Strategic Management and Strategic Competitiveness

Strategic Management and Strategic Competitiveness

Key Definitions

• Strategic Competitiveness: Achieved by formulating and implementing a value-creating strategy.
• Strategy: An integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Choices among competing alternatives, indicating what the firm will and will not do.
• Competitive Advantage: When a firm implements a chosen strategy, creates superior value for customers, and is difficult or expensive for competitors to imitate. No competitive advantage is permanent.
• Above-Average Returns: Returns in excess of what an investor expects to earn from other investments with a similar amount of risk.
• Risk: An investor's uncertainty about the economic gains or losses that will result from a particular investment.
• Average Returns: Returns equal to those an investor expects to earn from other investments possessing a similar amount of risk.
• Strategic Management Process: The full set of commitments, decisions, and actions firms take to achieve strategic competitiveness and earn above-average returns. It involves analysis, strategy, and performance (the A-S-P model).

The Honest Co. Case Study

• Founded in 2011 by Jessica Alba, focusing on eco-friendly consumer goods.
• Mission: To empower people to live happy, healthy lives through wellness products.
• Strategy: Offer unique products at premium prices to customers valuing uniqueness.
• Objective: Become an iconic global brand, concentrating on baby and beauty products.
• Challenges: Faces competition from firms like Zulily, Unilever, and Procter & Gamble. Suffered from lawsuits alleging false labelling and ineffective products, as well as product recalls due to contamination.
• Recent Investment: Received a $200$ million minority investment from L. Catterton to expand supply chains and global reach.
• Capabilities: Believes it has tremendous brand equity, innovative & quality products, and a loyal customer following.

Achieving Strategic Competitiveness

• Achieved by formulating and implementing a value-creating strategy.
• Requires choices among competing alternatives.
• Creating superior value for customers that is difficult or expensive to imitate.
• No competitive advantage is permanent.
• The speed of competitor imitation determines the longevity of the competitive advantage.

Competitive Advantage

• Foundational to achieving strategic competitiveness.
• Created by being as different as possible from competitors in ways that are important to customers (willingness to pay).
• Creates superior value for customers and superior profits for the firm.
• A firm has a competitive advantage when they deliver the same value at a lower cost or deliver superior benefits for which customers are willing to pay more.
• Firms must effectively convey the value of their products to customers.
• The larger the "gap" between the value a firm's products creates versus competitors, the more significant the competitive advantage.

Sources of Competitive Advantage

• Virtually endless, with technological developments being a key source.
• Examples: Salesforce.com (CRM with machine learning), Netflix (original programming, customer interface), Amazon (customer trust, privacy protection), Home Depot (culture emphasizing customer service).
• Effective balance among economic growth, ecological balance, and social growth.
• Ultimately, a firm's people are the most important source, generating differences and bringing them to life.

Sustainability of Competitive Advantage

• No competitive advantage is sustainable permanently.
• Advantage may cease to create value, or competitors may create more value.
• Firms must exploit current advantages while simultaneously planning for future ones.

Above-Average Returns and Risk

• Above-average returns are returns exceeding what an investor expects from similar-risk investments.
• Risk is the investor's uncertainty about economic gains or losses.
• Successful firms manage risk effectively.
• Performance is assessed using accounting-based metrics (e.g., return on assets, equity, sales) or stock market returns.
• Smaller ventures may prioritize growth over profitability.

Competitive Advantage and Returns

• Exploiting a competitive advantage is crucial for earning above-average returns.
• Firms lacking a competitive advantage or in unattractive industries earn, at best, average returns.
• Inability to earn at least average returns leads to decline and failure.

Overconfidence

• Success can lead to overconfidence, resulting in excessive risk-taking.
• Firms like Amazon must avoid assuming guaranteed future success.

Strategic Management Process

• The full set of commitments, decisions, and actions firms take to achieve strategic competitiveness and earn above-average returns.
• Involves analysis, strategy, and performance (A-S-P model).

Steps:

1. Analyze: External environment (opportunities, threats) and internal organization (resources, capabilities, core competencies).
2. Strategy: Formulation and implementation based on the analyses.
3. Performance: Actions to enact strategies, aiming for strategic competitiveness and above-average returns.

• Firms seek to maintain a dynamic strategic management process to deal with changing markets and internal conditions.

Global Competition

• A critical part of the strategic management process.
• Learning how to compete in a globalized world is a key challenge.

Influences on the Competitive Landscape

• Emergence of a global economy.
• Globalization resulting from that economy.
• Rapid technological changes.

Models for Strategy

1. Industrial Organization (I/O) Model: The external environment is the primary determinant of a firm's strategic actions.
2. Resource-Based Model: A firm's unique resources and capabilities are the critical link to strategic competitiveness.

• Insights from these models form the foundation for the firm's vision and mission.

Vision and Mission

• Direction-setting statements that influence the choice and use of strategies.

Stakeholders

• Organizations serve stakeholders, and meeting their needs increases with strategic competitiveness and above-average returns.

Strategic Leaders

• Introduces the work of strategic leaders and the elements of the strategic management process.

The Competitive Landscape (1-1)

Changing Nature of Competition

• Digitalization is a new competitive dimension affecting multiple industries.
• Firms understanding digitalization may outperform rivals.
• PwC Study: Digital leaders distinguish themselves by producing innovative products valued by unique customer groups.
• A significant benefit is identifying and serving specific customer groups' personalized needs.
• There are two and a half billion digital customers globally who are under 25 years of age.

Challenges

• Understanding strategic implications associated with digitalization.
• Integrating digitalization effectively into strategies.

Conventional Sources of Competitive Advantage

• Economies of scale and large advertising budgets are less effective.
• Traditional managerial mindsets are unlikely to lead to strategic competitiveness.
• Managers must value flexibility, speed, innovation, and integration.

Perilous Business World

• Enormous investments required to compete globally.
• Severe consequences of failure.
• Effective use of the strategic management process reduces the likelihood of failure.

Hypercompetition

• Competitors engage in intense rivalry.
• Markets change quickly and often.
• Entry barriers are low.
• Difficult to maintain a competitive advantage.
• Rivalry tends to occur among global competitors who innovate regularly and successfully.
• Rapidly escalating competition based on price-quality positioning, new know-how, and first-mover advantage.
• Firms challenge aggressively to strengthen their market position.

Factors Creating Hypercompetitive Environments

1. Emergence of a Global Economy
2. Technology (Rapid Technological Change)

The Global Economy (1-1a)

Definition

• Goods, services, people, skills, and ideas move freely across geographic borders.
• Relatively unfettered by artificial constraints like tariffs.
• Significantly expands and complicates a firm's competitive environment.

Characteristics

• Changes rapidly and constantly.
• Increases the scope of the competitive environment.
• Firms must study it carefully to position themselves for competitive purposes.

Size

• 2018 Largest Economies:
  • United States: $20.4$ trillion
  • China: $14$ trillion
  • Japan: $5.1$ trillion
  • Germany: $4.2$ trillion
  • United Kingdom: $2.94$ trillion
  • France: $2.93$ trillion
• Global Economy Total: Approximately $79.98$ trillion.
• Predictions: By 2050, China and India's economies will exceed the U.S. economy.

Considerations

• Analysis must consider entry barriers (tariffs).
• Analysis must be forward-looking.

Netflix Example

• Continues studying global economy for growth opportunities.
• Reached $125$ million subscribers globally in mid-2018; predicted to have $360$ million by 2030.
• International markets are the source of much growth.
• Expects to reach $35$ percent penetration in broadband households worldwide (excluding China).
• Offers original movies in languages other than English.
• Allocated $8$ billion in 2018 to develop original programming targeted to international customers.

General Motors (GM) Example

• Identified significant international opportunity in China during the global recession of 2007 and 2008.
• GM and its Chinese joint venture partners are the leading manufacturers in the world's largest automobile market.
• Launched the Baojun brand, foundational to the firm's success in China, targeting smaller cities and rural areas.

The March of Globalization

Globalization Definition

• Increasing economic interdependence among countries and their organizations as reflected in the flow of products, financial capital, and knowledge across country borders.
• Is a product of a large number of firms competing against one another in an increasing number of global economies.

Characteristics of Globalized Markets

• Firms might:
  • Obtain financial capital in one national market.
  • Buy raw materials in another.
  • Use manufacturing equipment purchased in a third national market.
  • Produce and deliver products sold in a fourth market.
• Increases the range of opportunities for companies.
• Firms must make culturally sensitive decisions when using the strategic management process.
• Highly globalized firms must anticipate ever-increasing complexity in their operations.

Impact of Globalization

• Led to higher performance standards related to quality, cost, productivity, product introduction time, and operational efficiency.
• Affects firms competing domestically as customers will choose global competitor products that create superior value.
• Workers now flow rather freely among global economies.
• Firms must deal with the reality that only companies capable of meeting, if not exceeding, global standards typically earn above-average returns.

Risks of Globalization

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