Strategic Management E1

Strategic Management

an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

Strategy

the set of goal-directed and integrated actions a firm takes to gain and sustain superior performance relative to competitors

Good Strategy

enables a firm to achieve superior performance and sustainable competitive advantage relative to its competitors

3 Elements of a Good Strategy

Diagnosis to identify the competitive challenge

Guiding policy to address the competitive challenge through strategy formulation

Set of coherent actions to implement the firm’s guiding policy

Strategic Commitment

a sizable investment or a change to an organization’s incentive and reward system

Economies of Scale

decreasing cost as output increases

Strategic Positioning

a unique position within an industry that allows the firm to provide value to customers, while controlling costs. Value Creation – Costs = Economic Contribution

Competitive Advantage

Superior performance relative to other competitors in the same industry or the industry average

Sustainable Competitive Advantage

outperforming competitors or the industry average over a prolonged period of time

Competitive Disadvantage

underperformance relative to other competitors in the same industry or the industry average

Competitive Parity

performance of two or more firms at the same level

How to gain a competitive advantage

provide goods or services that consumers value highly or at a lower price or the products are rewards of superior value creation

Red Queen Effect

a situation in which everyone runs faster but there are no changes in relative strategic positions

Value Creation

occurs when companies are able to provide products to consumers at a price point they can afford while keeping their costs in check.

Stakeholders

organizations, groups, and individuals that can affect or are affected by a firm’s actions

Internal Stakeholders

stockholders, employees, and board members

External Stakeholders

customers, suppliers, alliance partners, creditors, unions, communities, media, and governments

Stakeholder Strategy

an approach to strategy formulation that considers all of the company’s stakeholders, not just its shareholders, to gain and sustain competitive advantage

Stakeholder Impact Analysis

a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

3 Important Stakeholder Attributes

Power

Legitimate Claims

Urgent Claims

Power

when the stakeholder can get the company to do something that it would not otherwise do

Legitimate Claims

perceived to be legally valid or otherwise appropriate

Urgent Claims

require a company’s immediate attention and response

Steps to a Stakeholder Analysis

Identify Stakeholders

Identify their Interests

Identify opportunities and threats

Identify social responsibilities

Address stakeholder concerns

Corporate Social Responsibility

 a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given time

Analysis, Formulation, Implementation (AFI) Strategy Framework

a model that links 3 interdependent strategic management tasks that, together, help managers plan and implement a strategy that can improve performance and result in competitive advantage

Analysis (AFI)

Strategic leadership, strategy process, external/internal analysis, shared value and competitive advantage

Formulation (AFI)

Business strategy, corporate strategy, global strategy

Implementation

organizational design, corporate governance, business ethics, and business models

Strategic Leadership

Executives’ use of power and influence to direct the activities of others when pursuing an organization’s goals. A function of innate abilities and learning

Upper-Echelons Theory

a conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team

Strategy Formulation

the part of the strategic management process that concerns the choice of strategy in terms of where and how to compete

Strategy Implementation

the part of the strategic management process that concerns the organization, coordination, and integration of how work gets done, or strategy execution.

3 Levels of Strategy Process

Corporate

Business

Functional

Corporate

Industry, markets, and geography

Business

cost leadership, differentiation, or value innovation

Functional

different strategies require different activities

Strategic Business Units (SBU)

standalone divisions of a larger conglomerate, each with their own profit-and-loss responsibility

Vision Statement

a statement that captures an organization’s purpose and aspiration

Strategic Intent

a stretch goal that pervades the entire organization with a sense of purpose

Customer-Oriented Vision Statements

allow companies to adapt to changing environments and focuses on problem solving for the customer; define a business in terms of providing solutions to a customer needs

Product-Oriented Vision Statements

focuses on improving existing products and services; define a business in terms of a good/service provided

Mission Statement

description of what an organization actually does—the product and services it plans to provide, and the markets in which it will compete

Strategic Commitments

credible actions that back up the vision and mission statements; often these are costly, long-term oriented, and difficult to reverse

Values

What commitments do we make, and what safeguards do we put in place, to act legally and ethically as we pursue our vision and mission

Core Values Statement

statement of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions; it often includes explicit ethical considerations

Organizational Core Values

Ethical standards and norms that govern the behavior of individuals within a firm or organization

How External Factors Impact a Firm

General and Task Environments

General Environment

strategic leaders have little control, macroeconomic factors are included; ex: interest rates, exchange rates

Task Environment

strategic leaders have some influence

PESTEL Framework

a framework that categorizes and analyzes an important set of external factors that might impinge upon a firm; these factors can create both opportunities and threats for the firm

Political, Economic, Sociocultural, Technological, Ecological, and Legal

Political

pressure that government bodies, nongovernmental organizations (NGOs) and social movements can exert to influence a firm; lobbying, public relations, contributions, litigation, changes in legislation

Nonmarket Strategy

strategic leaders’ activities outside market exchanges to influence a firm’s general environment

Economic

largely macro; growth rates, employment level, interest rates, price stability (inflation and deflation) and currency exchange rates

Growth Rates

Measures the change in the value of goods and services produced by a nation’s economy

Real Growth Rates

adjust for inflation, what strategic leaders look at

Real Interest Rates

the amount that creditors earn for lending their money and the amount that debtors pay to use that money, adjusted for inflation

Price Stability

little to no change in the price

Inflation

sustained increase in the overall price level

Sociocultural

cultures, norms, and values are constantly in flux, differ across groups; includes demographic trends

Technological

application of knowledge to create new processes (Six Sigma/Lean Manufacturing) and products (drones, wearable devices); advances in AI

Ecological

broad environmental issues (natural environment, climate change, sustainable economic growth) and the relationship between the organizations and the environment

Legal

official outcomes of political processes (laws, mandates, regulations), deregulations

Industry Effects

firm performance attributed to the structure of the industry in which the firm competes

Firm Effects

firm performance attributed to the actions strategic leaders take; majority of the effect

Industry

a group of incumbent firms with more or less the same set of suppliers and buyers

Industry Analysis

method to identify an industry’s profit potential and derive implications for a firm’s strategic position within an industry

Strategic Position

a firm’s strategic profile based on the difference between value creation and cost (V-C)

Five Forces Model

a framework that identifies five forces that determine the profit potential of an industry and shape a firm’s competitive strategy

5 Fundamental Competitive Forces (Five Forces Model)

Threat of Entry

Power Of Suppliers

Power of Buyers

Threat of Substitutes

Rivalry among existing Competitors

Threat of Entry

the risk that potential competitors will enter an industry; could reduce the industry’s profit potential and increase spending by incumbent firms

Entry Barriers

obstacles that discourage or prevent entry into an industry

Networks Effects

the positive impacts that one user of a product or service has on other users of that product or service

Power of Suppliers

pressures that industry suppliers can exert on an industry’s profit potential

Power of Buyers

pressure on producers’ margins by demanding a lower price or higher product quality

Threats of Substitutes

meeting the same basic customer need

Rivalry Among Existing Competitors

the intensity with which companies in the same industry jockey for market share and profitability

Competitive Industry Structure

elements and features common to all industries, including the number and size of competitors, the firms’ degree of pricing power, the type of product or service offered, and the height of entry barriers

Industry Growth

directly affects intensity of rivalry among competitors

During of Periods of High Industry Growth

consumer demand rises and price competition among firms frequently decreases

During Periods of Negative Industry Growth

rivalry is fierce, rivals can only gain at the expense of another, price discounts, frequent new product releases with minor modifications

Strategic Commitments

decisions that are costly, have a long-term impact, and are difficult to reverse; contrast with tactical decisions, which are short-term and can be easily reversed

Exit Barriers

the obstacles that interfere with a firm’s ability to leave an industry

Complement (6th force of the 5FM)

a product, service, or competency that adds value to the original product offering when the two are used in tandem

Complementor

a company that provides a good or service that leads customers to value your firm’s offering more when the two are combined

Co-optetition

cooperation by competitors to achieve a strategic objective

Entry Choices

Who are the players?: incumbents, entrants, suppliers, customers, and other stakeholders

When to enter?: entry timing, stage of industry life cycle, and order of entry

How to enter?: leverage existing assets, reconfigure value chains, establish niches

What type of entry?: scale, commitment, product/service, business model

Where to enter?: product positioning, pricing strategy, potential partners

Industry Dynamics

provide insights about changing speed of an industry, rate of innovation, and help capture structural changes in the industry

Industry Convergence

a process whereby formerly unrelated industries begin to satisfy the same customer need

Strategic Groups

the set of companies that pursue a similar strategy within a specific industry

Strategic Group Model

a framework that explains differences in firm performance within the same industry

Mobility Barriers

industry-specific factors that separate one strategic group from another

Internal Strengths must change with its external environment ____

Dynamically

Strategic Fit

Occurs when an organization matches its internal resources and capabilities to the external environment, exploiting external opportunities while mitigating external threats and internal weaknesses

Core Competencies

Unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage

Resources

Any assets that a firm can draw on when formulating and implementing a strategy

Capabilities

Organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically

Activities

Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services

Resource-Based View (RBV)

A model that sees certain types of resources as key to superior firm performance

Resources (RBV)

any asset, capability, or competency that a firm can draw upon when formulating and implementing strategy