ch1-1 chapter 1 strategic management and strategic competitiveness michael a. hitt r. duane ireland...
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Ch1-3 which are required for firms to achieve: Above-Average Returns Strategic Competitiveness Sustained Competitive Advantage The Strategic Management Process Involves the full set of: ActionsCommitmentsDecisionsTRANSCRIPT
Ch1-1
Chapter 1Chapter 1
Strategic Management and Strategic Management and Strategic CompetitivenessStrategic Competitiveness
Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland
Robert E. HoskissonRobert E. Hoskisson
©2000 South-Western College Publishing
Ch1-2
Sustained Competitive AdvantageSustained Competitive Advantage
Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects to Returns 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 that Occurs when a firm develops a strategy that competitors are not simultaneously implementingcompetitors are not simultaneously implementing
Provides benefits which current and potential Provides benefits which current and potential competitors are unable to duplicatecompetitors are unable to duplicate
Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulates Achieved when a firm successfully formulates and implements a value-creating strategyand implements a value-creating strategy
Ch1-3
which are required for firms to achieve:which are required for firms to achieve:
Above-Average ReturnsAbove-Average Returns
Strategic CompetitivenessStrategic CompetitivenessSustained Competitive AdvantageSustained Competitive Advantage
The Strategic Management ProcessThe Strategic Management Process
Involves the full set of:Involves the full set of:
ActionsActionsCommitmentsCommitments DecisionsDecisions
Ch1-4
The StrategicThe StrategicManagementManagement
ProcessProcessChapter 3Internal
Environment
Chapter 2External
EnvironmentStrategic IntentStrategic Mission
Strategy Formulation Strategy Implementation
Chapter 4Business-Level
Strategy
Chapter 5CompetitiveDynamics
Chapter 6Corporate-Level
Strategy
Chapter 8International
Strategy
Chapter 9Cooperative
Strategies
Chapter 7Acquisitions &Restructuring
Chapter 10Corporate
Governance
Chapter 11Structure& Control
Chapter 12Strategic
Leadership
Chapter 13Entrepreneurship & Innovation
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StrategicCompetitivenessAbove Average
Returns
Ch1-5
Chapter One: Key ThemesChapter One: Key Themes
• Industrial Organization ModelIndustrial Organization Model• Resource-Based ModelResource-Based Model
Challenge of Strategic ManagementChallenge of Strategic Management
Changing Competitive LandscapeChanging Competitive Landscape
Two Models of Superior ProfitabilityTwo Models of Superior Profitability
Key Stakeholder Groups
Ch1-6
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!
In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed
Challenge of Strategic ManagementChallenge of Strategic Management
Ch1-7
Best Stocks of the DecadeBest Stocks of the Decade
Challenge of Strategic ManagementChallenge of Strategic Management
The goals of achieving The goals of achieving strategic competitiveness strategic competitiveness and earning above-and earning above-average returns are average returns are challenging challenging
The performance of The performance of some companies more some companies more than meets strategic than meets strategic management's management's challenge challenge
Ch1-8
• Rapid technological changes
• Rapid technology diffusions
• Dramatic changes in information and communication technologies
• Increasing importance of knowledge
Fundamental nature of competition is changing
The pace of change is relentless....and increasing
Traditional industry boundaries are blurring, such as...
• Computers• Telecommunications
21st Century Competitive Landscape21st Century Competitive Landscape
Ch1-9
The global economy is changing
• People, goods, services and ideas 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 successNew keys to success include:
• Flexibility• Innovation• Speed• Integration
21st Century Competitive Landscape21st Century Competitive Landscape
1999 1998 Country CompetitivenessIndex 1999
CompetitivenessIndex 1998
1 1 Singapore 2.12 2.162 3 United States 1.58 1.413 2 Hong Kong 1.41 1.914 6 Taiwan 1.38 1.195 5 Canada 1.33 1.276 8 Switzerland 1.27 1.107 10 Luxembourg 1.25 1.058 4 United Kingdom 1.17 1.299 7 Netherlands 1.13 1.1310 11 Ireland 1.11 1.0511 15 Finland 1.11 0.7012 14 Australia 1.04 0.7913 13 New Zealand 10.1 0.8414 12 Japan 1.00 0.9715 9 Norway 0.92 1.0916 17 Malaysia 0.86 0.5917 16 Denmark 0.85 0.6118 30 Iceland 0.59 -0.1819 23 Sweden 0.58 0.2520 20 Austria 0.37 0.3721 18 Chile 0.57 0.5722 19 Korea 0.46 0.3923 22 France 0.44 0.2524 27 Belgium 0.39 -0.0325 24 Germany 0.37 0.1526 25 Spain 0.16 0.02
Country Competitiveness RankingsCountry Competitiveness RankingsA country’s A country’s competitiveness is competitiveness is achieved through the achieved through the accumulation of accumulation of individual firms’ individual firms’ strategic strategic competitiveness in competitiveness in the global economythe global economy
Achieving improved Achieving improved competitiveness competitiveness allows a country's allows a country's citizens to have a citizens to have a higher standard of higher standard of living living
21st Century Competitive Landscape21st Century Competitive Landscape
Ch1-11
Alternative Models of Superior ReturnsAlternative Models of Superior Returns
Resource-BasedResource-BasedModelModel
Industrial Organization Industrial 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
Strategy ImplementationStrategy Implementation
Superior ReturnsSuperior Returns
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.
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Action required:External Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
Study the external environment, especially the industry environment.
I/O Model of Superior ReturnsI/O Model of Superior Returns
Ch1-14
External Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
An Attractive IndustryAn industry whose structural characteristics suggest above-average returns are possible
Action required:Locate an industry with high potential for above-average returns.
I/O Model of Superior ReturnsI/O Model of Superior Returns
Ch1-15
External Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
Attractive IndustryAn industry whose structural characteristics suggest above-average returns are possible
Action required: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
StrategyFormulation
I/O Model of Superior ReturnsI/O Model of Superior Returns
Ch1-16
External Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
Attractive IndustryAn industry whose structural characteristics suggest above-average returns are possible
Strategy FormulationSelection of a strategy linked with above-average returns in a particular industry
Action required:Develop or acquire assets and skills needed to implement the strategy.
Assets and Skills
Assets and skills required to implement a chosen strategy
I/O Model of Superior ReturnsI/O Model of Superior Returns
Ch1-17
External Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
Attractive IndustryAn industry whose structural characteristics suggest above-average returns are possible
Strategy FormulationSelection of a strategy linked with above-average returns in a particular industry
Assets and Skills
Assets and skills required to implement a chosen strategy
Action required:Use the firm’s strengths (its assets or skills) to implement the strategy.
Strategy ImplementationSelection of strategic actions linked with effective implementation of the chosen strategy
I/O Model of Superior ReturnsI/O Model of Superior Returns
Ch1-18
External Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
Attractive IndustryAn industry whose structural characteristics suggest above-average returns are possible
Strategy FormulationSelection of a strategy linked with above-average returns in a particular industry
Assets and Skills
Assets and skills required to implement a chosen strategy
Action required:
Strategy ImplementationSelection of strategic actions linked with effective implementation of the chosen strategy
Superior Returns
Earning of above-average returns
Maintain selected strategy in order to outperform industry rivals.
I/O Model of Superior ReturnsI/O Model of Superior Returns
Ch1-19
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.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-20
Resources
Inputs to a firm’s production process.
Action required:Identify firm resources. Study strengths and weak- nesses relative to rivals.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-21
Resources
Inputs to a firm’s production process.
Action required:Determine what firm capabilities allow it to do better than rivals.
Capability
Capacity for an integrated set of resources to perform a task or activity.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-22
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
Action required:Determine how firm’s resources and capabilities may create competitive advantage.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-23
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
An AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilities
Action required:Locate an attractive industry.
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-24
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
An AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilities
Action required:Select strategy that best exploits resources and capabilities relative to opportunities in environs.
Strategy Formulation and Implementation
Strategic actions taken to earn above-average returns
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-25
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
An AttractiveIndustryLocation of an industry with opportunities that can be exploited by the firm’s resources and capabilities
Action required:Maintain selected strategy in order to outperform industry rivals.
Strategy Formulation and Implementation
Strategic actions taken to earn above-average returns
Superior Returns
Earning of above-average returns
Resource-Based Model of Superior ReturnsResource-Based Model of Superior Returns
Ch1-26
NonsubstitutableNonsubstitutable the firm must be organized appropriately to the firm must be organized appropriately to obtain the full benefits of the resources in obtain the full benefits of the resources in order to realize a competitive advantage order to realize a competitive advantage
ValuableValuable allow the firm to exploit opportunities or allow the firm to exploit opportunities or neutralize threats in its external neutralize threats in its external environmentenvironment
RareRare possessed by few, if any, current and possessed by few, if any, current and potential competitorspotential competitors
Costly to ImitateCostly to Imitate when other firms either cannot obtain them when other firms either cannot obtain them or must obtain them at a much higher costor must obtain them at a much higher cost
Resources and capabilities lead to Resources and capabilities lead to Competitive AdvantageCompetitive Advantage when they are:when they are:
Ch1-27
Core CompetenciesCore CompetenciesWhen these four When these four criteria are met, criteria are met, Resources and Resources and Capabilities Capabilities become:become:
Core Competencies are resources and capabilities Core Competencies are resources and capabilities that can serve as a source of that can serve as a source of Competitive AdvantageCompetitive Advantage..
The Resource-Based model argues that Core The Resource-Based model argues that Core Competencies are the basis for a firm’s Competitive Competencies are the basis for a firm’s Competitive Advantage, Strategic Competitiveness and Ability to Advantage, Strategic Competitiveness and Ability to Earn Above-average Returns. Earn Above-average Returns.
Ch1-28
Winning competitive battles through deciding Winning 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 of An 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.
Strategic MissionStrategic Mission
Ch1-29
BUSINESS WEEKS’S 10 Top Managers of the Year, 1999Name Company Strategic AccomplishmentMinoru Arakawa Nintendo America Scored huge hit by bringing Pokė mon to U.S.
over objections of co-workers and negativemarket research
Bernard Arnault LVMH From just 23 in Oct. ’98, LVMH’s U.S. shareshave vaulted 280%, to about 87
Arthur Blank Home Depot Profits should jump 46%, to $2.3 billion forfiscal year 1999. Sales are expected to grow25%, to $38 billion
Peter Bijur Texaco After 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 AOL’s availability and serviceswill help boost income 102% this fiscal year, to$800 million
John Chambers Cisco Systems Broadened Cisco into strategic businesses suchas 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 elicit the help of others in creating a firm's competitive advantage.
Strategic IntentStrategic Intent
Ch1-30
Stakeholders:Stakeholders: Groups who are affected by a firm’s Groups who are affected by a firm’s performance and who have claims on its performance and who have claims on its wealthwealth
The firm must maintain The firm must maintain performance at an adequate level in performance at an adequate level in order to maintain the participation order to maintain the participation of key stakeholdersof key stakeholders
OrganizationalOrganizational
EmployeesEmployeesManagersManagersNon-ManagersNon-Managers
FirmFirm
Capital MarketCapital Market
Stock market/InvestorsStock market/InvestorsDebt suppliers/BanksDebt suppliers/Banks
Product MarketProduct Market
Primary Customers Primary Customers SuppliersSuppliers
Ch1-31
Stakeholder InvolvementStakeholder InvolvementEach of the key stakeholders Each of the key stakeholders wants a piece of the same piewants a piece of the same pie
11 How do you How do you divide divide the piethe pie in order to in order to keep all of the keep all of the stakeholders stakeholders involved?involved?
22How do you How do you increase increase the sizethe size of the pie so of the pie so that there is more to that there is more to go around?go around?
Ch1-32
Chapter 3Internal
Environment
Chapter 2External
EnvironmentThe StrategicThe StrategicManagementManagement
ProcessProcessStrategic IntentStrategic Mission
StrategicCompetitivenessAbove Average
ReturnsFeedback
Strategy Formulation
Chapter 4Business-Level
Strategy
Chapter 5CompetitiveDynamics
Chapter 6Corporate-Level
Strategy
Chapter 8International
Strategy
Chapter 9Cooperative
Strategies
Chapter 7Acquisitions &Restructuring
Strategy Implementation
Chapter 10Corporate
Governance
Chapter 11Structure& Control
Chapter 12Strategic
Leadership
Chapter 13Entrepreneurship & Innovation
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