Creating Competitive

Advantage
Chapter 1

Shie U. Espino
 Strategic Management
• Strategic management is the study of why
some firms outperform others.

– How to create a competitive advantage

in the market place that is unique,
valuable, and difficult to copy
 Strategic Management
• Leaders today are facing large
number of complex challenges. (in
considering how much credit or
blame they deserve, two
perspective of leadership
 Strategic Management
• Two perspectives of
leadership: romantic view and
external control perspective.
 Strategic Management
• Romantic View of Leadership
 the leader is a key force in
determining an organization success
or lack
 Strategic Management
• External Control View of Leadership
 situation in which external forces-
where the leader has limited
influence-determine the
organization’s success
 Strategic Management
• Strategies put together an
understanding of the external
environment with an
understanding of internal
strengths and weaknesses
 Definition of Strategic
Management
• Strategic management consists of
the analysis, decisions, and actions an
organization undertakes in order to
create and sustain competitive
advantages
 Definition of Strategic
Management
• Analysis
– Strategic goals (vision, mission,
strategic objectives)
– Internal and external
environment of the firm
Analysis
• Strategy- the ideas, decisions
and actions that enable the
firm to succeed
 Definition of Strategic
Management
• Decisions
– What industries should we
compete in?
– How should we compete in
those industries?
 Definition of Strategic
Management
• Actions
– Allocate necessary resources
– Design the organization to
bring intended strategies to
reality
 Main elements of strategic
management
Analysis, Decisions and Actions
The study why some firms
outperform others
(focus on 2 questions)
 2 Questions …..
 How should we compete in order to
create competitive advantage in the
market place?
 How can we create competitive
advantages in the market place that
are unique, valuable and difficult for
rivals to copy or substitute?
 2 Questions
• Competitive Advantage- a firm’s
resources and capabilities that
enable it to overcome the
competitive forces in its
industry(ies)
 Attributes of Strategic
Management
Directs the organization toward
overall goals and objectives
(effort must be directed at what is
best to the total organization not just
a single functional area
 Attributes of Strategic
Management
• Includes multiple stakeholders in
decision making.
• Stakeholders- individuals, groups and
organization who have stake in the
success of the organization, including
owners, employees, customers,
suppliers and community at large
 Attributes of Strategic
Management
• Needs to incorporate short-term
and long-term perspectives.
• It is also know as “creative
tension”
 Attributes of Strategic
Management
• Creative tension
• Managers must maintain both a vision
for the future of the organization as
well as focus on its present operating
needs
 Attributes of Strategic
Management
• Recognizes trade-offs between
efficiency and effectiveness.
• It is the difference between
“doing the right
thing”(effectiveness) and doing
things right (efficiency)
trade-offs between efficiency
and effectiveness
• Effectiveness-
tailoring actions to the needs of an
organization rather than wasting
effort, or doing the right things
trade-offs between efficiency and
effectiveness
• Efficiency
• Performing actions at a low cost
relative to a bench mark, or doing the
things right
 Mintzberg’s Views of
Strategy
• Plan - consciously intended course of
action
• Ploy - maneuver to outwit opponent
• Pattern - consistency in behavior
• Position - location in environment
• Perspective - way of perceiving the
world
 Forms of Strategy
• The final realized strategy of a firm
is a combination of:
– Intended and unrealized strategies
– Unrealized and emergent strategies
– Emergent and deliberate strategies
– Deliberate and unrealized strategies
 Forms of Strategy
• Intended Strategy
Strategy in which organizational
decisions are determined only by
analysis
 Forms of Strategy
• Unrealized Strategy
• Unforeseen environmental
developments, unanticipated resource
constraints, or change in managerial
preferences may result in at least
some parts of intended strategy
remaining unrealized
 Forms of Strategy
• Emergent Strategy
Is a set of actions, or behaviour,
consistent over time, “ a realized
pattern was not expressly intended” in
the original planning of strategy
 Forms of Strategy
• Deliberate Strategy (Formal
Planning)
• It is the vision towards strategy
formulation in the organizations that
emphasizes the benefits of acting
intentionally
 Cont Deliberate Strategy
• Plan and think before you act. It
does not mean that deliberate
strategists are completely blind to
the unexpected developments and
events
Forms of Strategy
 Strategic Management
Process
• Analysis
– Hierarchy of goals
– Analysis of external and
internal environments
 Strategic Management
Process
• Formulation
– What business(es) should we
be in?
– For each, what is the basis for
competitive advantage (low
cost, differentiation, focus)?
 Strategic Management
Process
• Implementation
– Functional tactics
– Culture and organization structure
Strategic Analysis
 Strategic Analysis (cont.)
• Clear goals and objectives permit
effective allocation of resources
• Hierarchy of goals
– Vision
– Mission
– Strategic objectives
 Strategic Analysis (cont.)
• Analyzing external environments
– Managers must scan the environment
and analyze competitors
– General environment
– Industry environment
 Strategic Analysis (cont.)
• Frameworks for analyzing a firm’s
internal environment
– Strengths
– Weaknesses
• Analyzing strengths can uncover
potential sources of competitive
advantage
 Strategic Analysis (cont.)
• Intellectual assets are drivers of
– Competitive advantage
– Wealth creation
• Networks and relationships among
– Employees
– Customers
– Suppliers
– Alliance partners
 Strategy Formulation
• Business level strategy:
– Successful firms develop bases for
competitive advantage
• Cost leadership
• Differentiation
• Focusing on narrow or industry-wide
market segments
– Sustainability
– Industry life cycle
 Strategy Formulation
(cont.)
• Corporate-level strategy addresses:
• 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
 Strategy Formulation
(cont.)
• International Strategy
– Appropriate entry strategies for
foreign markets
– Sustain competitive advantage in global
markets
• Effective strategies for
entrepreneurial initiatives
 Strategy Implementation
• Informational control
– Monitor and scan the environment
– Respond effectively to threats and
opportunities
• Behavioral control
• Effective corporate governance
– Interests of managers and owners of
the firm
• Organizational structure and design
 Strategy Implementation
(cont.)
• Organizational boundaries
– Flexible
– Permeable
• Strategic Alliances
• Develop organization that is committed to
– Excellence
– Ethical behavior
 Strategy Implementation
(cont.)
• Learning organization responsive to
– Rapid and unpredictable change
• Corporate entrepreneurship and innovation
– New opportunities
– Enhance innovative capacity
– Autonomous entrepreneurial behavior
– Product champions
 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
 Corporate Governance and
Stakeholder Management
• Board of
Directors
– Elected
representatives of
the owners
– Ensure interests and
motives of
management are
aligned with those of
the owners
 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
 Stakeholders and the Nature
of their Claims
Stakeholder Group Nature of Claim
Stockholder Dividends, capital appreciation

Employees Wages, benefits, safe working

environment, job security

Suppliers Payment on time, assurance of

continued relationship

Creditors Payment of interest, repayment of

principal

Customers Value warranties

Government Taxes, compliance with regulations

Communities Good citizenship behaviour such as

charities, employment, not polluting the
 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 behavior changes
over time
– Triple bottom line
 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
 Enhancing Employee
Involvement
• Have significant
Local Line
Leaders profit and loss
responsibility
 Enhancing Employee
Involvement
• Champion and guide
Local Line
Leaders ideas
• Create a learning
Executive infrastructure
Leaders • Establish a domain for
taking action
 Enhancing Employee
Involvement
• Have little positional
Local Line
Leaders power and formal
authority
Executive • Generate their power
Leaders through the conviction
and clarity of their
Internal ideas
Networkers
 Coherence in Strategic
Direction
• Company vision
– Massively inspiring
– Overarching Company vision
– Long-term
– Driven by and evokes passion
– Fundamental statement of the
organization’s
• Values
• Aspiration
• Goals
Hierarchy of Goals
 Coherence in Strategic
Direction
• Mission statements
– Purpose of the Company vision
company
– Basis of competition Mission statements
and competitive
advantages
– More specific than
vision
– Focused on the means
Hierarchy of Goals
by which the firm will
compete
Thank you for listening
Shie U. Espino