Entails the analysis of internal and external environments of firms to maximize the utilization of recourses in relation to objectives (Bracker 1980)
What is Teece's strategic Management?
formulation, implementation, and evaluation of managerial actions that enhance the value of a business enterprise
What is Barney's strategic Management?
the process through which strategies are chosen and implemented (barney 1997)
What is Bowman, Singh, Thomas strategic Management?
The strategic management field can be conceptualized as one centered on problems relating to the creation and sustainability of competitive advantage, or the pursuit of rents (Bowman, Singh, and Thomas) 2001
What does the field of strategy deal with?
Deals with the major intended and emergent initiatives. Taken by general managers on behalf of owners. Involving utilization of some resources. To enhance performance of firms in their external environments.
What is the basic framework of strategy?
the link between the firm and its environment. the processes by which the organization, in a dynamic and above all interactive manager, seek to ensure that it responds to its general environment to sustain competitive advantage.
How is the firm linked to the external environment?
1. industry environment
*All link it by strategy
What are factors of a general environment or external to an industry, usually beyond a firms control?
Demographic, sociocultural, legal/Political, technological, economic, global
What is industry environment in an external environment??
The immediate context in which the firm operates
What is macro environment in an external environment?
consisting of forces such as politics and law, technology, demography, society, the economic climate, and the state of the physical environment
What is stakeholder groups in an external environment?
Groups that affect and are affected by the firm's activities.
How can managers monitor the vast array of possible influences?
1. need to distinguish the "vital" from the "merely important"
2. Classification schemes like PEST can help
What is PEST Analysis?
Political - Changes in: government economic policy, legal requirements, government ownership
Social - Changes in: Demographics, attitudes, and social structure
Economic - Changes in: level of economic activity, wage rates and income distribution, exchange rates
Technological - Development in new products, automation, information, communication, natural sciences.
What is the industry environment?
suppliers, competitors and customers
How to create an environmentally aware organization?
Environmental scanning, environmental monitoring, competitive intelligence -- which all lead into forecasts
What is external scanning?
Surveillance of a firm's external environment:predict environmental changes to come, detect changes already under way, proactive mode.
*alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them.
What is external monitoring?
Track evolution of environmental trends, sequence of events or streams of activities.
What is competitive intelligence?
Define and understand a firm's industry.
identify rivals' strengths and weaknesses. (intelligence gathering (data) and interpretation of intelligence date. Helps a firm avoid surprises.
What is environmental forecasting?
Plausible projections about direction, scope, speed and intensity of environmental change
What is scenario analysis is environmental forecasting?
Involves experts' detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment.
What is SWOT analysis? A firm's strategy must:
Firm's strategy must:
Build on its strengths
Remedy the weaknesses or work around them
Take advantage of the opportunities presented by the environment
Protect the firm from threats.
What are critical questions in developing a strategy?
Is the game good (industry attractiveness)
What is the company's position in the game?
How can a business account for differences in industry profitability?
It is all down to luck?
Some industries are in decline, other are growing fast?
The basic premise that underlies analysis is that the level of industry profitability is neither random nor entirely the result of industry-specific influences, it is determined by the industry's underlying economic characteristics or industry structure.
What are the forces influencing firm performance?
1. The potential for entry into the industry by new firms.
2. The strength of the competition
3. The power of buyers
4. The power of suppliers
5. The strength of substitutes for the industry's products.
6. The strength of complements of the industry's products.
What is Porters five forces framework?
Affecting industry attractiveness
Sides: Potential entrants, buyers, substitutes, and suppliers
Middle: (industry competitors (rivalry among existing firms)
What is the threat of new entrants?
Profits of established firms in the industry may be eroded by new competitors
Sources of entry barriers: Economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages independent of scale.
What is the bargaining power of buyers
Buyers threaten an industry by:
Forcing down prices, bargaining for higher quality or more services, and planning competitors against each other.
**Powerful when: concentrated purchases, standard and undifferentiated product, few switching costs, earns low profit, backward integration, unimportant to the quality of the product
What is bargaining power of suppliers?
Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services.
Supplier group powerful when: dominated by only a few companies, not obligated to deal with substitute products, important input to a buyers business, groups products are differentiated and built up switching costs, poses a credible threat of forward integration
What is the threat of substitute products and services.
Substitutes limit the potential returns of an industry.
Ceiling on the prices that firms in the industry can profitably charge.
What is the intensity of rivalry among competitors in an industry?
increased customer service or warranties
Factors that lead intense rivalries: Numerous or equally balanced competitors, slow industry growth, high fixed or shortage costs, lack of differentiation or switching costs, capacity augmented in large increments, high exit barriers.
How five forces impact profitability
Profit = price - cost
What are the structural determinants of Competition using 5 forces?
Supplier Power: suppliers price sensitivity, relative bargaining power
Substitute competition: buyers propensity to substitute, relative prices and performance of subs.
Buyer power: buyers price sensitivity, relative bargaining power
Threat of Entry: capital requirements, economies of scale, absolute cost advantage, product differentiation, access to distribution channels, legal/regulatory barriers, retaliation
Industry Rivalry: Concentration, diversity of competitors, product differentiation, excess capacity and exit barriers, cost conditions.
How to apply industry analysis?
Industry analysis can be used to:
1. explain difference in profitability between industries and changes in the profitability of a given industry over time.
2. Assist managers in positioning the firm advantageously.
3. Predict possible changes in competition and profitability in the near future
4. identify opportunities for changing industry structures and alleviating competitive pressures.
What is the strategist's role in industry analysis?
1. industry analysis provides critical information and should always be carried out before a company makes a move.
2. the strategist must examine the structure of an industry and understand the five forces
3. each industry is likely to be somewhat different. In each industry, some the five forces are likely to more significant than others.
4. For the strategist, it is important to figure out which are the most important forces and what can be done about them.
5. they should give greatest attention to the forces that can be most readily influenced in a way that improves a company's performance.
what are challenges of applying the five forces framework?
1. defining the industry
2. choosing the appropriate level of analysis
3. dealing with missing factors
4. dealing with uncertainty and rapid structural change
What are critisms of the five forces of competition framework?
1. it omits important variables and cannot be applied to the dynamic and complex realities of many industries without significant modification
2. The premise on which the model is based is flawed and not supported by strong empirical evidence.
Does industry matter
A number of studies seem to show that industry environment is a relatively minor determinant of a firm's profitability
This points to the need for more analysis in competition and between firms. - competitive behavior and individual firms.
Are products, not in the same industry, whose patterns of demand are systematically positively correlated and move in tandem
Created a reciprocal expansion of demand
Ex: skis and ski boots, sails and sailboats, tires and autos.
What are strategic groups?
Are a level of analysis between the firm and the industry
1. firms within an industry that have similar costs and value drivers compared to firms in other groups.
2. Firms which compete in the same segment or across segments for the same customers.
3. Firms that take a similar approach to competing in an industry.
What are mobility barriers and strategic groups?
1. are actions taken by stronger and more profitable competitors to protect their segments from entry by rival firms in the industry.
2. Prevent the movement of firms from one strategic group to another.
3. Are created by entry-deterring behavior of firms in a group
4. Are similar to barriers to entry to the industry
What is strategic competitiveness?
When a firm successfully formulates and implements a value creating strategy
What is strategy?
An integrated and coordinated set for commitments and actions designed to exploit core competencies and gain a competitive advantage.
What is competitive advantage?
When a firm implements a strategy that its competitors are unable to duplicate or find too costly to try to imitate.
What is strategic management process?
The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above average returns.
What are common elements in successful strategies?
1. Effective implementation of:
Simple, consistent, long-term goals
Profound understanding of the competitive environment
Objective appraisal of resources
What is intended strategy in the strategic management process?
Decisions are determined only by analysis
What is realized strategy in the strategic management process?
Decisions are determined by both analysis and unforeseen environmental developments, unanticipated respires constraints, and/or changes in managerial preferences. (a intended strategy may become an unrealized strategy. An emergent strategy will become a realized strategy
What is a static strategy?
Competing in the present
Where are we competing?
Product market scope.
How are we competing?
What is the basis of our competitive advantage?
What is a dynamic strategy?
Preparing for the future
What do we want to become
What do we want to achieve?
How will we get there?
Guidelines for development
priorities for capita; expenditure, R&D
Growth modes: organic growth, M&A, alliances
Why do you want to develop a strategy?
Allows for planned actions rather than reactions
Helps coordinate business unit strategies
What is hypercompetition?
A condition of rapidly escalating competition based on:
Competition to create new know-how and establish first-mover advantage
competition to protect or invade established product or geographic markets
What is the global economy?
Goods, people, skills, and ideas move freely across geopgraphic borders.
Movement is relatively unfettered by artificial constraints
Expansion into global arena complicates a firm's competitive environment
Short-term: Where is the fastest growth likely to occur?
Long-term: where will sustainable growth occur?
Increased range of oppurtunities for companies competing in the 21st-century competitive landscape
Liability of foreignness-the risks of participating outside of a firm's domestic country in the global economy
The amount of time required for firms to learn how to compete in markets that are new to them.
What is the I/O model of above-average returns?
Dominance of the external environment
The industry in which a firm competes has a stronger influence on the firm's performance than do the choices managers make inside their organizations.
Industry Properties determining performance
Economies of scale
Barriers to market entry
Degree of concentration of firms in the industry
1. The external environment
2. An attractive industry
3. Strategy formulation
4. Assets and skills
5. Strategy implementation
Equals = Superior returns
What are the model assumptions for resource-based model of above-average returns?
Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and that is the primary source of its returns
Capabilities evolve and must be managed dynamically
Differences in firms' performances are due primarily to their unique resources and capabilities rather that structural characteristics of the industry
Firms acquire different resources and develop unique capabilities.
An attractive industry
Strategy formulation and implementation
Results" Superior returns
Why the two models? (industrial organization (I/O) model or Resource based model?
I/O: focuses on the environment outside the firm
Resource-based: focuses on the inside
*successful strategy formulation and implementation actions result only when the firm properly uses both models
Corporate versus business strategy
Corporate strategy: rate of return above the cost of capital (how do we make money?) - industry attractiveness (which industries should be in?)
Business strategy: rate of return above the cost of capital (how do we make money?) - competitive advantage (how should we compete?)
What are visions and mission?
Vision: a enduring picture of what the firm wants to be and, in brad terms, what it wants to ultimately achieve
Stretches and challenges people and evokes emotions and dreams
Effective vision statements are:
Developed by a host of people from across the organization
Clearly tied to external and internal environmental conditions
Consistent with strategic leaders' decisions and actions.
specifies the business or businesses in which the firm intends to compete and the customers it intends to serve
is more concrete that the firm's vision
is more effective when it fosters strong ethical standards.
Above average returns are the fruits of the firm's efforts to achieve its vision and mission.
Who are stakeholders?
Individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm's performance.
The more critical and valued a stakeholder's participation, the greater a firm's dependency on it.
Managers must find ways to either accommodate or insulate the organization from the demands of stakeholders controlling critical resources
How to divide returns to keep stakeholders involved?
How to increase returns so everyone has more to share?
What are three stake holder groups?
Capital market stakeholders: shareholders; major suppliers of capital (banks)
2. Industry factors (external) buyers, suppliers, competition, substitutes
3. Strategy factors (internal) sustained differences in market position within an industry
What do you get when you do an external analysis?
opportunities and threats. Firms identify what they might choose to do.
What do you get from studying the intern environment?
Identify what firms can do. Unique resources, capabilities, and competencies (required for sustainable competitive advantage)
What are strategic factors?
1. resource: a relatively stable, observable, tradable asset owned by the firm and one that contributes to the firm's performance (patent, brand, geographical location (retailing)
2. Capability: is the ability of the firm to use its organization and people to accomplish tasks at a high level of expertise continuously over time (customer service or pricing) *can not be traded
What is a characteristic of resources?
contribute to firms market position
have value if difficult to imitate or sub
Ex: patents, natural resources, brand, distribution network
What are the characteristics of resources and capabilities?
cannot be readily observed
can contribute to higher value, lower cost
less stable than resource
can be developed independently of resource
derive their strategic value from their use in support to the firms resources
What is resource-based view of the firm?
perspective that firms' competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute.
Name some intangible resources
HR (knowledge, trust, managerial capabilities)
Innovation: ideas, scientific capabilities
Reputational: brand name, with customers, with suppliers
What type of resource is organizational capability?
the competencies and skills that a firm employs to transform inputs into outputs. (corporate management, MIS, R&D, Manufacturing, Design, Marketing, Sales, Distribution & Service)
The four criteria of sustainable competitive advantage?
Valuable capabilities: helps a firm neutralize threats or exploits oppurtunity
Rare Capabilities: are not possessed by many others
Costly-to-imitate Capability: historical, ambiguous cause, social complexity
Nonsubstitutable Capabilities: no strategic equivalent
What is the rationale for the resource-based approach to strategy?
When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.
Resources and capabilities are the primary sources of profitability.
What is value chain analysis?
Allows the firm to understand the parts of its operations that create value and those that do not.
A template that firms use to: understand their cost position; identify multiple means that might be used to facilitate implementation of a chosen business level strategy.
Primary activities involved with: a products physical creation, sale and distribution to buyers, and service after the sale
Support activities: provide the assistance necessary for the primary activities to take place.
Value chain: shows how a product moves from the raw-material stage to the final customer
To be a source of competitive advantage, a resource or capability must allow the firm: to perform an activity in a manner that is superior to the way competitors perform it, or to perform a value-creating activity that competitors cannot complete.
What are primary activities?
Service, marketing and sales, outbound logistics, operations, inbound logistics
Partnering with vendors- purchasing goods - managing and distributing inventory - operating store - marketing and selling
R&D - engineering - design and solutions - marketing and sales - service
What is the value creating potential of primary Activities?
Inbound logistics: receive, store and inputs to products
Operations: convert inputs into final products
Outbound logistics: collecting, storing and distributing to customers
Marketing and Sales: induce customer to buy
Service: enhance or maintain a products value
**each activity should be examined relative to competitor's abilities and rated as superior or inferior
What is the value creating potential of supporting Activities?
Procurement: purchase the inputs needed to produce a firms' products
Technological Development: improve product and manufacture it
HR management: recruiting, hiring, training, developing, and compensating
Firm Infrastructure: support the work of the entire value change (GM, planning, finance, accounting, legal, government relations) identifies external oppurtunities and threats, resources and capabilities, supports core competencies
*** each activity should be examined relative to competitors abilities and rated as superior or inferior
How to put resource and capability analysis to work>
Step 1: identify the key resources and capabilities
Step 2: Appraising resources and capabilities (assessing importance, and relative strength)
What are some basic issues in developing resources and capabilities?
Path dependency and role of early experience
Linkages between resources and capabilities
Are organizational capabilities rigid or dynamic?
What are some approaches to capability development?
Acquiring capabilities: mergers, acquisitions and alliances
Internal development: focus and sequencing
What is the framework for analyzing resources and capabilities?
1. CAPABILITIES AND RESOURCES Identify the firm's resources and capabilities
2.CAPABILITIES AND RESOURCES Explore the linkages between resources and capabilities
3. POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE Appraise the firm's resources and capabilities in terms of: a) strategic importance, b) relative strength
4. STRATEGY Develop strategy implications: a) in relation to strengths (how can these be exploited more effectively and fully? b) in relation to weaknesses: identify oppurtunities to outsource activites, and how they can be corrected through acquiring and developing resource and capabilities
What is outsourcing?
The purchase of a value creating activity from an external supplier (few orgs possess the resources and capabilities required to achieve competitive superiority in all primary and support activities)
By performing fewer capabilities: a firm can concentrate on those areas in which it can create value; specialty suppliers can perform outsourced capabilities more efficienty
How to make outsourcing decisions
A firm may outsource all or part of one or more primary and/or support acitivites
What are strategic rationales for outsourcing?
Improving business focus
Providing access to world class capabilities
Accelerating re-engineering benefits
Freeing resources for other purposes
What are some outsourcing issues?
Seeking greatest value
Evaluating resources and capabilities (do not outsource activities in which the firm itself can create and capture value)
Environmental threats and ongoing tasks (do not outsource primary and support activities used to neutralize environmental threats)
Nonstrategic team resources (do not outsource capabilities critical to the firms success
Firm's Knowledge base: do not outsource activities that stimulate the development of new capabilities and competencies.
What are cautions and reminders?
Never take for granted that core competencies will continue to provide a source of competitive advantage.
All core competencies have the potential to become core rigidities - former core competencies that now generate inertia and stifle innovation.
Determining what the firm can do through continuous and effective analyses of its internal environment will increase the likelihood of LT competitive success.