stakeholder
involvement in the firm
Organizational
Capital
Market
1
How do you divide the
returns to keep
stakeholders involved?
Product
Market
9
Stakeholder Involvement
Two issues affect the
extent of stakeholder
involvement in the firm
Organizational
Capital
Market
2
How do you increase the
returns so everyone has
more to share?
Product
Market
10
Competitive Landscape
Emergence of
global economy
Goods, services, people,
skills, and ideas move
freely across geographic
borders
Spread of economic
innovations around the
world
Hypercompetitive
environments
Fundamental nature of
competition is changing
Political and cultural
adjustments are
required
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Competitive Landscape
Emergence of
global economy
Rapid technological
change
Increasing rate of
technological change and
diffusion
The information age
Increasing knowledge
intensity
Hypercompetitive
environments
Fundamental nature of
competition is changing
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Strategic Flexibility
A set of capabilities used to respond to
various demands and opportunities
existing in a dynamic and uncertain
competitive environment
Andrew Grove, Intel’s former CEO:
“Only paranoid companies survive and
succeed.”
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I/O Model of Above-Average Returns
1. External Environments
General
Global
Industry
Environment
Competitor
Environment
Technological
Environment
1. Strategy dictated by the
external environment of
the firm (what
opportunities exist in
these environments?)
2. Firm develops internal
skills required by
external environment
(what can the firm do
about the opportunities?)
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Four Assumptions of the I/O Model
1. The external environment is assumed to
possess pressures and constraints that
determine the strategies that would result
in above-average returns
2. Most firms competing within a particular
industry or within a certain segment of it
are assumed to control similar
strategically relevant resources and to
pursue similar strategies in light of those
resources
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Four Assumptions of the I/O Model
3. Resources used to implement strategies
are highly mobile across firms
4. Organizational decision makers are
assumed to be rational and committed to
acting in the firm’s best interests, as
shown by their profit-maximizing
behaviors
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
1. Study the external
environment, especially the
industry environment
• economies of scale
• barriers to market entry
• degree of concentration of
firms in the industry
• etc.
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
An Attractive Industry
2. Locate an attractive industry
with a high potential for
above-average returns
Attractive industry: one whose
structural characteristics
suggest above-average returns
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
3. Identify the strategy called
for by the attractive industry
to earn above-average returns
An Attractive Industry
Strategy Formulation
Strategy formulation: selection
of a strategy linked with
above-average returns in a
particular industry
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
4. Develop or acquire assets and
skills needed to implement
the strategy
An Attractive Industry
Strategy Formulation
Assets and Skills
Assets and skills: those assets
and skills required to
implement a chosen strategy
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
5. Use the firm’s strengths (its
developed or acquired assets
and skills) to implement the
strategy
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Strategy implementation: select
strategic actions linked with
effective implementation of the
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chosen strategy
I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Superior returns: earning
of above-average returns
Superior Returns
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Resource-based Model of Above Average
Returns
1. Firm’s Resources
1. Strategy dictated by the
firm’s unique resources
and capabilities
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?)
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Resource-based Model of Above Average
Returns
Resource-based
Model
Resources
1. Identify the firm’s resources-strengths and weaknesses
compared with competitors
Resources: inputs into a firm’s
production process
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Resource-based Model of Above Average
Returns
Resource-based
Model
Resources
Capability
2. Determine the firm’s
capabilities--what it can do
better than its competitors
Capability: capacity of an
integrated set of resources to
integratively perform a task or
activity
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Four Attributes of Resources and
Capabilities (Competitive Advantage)
Rare
Costly to imitate
Nonsubstitutable
Resources and Capabilities
Valuable
allow the firm to exploit opportunities or
neutralize threats in its external
environment
possessed by few, if any, current and
potential competitors
when other firms cannot obtain them or
must obtain them at a much higher cost
when there are no structural equivalents,
i.e., no strategically equivalent resources
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Resources and capabilities that meet
these four criteria become:
Rare
Costly to imitate
Nonsubstitutable
Resources and Capabilities
Valuable
Core Competencies
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Core Competencies are the basis for a
firm’s
Competitive
advantage
Value Creation
Core Competencies
Ability to earn
above-average
returns
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Resource-based Model of Above Average
Returns
Resource-based
Model
Resources
3. Determine the potential of the
firm’s resources and
capabilities in terms of a
competitive advantage
Capability
Competitive Advantage
Competitive advantage: ability
of a firm to outperform its
rivals
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Resource-based Model of Above Average
Returns
Resource-based
Model
4. Locate an attractive industry
Resources
Capability
Competitive Advantage
An Attractive Industry
An attractive industry: an
industry with opportunities that
can be exploited by the firm’s
resources and capabilities
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Resource-based Model of Above Average
Returns
Resource-based
Model
Resources
Capability
5. Select a strategy that best
allows the firm to utilize its
resources and capabilities
relative to opportunities in
the external environment
Competitive Advantage
An Attractive Industry
Strategy Form/Impl
Strategy formulation and
implementation: strategic
actions taken to earn above
average returns
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Resource-based Model of Above Average
Returns
Resource-based
Model
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Form/Impl
Superior returns: earning
of above-average returns
Superior Returns
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Four Assumptions of the ResourceBased Model
1. Differences in firms’ performances are
primarily due to unique core competences
rather than industry characteristics
2. Across time, firms acquire different
resources and develop unique capabilities
3. Resources are not highly mobile across
firms
4. Each firm is a unique collection of
resources and capabilities
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Strategic Intent & Mission

Strategic Intent


Winning competitive battles by leveraging the
firm’s resources, capabilities, and core
competencies
Strategic Mission

An application of strategic intent in terms of
products to be offered and markets to be
served
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