Creating Competitive Advantages

2. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
M. Kamrul Hasan Rasel
M.B.A
Chittagong University
1
Strategic Management:
Creating Competitive Advantages

3. 1 - 3
Learning Objectives
After reading this chapter, you should have a good
understanding of:
 The definition of strategic management and its four key attributes.
 The strategic management process and its three interrelated and
principal activities.
 The vital role of corporate governance and stakeholder management as
well as how “symbiosis” can be achieved among an organization’s
stakeholders.
 The importance of social responsibility, including environmental
sustainability, and how it can enhance a corporation’s innovation
strategy.
 The need for greater empowerment throughout the organization.
 How an awareness of a hierarchy of strategic goals can help an
organization achieve coherence in its strategic direction.

4. 1 - 4
Two Perspectives of Leadership
• Romantic view
‾ Leader is the key force in organization’s success
• External control perspective
‾ Focus is on external factors that affect an organization’s
success
• 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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• Analysis
‾ Strategic goals (vision, mission, strategic objectives)
‾ Internal and external environment of the firm
• Strategic decisions
‾ What industries should we compete in?
‾ How should we compete in those industries?
• Actions
‾ Allocate necessary resources
‾ Design the organization to bring intended strategies to
reality
Strategic Management

6. 1 - 6
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
o Unique and valuable
o Difficult for competitors to copy or substitute

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Key Attributes
Key Attributes of strategic management:
• 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

8. 1 - 8
Question
• The final realized strategy of a firm is a combination
of:
a) Intended and unrealized strategies
b) Unrealized and emergent strategies
c) Emergent and deliberate strategies
d) Deliberate and unrealized strategies

9. 1 - 9
Strategic Management Process
Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 257-
72.

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Strategic Analysis
• Starting point in the
strategic management
process
• Precedes effective
formulation and
implementation of
strategies

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Strategic Analysis (cont.)
• Clear goals and objectives permit effective allocation
of resources
• Hierarchy of goals
- Vision
- Mission
- Strategic objectives
• Analyzing external environments
- Managers must scan the environment and analyze
competitors
- General environment
- Industry environment

12. 1 - 12
Strategic Analysis (cont.)
• Frameworks for analyzing a firm’s internal
environment
- Strengths
- Weaknesses
• Analyzing strengths can uncover potential sources of
competitive advantage

13. 1 - 13
Strategic Analysis (cont.)
• Intellectual assets are drivers of
- Competitive advantage
- Wealth creation
• Networks and relationships among
- Employees
- Customers
- Suppliers
- Alliance partners

14. 1 - 14
Strategy Formulation
• Business level strategy:
- Successful firms develop bases for competitive
advantage
• Cost leadership
• Differentiation
• Focusing on narrow or industry-wide market segments
- Sustainability
- Industry life cycle

15. 1 - 15
Strategy Formulation (cont.)
Corporate-level strategy addresses:
• Firm’s portfolio or group of businesses
- What business(es) should we be in?
- How can we create synergies among the businesses?
• Diversification
- Related
- Unrelated

16. 1 - 16
Strategy Formulation (cont.)
• International Strategy
- Appropriate entry strategies for foreign markets
- Sustain competitive advantage in global markets
• Effective strategies for entrepreneurial initiatives

17. 1 - 17
Strategy Implementation
• Informational control
- Monitor and scan the environment
- Respond effectively to threats and opportunities
• Behavioral control
• Effective corporate governance
- Interests of managers and owners of the firm
• Organizational structure and design

18. 1 - 18
Strategy Implementation (cont.)
• Organizational boundaries
- Flexible
- Permeable
• Strategic Alliances
• Develop organization that is committed to
- Excellence
- Ethical behavior

19. 1 - 19
Strategy Implementation (cont.)
• Learning organization responsive to
- Rapid and unpredictable change
• Corporate entrepreneurship and innovation
- New opportunities
- Enhance innovative capacity
- Autonomous entrepreneurial behavior
- Product champions

20. 1 - 20
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

21. 1 - 21
Question
• Briefly describe the role of board of directors in
corporate governance.

22. 1 - 22
Corporate Governance and Stakeholder
Management (cont.)
• Board of Directors
- Elected representatives of the
owners
- Ensure interests and motives of
management are aligned with
those of the owners
• Effective and engaged Board of
Directors
• Shareholder activism
• Proper managerial rewards and
incentives

23. 1 - 23
Example: New Rules for Directors
In light of numerous corporate scandals, the role and
rules for board of directors are being redefined. Few
areas of focus :
- Numbers Knowledge
- Strategy Focus
- Time & Understanding
- Watchdog
Source: Tipsheet, Business Week, January 22, 2007

24. 1 - 24
Stakeholder Management
• Two views of stakeholder management
- Zero sum
• Stakeholders compete for attention and resources of the
organization
• Gain of one is a loss to the other
- Symbiosis
• Stakeholders are dependent upon each other
• Mutual benefits

25. 1 - 25
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

26. 1 - 26
Example: Social Responsibility
Starbucks Coffee Company
 Corporate social responsibility is embedded throughout the
organization.
 The following are some of the commitments they have
made to be socially responsible:
• Commitment to origins
• Helping protect the environment
• Starbucks in your community
• Commitment to partners
Source: www.starbucks.com

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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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Enhancing Employee Involvement
• Have significant profit and loss
responsibilityLocal Line
Leaders

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Enhancing Employee Involvement
• Champion and guide ideas
• Create a learning
infrastructure
• Establish a domain for
taking action
Executive
Leaders
Local Line
Leaders

30. 1 - 30
Enhancing Employee Involvement
• Have little positional
power and formal
authority
• Generate their power
through the conviction and
clarity of their ideas
Executive
Leaders
Local Line
Leaders
Internal
Networkers

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Coherence in Strategic Direction
• Company vision
- Massively inspiring
- Overarching
- Long-term
- Driven by and evokes
passion
- Fundamental statement of
the organization’s
• Values
• Aspiration
• Goals
Hierarchy of Goals
Company visionCompany vision

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Coherence in Strategic Direction
• Mission statements
- Purpose of the company
- Basis of competition and
competitive advantages
- More specific than vision
- Focused on the means by
which the firm will
compete Hierarchy of Goals
Company visionCompany vision
Mission statementsMission statements

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Coherence in Strategic Direction
• Strategic objectives
- Operationalize the mission
statement
- Provide guidance on how
the organization can fulfill
or move toward the “higher
goals”
- More specific
- Cover a more well-defined
time frame
Hierarchy of Goals
Company visionCompany vision
Mission statementsMission statements
Strategic objectivesStrategic objectives

34. 1 - 34
Coherence in Strategic Direction
• Strategic objectives
- Measurable
- Specific
- Appropriate
- Realistic
- Timely
- Challenging
- Resolve conflicts that arise
- Yardstick for rewards and
incentives
Hierarchy of Goals
Company visionCompany vision
Mission statementsMission statements
Strategic objectivesStrategic objectives