Strategic Management:
Concepts and Cases
Part I: Strategic Management Inputs
Chapter 1: Strategic Management and Strategic
Competitiveness
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Chapter 1: Strategic Management and
Strategic Competitiveness
 Overview: Eight content areas
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Nature of Competition
The 21st Century Competitive Landscape
I/O Model of Above-Average Returns (AAR)
Resource-Based Model of AAR
Strategic Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
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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

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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
 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
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Nature of Competition: Basic concepts
(Cont’d)
 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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The Strategic Management Process
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Chapter 1: Strategic Management and
Strategic Competitiveness
 Overview: Eight content areas








Nature of Competition
The 21st Century Competitive Landscape
I/O Model of Above-Average Returns (AAR)
Resource-Based Model of AAR
Strategic Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
7
st
21
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
8
st
21
Century Competitive Landscape
(Cont’d)
 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
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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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21st Century Competitive Landscape
 Technology and Technology Changes

(Cont’d)
Technology diffusion
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(Cont’d)
Perpetual innovation: describes how new informationintensive technologies are replacing older forms
Speed to market may be primary competitive advantage
12 – 18 month timeframe to gather info re: competitor R&D
Disruptive technologies

Technologies that
 Destroy value of existing technology
 Create new markets
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21st Century Competitive Landscape
 Technology and Technology Changes
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

(Cont’d)
(Cont’d)
1. Technology diffusion & disruptive technologies
2. The information age
3. Increasing knowledge intensity
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21st Century Competitive Landscape
 Technology and Technology Changes


(Cont’d)
(Cont’d)
The information age
 Dramatic changes over last several years
 Major technological developments: computers, phones, artificial
intelligence, virtual reality
 Internet provides infrastructure for information anytime,
anywhere
Increasing knowledge intensity
 Defined as information, intelligence & expertise and is the basis
of technology and its application
 Gained through experience, observations and inferences
 Strategic Flexibility – set of capabilities used to respond to
various demands and opportunities existing in a dynamic and
uncertain competitive environment
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Chapter 1: Strategic Management and
Strategic Competitiveness
 Overview: Eight content areas








Nature of Competition
The 21st C Competitive Landscape
I/O Model of Above-Average Returns (AAR)
Resource-Based Model of AAR
Strategic Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
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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
 Resources for implementing strategies are highly mobile
across firms
 Therefore any resource differences between firms will be
short-lived
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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
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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

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Differentiation


THE low-cost leader
Customer willing to pay the premium price for ‘being
different’
Internal resources & capabilities not considered
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The
ResourceBased
Model of
AAR
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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

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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


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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
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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Chapter 1: Strategic Management and
Strategic Competitiveness
 Overview: Eight content areas








Nature of Competition
The 21st C Competitive Landscape
I/O Model of Above-Average Returns (AAR)
Resource-Based Model of AAR
Strategic Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
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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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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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The Three Stakeholder Groups
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Stakeholders
(Cont’d)
 Classifications of Stakeholders
 Capital Market
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Product Market
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Expect returns commiserate with risk accepted by
investments
Higher the dependency relationship, the more direct
and significant firm’s response
The 4 groups benefit due to competitive battles
Organizational

The employees
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Chapter 1: Strategic Management and
Strategic Competitiveness
 Overview: Eight content areas








Nature of Competition
The 21st C Competitive Landscape
I/O Model of Above-Average Returns (AAR)
Resource-Based Model of AAR
Strategic Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process
30
Strategic Leaders
 People located in different parts of the firm using
the strategic management process to help the firm
reach its vision and mission
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

Decisive and committed to nurturing those around them
Create and sustain organizational culture
Organizational culture emerges from & sustained by
leaders



Complex set of ideologies, symbols and core values
shared throughout the firm
Affects leaders/their work which in-turn shapes culture
Influences how the firm conducts business
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Strategic Leaders
(Cont’d)
 The Work of Effective Strategic Leaders
 Work long hours
 Must be able to “think seriously and deeply…about
the purposes of the organizations they head or
functions they perform, about strategies,
tactics,…..and people…and about the important
questions … they need to ask.”
 Predicting Outcomes: Profit Pools (PP)
 Anticipates their decisions relative to the PP
 Entails the total profits earned in an industry at all
points along the value chain
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Strategic Management Process
 Rational approach used by firms to achieve
strategic competitiveness and earn above
average returns (AAR)
 Figure 1.1 (Diagram of chapter relationships)
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Part 1: Strategic Mgmt Inputs
Part 2: Strategic Actions: Strategy Formulation
Part 3: Strategic Actions: Strategy Implementation
Part 4: Cases
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