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Ch1-1

Chapter 1Chapter 1

Strategic Management andStrategic Management and

Strategic CompetitivenessStrategic Competitiveness

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

Robert E. HoskissonRobert E. Hoskisson

2000 South-Western College Publishing2000 South-Western College Publishing

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Ch1-2

Sustained Competitive AdvantageSustained Competitive Advantage

AboveAbove--Average ReturnsAverage ReturnsReturns in excess of what an investor expects toReturns in excess of what an investor expects to

earn from other investments with similar riskearn from other investments with similar risk

Occurs when a firm develops a strategy thatOccurs when a firm develops a strategy thatcompetitors are not simultaneously implementingcompetitors are not simultaneously implementing

Provides benefits which current and potentialProvides benefits which current and potentialcompetitors are unable to duplicatecompetitors are unable to duplicate


Achieved when a firm successfully formulatesAchieved when a firm successfully formulatesand implements a valueand implements a value--creating strategycreating strategy

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Ch1-3

which are required for firms to achieve:which are required for firms to achieve:

AboveAbove--Average ReturnsAverage Returns


Sustained Competitive AdvantageSustained Competitive Advantage

The Strategic Management ProcessThe Strategic Management Process

Involves the full set of:Involves the full set of:

ActionsActionsCommitmentsCommitments DecisionsDecisions

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Ch1-4

The StrategicThe Strategic

ManagementManagement

ProcessProcess



ProcessProcessChapter 3Chapter 3InternalInternalEnvironmentEnvironment

Chapter 2Chapter 2

ExternalExternal

EnvironmentEnvironmentStrategic IntentStrategic Intent

Strategic MissionStrategic Mission

Strategy FormulationStrategy Formulation Strategy ImplementationStrategy Implementation

Chapter 4Chapter 4

Business-LevelBusiness-LevelStrategyStrategy

Chapter 5Chapter 5

CompetitiveCompetitive

DynamicsDynamics

Chapter 6Chapter 6

Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8

InternationalInternational

StrategyStrategy

Chapter 9Chapter 9

CooperativeCooperativeStrategiesStrategies

Chapter 7Chapter 7

Acquisitions &Acquisitions &RestructuringRestructuring

Chapter 10Chapter 10

CorporateCorporate

GovernanceGovernance


StructureStructure

& Control& Control


StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship

& Innovation

Entrepreneurship

& Innovation

Strategic

Inputs

FeedbackStrategic

Outcomes

Strategic

Strategic

Actions

Actions

StrategicStrategic

CompetitivenessCompetitiveness

Above AverageAbove Average

ReturnsReturns

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Ch1-5

Chapter One: Key ThemesChapter One: Key Themes

Industrial Organization ModelIndustrial Organization Model

ResourceResource--Based ModelBased Model

Challenge of Strategic ManagementChallenge of Strategic Management

Changing Competitive LandscapeChanging Competitive Landscape

Two Models of Superior ProfitabilityTwo Models of Superior Profitability

Key Stakeholder GroupsKey Stakeholder Groups

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Ch1-6

Competitive success is transient...unless care is

taken to preserve competitive position

Competitive success is transient...unless care is

taken to preserve competitive position

Only 16 of the 100 largest U.S. companies at

the start of the 20th century are still

identifiable today!

Only 16 of the 100 largest U.S. companies at

the start of the 20th century are still

identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed


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Ch1-7

Best Stocks of the DecadeBest Stocks of the Decade

% Change 1990-99Cisco 124,825%

AOL 81,400%

Dell 72,400%

EMC 68,314%

CMGI 57,191%

Solectron 21,233%

JDS Uniphase 18,755%

Tellabs 16,921%

Clear Channel Communications 13,700%

Best Buy 9,376%

Maxim Integrated 8,735%

Veritas Software 8,536%

Charles Schwab 7,985%Microsoft 7,483%

Sun Microsystems 7,163%

Safeguard Scientifics 6,816%

Qlogic 6,764%

Yahoo 6,744%

Qualcomm 6,388%Applied Materials 6,350%


The goals of achievingThe goals of achievingstrategic competitivenessstrategic competitivenessand earning aboveand earning above--average returns areaverage returns are

challengingchallenging

The performance ofThe performance ofsome companies moresome companies more

than meets strategicthan meets strategicmanagement'smanagement'schallengechallenge

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Ch1-8

Rapid technological changes Rapid technological changes

Rapid technology diffusions Rapid technology diffusions

Dramatic changes in

information and

communication technologies

Dramatic changes in

information and

communication technologies

Increasing importance of

knowledge

Increasing importance of

knowledge

Fundamental nature of

competition is changing

Fundamental nature of

competition is changingThe pace of change

is relentless....

and increasing

The pace of change

is relentless....

and increasing

Traditional industry

boundaries are

blurring, such as...

Traditional industry

boundaries are

blurring, such as... Computers

Telecommunications

Computers

Telecommunications

21st Century Competitive Landscape21st Century Competitive Landscape

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Ch1-9

The global economy is

changing

The global economy is

changing

People, goods, services andideas move freely across

geographic boundaries

New opportunities emerge

in multiple global markets Markets and industries

become more

internationalized

People, goods, services andideas move freely across

geographic boundaries

New opportunities emerge

in multiple global markets Markets and industries

become more

internationalized

Traditional sources of

competitive advantage

no longer guarantee

success

Traditional sources of

competitive advantage

no longer guarantee

success

New keys to success

include:

New keys to success

include:

Flexibility Innovation

Speed

Integration

Flexibility Innovation

Speed

Integration

21st Century Competitive Landscape21st Century Competitive Landscape

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Ch1-11

Alternative Models of Superior ReturnsAlternative Models of Superior Returns

ResourceResource--BasedBased

ModelModel

Industrial OrganizationIndustrial Organization

ModelModel

The External EnvironmentThe External Environment

An Attractive IndustryAn Attractive Industry

Strategy FormulationStrategy Formulation

Assets and SkillsAssets and Skills

Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

ResourcesResources

CapabilityCapability

Competitive AdvantageCompetitive Advantage

An Attractive IndustryAn Attractive Industry



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Ch1-12

I/O Model of Superior ReturnsI/O Model of Superior Returns

The Industrial Organization model

suggests that above-average returns

for any firm are largely determined

by characteristics outside the firm.

This model largely focuses on industry

structure or attractiveness of the

external environment rather than

internal characteristics of the firm.

The Industrial Organization model

suggests that above-average returns

for any firm are largely determined

by characteristics outside the firm.

This model largely focuses on industry

structure or attractiveness of the

external environment rather than

internal characteristics of the firm.

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Ch1-13

Action required:Action required:ExternalEnvironmentExternalEnvironment

General EnvironmentGeneral Environment

Industry EnvironmentIndustry Environment

CompetitiveEnvironmentCompetitiveEnvironment

Study the external

environment, especially

the industry environment.


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Ch1-14

ExternalEnvironmentExternalEnvironment




An Attractive

Industry

An Attractive

Industry

An industry whose

structural characteristicssuggest above-average

returns are possible

An industry whose



Action required:Action required:

Locate an industry with

high potential for above-

average returns.


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Ch1-15





Attractive

Industry

Attractive

Industry

An industry whose



An industry whose




Identify strategy called for

by the industry to earn

above-average returns.

Selection of a strategy

linked with above-

average returns in a

particular industry


linked with above-


particular industry

Strategy

Formulation

Strategy

Formulation


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Ch1-16





Attractive

Industry

Attractive

Industry

An industry whose



An industry whose



Strategy

Formulation

Strategy

Formulation


linked with above-


particular industry


linked with above-


particular industry


Develop or acquire assets

and skills needed to

implement the strategy.


Assets and skills

required to implement

a chosen strategy

Assets and skills


a chosen strategy


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Ch1-17





Attractive

Industry

Attractive

Industry

An industry whose



An industry whose



Strategy

Formulation

Strategy

Formulation


linked with above-


particular industry


linked with above-


particular industry


Assets and skills


a chosen strategy

Assets and skills


a chosen strategy


Use the firms strengths

(its assets or skills) to

implement the strategy.

Strategy

Implementation

Strategy

Implementation

Selection of strategicactions linked with

effective implementation

of the chosen strategy





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Ch1-18





Attractive

Industry

Attractive

Industry

An industry whose



An industry whose



Strategy

Formulation

Strategy

Formulation


linked with above-


particular industry


linked with above-


particular industry


Assets and skills


a chosen strategy

Assets and skills


a chosen strategy


Strategy

Implementation

Strategy

Implementation








Earning of above-

average returns

Earning of above-

average returns

Maintain selected strategy

in order to outperform

industry rivals.


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Ch1-19

The Resource-Based model suggests

that above-average returns for any

firm are largely determined by

characteristics inside the firm.

The Resource-Based model suggests

that above-average returns for any

firm are largely determined by

characteristics inside the firm.

This model focuses on developing or

obtaining valuable resources and

capabilities which are difficult or

impossible for rivals to imitate.

This model focuses on developing or

obtaining valuable resources and

capabilities which are difficult or

impossible for rivals to imitate.

ResourceResource--Based Model of Superior ReturnsBased Model of Superior Returns

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Ch1-20

ResourcesResources

Inputs to a firms

production process.

Inputs to a firms

production process.


Identify firm resources.

Study strengths and weak-

nesses relative to rivals.


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Ch1-21

ResourcesResources

Inputs to a firms

production process.

Inputs to a firms

production process.


Determine what firm

capabilities allow it to dobetter than rivals.


Capacity for an integrated

set of resources to perform

a task or activity.


set of resources to perform

a task or activity.


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Ch1-22

ResourcesResources

Inputs to a firms

production process.

Inputs to a firms

production process.



set of resources to

integratively perform a

task or activity.


set of resources to


task or activity.

Competitive

Advantage

Competitive

Advantage

Ability of a firm to

outperform its rivals




Determine how firms

resources and capabilities

may create competitive

advantage.


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Ch1-23

ResourcesResources

Inputs to a firms

production process.

Inputs to a firms

production process.



set of resources to


task or activity.


set of resources to


task or activity.

Competitive

Advantage

Competitive

Advantage





An AttractiveIndustryAn AttractiveIndustry

Location of an industry

with opportunities that

can be exploited by the

firms resources and

capabilities




firms resources and

capabilities


Locate an attractive

industry.


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Ch1-24

ResourcesResources

Inputs to a firms

production process.

Inputs to a firms

production process.



set of resources to


task or activity.


set of resources to


task or activity.

Competitive

Advantage

Competitive

Advantage









firms resources and

capabilities




firms resources and

capabilities


Select strategy that best

exploits resources and

capabilities relative to

opportunities in environs.

Strategy

Formulation and

Implementation

Strategy

Formulation and

Implementation

Strategic actions taken to

earn above-average

returns


earn above-average

returns


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Ch1-25

ResourcesResources

Inputs to a firms

production process.

Inputs to a firms

production process.



set of resources to


task or activity.


set of resources to


task or activity.

Competitive

Advantage

Competitive

Advantage









firms resources and

capabilities




firms resources and

capabilities


Maintain selected strategy

in order to outperform

industry rivals.

Strategy

Formulation and

Implementation

Strategy

Formulation and

Implementation


earn above-average

returns


earn above-average

returns


Earning of above-

average returns

Earning of above-

average returns


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Ch1-26

NonsubstitutableNonsubstitutable the firm must be organized appropriately tothe firm must be 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 either cannot obtain themwhen other firms either cannot obtain themor must obtain them at a much higher costor must obtain them at a much higher cost

Resources and capabilities lead toResources and capabilities lead to

Competitive AdvantageCompetitive Advantage when they are:when they are:

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Ch1-27

Core CompetenciesCore Competencies

When these fourWhen these four

criteria are met,criteria are met,

Resources andResources and

CapabilitiesCapabilities

become:become:

Core Competencies are resources and capabilitiesCore Competencies are resources and capabilities

that can serve as a source ofthat can serve as a source ofCompetitive AdvantageCompetitive Advantage..

The ResourceThe Resource--Based model argues that CoreBased model argues that CoreCompetencies are the basis for a firms CompetitiveCompetencies are the basis for a firms Competitive

Advantage, Strategic Competitiveness and Ability toAdvantage, Strategic Competitiveness and Ability to

Earn AboveEarn Above--average Returns.average Returns.

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Ch1-28

Winning competitive battles through decidingWinning competitive battles through deciding

how to leverage internal resources, capabilities,how to leverage internal resources, capabilities,

and core competencies.and core competencies.

Strategic IntentStrategic Intent

An application of strategic intent in terms ofAn application of strategic intent in terms of

products to be offered and markets to be served.products to be offered and markets to be served.


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Ch1-29

BUSINESS WEEKSS 10 Top Managers of the Year, 1999Name Company Strategic Accomplishment

Minoru Arakawa Nintendo America Scored huge hit by bringing Pok mon to U.S.over objections of co-workers and negativemarket research

BernardArnault LVMH From just 23 in Oct. 98, LVMHs U.S. shareshave vaulted 280%, to about 87

Arthur Blank Home Depot Profits should jump 46%, to $2.3 billion for fiscal year 1999. Sales are expected to grow25%, to $38 billion

Peter Bijur TexacoA

fter his company was labeled racist, attractedminorities to key jobs, including treasurer IraHall, a former IBM executive

Gordon Binder Amgen Boosted stock price by around 100% last year, toabout $54

Steve Case America Online Deals to broaden AOLs availability and serviceswill help boost income 102% this fiscal year, to$800 million

John Chambers Cisco Systems Broadened Cisco into strategic businesses such

as software, consulting, and fiber-opticcommunications

Jim Curvey Fidelity Investments Reduced internal conflicts and spurred growththrough management changes

Thierry Desmarest Totalfina Acquired rival French oil company ELFAquitaine for $44 billion. Shares up about 35%in 99, as profits expected to grow 20%, to $3.1billion

Bernie Ebbers MCI Worldcom Turned toward more profitable data, Internet,and international operations

The most

effective

strategists provide

a vision (strategic

intent) to

effectively elicitthe help of others

in creating a

firm's competitive

advantage.


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Ch1-30

Stakeholders:Stakeholders: Groups who are affected by a firmsGroups who are affected by a firmsperformance and who have claims on itsperformance and who have claims on itswealthwealth

The firm must maintainThe firm must maintainperformance at an adequate level inperformance at an adequate level inorder to maintain the participationorder to maintain the participationof key stakeholdersof key stakeholders

OrganizationalOrganizationalOrganizationalOrganizational

EmployeesEmployeesManagersManagersNonNon--ManagersManagers

EmployeesEmployeesManagersManagersNonNon--ManagersManagers

FirmFirmFirmFirm

Capital MarketCapital MarketCapital MarketCapital Market

Stock market/InvestorsStock market/InvestorsStock market/InvestorsStock market/Investors

Debt suppliers/BanksDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/Banks

Product MarketProduct MarketProduct MarketProduct Market

Primary CustomersPrimary CustomersSuppliersSuppliersPrimary CustomersPrimary CustomersSuppliersSuppliers

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Ch1-31

Stakeholder InvolvementStakeholder InvolvementEach of the key stakeholdersEach of the key stakeholders

wants a piece of the same piewants a piece of the same pie

1111 How do youHow do you divide the piedivide the piein order to keep all of thein order to keep all of the

stakeholders involved?stakeholders involved?

How do youHow do you divide the piedivide the piein order to keep all of thein order to keep all of the

stakeholders involved?stakeholders involved?

2222

How do youHow do you increase theincrease thesizesize of the pie so that thereof the pie so that thereis more to go around?is more to go around?

How do youHow do you increase theincrease thesizesize of the pie so that thereof the pie so that thereis more to go around?is more to go around?

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Ch1-32

Chapter 3Chapter 3

InternalInternal

EnvironmentEnvironment

Chapter 2Chapter 2

ExternalExternal

EnvironmentEnvironmentThe StrategicThe Strategic


ProcessProcess



ProcessProcess



StrategicStrategic

CompetitivenessCompetitiveness

Above AverageAbove Average

ReturnsReturnsFeedback

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitive

DynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8

InternationalInternational

StrategyStrategy

Chapter 9Chapter 9

CooperativeCooperativeStrategiesStrategies

Chapter 7Chapter 7

Acquisitions &Acquisitions &RestructuringRestructuring


Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure

& Control& Control


StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship

& Innovation

Entrepreneurship

& Innovation

Strategic

Inputs

Strategic

Actions

Strategic

Outcomes

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