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Strategic Management:
Creating Competitive Advantages
McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

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Learning Objectives
After reading this chapter, you should have a good understanding of:
The definition of strategic management and its four key attributes. The strategic management process and its three interrelated and principal activities. The vital role of corporate governance and stakeholder management as well as how symbiosis can be achieved among an organizations stakeholders. The importance of social responsibility, including environmental sustainability, and how it can enhance a corporations innovation strategy. The need for greater empowerment throughout the organization. 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 affect an organizations success

Leaders can make a difference


Must be aware of opportunities and threats faced in external environment Must have thorough understanding of the firms resources and capabilities

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Strategic Management
Analysis
Strategic goals (vision, mission, strategic objectives) Internal and external environment of the firm

Strategic 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
o Unique and valuable o Difficult for competitors to copy or substitute

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Key Attributes
Key Attributes of strategic management:
Directs the organization toward overall goals and objectives Includes multiple stakeholders in decision making Needs to incorporate short-term and long-term perspectives Recognizes trade-offs between efficiency and effectiveness

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Question
The final realized strategy of a firm is a combination of:
a) b) c) d) Intended and unrealized strategies Unrealized and emergent strategies Emergent and deliberate strategies Deliberate and unrealized strategies

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Strategic Management Process

Insert Exhibit 1.2

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. 25772.

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Strategic Analysis
Starting point in the strategic management process Precedes effective formulation and implementation of strategies

Insert Exhibit 1.3

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Strategic Analysis (cont.)


Clear goals and objectives permit effective allocation of resources Hierarchy of goals
- Vision - Mission - Strategic objectives

Analyzing external environments


- Managers must scan the environment and analyze competitors - General environment - Industry environment

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Strategic Analysis (cont.)


Frameworks for analyzing a firms internal environment
- Strengths - Weaknesses

Analyzing strengths can uncover potential sources of competitive advantage

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Strategic Analysis (cont.)


Intellectual assets are drivers of
- Competitive advantage - Wealth creation

Networks and relationships among


Employees Customers Suppliers Alliance partners

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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

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Strategy Formulation (cont.)


Corporate-level strategy addresses:
Firms portfolio or group of businesses
- What business(es) should we be in? - How can we create synergies among the businesses?

Diversification
- Related - Unrelated

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Strategy Formulation (cont.)


International Strategy
- Appropriate entry strategies for foreign markets - Sustain competitive advantage in global markets

Effective strategies for entrepreneurial initiatives

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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

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Strategy Implementation (cont.)


Organizational boundaries
- Flexible - Permeable

Strategic Alliances Develop organization that is committed to


- Excellence - Ethical behavior

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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

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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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Question
Briefly describe the role of board of directors in corporate governance.

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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
Effective and engaged Board of Directors Shareholder activism Proper managerial rewards and incentives

Insert Exhibit 1.4

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Example: New Rules for Directors


In light of numerous corporate scandals, the role and rules for board of directors are being redefined. Few areas of focus :
Numbers Knowledge Strategy Focus Time & Understanding Watchdog

Source: Tipsheet, Business Week, January 22, 2007

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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 behavior changes over time Triple bottom line

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Example: Social Responsibility


Starbucks Coffee Company
Corporate social responsibility is embedded throughout the organization. The following are some of the commitments they have made to be socially responsible:
Commitment to origins Helping protect the environment Starbucks in your community Commitment to partners

Source: www.starbucks.com

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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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Enhancing Employee Involvement


Have significant profit and loss responsibility

Local Line Leaders

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Enhancing Employee Involvement


Local Line Leaders Executive Leaders

Champion and guide ideas Create a learning infrastructure Establish a domain for taking action

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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 Internal Networkers

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Coherence in Strategic Direction


Company vision
Massively inspiring Overarching Long-term Driven by and evokes passion - Fundamental statement of the organizations
Values Aspiration Goals

Company vision

Hierarchy of Goals

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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 Company vision

Mission statements

Hierarchy of Goals

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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 Company vision

Mission statements
Strategic objectives

Hierarchy of Goals

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Coherence in Strategic Direction


Strategic objectives
Measurable Specific Appropriate Realistic Timely Challenging Resolve conflicts that arise Yardstick for rewards and incentives Company vision

Mission statements
Strategic objectives

Hierarchy of Goals