McGraw-Hill Ryerson Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGIC MANAGEMENT

Canadian

EditionStrategic Management: Creating Competitive AdvantagesGregory G. DessG. T. LumpkinTheodore Peridis

Chapter 1Chapter 1

Strategic Management: Creating Competitive Advantages:

An Overview

Part 1:Part 1: Strategic Strategic AnalysisAnalysis

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Learning Objectives

1. The essence and definitions of strategy, strategic management, and competitive advantages.

2. The four key attributes of strategic management and the three principal and interrelated activities of the strategic management process.

3. The vital role of corporate governance and stakeholder management in the strategic management process and the long-term success of all organizations.

• After reading this chapter, you should have a good understanding of:

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Learning Objectives

• After reading this chapter, you should have a good understanding of:4. The key environmental forces that create

unpredictable change and call for a greater strategic management perspective throughout the organization.

5. How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction.

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Two Perspectives on 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

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Two Perspectives on Leadership

• 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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Strategic Management

• Analysis • Strategic goals (vision, mission, strategic objectives)

• Internal and external environment of the firm

• 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

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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

Unique and valuable Difficult for competitors to copy or substitute

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Strategic Management Concepts

Adapted from Exhibit 1.1 Strategic Management Concepts

Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

Key attributes of strategic management

• Directs the organization toward overall goals and objectives.

• Includes multiple stakeholders in decision making

• Incorporates short-term and long-term perspectives

• Recognizes trade-offs between efficiency and effectiveness

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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

Exhibit 1.3 The Strategic Management Process

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Strategic Analysis (cont.)

• Clear goals and objectives permit effective allocation of resources

• Hierarchy of goals

• Vision

• Mission

• Strategic objectives

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Analysis (cont.)

• Managers

• Scan the environment

• Analyze competitors

• General environment

• Industry environment

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Analysis (cont.)

• Frameworks for analyzing a firm’s internal environment

• Strengths

• Weaknesses

• Analyzing strengths can uncover potential sources of competitive advantage

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Analysis (cont.)

• Intellectual assets are drivers of• Competitive advantages

• Wealth creation

• Networks and relationships among• Employees

• Customers

• Suppliers

• Alliance partners

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Formulation

• Successful firms develop bases for competitive advantage• Cost leadership

• Differentiation

• Focusing on narrow or industry-wide market segments

• Sustainability

• Industry life cycle

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Formulation (cont.)

• 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

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Formulation (cont.)

• Appropriate entry strategies

• Sustain competitive advantage in global markets

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Formulation (cont.)

• Digital technologies change the way business is conducted

• Added value

• Impact on performance

• Digital technologies can enhance

• Cost leadership

• Differentiation

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Implementation

• Informational control• Monitor and scan the

environment

• Respond effectively to threats and opportunities

• behavioural control

• Effective corporate governance• Interests of managers

and owners of the firm

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Implementation (cont.)

• Organizational structure and design

• Organizational boundaries

• Flexible

• Permeable

• Strategic Alliances

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Implementation (cont.)

• Develop organization that is committed to

• Excellence

• Ethical behaviour

• Learning organization responsive to

• Rapid and unpredictable change in today’s competitive environments

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Implementation (cont.)

• Corporate entrepreneurship and innovation

• New opportunities

• Enhance innovative capacity

• Autonomous entrepreneurial behaviour

• Product champions

Adapted from Exhibit 1.3 The Strategic Management Process

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Strategic Implementation (cont.)

• New ventures and small businesses

• Major engine of economic growth

• Recognize viable opportunities

• Entrepreneurial leadership skills

Adapted from Exhibit 1.3 The Strategic Management Process

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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

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Corporate Governance and Stakeholder Management

• Board of directors• Elected represent-

atives of the owners

• Ensure interests and motives of man- agement are aligned with those of the owners

Effective and engaged board of directors Shareholder activism Proper managerial rewards and incentives

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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

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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 behaviour changes over time

• Triple Bottom Line

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Four Additional Types of Capital

In addition to financial capital

Type of Capital Description

Ecological Renewable resources generated by living systems, such as wood or animal by-products

Material Nonrenewable or geological resources such as mineral ores and fossil fuels

Human People’s knowledge, skills, health, nutrition, safety, security, and motivation

Social Assets of civil society, such as social cohesion, trust, reciprocity, equity, and other values that provide mutual benefit

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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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Strategic Management Perspective

• Key driving forces increasing the need for strategic perspective and involvement• Globalization

• Technology

• Intellectual capital

• These forces are • Interrelated

• Accelerating the rate of change and uncertainty

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Enhancing Employee Involvement

• Have significant profit and loss responsibility

Local 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

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Internal Networkers

Enhancing Employee Involvement

• Have little positional power and formal authority

• Generate their power through the conviction and clarity of their ideas

Local Line Leaders

Executive Leaders

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Hierarchy of Goals

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

Company visionCompany vision

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Hierarchy of Goals

Company visionCompany vision

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

Mission statementsMission statements

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Hierarchy of Goals

Company visionCompany vision

Mission statementsMission statements

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

Strategic objectivesStrategic objectives

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Coherence in Strategic Direction

• Measurable

• Specific

• Appropriate

• Realistic

• Timely

• Challenging

• Resolve conflicts that arise

• Yardstick for rewards and incentives

Strategic objectives

Hierarchy of Goals

Company visionCompany vision

Mission statementsMission statements

Strategic objectivesStrategic objectives