Chapter 1: Creating
Competitive Advantages
MNGT 4800
Dr. Shook
Agenda
Strategic management defined
 Strategic management process
 Schools of thought
 Corporate governance and stakeholder
management
 Environmental forces creating change
 Hierarchy of strategic goals
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Two Perspectives of Leadership
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Strategic Choice Perspective
(Romantic view)
 Leader is the key force in organization’s
success
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Population Ecology
(External control perspective)
 Focus is on external factors that affect an
organization’s success
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Two Perspectives of Leadership

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
Definition: Strategic management consists of the
analysis, decisions, and actions an organization
undertakes in order to create and sustain competitive
advantages.
Key attributes of strategic management
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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
Strategic Management

Analysis (Chs. 1, 2, 3, and 4)
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Strategic decisions (Chs 5, 6, 7, and 8)
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Strategic goals (vision, mission, strategic objectives)
Internal and external environment of the firm
In which industry(ies) should we compete?
How should we compete in those industries?
Actions (Chs 9, and 10)
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Allocate necessary resources
Design the organization to bring intended strategies
to reality
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

 Unique
and valuable
 Difficult for competitors to copy or substitute
Strategic Intentions
Intended
Strategy
Deliberate
Strategy
Unrealized
Strategy
Emergent
Strategy
Realized
Strategy
Two Foundational Schools of Thought
1
Industrial Organization Model
2
Resource-Based Model
I/O Model of Superior Returns
– Assumptions:
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The external environment imposes constraints that
determine the strategies that can result in superior
profitability.
Competing firms control similar resources and pursue
similar strategies
Resources utilized by firms are highly mobile
thus homogeneous
I/O Model of Superior Returns
The Industrial Organization Model
suggests that above-average returns
for any firm are largely determined
by characteristics outside the firm.
I/O Model of Superior Returns
The Industrial Organization Model
suggests that above-average returns
for any firm are largely determined
by characteristics outside the firm.
The I/O model largely focuses on
industry structure or attractiveness of
the external environment rather than
internal characteristics of the firm.
Resource-Based Model of Superior Returns
–Assumptions:
Firms acquire different resources over time
 Resources heterogeneity within a particular
industry
 Resources may not be highly mobile across
firms
 Difference in resources and how they are used
form the basis of competitive advantage

Resource-Based Model of Superior Returns
The Resource-Based Model suggests
that above-average returns for any
firm are largely determined by
characteristics inside the firm.
Resource-Based Model of Superior Returns
The Resource-Based Model suggests
that above-average returns for any
firm are largely determined by
characteristics inside the firm.
The Resource-Based view focuses on
developing or obtaining valuable
resources and capabilities which are
difficult or impossible for rivals to
imitate.
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

Board of directors
Elected representatives of the owners
 Ensure interests
and motives of management are aligned
with those of the owners
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 Effective
and engaged board of directors
 Shareholder activism
 Proper managerial rewards and incentives
Exhibit 1.4 The Key Elements of Corporate Governance
Stakeholder Management
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Two views of stakeholder management
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Zero sum
 Stakeholders
compete for attention and
resources of the organization
 Gain of one is a loss to the other
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Symbiosis
 Stakeholders
are dependent upon each other
 Mutual benefits
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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Four Additional Types of
Capital
In addition to financial capital
Type of Capital
Description
Ecological
Renewable resources generated by
living systems, such as wood or animal
by-products
Nonrenewable or geological resources
such as mineral ores and fossil fuels
People’s knowledge, skills, health,
nutrition, safety, security, and motivation
Assets of civil society, such as social
cohesion, trust, reciprocity, equity, and
other values that provide mutual benefit
Material
Human
Social
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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Strategic Management
Perspective
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Key driving forces increasing the need for
strategic perspective and involvement
Globalization
 Technology
 Intellectual capital
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These forces are
Interrelated
 Accelerating the rate of change and
uncertainty
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Coherence in Strategic
Direction
Company vision
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Massively inspiring
Overarching
Long-term
Driven by and evokes passion
Fundamental statement of
the organization’s
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Values
Aspiration
Goals
Company vision
Hierarchy of Goals
Coherence in Strategic
Direction
Mission statements
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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
Coherence in Strategic
Direction
Strategic objectives
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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
Coherence in Strategic
Direction
Strategic objectives
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Measurable
Specific
Appropriate
Realistic
Timely
Challenging
Resolve conflicts that arise
Yardstick for rewards and
incentives
Company vision
Mission statements
Strategic objectives
Hierarchy of Goals