Strategic Management: Creating Competitive Advantages

Chapter One
McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights

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

LO1.1 The definition of strategic management and its four key attributes. LO1.2 The strategic management process and its three interrelated and principal activities. LO1.3 The vital role of corporate governance and stakeholder management as well as how symbiosis can be achieved among an organizations stakeholders.

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Learning Objectives (cont.)

LO1.4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporations innovation strategy. LO1.5 The need for greater empowerment throughout the organization. LO1.6 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 of Leadership

Romantic view
Leader is the key force in organizations success

External control perspective

Focus is on external factors that may affect an organizations success
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QUESTION
A CEO made a lot of mistakes such as committing errors in assessing the market and competitive conditions and improperly redesigning the organization into numerous business units. Such errors led to significant performance declines. This illustrates the __________ perspective of leadership.

A. External control B. Romantic C. Internal mechanism D. Operational

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Example: 3M
Elements of Buckleys turnaround Set clear business goals for the company Wanted 3M to develop lower-cost products to compete in emerging markets Became an outspoken champion for 3M labs

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What is Strategic Management?

Strategic management must become both a process and a way of thinking throughout the organization Leaders must be proactive, anticipate change, and continually refine changes to their strategies

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Defining Strategic Management

Strategic management
Analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages

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Defining Strategic Management

Analysis
Strategic goals Internal and external environment of the firm

Strategic decisions
What industries should we compete in? How should we compete in those industries?

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Defining Strategic Management

Actions
Allocate necessary resources Design the organization to bring intended strategies to reality

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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?

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Strategic Management Concepts

Exhibit 1.1
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Key Attributes of Strategic Management

Stakeholders
those individuals, groups, and organizations who have a stake in the success of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, the community at large,

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Key Attributes of Strategic Management

Ambidexterity
The challenge managers face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities

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Ambidextrous Behaviors in Individuals

They take time and are alert to opportunities beyond the confines of their own jobs They are brokers, always looking to build internal networks They are cooperative and seek out opportunities to combine their efforts with others They are multitaskers who are comfortable wearing more than one hat
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Strategic Management Process

Intended strategy
Decisions are determined only by analysis

Realized strategy
Decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences

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Strategic Management Process

Exhibit 1.2
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The Strategic Strategic Management Managemen Process t Process

Exhibit 1.3
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Strategic Analysis
Consists of advance work that must be done in order to effectively formulate and implement strategies Starting point

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Strategy Formulation
A firms strategy formulation is developed at several levels: Business-level Corporate level International Entrepreneurial

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Strategy Implementation
Ensuring proper strategic controls and organizational designs Establishing effective means to coordinate and integrate activities within the firm as well as with suppliers, customers, and alliance partners

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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, board of directors

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Corporate Governance and Stakeholder Management (cont.)

Board of Directors
Elected representatives of the owners Ensure interests and motives of management are aligned with those of the owners

Exhibit 1.4
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Corporate Governance
Three mechanisms ensure effective corporate governance: An effective and engaged board of directors Shared activism Proper managerial rewards and incentives

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Stakeholder Management
Zero sum view
Stakeholders compete for attention and resources of the organization Gain of one is a loss to the other Rooted in the traditional conflict between workers and management

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Stakeholder Management
Stakeholder symbiosis view
Stakeholders are dependent upon each other for their success and well-being Mutual benefits

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QUESTION
Outback Steakhouse has developed a sophisticated quantitative model and found that there were positive relationships between employee satisfaction, customer satisfaction, and financial results. This is an example of __________. A.Zero-sum relationship among stakeholders B.Stakeholder symbiosis C.Rewarding stakeholders D.Emphasizing financial returns

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Crowdsourcing
Crowdsourcing
practice wherein the Internet is used to tap a broad range of individuals and groups to generate ideas and solve problems. Linux, Amazon, Wikipedia

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Social Responsibility
Social responsibility
The expectation that businesses or individuals will strive to improve the overall welfare of society

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Social Responsibility
Triple bottom line
Assessment of a companys performance in financial, social, and environmental dimensions

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Example: Social Responsibility

Starbucks Coffee Company defines CSR as:
Conducting business in ways that produce social, environmental and economic benefits for the communities in which we operate and for the companys stakeholders, including shareholders.

Some tangible benefits include attracting and retaining our partners, customer loyalty, reducing operating costs, and creating a sustainable supply chain.

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Strategic Management Perspective

All managers and employees must:
Take an integrative, strategic perspective of issues facing the organization Assess how functional areas and activities fit together to achieve goals and objectives

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Three Types of Leaders

Local line leaders
Have significant profit-and-loss responsibility

Executive leaders
Champion and guide ideas, create a learning infrastructure, establish a domain for taking action

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Three Types of Leaders (cont.)

Internal networkers
Generate power through the conviction and clarity of their ideas

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Coherence in Strategic Direction

Hierarchy of goals
organizational goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable.

Vision, mission statement, strategic objectives

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A Hierarchy of Goals

Exhibit 1.6
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Coherence in Strategic Direction

Organizational vision
Goal that is massively inspiring, overarching, and long term Represents a destination that is driven by and evokes passion

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Why Do Visions Fail?

The walk doesnt match the talk Irrelevance Too much focus leads to missed opportunities Not the holy grail An ideal future irreconciled with the present

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Coherence in Strategic Direction

Mission statement
Set of goals that include both the purpose of the organization, its scope of operations, and the basis of its competitive advantage Has the greatest impact when it reflects an organizations enduring, overarching strategic priorities and competitive positioning

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Coherence in Strategic Direction

Strategic objectives
A set of organizational goals that are used to operationalize the mission statement and that are specific and cover a well-defined time frame.

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