Ch01 Discussion Blue

8/8/2019 Ch01 Discussion Blue

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Competing for AdvantageCompeting for Advantage

Robert E. HoskissonRobert E. Hoskisson

Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland

The PowerPoint slides for this textbook were prepared by:

R. Dennis Middlemist

Professor of ManagementColorado State University

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[email protected]

This slide is informational only. Do not display in the classroom.
mailto:[email protected]?subject=Competing%20for%20Advantagemailto:[email protected]?subject=Competing%20for%20Advantagemailto:[email protected]?subject=Competing%20for%20Advantagemailto:[email protected]?subject=Competing%20for%20Advantage


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2003 Southwestern Publishing Company 2

Introduction toIntroduction to

Strategic ManagementStrategic Management

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 1Chapter 1


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Chapter 2Chapter 2

Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4

The InternalThe Internal

OrganizationOrganization

Chapter 6Chapter 6

Competitive Rivalry andCompetitive Rivalry and

Competitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9

International StrategyInternational Strategy

Chapter 1Chapter 1

Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3

The ExternalThe External

EnvironmentEnvironment

Chapter 5Chapter 5

Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11

Corporate GovernanceCorporate Governance

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

Chapter 7Chapter 7

Corporate-Level StrategyCorporate-Level Strategy


Cooperative StrategyCooperative Strategy


Strategic EntrepreneurshipStrategic Entrepreneurship

Strategic

Analysis

Strategic

Thinking

Creating

Competitive

Advantage

Monitoring

And Creating

EntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process


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Discussion QuestionsDiscussion Questions

1. What is strategy?

2. What is happening in the strategic

environment?

3. What is strategic flexibility and why

is there a need for it?

4. What is the Industrial Organization

(IO) Model of Strategy?

5. What is the Resource-Based Model

of Strategy?

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Discussion Questions (cont.)Discussion Questions (cont.)

6. What is strategic intent and how is

it related to strategic mission?

7. How do stakeholders affect

strategy?

8. What is the role of the strategist

(top executive)?

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Discussion Question 1Discussion Question 1

What is strategy?


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DefinitionsDefinitions

Strategic Management ProcessStrategic Management ProcessThe full set of commitments, decisions,The full set of commitments, decisions,

and actions required for a firm to createand actions required for a firm to create

value and earn above-average returnsvalue and earn above-average returns

Value CreationValue Creation

What is achieved when a firmWhat is achieved when a firmsuccessfully formulates and implements asuccessfully formulates and implements a

strategy that other companies are unablestrategy that other companies are unable

to duplicate or find too costly to imitate.to duplicate or find too costly to imitate.


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Returns that are in excess of what an investorReturns that are in excess of what an investor

expects to earn from other investments with aexpects to earn from other investments with a

similar amount of risksimilar amount of risk

Above-Average ReturnsAbove-Average Returns

Returns that are equal to those an investorReturns that are equal to those an investor

expects to earn from other investments withexpects to earn from other investments witha similar amount of riska similar amount of risk

Average ReturnsAverage Returns


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RiskRiskAn investors uncertainty about theAn investors uncertainty about the

economic gains or losses that will resulteconomic gains or losses that will result

from a particular investmentfrom a particular investment

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What is happening in the strategicenvironment?


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Fundamental nature of

competition is changing

Competitive LandscapeCompetitive Landscape

HypercompetitiveHypercompetitive

environmentsenvironments

Dynamics of strategic

maneuvering among

global and innovative

combatants

Price-quality

positioning, new know-

how, first mover

Protect or invade

established product or

geographic markets


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Emergence of

global economy

Goods, services, people,

skills, and ideas move

freely across geographic

borders

Spread of economic

innovations around the

world

Political and cultural

adjustments are

required


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Emergence of

global economy

Rapid technological

change

Increasing rate of

technological change and

diffusion

The information age

Increasing knowledge

intensity



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What is strategic flexibility andwhy is there a need for it?


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Strategic FlexibilityStrategic Flexibility

A set of capabilities used to respond toA set of capabilities used to respond to

various demands and opportunitiesvarious demands and opportunities

existing in a dynamic and uncertainexisting in a dynamic and uncertaincompetitive environmentcompetitive environment

It involves coping with uncertainty and theIt involves coping with uncertainty and the

accompanying risksaccompanying risks


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Strategic

Flexibility

Strategic

Flexibility

Strategic FlexibilityStrategic Flexibility

StrategicStrategic

flexibilityflexibilityStrategicStrategic

reorientationreorientation

Capacity toCapacity to

learnlearn

OrganizationalOrganizational

slackslack

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What is the Industrial Organization(IO) Model of Strategy?


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1.1. Strategy dictated by theStrategy dictated by the

external environment ofexternal environment of

the firm (whatthe firm (what

opportunities exist inopportunities exist in

these environments?)these environments?)

2.2. Firm develops internalFirm develops internal

skills required byskills required byexternal environmentexternal environment

(what can the firm do(what can the firm do

about the opportunities?)about the opportunities?)

GeneralGeneral

EnvironmentEnvironment

GlobalGlobal

TechnologicalTechnological

Economic

Economic

Socio

cultu

ral

Socio

cultu

ral

Politic

al/L

egal

Politic

al/L

egal D

emographic

D

emographic

1. External Environments

IndustryEnvironment

Competitor

Environment

I/O Model of Above-Average ReturnsI/O Model of Above-Average Returns


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Four Assumptions of the I/O ModelFour Assumptions of the I/O Model

1.1. The external environment is assumed toThe external environment is assumed topossess pressures and constraints thatpossess pressures and constraints thatdetermine the strategies that would resultdetermine the strategies that would result

in above-average returnsin above-average returns2.2. Most firms competing within a particularMost firms competing within a particular

industry or within a certain segment of itindustry or within a certain segment of itare assumed to control similarare assumed to control similar

strategically relevant resources and tostrategically relevant resources and topursue similar strategies in light of thosepursue similar strategies in light of thoseresourcesresources


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Four Assumptions of the I/O ModelFour Assumptions of the I/O Model

3.3. Resources used to implement strategiesResources used to implement strategies

are highly mobile across firmsare highly mobile across firms

4.4. Organizational decision makers areOrganizational decision makers are

assumed to be rational and committed toassumed to be rational and committed to

acting in the firms best interests, asacting in the firms best interests, as

shown by their profit-maximizingshown by their profit-maximizing

behaviorsbehaviors


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Industrial OrganizationIndustrial Organization

ModelModel

I/O Model of Above-Average Returns

1.1. Study the externalStudy the external

environment, especially theenvironment, especially the

industry environmentindustry environment

economies of scaleeconomies of scale barriers to market entrybarriers to market entry diversificationdiversification product differentiationproduct differentiation degree of concentration ofdegree of concentration of

firms in the industryfirms in the industry

The External EnvironmentThe External Environment


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2.2. Locate an attractive industryLocate an attractive industry

with a high potential forwith a high potential for

above-average returnsabove-average returns

Attractive industry: one whoseAttractive industry: one whose

structural characteristicsstructural characteristics

suggest above-average returnssuggest above-average returns


ModelModel


An Attractive IndustryAn Attractive Industry


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3.3. Identify the strategy calledIdentify the strategy called

for by the attractive industryfor by the attractive industry

to earn above-average returnsto earn above-average returns

Strategy formulation: selectionStrategy formulation: selection

of a strategy linked withof a strategy linked with

above-average returns in aabove-average returns in a

particular industryparticular industry


ModelModel



Strategy FormulationStrategy Formulation


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4.4. Develop or acquire assets andDevelop or acquire assets and

skills needed to implementskills needed to implement

the strategythe strategy

Assets and skills: those assetsAssets and skills: those assetsand skills required toand skills required to

implement a chosen strategyimplement a chosen strategy


ModelModel




Assets and SkillsAssets and Skills


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5. Use the firms strengths (its5. Use the firms strengths (its

developed or acquired assetsdeveloped or acquired assets

and skills) to implement theand skills) to implement the

strategystrategy

Strategy implementation:Strategy implementation:

select strategic actions linkedselect strategic actions linked

with effective implementationwith effective implementation

of the chosen strategyof the chosen strategy


ModelModel





Strategy ImplementationStrategy Implementation


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Industrial Organization

Model





Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

Superior returns: earning

of above-average returns

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What is the Resource-BasedModel of Strategy?


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1.1. Strategy dictated by theStrategy dictated by the

firms unique resourcesfirms unique resources

and capabilitiesand capabilities

2.2. Find an environment inFind an environment in

which to exploit thesewhich to exploit these

assets (where are the bestassets (where are the bestopportunities?)opportunities?)

Resource-based Model of AboveResource-based Model of Above

Average ReturnsAverage Returns

1. Firms Resources1. Firms Resources


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1.1. Identify the firmsIdentify the firms

resources-- strengths andresources-- strengths and

weaknesses compared withweaknesses compared with

competitorscompetitorsResources: inputs into a firmsResources: inputs into a firmsproduction processproduction process

Resource-based Model of Above

Average Returns

Resource-basedResource-based

ModelModel

ResourcesResources


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2.2. Determine the firmsDetermine the firms

capabilities--what it can docapabilities--what it can do

better than its competitorsbetter than its competitors

Capability: capacity of anCapability: capacity of an

integrated set of resources tointegrated set of resources to

integratively perform a task orintegratively perform a task or

activityactivity


Average Returns


ModelModel

ResourcesResources

CapabilityCapability


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Four Attributes of Resources andFour Attributes of Resources and

Capabilities (Competitive Advantage)Capabilities (Competitive Advantage)

the firm is organized appropriately tothe firm is organized appropriately toobtain the full benefits of the resources inobtain the full benefits of the resources inorder to realize a competitive advantageorder to realize a competitive advantage

ValuableValuable allow the firm to exploit opportunities orallow the firm to exploit opportunities orneutralize threats in its externalneutralize threats in its externalenvironmentenvironment

RareRare possessed by few, if any, current andpossessed by few, if any, current andpotential competitorspotential competitors

Costly to imitateCostly to imitate when other firms cannot obtain them orwhen other firms cannot obtain them or

must obtain them at a much higher costmust obtain them at a much higher cost

NonsubstitutableNonsubstitutable

Resou

rce

sandCa

pabilit i

es

Resou

rce

sa

ndCapabilit i

es


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Core CompetenciesCore Competencies

Resources and capabilities that meetthese four criteria become a source of:

ValuableValuable

RareRare

Costly to imitateCostly to imitate

NonsubstitutableNonsubstitutable


Resou

rce

sandCa

pabilities

Resou

rce

sa

ndCapabilit i

es


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Core Competencies are the basis for afirms

CompetitiveCompetitive

advantageadvantage

Value CreationValue Creation

Ability to earnAbility to earn

above-averageabove-average

returnsreturns



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3.3. Determine the potential of theDetermine the potential of the

firms resources andfirms resources and

capabilities in terms of acapabilities in terms of a

competitive advantagecompetitive advantage

Competitive advantage: abilityCompetitive advantage: ability

of a firm to outperform itsof a firm to outperform its

rivalsrivals


Average Returns


ModelModel

ResourcesResources


Competitive AdvantageCompetitive Advantage


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4.4. Locate an attractive industryLocate an attractive industry

An attractive industry: anAn attractive industry: anindustry with opportunities thatindustry with opportunities that

can be exploited by the firmscan be exploited by the firms

resources and capabilitiesresources and capabilities


Average Returns


ModelModel

ResourcesResources





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5.5. Select a strategy that bestSelect a strategy that best

allows the firm to utilize itsallows the firm to utilize its

resources and capabilitiesresources and capabilities

relative to opportunities inrelative to opportunities inthe external environmentthe external environment

Strategy formulation andStrategy formulation and

implementation: strategicimplementation: strategic

actions taken to earn aboveactions taken to earn above

average returnsaverage returns


Average Returns


ModelModel

ResourcesResources




Strategy Form/ImplStrategy Form/Impl


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Average Returns


ModelModel

ResourcesResources




Strategy Form/ImplStrategy Form/Impl

Superior ReturnsSuperior Returns

Superior returns: earningSuperior returns: earning

of above-average returnsof above-average returns

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What is strategic intent and how isit related to strategic mission?


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Strategic Intent & MissionStrategic Intent & Mission

Strategic IntentStrategic Intent Winning competitive battles by leveraging theWinning competitive battles by leveraging the

firms resources, capabilities, and corefirms resources, capabilities, and core

competenciescompetencies

Strategic MissionStrategic Mission An application of strategic intent in terms ofAn application of strategic intent in terms of

products to be offered and markets to be servedproducts to be offered and markets to be served

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How do stakeholders affectstrategy?


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Groups who are affected by aGroups who are affected by a

firms performance and whofirms performance and who

have claims on its wealthhave claims on its wealth

The firm must maintainThe firm must maintain

performance at an adequateperformance at an adequate

level in order to retain thelevel in order to retain the

participation of keyparticipation of key

stakeholdersstakeholders

The Firm and Its StakeholdersThe Firm and Its Stakeholders

StakeholdersStakeholders


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Capital Market StakeholdersCapital Market Stakeholders

The Firm and Its StakeholdersThe Firm and Its Stakeholders

ShareholdersShareholders

Major suppliers of capitalMajor suppliers of capitalBanksBanksPrivate lendersPrivate lendersVenture capitalistsVenture capitalists



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Product Market StakeholdersProduct Market Stakeholders

The Firm and Its Stakeholders

Primary customersPrimary customers

SuppliersSuppliers

Host communitiesHost communitiesUnionsUnions



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Product Market StakeholdersProduct Market Stakeholders

Organizational StakeholdersOrganizational Stakeholders

The Firm and Its Stakeholders

EmployeesEmployees

ManagersManagers

NonmanagersNonmanagers



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Stakeholder InvolvementStakeholder Involvement

Two issues affect theTwo issues affect the

extent of stakeholderextent of stakeholder

involvement in the firminvolvement in the firm

How do you divide theHow do you divide the

returns to keepreturns to keep

stakeholders involved?stakeholders involved?

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CapitalCapital

MarketMarket

ProductProduct

MarketMarket



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Stakeholder Involvement

Two issues affect theTwo issues affect the

extent of stakeholderextent of stakeholder

involvement in the firminvolvement in the firm

How do you increase theHow do you increase the

returns so everyone hasreturns so everyone has

more to share?more to share?

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CapitalCapital

MarketMarket

ProductProduct

MarketMarket


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What is the role of the strategist(top executive)?


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Organizational StrategistsOrganizational Strategists

Serve as a major source of

competitive advantage

Are held responsible by stakeholdersMake decisions regarding

development, acquisition, cost and

use of resourcesAssess risks of strategic actions

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Ch01 Discussion Blue