Strategic Management Chapter1

Lecture: 3
Strategic Management and Strategic Competitiveness
Competitive Advantage
Competitive advantage refers to factors that allow a company to produce

goods or services better or more cheaply than its rivals.
Competitive advantage is a set of unique features of a company and its
products that are perceived by the target market as significant and superior
to the competition. It is the reason behind brand loyalty, and why you
prefer one product or service over another.
Formulation and
implementation of
a superior value-
creating strategy
Commitments and actions to achieve

above-average performance and returns
What the firm Competitive What the firm

will do advantage will not do
Cost competitive advantage

Cost competitive advantage is when a company is able to utilize its skilled
workforce, inexpensive raw materials, controlled costs, and efficient operations
to create maximum value to consumers.
Examples:
Walmart uses the cost advantage strategy by providing a very large selection and
low prices via its retailer strength and size.
Nissan, have years of experience producing cars in a very cost-effective manner.
The airline company Ryanair is removing two of its three toilets in each airplane
to increase the number of seats and drive down ticket costs. This might be an
extreme way of cost cutting, but companies need to survive in a recession.
Another way that companies can have a competitive advantage in

the marketplace is through product/service differentiation. If a
company's product or service has a valuable, unique offering for
its consumers, then loyalty and product/service differentiation can
occur. Cost competitive advantages can easily disappear with the
introduction of a new competitor or new technology. If a
company offers a unique product or service, it is harder to
maintain an edge in the market based on price alone. The
company must offer something to the consumer besides just a low
price.
Competitive Success Factors
Are market/ Make effective

customer-needs use of valuable
oriented competencies
Have an Offer new

entrepreneurial/ and innovative products
opportunistic mindset and services
Top corporate
performers
Technology and Technological Changes
Increasing rate of technology

diffusion and the emergence
of disruptive technologies
Technology trends
The information age: Internet
impacting the
and the global proliferation of
global competitive low-cost computing power
environment
Increasing knowledge intensity

as an intangible source of
competitive advantage
Strategic Flexibility
• Strategic Flexibility:
– Involves coping with the uncertainty and risks of hypercompetitive
environments.
– Must first overcome built-up organizational inertia.
– Requires developing the capacity for continuous learning and
applying the new and updated skills sets and competencies to the
firm’s competitive advantage.
Strategic Choices
Product
Diversification
differentiation
Barriers to market Industry

entry concentration
Economies The firm’s Market

of scale strategic choices frictions
The Industry Organization (I/O) Model of Above-Average
Returns
I/O Model Assumptions
• The external environment imposes pressures and constraints that

determine strategic choices.
• Similarity in strategically relevant resources causes competitors to
pursue similar strategies.
• Resource differences among competitors are short-lived due to resource
mobility across firms.
• Strategic decision makers are rational and engage in profit-maximizing
behaviors.
Five Forces Model of Competition
Substitutes
Substitutes
Industry
Industry
Suppliers
Suppliers Buyers
Buyers
rivalry
rivalry
Potential
Potential
entrants
entrants
Five Forces Model Assumptions
• Industry profitability (i.e., rate of return on invested capital relative to

cost of capital) is a function of interactions among the five forces.
• Industry attractiveness equates to its profitability potential for earning
above-average returns by:
– producing standardized goods or services at costs below competitor
costs (a cost leadership strategy).
– producing differentiated goods or services for which customers are
willing to pay a price premium (a differentiation strategy).
The Resource-Based Model
of Above-Average Returns
Core
Capability competence
An integrated A source of
set of resources competitive
Resources advantage
Physical, human, and
organizational capital
(tangible and intangible)
Resource-Based Model Assumptions
1. Firms acquire different resources.

2. Firms develop unique capabilities based on how they combine and use
resources.
3. Resources and certain capabilities are not highly mobile across firms.
4. Differences in resources and capabilities are the bases of competitive
advantage and a firm’s performance rather than its industry’s structural
characteristics.
Resources As Core Competencies
Costly to imitate
How resources
Rare become core Valuable
competencies
Nonsubstitutable
The Resource-Based Model of
Above-Average Returns
Strategic Decision Making
Industry organization Resource-based

(I/O) model model
Competitive
strategy
decision
Lecture: 4
Mission and Vision Statement
A Mission Statement defines the company's

business, its objectives and its approach to reach
those objectives. A Vision Statement describes the
desired future position of the company. Elements
of Mission and Vision Statements are often
combined to provide a statement of the company's
purposes, goals and values.
Vision Statement
• A Successful Vision:
– is an enduring word picture of what the firm wants to be and
expects to achieve in the future.
– stretches and challenges its people.
– reflects the firm’s values and aspirations.
– is most effective when its development includes all stakeholders.
– recognizes the firm’s internal and external competitive
environments.
– is supported by upper management decisions and actions.
Mission Statement
• An Effective Mission:
– specifies the present business or businesses in which the
firm intends to compete and customers it intends to serve.
– has a more concrete, near-term focus on current product
markets and customers than the firm’s vision.
– should be inspiring and relevant to all stakeholders.
How Mission and Vision Statements work:
• Typically, senior managers will write the company’s overall Mission and Vision
Statements. Other managers at different levels may write statements for their particular
divisions or business units. The development process requires managers to:
• Clearly identify the corporate culture, values, strategy and view of the future by
interviewing employees, suppliers and customers
• Address the commitment the firm has to its key stakeholders, including customers,
employees, shareholders and communities
• Ensure that the objectives are measurable, the approach is actionable and the vision is
achievable
• Communicate the message in clear, simple and precise language
Use of Mission and Vision Statementsto:
Companies use Mission and Vision Statements to:

Internally
• Guide management’s thinking on strategic issues, especially during times of significant change
• Help define performance standards
• Inspire employees to work more productively by providing focus and common goals
• Guide employee decision making
• Help establish a framework for ethical behavior
Externally
• Enlist external support
• Create closer linkages and better communication with customers, suppliers and alliance partners
• Serve as a public relations tool
Stakeholders
Can affect development of the

firm’s vision and mission
Primary Are affected by the strategic

stakeholders outcomes achieved by the firm
(individuals,
groups and
Can have enforceable claims
organizations)
on the firm’s performance
Are influential when in control

of critical or valued resources
Classification of Stakeholders
Categories of
stakeholders
Capital market Product market Organizational

stakeholders stakeholders stakeholders
The Three Stakeholder Groups
Capital Market Stakeholders
Preservation
of investment
Conflicting
expectations of
Influence Risk/return
shareholders
and lenders
Enhanced wealth
Product Market Stakeholders
Types of product
market stakeholders
Host
Suppliers Customers communities Unions
Organizational Stakeholders
Responsibilities of strategic leaders for development

and effective use of the firm’s human capital
Organizational
Education Strategic goals
culture and International
and skills of and global
ethical work assignments
employees standards
environment
The Work of Effective Strategic Leaders
• Strategic Leaders:
– have a strong strategic orientation that relies on thorough analysis when taking
action.
– are located at various levels throughout the firm.
– want the firm and its people to accomplish more.
– are innovative thinkers who promote innovation.
– can leverage relationships with external parties while simultaneously promoting
exploratory learning.
– have an am bicultural (global mindset) approach to management.
The Strategic Management Process:
The ASP Process
• Analyses • Strategies (cont’d)

– C2: The external environment – C7: Diversified portfolio management
– C3: The internal organization – C8: International strategies
• Strategies – C9: Cooperative strategies
– C4: Business-level strategies • Performance
– C5: Marketplace competition – C10: Governance mechanisms
– C6: Corporate-level strategies – C11: Organizational structure
– C12: Strategic leadership
– C13: Strategic entrepreneurship

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Lecture: 3

Strategic Management and Strategic Competitiveness

Competitive advantage refers to factors that allow a company to produce

Commitments and actions to achieve

What the firm Competitive What the firm

Cost competitive advantage

Another way that companies can have a competitive advantage in

Are market/ Make effective

Have an Offer new

Increasing rate of technology

Increasing knowledge intensity

Barriers to market Industry

Economies The firm’s Market

• The external environment imposes pressures and constraints that

• Industry profitability (i.e., rate of return on invested capital relative to

1. Firms acquire different resources.

Industry organization Resource-based

A Mission Statement defines the company's

Companies use Mission and Vision Statements to:

Can affect development of the

Primary Are affected by the strategic

Are influential when in control

Capital market Product market Organizational

Responsibilities of strategic leaders for development

• Analyses • Strategies (cont’d)

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