MGMT 488 Ch 1

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Strategic
Management:
Creating
Competitive
Advantages
chapter 1

The Importance of Leadership
Consider…
Maintaining competitive success or even
surviving over long periods of time is difficult
for companies of any size.
SO how much credit (or blame) does a leader
deserve?
1-2

1-3
Two Perspectives of Leadership
Romantic View
▪ Leader is the key force
in the organization’s
success
▪ i.e. Steve Jobs
External Control
Perspective
▪ External forces
determine the
organization’s success
▪ i.e. economic downturns
OR?
External Control
Perspective
Romantic View

1-4
Leaders can make a difference
▪ Must be proactive - anticipate change
▪ Continually refine strategies
▪ Be aware of external opportunities and threats
▪ Thoroughly understand their firm’s resources and
capabilities
▪ Make strategic management both a process
and a way of thinking throughout the
organization

Insights from Executives:
Leaders can make a difference
▪ Major anticipated developments can often have
very negative consequences for businesses
regardless of how well formulated their strategies
are. HOWEVER:
▪ Successful executives are often able to navigate
around the difficult circumstances that they face
by:
▪ Anticipating structural changes in the industry
▪ Staying aware of changes in the external environment
▪ Acknowledging the need to make tough strategic
choices
1-7

1-6
Insights from Executives:
Leaders can make a difference cont.
▪ How does Melvin Alexander, CPA, executive
director of Principled Solutions Enterprise suggest
health care executive handle these challenges as
they deal with the implications of the Affordable
Care Act?
▪ Health care industry structural changes?
▪ Prepare for acquisitions, standardization of practices
▪ Need to address resource limitations
▪ Effect of the external environment on strategy?
▪ Need to anticipate economic, regulatory, socio-
cultural/behavioral expectations & technology needs

1-7
Defining Strategic Management
Strategic Management involves
▪ Analysis
▪ Strategic goals (vision, mission, strategic objectives)
▪ Internal and external environment
▪ Decisions - Formulation
▪ What industries should we compete in?
▪ How should we compete in those industries?
▪ Actions - Implementation
▪ Allocate necessary resources
▪ Design the organization to bring intended strategies to
reality

1-8
Two Fundamental Questions
1. How should we compete in order to create
competitive advantages in the marketplace?
2. How can we create competitive advantages
in the marketplace that are unique, valuable,
and difficult for rivals to copy or substitute?
NOTE: Operational effectiveness is not enough to
sustain a competitive advantage.

1-9
Strategic Management
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.

While also
▪ Focusing on long-
term effectiveness
▪ Expanding product-
market scope by
proactively
exploring new
opportunities
Managers need to be
ambidextrous
▪ Focusing on short-
term efficiency
▪ Aligning resources
to take advantage
of existing product
markets
1-10
Strategic Management Trade-offs
Managers need to be ambidextrous

1-11
Question?
According to Henry Mintzberg, the realized
strategies of a firm
A. are a combination of deliberate and emergent
strategies.
B. are a combination of deliberate and differentiation
strategies.
C. must be based on a company’s strategic plan.
D. must be kept confidential for competitive reasons.

1-12
Intended vs. Realized Strategies
The Business Environment is far from predictable.
Intended Strategy
▪ Organizational
decisions are
determined only by
analysis
▪ Intended strategy
rarely survives in its
original form
Realized Strategy
▪ Decisions are
determined by both
analysis (deliberate) &
unforeseen
environmental
developments,
unanticipated resource
constraints, and/or
changes in managerial
preferences (emergent)
Intended Strategy Realized Strategy
The Business Environment is far from predictabl
versus

1-13
Strategic Management Process
Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same
Source: Mintzberg, H. & Waters, J.A., “Of Strategies: Deliberate and Emergent,” Strategic Management Journal, Vol. 6, 1985, pp. 257-
272. Copyright © John Wiley & Sons Limited. Reproduced with permission.

1-14
Strategic Management Process
Exhibit 1.3 The Strategic
Management Process

1-15
Example:
Leaders’ Use of the Strategic Management Process
▪ Groupon’s leadership focused on initial strategic
goals
– a global e-commerce marketplace connecting subscribers with
local merchants for “deals-of-the day.” HOWEVER:
▪ Growth expectations can be unrealistically optimistic in
an industry where the business model is easily imitated.
▪ Leadership needs to continually assess resource needs
against environmental realities - balancing growth goals
against profitability, guarding against overconfidence.
▪ Poorly anticipated developments can often have very
negative consequences for businesses regardless of how
initially attractive their strategies were - have daily group
deals turned out to be a fad?

1-16
Strategy Analysis
▪ Starting point in the strategic management
process.
▪ Precedes effective formulation and
implementation of strategies.
▪ Involves careful analysis of the overarching goals
of the organization.
▪ Requires a thorough analysis of the
organization’s external and internal environment.

1-17
Strategy Analysis cont.
Analyzing Organizational Goals & Objectives
▪ Establish a hierarchy of goals
▪ Vision
▪ Mission
▪ Strategic Objectives
Analyzing the External Environment of the Firm
▪ Managers must monitor & scan the environment as
well as analyze competitors
▪ The General Environment
▪ The Industry Environment

1-18
Strategy Analysis cont.
Assessing the Internal Environment of the Firm
▪ Analyzing strengths & relationships among activities
that constitute a firm’s value chain
▪ Can uncover potential sources of competitive
advantage
Assessing a Firm’s Intellectual Assets
▪ Knowledge workers & other intellectual assets drive
competitive advantage & wealth creation
▪ Networks & relationships plus technology enhances
collaboration, accumulates & stores knowledge

1-19
Strategy Formulation
▪ Based on strategy analysis
▪ Developed at several levels
▪ Involves decisions that can create and sustain
competitive advantage
▪ Investment decisions
▪ Commitment of resources
▪ Operational synergies
▪ Recognizing viable opportunities

1-20
Strategy Formulation cont.
Formulating Business-Level Strategy
▪ Successful firms develop bases for sustainable
competitive advantage through
▪ Cost leadership and/or
▪ Differentiation, as well as
▪ Focusing on a narrow or industrywide market segment
Formulating Corporate-Level Strategy
▪ Addresses a firm’s portfolio (or group) of businesses
▪ What business(es) should we compete in?
▪ How can we manage this portfolio of businesses to
create synergies?

1-21
Strategy Formulation cont.
Formulating International Strategy
▪ What is the appropriate entry strategy?
▪ How do we go about attaining competitive
advantage in international markets?
Entrepreneurial Strategy and Competitive
Dynamics
▪ How do we recognize viable opportunities?
▪ How do we formulate effective strategies?

1-22
Strategy Implementation
Implements the formulated strategy
▪ Ensures proper strategic control systems
▪ Establishes an appropriate organizational design -
coordinates & integrates activities within the firm
▪ Coordinates activities with suppliers, customers,
alliance partners
▪ Leadership ensures organizational commitment to
excellence & ethical behavior
▪ Promotes learning & continuous improvement
▪ Acts entrepreneurially in creating new opportunities

1-23
Strategy Implementation cont.
Strategic Control & Corporate Governance
▪ Informational control
▪ Monitor & scan the environment
▪ Respond effectively to threats & opportunities
▪ Behavioral control
▪ Proper balance of rewards & incentives
▪ Appropriate cultures & boundaries (or constraints)
▪ Effective corporate governance

1-24
Creating Effective Organizational Designs
▪ Organizational structures must be consistent with
strategy
▪ Organizational boundaries must be flexible &
permeable
▪ Strategic alliances must capitalize on capabilities of
other organizations

1-25
Creating a Learning Organization & an Ethical
Organization
▪ Effective leaders
▪ Set a direction
▪ Design the organization
▪ Develop an organization committed to excellence &
ethical behavior
▪ Create a “learning organization”
▪ Benefit from individual & collective talents

1-26
Fostering Corporate Entrepreneurship
▪ Firms must continually improve & grow
▪ Firms must find new ways to renew themselves
▪ Entrepreneurship & innovation provide for new
opportunities
▪ Enhance a firm’s innovative capacity

1-27
Corporate Governance & Stakeholder
Management
▪ Appropriate Strategic Management requires an
effective & appropriate corporate structure
▪ Corporate Governance: the relationship among
various participants in determining the direction and
performance of corporations.
▪ Primary participants:
▪ The shareholders
▪ The management (led by the Chief Executive Officer)
▪ The Board of Directors (BOD)

Corporate Governance cont.
Board of Directors
▪ Elected representatives of
the owners
▪ Ensure interests & motives
of management are aligned
with those of the owners:
▪ Create an effective and
engaged board
▪ Address shareholder
activism
▪ Provide proper managerial
rewards & incentives
▪ Establish external control
mechanisms
1-28
Exhibit 1.4 The Key Elements of
Corporate Governance

1-29
Stakeholder Management
Exhibit 1.5 An Organization’s Key Stakeholders & the Nature of Their Claims

1-30
Stakeholder Management
Two views of stakeholder management
Zero Sum
▪ Stakeholders
compete for
attention &
resources
▪ Gain of one is a
loss to the other
Or?
Symbiosis
▪ Stakeholders are
dependent upon
each other for
success & well-
being
▪ Receive mutual
benefits
OR?
Zero Sum Symbiosis
Two views of stakeholder management

1-31
Question?
▪ P&G created a cleaning product that led to a
change in consumer shopping habits and also a
revolution in industry supply chain economics.
According to the text, this is an example of
___________.
A. zero-sum relationship among stakeholders
B. stakeholder symbiosis
C. rewarding stakeholders
D. emphasizing financial returns

1-32
Social Responsibility
▪ Social responsibility: the expectation that
businesses or individuals will strive to improve the
overall welfare of society.
▪ Firms have multiple stakeholders and must go
beyond a focus solely on financial results
▪ Firms must create shared value – and share this
value with society in a mutually beneficial
relationship
▪ Firms can measure a triple bottom line
▪ Assessing financial, social, AND environmental
performance
▪ Embracing a sustainable global economy.

1-33
Example:
Making Sustainability Profitable
▪ Rapidly developing economies are often seen as sustainability
laggards, due to weak regulatory bodies, resource shortages,
competition from more industrialized countries & firms.
▪ Yet Sekem’s leadership had a vision: as Egypt’s first organic
farm, of growing organic cotton.
▪ Sekem’s farming techniques reclaimed arable land from the
Sahara and decreased greenhouse gases. It also meant cotton
needed 20%-40% less water.
▪ Responding to worldwide demand, from 2006 until the Arab
Spring of 2011, Sekem improved cotton yields by 30%, &
increased revenues by 14%.
▪ Sekem subsidiaries now include medicinal products & schools.
▪ Sekem took the long-term view of strategy & it paid off.

1-34
Empowered Strategic
Management
▪ Strategic management requires an integrative
view of the organization
▪ ALL functional areas & activities must fit together
to achieve goals & objectives
▪ Leaders are needed throughout:
▪ Local line leaders – have profit & loss
responsibility
▪ Executive leaders – champion & guide ideas
▪ Internal networkers – hold little positional
power, but have conviction & clarity of ideas

1-35
Coherence in Strategic Direction
▪ Organizations express priorities best through
stated goals & objectives that form a hierarchy
of goals
▪ Vision – evokes powerful & compelling mental
images of a shared future
▪ Mission – encompasses the organization’s current
purpose, basis of competition, & competitive
advantage
▪ Strategic Objectives – operationalize the mission
statement with specific yardsticks

1-36
Exhibit 1.6 A Hierarchy of Goals

1-37
Organizational Vision
▪ A “massively inspiring” goal
▪ Overarching, long term
▪ A destination driven by & evoking passion
▪ Developed & implemented by leadership
▪ A fundamental statement of an organization’s
values, aspirations, and goals
▪ Captures both the minds & hearts of employees

1-38
Organizational Visions can backfire
▪ The Walk Doesn’t Match the Talk
▪ Irrelevance
▪ Not the Holy Grail
▪ Too Much Focus Leads to Missed Opportunities
▪ An Ideal Future Irreconciled with the Present

1-39
Mission Statement
▪ Encompasses both the purpose of the company and
the basis of competition and competitive advantage
▪ Is more specific than the vision
▪ Focuses on the means by which the firm will
compete
▪ Incorporates stakeholder management
▪ Communicates why an organization is special &
different
▪ Can & should change when competitive conditions
change

1-40
Strategic Objectives
▪ Are used to operationalize the mission statement
▪ Provide guidance on how to fulfill mission & vision
▪ Are measurable, specific, appropriate, realistic &
timely
▪ Channel all employees’ efforts toward common goals
▪ Can be both financial and nonfinancial
▪ Should be challenging, yet help resolve conflicts
▪ Provide a yardstick for rewards & incentives

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