CHAPTER 1: Strategic Management AND Competitiveness

1. CHAPTER 1: Strategic Management AND Competitiveness

2. THE STRATEGIC MANAGEMENT PROCESS The Strategic Management Process

3. KNOWLEDGE OBJECTIVES

4. IMPORTANT DEFINITIONS ● STRATEGIC COMPETITIVENESS -achieved when a firm successfully formulates and implements a value-creating strategy ● STRATEGY -an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage ● COMPETITIVE ADVANTAGE - when a firm implements a strategy that creates superior value for customers; competitors are unable to duplicate it or find too costly to imitate it

5. IMPORTANT DEFINITIONS ●RISK -an investor’s uncertainty about the economic gains or losses that will result from a particular investment ● ABOVE-AVERAGE RETURNS -returns in excess of what an investor expects to earn from other investments with a similar amount of risk ●AVERAGE RETURNS - returns equal to those an investor expects to earn from other investments with a similar amount of risk

6. THE STRATEGIC MANAGEMENT PROCESS ■ FIRST:External environment and internal organization are analyzed to determine resources, capabilities, and core competencies—the sources of “strategic inputs.” ■ NEXT:Vision and mission are developed; strategies are formulated. ■ THEN:Strategies are implemented with the goal of achieving strategic competitiveness and above-average returns. ■ DYNAMIC PROCESS: Continuously changing markets and industry conditions must match evolving strategic inputs.

7. THE STRATEGIC MANAGEMENT PROCESS Rational: the approach firms use to achieve strategic competitiveness and earn above-average returns FORMULATION and IMPLEMENTATION: the two types of strategic actions that must be simultaneously integrated to successfully employ the strategic management process

8. THE COMPETITIVE LANDSCAPE ■ GLOBALIZATION - emergence of a global economy ■ TECHNOLOGY - rapid technological changes ■ INDUSTRY BOUNDARIES BLURRING ■ STRATEGIC MANAGEMENT PROCESS - effective use of the strategic management process reduces the likelihood of failure for firms as they encounter the conditions of today’s competitive landscape

9. THE COMPETITIVE LANDSCAPE ■ HYPERCOMPETITION - characterized by ■ Market instability and change ■ Rapidly escalating competition ■ Aggressive challengers ■ Strategic maneuvering to establish first- mover advantage ■ Technology industries ■ TWO DRIVERS - GLOBALIZATION - TECHNOLOGY ■ Strategic flexibility - important tool

10. TWO MODELS OF STRATEGIC DECISION MAKING • Firms use two major models to help develop their vision and mission and then choose one or more strategies in pursuit of strategic competitiveness and above-average returns.

11. THE I/O MODEL OF ABOVE-AVERAGE RETURNS Grounded in economics, the I/O model has First, the external environment is assumed to impose pressures and constraints that determine the strategies that would result in above-average returns. Second, most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources. Four Underlying Assumptions

12. THE I/O MODEL of ABOVE-AVERAGE RETURNS Third, resources used to implement strategies are assumed to be highly mobile across firms, so any resource differences that might develop between firms will be short-lived. Fourth, organizational decision-makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behavior.

13. THE I/O MODEL of ABOVE-AVERAGE RETURNS The Five Forces Model of competition is an analytical tool used to help firms find the industry that is the most attractive, as measured by its profitability potential. The Five Forces Model suggests that an industry’s profitability (i.e., its rate of return on invested capital relative to its cost of capital) is a function of interactions among the Five Forces: suppliers, buyers, rivalry, product substitutes, and potential entrants to the industry.

14. THE I/O MODEL of ABOVE-AVERAGE RETURNS FIRMS CAN EARN ABOVE-AVERAGE RETURNS: ● Cost Leadership Strategy – producing standardized goods or services at costs below those of competitors ● Differentiation Strategy -producing differentiated goods or services for which customers are willing to pay a price premium The I/O model suggests that above-average returns are earned when firms are able to effectively study the external environment as the foundation for identifying an attractive industry and implementing the appropriate strategy.

15. THE I/O MODEL OF ABOVE-AVERAGE RETURNS

16. THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS • The resource-based model assumes that each organization is a collection of unique resources and capabilities. • The uniqueness of its resources and capabilities is the basis of a firm’s strategy and its ability to earn above-average returns. • The core assumption of the resource-based model is that the firm’s unique resources, capabilities, and core competencies have more influence on selecting and using strategies than does the firm’s external environment.

17. THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS • There are FOUR components to the Resource- Based Model: • ● Resources • ● Capabilities • ● Core Competencies • ● Competitive Advantage • There are FOUR criteria that if resources and capabilities fulfill, then they become Core Competencies: • ● Valuable • ● Rare • ● Costly to Imitate • ● Nonsubstitutable

18. THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS • Resourcesare inputs into a firm’s production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers. • A firm’s resources are either tangible or intangible and are classified into three categories: physical, human, and organizational capital. • Resources alone may not yield a competitive advantage. Many resources can either be imitated or substituted over time, therefore, it is difficult to achieve and sustain a competitive advantage based on resources alone.

19. THE RESOURCE-BASED MODEL of ABOVE-AVERAGE RETURNS • Acapability is the capacity for a set of resources to perform a task or an activity in an integrative manner. • Capabilities evolve over time and must be managed dynamically in pursuit of above-average returns. • Core competencies are resources and capabilities that serve as a source of competitive advantage. KEY WORD: INTEGRATIVE

20. THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS • When these four criteria are met, resources and capabilities become core competencies:

21. THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS The Resource-Based Model of Above Average Returns

22. TWO MODELS OF STRATEGIC DECISION MAKING • Evidence indicates that both models yield insights that are linked to successfully selecting and using strategies.

23. VISION • Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. • A vision statement is short and concise, making it easy to remember. • It articulates the ideal description of the organization and gives shape to its intended future.

24. VISION • A firm’s vision tends to be enduring, whereas its mission can change in light of changing environmental conditions. • vision statements reflect a firm’s values and aspirations and are intended to capture the heart and mind of each stakeholder. • Executivesand top-level managers must formulate and implement strategies consistent with the vision.

25. VISION • Examples: • Our vision is to be the world’s best quick service restaurant. (McDonald’s) • To make the automobile accessible to every American. • (Ford Motor Company’s vision when established by Henry Ford)

26. ACCOR’S STRATEGIC VISIONAccor has refocused on its core hotel business and in September 2011 it unveiled several major changes to its brands, operating strategy and financial objectives.  The group is now a pure-player in hotels and boasts a unique and universal business model as an owner, operator and franchisor of budget to luxury hotels on all five continents. The new Accor strategy is based on four pillars: - A powerful marketing approach, with a revitalization of the Economy Hotels activity and the Accor brand. - Unique operational expertise derived from Accor’s skills and capabilities in its three strategically aligned businesses – hotel owner, operator and franchisor – in all segments and all regions. - A value-creating asset management strategy that improves the Group’s business performance, optimizes its balance sheet and support growth.- A development strategy that aims to consolidate the Group’s current leadership in Europe and Latin America and position it among the leaders in Asia-Pacific, especially China.

27. MISSION • The vision is the foundation for the firm’s mission. • The firm’s mission is more concrete than its vision. • Amission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve.

28. MISSION • Examples: • Be the best employer for our people in each community around the world and deliver operational excellence to our customers in each of our restaurants. (McDonald’s) • Our mission is to be recognized by our customers as the leader in applications engineering. We always focus on the activities customers desire; we are highly motivated and strive to advance our technical knowledge in the areas of material, part design, and fabrication technology. (LNP, a GE Plastics Company)

29. Air asia Our vision To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares. Our mission To be the best company to work for whereby employees are treated as part of a big family Create a globally recognized ASEAN brand To attain the lowest cost so that everyone can fly with AirAsia Maintain the highest quality product, embracing technology to reduce cost and enhance service levels

30. Air asia Our values We make the low fare model possible through the implementation of the following key strategies, Safety First:Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations. High Aircraft Utilisation:Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity. Low Fare, No Frills:Providing guests with the choice of customizing services without compromising on quality and services. Streamline Operations:Making sure that processes are as simple as possible. Lean Distribution System:Offering a wide and innovative range of distribution channels to make booking and travelling easier. Point to Point Network:Applying the point-to-point network keeps operations simple and costs low.

31. MISSION • Similar to the vision, a mission should establish a firm’s individuality and should be inspirational to all stakeholders. • A firm’s vision and mission are critical aspects of the strategic inputs required to engage in strategic actions that help achieve strategic competitiveness and earn above-average returns.

32. VISION, MISSION AND ETHICS • The probability of forming an effective mission increases when employees have a strong sense of the ethical standards that guide their behaviors. Business ethics are a vital part of:

33. hort STAKEHOLDERS • Are there individuals, groups, and organizations who have a stake in the organization • ● Who can affect the firm’s vision and mission? • ● Are affected by the strategic outcomes achieved? • ● Have enforceable claims on the firm’s performance? • Competitive Advantage • Firms effectively managing stakeholder relationships outperform those that do not.

34. CLASSIFICATION OF STAKEHOLDERS Three groups of stakeholders: C ● Shareholders and the major suppliers of a firm’s capital ● A firm’s primary customers, suppliers, host communities, and unions representing the workforce ● Firm’s employees, including both non-managerial and managerial personnel Capital market stakeholders Productmarket stakeholders Organizational stakeholders

35. CLASSIFICATION OF STAKEHOLDERS

36. STRATEGIC LEADERS • Strategic leaders are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission. • Successful strategic leaders are decisive, committed to nurturing those around them, and are committed to helping the firm create value for all stakeholder groups.

37. STRATEGIC LEADERS Increasingly, CEOs delegate strategic responsibilities to include decision-makers closest to the action due to the changing competitive landscape:

38. STRATEGIC LEADERS AND ORGANIZATIONAL CULTURE • VisionaryStrategic Leaders emphasize not only maximizing shareholder wealth, but maximizing the interests of all stakeholders, underscoring a civic and personal commitment to corporate citizenship. • Organizational culture affects strategic leaders and their work. In turn, strategic leaders’ decisions and actions shape a firm’s culture. • Organizational culture is the social energy that drives—or fails to drive—the organization, the ideologies, symbols, and shared core values.

39. THE WORK OF EFFECTIVE STRATEGIC LEADERS SUCCESSFUL STRATEGIC LEADERSHIP CHARACTERISTICS • Hard working • ● Embraces dynamic competitive landscape • Brutally honest • Tenacious • Penchant for wanting the firm and its people to accomplish more • Strong strategic orientation

40. THE WORK OF EFFECTIVE STRATEGIC LEADERS SUCCESSFUL STRATEGIC LEADERSHIP CHARACTERISTICS • Innovative thinker • Exploratory learning of new and unique forms of knowledge • Exploitative learning, which adds incremental knowledge to existing knowledge bases • Global mindset • Dreams that challenges and energizes a company, i.e., vision