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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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Learning Objectives
After reading this chapter, you should have a good
understanding of:
 The definition of strategic management and its four key attributes.
 The strategic management process and its three interrelated and
principal activities.
 The significance of strategic issues
 The vital role of corporate governance and stakeholder
management as well as how “symbiosis” can be achieved among
an organization’s stakeholders.
 The importance of social responsibility, including environmental
sustainability, and how it can enhance a corporation’s innovation
strategy.
 The need for greater empowerment throughout the organization.
 How an awareness of a hierarchy of strategic goals can help an
organization achieve coherence in its strategic direction.
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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 – Strategy Formulation
‾ What industries should we compete in?
‾ How should we compete in those industries?
• Actions – Strategy Implementation
‾ 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
 In short, strategic management is about how an
organization adds value and competes in its environment.
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Key Attributes
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
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 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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Strategic Issues
• Results from Strategic Analysis
• Strategic issues require top-management
decisions
- Strategic decisions overarch several areas of a
firm’s operations
- Usually only top management has the perspective
needed to understand their broad implications
- Usually only top managers have the power to
authorize necessary resource allocations
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Strategic Issues
• Strategic issues require large amounts of
the firm’s resources
- They involve substantial allocations of people,
physical assets, and money
- Strategic decisions commit the firm to actions
over an extended period
- In highly competitive firms, achieving and
maintaining customer satisfaction frequently
involves commitment from every facet of the
firm
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Strategic Issues
• Strategic issues often affect the firm’s longterm prosperity
- Strategic decisions commit the firm for a long
time, typically 5 years; however the impact lasts
much longer
- Once a firm has committed itself to a strategy, its
image and competitive advantages are usually
tied to that strategy
- Firms become known for what they do and where
they compete. Shifting away from that can
jeopardize their previous gains.
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Strategic Issues
• Strategic issues are future-oriented
- They are based on what managers forecast,
rather than what they know
- Emphasis is on the development of solid
projections that will enable a firm to seek the
most promising strategic options
- A firm will succeed only if it takes a proactive
(anticipatory) stance toward change
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Strategic Issues
• Strategic issues usually have
multifunctional or multibusiness
consequences.
- Strategic decisions have complex implications
for most areas of the firm
- Decisions about customer mix, competitive
emphasis, or organizational structure involve a
number of the firm’s SBUs, divisions, or
program units
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Strategic Issues
• Strategic issues require considering the
firm’s external environment
- All businesses exist in an open system. They
affect and are affected by external conditions
that are largely beyond their control
- Successful positioning requires that strategic
managers look beyond operations and
consider what relevant others are likely to do
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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, group, mix 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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Question
• Briefly describe the role of board of directors in
corporate governance.
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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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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 an
integrative, strategic perspective on issues facing
the organization
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Enhancing Employee Involvement
Local Line
Leaders
• Have significant profit and loss
responsibility
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Enhancing Employee Involvement
Local Line
Leaders
Executive
Leaders
• Champion and guide
ideas
• Create a learning
infrastructure
• Establish a domain for
taking action
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Enhancing Employee Involvement
Local Line
Leaders
Executive
Leaders
Internal
Networkers
• Have little positional
power and formal
authority
• Generate their power
through the conviction
and clarity of their ideas
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Modern Flow of Strategic
Management
Top Management
Subsidiary
Management
Functional
Management
Operating Management
Employees
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Why Modern Flow of Strategic
Management?
Changes in and heightened competition
driven by
- Pressure for low cost products and services
- Higher quality requirements
- Globalization
- Increasing rate of technological change and
diffusion
- Information technology
- Knowledge as an organizational resource
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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 welldefined 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