Chp 1_Strategic Management _6e.pptx

2. Copyright © 2004 South-Western. All rights reserved. 1–2 Knowledge Objectives Define strategic competitiveness competitive advantage, and above-average returns. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it. Use the industrial organization (I/O) model to explain how firms can earn above-average returns. Use the resource-based model to explain how firms can earn above-average returns. Describe strategic intent and strategic mission and discuss their value.

3. Copyright © 2004 South-Western. All rights reserved. 1–3 Knowledge Objectives (cont’d) Define stakeholders and describe their ability to influence organizations. Describe the work of strategic leaders. Explain the strategic management process.

4. Case of Bharti Airtel • started in 1995 became the leading telecom company in India by 2010. • It’s performance suggests that it has become highly competitive as it registered above average returns in the telecom sector in India consistently. • BSNL, which was an arm of the ministry of telecommunications, which is the policy maker. • How did the Bharti Airtel Ltd. Achieved this position? Copyright © 2004 South-Western. All rights reserved. 1–4

5. Bharti Airtel case • Strategy indicates what the firm will do as well as what the firm will not do. • BTVL/ Bharti Airtel focuses single business : telecommunications, mobile telephony segment, GSM technology, reinforcing presence in basic, broadband, internet service and international telecom business. • Continuous innovation to stay ahead in competition • Not to diversify in any other unrelated business • Idea cellular solely in GSM mobile business • BSNL also has its presence in all areas of telecom, but its dependence on basic services continues to be very high. 1–5

6. Bharti Airtel • Reliance telecom is into both GSM and CDMA, with more strength in the letter. • Thus all the players tries to gain competitive advantage by pplaying the game differently. • The firm must demonstrate how its game is different. • Ford Motor Commpany devoted efforrts from its competitiors. It is “greener” and more technically adavanced than its competitors, such as General Motors and Chrysler group LLC Copyright © 2004 South-Western. All rights reserved. 1–6

7. • It could achieve because it uses strategic management process as the foundation for its commitments, decisions and the actions it took when pursuing strategic competitiveness and above average terms. • Strategic Competitiveness When a firm successfully formulates and implements a value-creating strategy • Above-average Returns Returns in excess of what an investor expects to earn from other investments with a similar amount of risk Copyright © 2004 South-Western. All rights reserved. 1–7

8. Copyright © 2004 South-Western. All rights reserved. 1–8 Definitions • Sustainable Competitive Advantage When competitors are unable to duplicate or is difficult and costly to try to duplicate (imitate) a company’s value-creating strategy The speed with which competitors are able to acquire the skills needed to duplicate determines how long the competitive advantage will last. • 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 with a similar amount of risk

9. Strategy • Strategy is an integrated and co-ordinated set of commitments and actions to achieve competitive advantage using core competencies. Copyright © 2004 South-Western. All rights reserved. 1–9

10. • A company’s strategy consists of the competitive moves and business approaches that managers are employing to compete successfully, improve performance, and grow the business. • Strategy is about competing differently from rivals – doing what competitors don’t do or even better, doing what they can’t do! Every strategy needs a distinctive element that attracts customers and produces a competitive edge. Copyright © 2004 South-Western. All rights reserved. 1–10

11. Copyright © 2004 South-Western. All rights reserved. 1–11 Definitions (cont’d) • A company achieves sustainable competitive advantage when it can meet customer needs more effectively or efficiently than rivals and when the basis for this is durable, despite the best efforts of competitors to match or surpass this advantage. • Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns

13. Air Deccan: unable to Reach the cruising Height • The pioneers of the low cost aviation in India was sold in December, 2007 to kingfisher Airlines • Mistakes made during the implementing the strategy was primary causes of failure and subsequent disappearance of its highly visible brand from the Indian skyline. • Focus on short term profit was a problem. • Kingfisher Red promoted a lot by Vijay Malia but fell between two stools: costlier than the low cost airlines but poorer in service than full service airlines. Copyright © 2004 South-Western. All rights reserved. 1–13

14. Air Deccan: unable to Reach the cruising Height • Air Deccan’s share of 16 % at the time of liquidation did not go to Kingfisher, but it went to Spicejet and Indigo. • Kingfisher get only 8 percent from Deccan while Spicejet increased from 9.2 percent to 13.3 percent between 2007-08 to 2009-10. • Indigo increased from 8.8 to 16.4 per cent over the same time. • The low cost airlines continued their no frills, low cost model, with punctual and reliable services that attracted a substantial clientele. The concept was not flawed but the strategy to put that in place that went wrong, both for Air Deccan and Kingfisher. 1–14

15. Copyright © 2004 South-Western. All rights reserved. 1–15 Current Competitive Landscape • A Dangerous Business World Investments required to compete on a global scale are enormous Consequences of failure are severe • Important Elements of Success Developing strategy Implementing strategy

17. Copyright © 2004 South-Western. All rights reserved. 1–17 Competitive Landscape: Hypercompetition Hypercompetition Hypercompetition A condition of rapidly escalating competition based on • Price-quality positioning • Competition to create new know-how and establish first-mover advantage • Competition to protect or invade established product or geographic markets

18. Copyright © 2004 South-Western. All rights reserved. 1–18 Global Economy • Global Economy Goods, people, skills, and ideas move freely across geographic borders Movement is relatively unfettered by artificial constraints Expansion into global arena complicates a firm’s competitive environment

19. Copyright © 2004 South-Western. All rights reserved. 1–19 Global Economy (cont’d) • Globalization Increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders Increased range of opportunities for companies competing in the 21st-century competitive landscape

20. Copyright © 2004 South-Western. All rights reserved. 1–20 Country Competitiveness Rankings (Population over 20 Million) Country 2002 2003 United States 1 2 Australia 2 3 Canada 3 2 Malaysia 4 6 Germany 5 4 Taiwan 6 7 United Kingdom 7 5 France 8 9 Spain 9 8 Thailand 10 10 Japan 11 11 China 12 12 Brazil 13 0 China 14 0 Korea 15 10 Country 2002 2003 Colombia 16 20 Italy 17 14 South Africa 18 16 India 19 0 India 20 17 Brazil 21 15 Philippines 22 18 Romania 23 0 Mexico 24 19 Turkey 25 23 Russia 26 21 Poland 27 22 Indonesia 28 25 Argentina 29 26 Venezuela 30 24 SOURCE: From World Competitiveness Yearbook 2003, IMD, Switzerland. http://www.imd.ch.wcy.esummary, April. Reprinted by permission. Table 1.1

21. 1–21 Technology and Technological Changes • Rate of change of technology and speed at which new technologies become available  It took the telephone 57 years to reach 25% in 2007 and 68 % in 2010  Mobile phones 15 years reached to 65%  Tv 10 years to reach 25 %and in 2009 60%  Internet penetration had reached 8 % and expected to reach 25 % by 2015 • Perpetual innovation—how rapidly and consistently new, information-intensive technologies replace older ones  Patents are effective way of protecting proprietary technology in a small number of industries like pharmaceuticals.  Electronics industry do not go for patents to keep competitors away from access to the technological knowledge included in the patent application.

22. Technology and Technological Changes • The development of disruptive technologies that destroy the value of existing technology and create new markets  iPods, wifi and the browser • The Information Age  The ability to effectively and efficiently access and use information has become an important source of competitive advantage  Technology includes personal computers, cellular phones, artificial intelligence, virtual reality, massive databases and multiple social networking sites are a few examples of how information is used differently as a result of technological developments.  Internet creating hypercompetition  ITCs access to the internet on smaller devices such as cell phones is having an ever growing impact on competition in a number of Industries. 1–22

23. Copyright © 2004 South-Western. All rights reserved. 1–23 Technology and Technological Changes • Increasing Knowledge Intensity  Strategic flexibility: set of capabilities used to respond to various demands and opportunities in dynamic and uncertain competitive environments  Organizational slack: slack resources that allow the firm flexibility to respond to environmental change

24. 1–24 I/O Model of Above-Average Returns • 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 include  economies of scale  barriers to market entry  diversification  product differentiation  degree of concentration of firms in the industry • External environment is the dominant factor in influencing the strategy formulation

25. 1–25 Four Assumptions of the I/O Model External environment imposes pressures and constraints that determine strategies leading to above-average returns 1 2 Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies Resources used to implement strategies are highly mobile across firms 3 4 Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit- maximizing)

26. Copyright © 2004 South-Western. All rights reserved. 1–26 I/O Model of Above-Average Returns 1. Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?) External Environments General Environment

27. 1–27 The I/O Model of Above-Average Returns Adapted from Figure 1.2 The External Environment 1. Study the external environment, especially the industry environment • The general environment • The industry environment • The competitor environment

28. 1–28 An Attractive Industry 2. Locate an attractive industry with a high potential for above- average returns • An industry whose structural characteristics suggest above-average returns The External Environment The I/O Model of Above-Average Returns Adapted from Figure 1.2

29. Copyright © 2004 South-Western. All rights reserved. 1–29 The I/O Model of Above-Average Returns 3. Identify the strategy called for by the attractive industry to earn above-average returns • Selection of a strategy linked with above- average returns in a particular industry The External Environment An Attractive Industry Strategy Formulation Adapted from Figure 1.2

30. Copyright © 2004 South-Western. All rights reserved. 1–30 Assets and Skills The I/O Model of Above-Average Returns 4. Develop or acquire assets and skills needed to implement the strategy • Assets and skills required to implement a chosen strategy The External Environment An Attractive Industry Strategy Formulation Adapted from Figure 1.2

31. Copyright © 2004 South-Western. All rights reserved. 1–31 Strategy Implementation The I/O Model of Above-Average Returns 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy • Selection of strategic actions linked with effective implementation of the chosen strategy The External Environment An Attractive Industry Strategy Formulation Assets and Skills Adapted from Figure 1.2

32. Copyright © 2004 South-Western. All rights reserved. 1–32 Superior Returns The I/O Model of Above-Average Returns The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation • Superior returns: earning of above-average returns Adapted from Figure 1.2

33. Copyright © 2004 South-Western. All rights reserved. 1–33 Five Forces Model of Competition • An industry’s profitability results from interaction among Suppliers Buyers Competitive rivalry among firms currently in the industry Product substitutes Potential entrants to the industry • Firms earn above average returns by Producing standardized products or services Manufacturing differentiated products for which customers are willing to pay a price premium

34. 1–34 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 than structural characteristics of the industry • Firms acquire different resources and develop unique capabilities

35. Copyright © 2004 South-Western. All rights reserved. 1–35 Resource-Based Model of Above-Average Returns (cont’d) 1. Strategy dictated by the firm’s unique resources and capabilities 2. Find an environment in which to exploit these assets (where are the best opportunities?) Firm’s Resources

36. 1–36 Resources and Capabilities • Resources Inputs into a firm’s production process Capital equipment Skills of individual employees Patents Finances Talented managers • Capabilities Capacity of a set of resources to perform in an integrative manner A capability should not be So simple that it is highly imitable So complex that it defies internal steering and control

37. Key Criteria of Resources and Capabilities Valuable  Resources and capabilities are valuable when they allow a firm to take advantage of opportunities or neutralize threats in external environment Rare  Resources and capabilities are rare when possessed by few, if any, current and potential competitors Costly to Imitate  Resources and capabilities are costly to imitate when other firms either cannot obtain them or are at a cost disadvantage in obtaining them Non-substitutable  Resources and capabilities are non-substitutable when they have no structural equivalents

38. Core Competencies • Core Competencies are resources and capabilities that serves as a source of competitive advantage for a firm over its rivals • When the four key criteria of resources and capabilities are met, they become core competencies • Core competencies serve as a source of competitive advantage • Managerial competencies are especially important

39. How Resources and Capabilities Provide Competitive Advantage The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage Valuable Allow the firm to exploit opportunities or neutralize threats in its external environment Rare Possessed by few, if any, current and potential competitors Costly to imitate When other firms cannot obtain them or must obtain them at a much higher cost Nonsubstitutable

40. Copyright © 2004 South-Western. All rights reserved. 1–40 Resources and Capabilities, Core Competencies, and Outcomes Core Competencies Competitive Advantage Value Creation Above Average Returns Valuable Rare Costly to Imitate Nonsubstitutable

41. The Resource-Based Model of Above-Average Returns Adapted from Figure 1.3 Resources 1. Identify the firm’s resources. Study its strengths and weaknesses compared with those of competitors • Inputs into a firm’s production process

42. Copyright © 2004 South-Western. All rights reserved. 1–42 The Resource-Based Model of Above-Average Returns Adapted from Figure 1.3 Capability 2. Determine the firm’s capabilities. What do the capabilities allow the firm to do better than its competitors. • Capacity of an integrated set of resources to integratively perform a task or activity Resources

43. Copyright © 2004 South-Western. All rights reserved. 1–43 The Resource-Based Model of Above-Average Returns Adapted from Figure 1.3 3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage. • Ability of a firm to outperform its rivals Competitive Advantage Capability Resources

44. The Resource-Based Model of Above-Average Returns Adapted from Figure 1.3 An Attractive Industry 4. Locate an attractive industry. • An industry with opportunities that can be exploited by the firm’s resources and capabilities Competitive Advantage Capability Resources

45. The Resource-Based Model of Above-Average Returns Adapted from Figure 1.3 Strategy formulation and Implementation 5. Select a strategy that best allow the firm to utilize its resources and capabilities relative to opportunities in the external environment. • Strategic actions taken to earn above-averagae returns An Attractive Industry Competitive Advantage Capability Resources

46. Copyright © 2004 South-Western. All rights reserved. 1–46 The Resource-Based Model of Above-Average Returns Adapted from Figure 1.3 Superior Returns • Superior returns: earning of above-average returns Strategy formulation and Implementation An Attractive Industry Competitive Advantage Capability Resources

47. Copyright © 2004 South-Western. All rights reserved. 1–47 Strategic Intent • Internally focused • The leveraging of a firm’s resources, capabilities and core competencies to accomplish the firm’s goals • Exists when all employees and levels of a firm are committed to the pursuit of a specific, significant performance criterion

48. Strategic Vision and Mission • Formed in light of the information and insights gained from studying a firm’s internal and external environment. • Vision is a picture of what the firm wants to be and in broad terms what it wants to ultimately achieve. • Mission specifies the business in which the firm intends to compete and the customers it intends to serve. • Vision and mission provide direction to the firm and signal important descriptive information to shareholders.

49. 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 • Claims are enforced by the stakeholder’s ability to withhold essential participation

50. The Three Stakeholder Groups Figure 1.4

51. Copyright © 2004 South-Western. All rights reserved. 1–51 Capital Market Stakeholders • Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it • Returns should be commensurate with the degree of risk to the shareholder

52. Product Market Stakeholders • Customers Demand reliable products at low prices • Suppliers Seek loyal customers willing to pay highest sustainable prices for goods and services • Host communities Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services • Union officials Want secure jobs and desirable working conditions

53. Organizational Stakeholders • Employees Expect a dynamic, stimulating and rewarding work environment Are satisfied by a company that is growing and actively developing their skills

54. Copyright © 2004 South-Western. All rights reserved. 1–54 Stakeholder Involvement • Two issues affect the extent of stakeholder involvement in the firm How to divide returns to keep stakeholders involved? Capital Market Product Market Organizational How to increase returns so everyone has more to share?

55. Stakeholders • Stakeholders have enforceable claims on the company’s performance. • When earning above average returns, a firm has the resources it needs to at minimum, simultaneously satisfy the interest of all. • When earning only average returns, the firm must carefully manage its stakeholders in order to retain their support. • A firm earning below average returns must minimize the amount of support it loses from unsatisfied stakeholders. Copyright © 2004 South-Western. All rights reserved. 1–55

56. 1–56 Strategic Leaders • Strategic leaders are people located in different parts of the firm using the strategic management process to help the firm reach its vision and mission. • It is important for all strategic leaders and especially the CEO and other members of the top management team to work hard, conduct through analyses of situations facing the firm, be brutally and consistently honest, and ask the right questions of the right people at the right time. • People responsible for the design and execution of strategic management processes

57. Strategic Leaders • Decisions they make include How resources will be developed or acquired At what price resources will be obtained How resources will be used • It predict the potential outcomes of their strategic decisions. To do this, they must first calculate profit pools in their industry that are linked that are linked to value chain activities. Predicting the potential outcomes of their strategic decisions reduces the likelihood of the firm formulating and implementing ineffective strategies.

58. Four steps to identify profit pools 1. Define the pool’s boundaries 2. Estimate the pool’s overall size 3. Estimate the size of the value-chain activity in the pool 4. Reconcile the calculations

Chp 1_Strategic Management _6e.pptx

Chp 1_Strategic Management _6e.pptx

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