if you fail this course, this may become your office. office

If you fail this course, this may become your office.

Office

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in

whole or in part.

Strategic Management: Concepts and Cases 9e

BUSN 6200Strategy and Competition

Dr. Bert Turner

Hitt, Michael A.Ireland, R. DuaneHoskisson, Robert E.

©2011 Cengage Learning. All rights reserved. 1–3

Welcome to Strategy and Competition

• Introductions– Instructor: Bert Turner– Students: Introduce Yourself (2-5 minutes)

• Strategy and Competition– Capstone Course for MBA

• Bringing it all together• Simulate the real world

– One of my favorite courses because it is so close to real world

– Slides and other material will be available on www.websterchina.com or copy onto your thumb drive.

• My Style– Application to real world– Make you think and create your own management

style.

http://www.websterchina.com/

What Businesses Are Looking For In Managers And Leaders• The ability to communicate orally and in writing one-on-one and in groups

• A basic understanding of math, particularly math for finances and risk management

• The ability to acquire and integrate relevant information and then create usable knowledge from it

• The ability to make decisions and judgments—with messy, incomplete, isolated, and incoherent data—that solve problems

• The ability to productively work with others

• Exemplifying norms of ethical behavior

• Fluency in a variety of technologies and the foresight and ability to apply those technologies to help solve a specific customer problem or pain. All of which lead to:

• Self confidence and courage to make decisions



Where We Are Headed

• In this course, at the top level you are going to do four things:– Demonstrate your potential to manage from looking at the Big Picture– Demonstrate techniques for strategy formulation and implementation– Synthesize everything you have learned up to now– Compete against your classmates in running a simulated business

• Heavy focus on case studies and simulation – Learn by doing (pre-OJT)– Broad view of different industries, companies, and issues– There is no single right answer, but there could be a lot of wrong ones

• Giving you the best tools possible to be a GREAT manager and leader

– Make your employer and Webster proud• Follow the Syllabus!

– Let’s review it now• This class is going to move quickly. I won’t cover all slides, but they

are all important. Most of the simulation will be done outside of class.• Slides are copyrighted, but I have added in Blue.


Course Philosophy• Front-end loaded on learning, back-end loaded on doing.

Getting your first 10 combat missions done.• Very heavy workload. 2-3 hours a week just on the CapSim

simulation. Work ahead, use the Capstone Simulation Detailed Student Notes. Simulation decisions come even before we cover the subject in the text.

• We will try to simulate real-world decision-making• The business is world is highly competitive, so is this course.

Your job is to eat someone else’s lunch!• Strategic Management is like changing the fan belt on a

moving car. It is the hardest part of management!!!• You must personally show me that what you will do in the

workplace will demonstrate that a Webster MBA is an asset to the organization.


Program Level Learning Outcomes

• Webster University MBAs possess foundation knowledge in each of the primary functional areas of business.

• Webster University MBAs can solve semi-structured business problems.a. The MBA can utilize statistical analysis to assess product demand conditions.b. The MBA can utilize financial analysis to assess an organization’s financial condition.c. The MBA can utilize competitive analysis to assess market position.

• The MBA can address unstructured business problems that span multiple functional areas.

Introduce Yourself

• Name• Where you work and what you do

there• Where you want to work and what you

want to do• What you could use help with in your

work/school• How you can help the other students• Q&A


©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in

whole or in part.

Strategic Management: Concepts and Cases 9e

Part I: Strategic Management Inputs

Chapter 1: Strategic Management and

Strategic Competitiveness


KNOWLEDGE OBJECTIVES

1. Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.

2. Describe the 21st-century competitive landscape and explain how globalization and technological changes shape it.

3. Use the industrial organization (I/O) model to explain how firms can earn above-average returns.

4. Use the resource-based model to explain how firms can earn above-average returns.

Studying this chapter should provide you with the strategic management knowledge needed to:

X

X


KNOWLEDGE OBJECTIVES (cont’d)

5. Describe vision and mission and discuss their value.

6. Define stakeholders and describe their ability to influence organizations.

7. Describe the work of strategic leaders.

8. Explain the strategic management process.

Studying this chapter should provide you with the strategic management knowledge needed to:

X

X


Strategic Management Past

• Military Roots (Sun Tzu [ 孫子 Sūn Zǐ] and Clausewitz primarily)– Win All Without Fighting– Avoid Strength, Attack Weakness– Deception and Foreknowledge– Speed and Preparation– Shape Your Opponent– Provide Effective Leadership

• Academic Roots– Economic Theory– Organizational Studies

• 1970s-1980s became business/management field of study


Misconceptions• Strategy and strategic planning are dead

– Myth: Internet time has made it obsolete

• Strategy is strictly for top management– But, formation is top management responsibility

• Strategy is about planning– A plan on the shelf is worthless

– Shy away from “Strategic Planners”

• Strategy is stable and constant– Core Values and Purpose NEVER change—strategy does

• Strategic management creates final destination and route

– Nope, just the curbs for getting there

– But, there can only be one strategic direction

– Plan for several possible futures


Important Definitions

• Strategy– An integrated and coordinated set of commitments and actions

designed to exploit core competencies and gain a competitive advantage.

– Attempts to match company strengths to the right customer, market, or industry

• Competitive Advantage– When a firm implements a strategy that its competitors are

unable to duplicate or find too costly to try to imitate.– The key is to create a continuous stream of competitive

advantages to create an overall sustainable competitive advantage

– Bottom Line—Only the customer can decide what is and is not a competitive advantage

Pizza Strategy

1–15

•Domino’s•Pizza Hut•Little Caesar’s•Shotgun Dan’s•Papa John’s•US Pizza

•CiCi’s Pizza•Larry’s Pizza•Pizza for Less•What A Lot of Pizza

•DiGiorno’s•Papa Murphy’s Take N’ Bake Pizza—store assembles pizza, you take it home and bake it

•NYPD Pizza Delicatessen•Greek Pizza•Chicago Pizza

• O’Naturals is the nation’s first all natural and organic quick casual restaurant group

• Topper's Pizza On average 70% of sales come from menu items typically not offered by the competition

• Bohemian Ovens gives you a pizza pan with dough already on it and lets you go around a buffet of ingredients to put on it. Build your own pizza all for one price.


Important Definitions (cont’d)

• Risk– An investor’s uncertainty about the economic gains

or losses that will result from a particular investment.

• Average Returns– Returns equal to those an investor expects to earn

from other investments with a similar amount of risk.

• Above-average Returns– Returns in excess of what an investor expects to

earn from other investments with a similar amount of risk.

X

X


Important Definitions (cont’d)

• Strategic Management Process– The full set of commitments, decisions, and

actions required for a firm to achieve strategic competitiveness and earn above-average returns.


FIGURE 1.1

The Strategic Management Process

X

X


Roles and Missions for Strategic Management• Board of Directors

– Legally obligated to represent and protect stockholders– Govern

• Senior Management (C-Level Officers)– Create, adopt, set, agree to, and plan to implement the top-level

strategy• Actually “manage”, not just “administer”

– Provide effective leadership

• Managers and supervisors– Implement– Build their strategic (functional) plan to support corporate strategy– Evaluate and provide feedback on their part of the strategy


The 21st-Century Competitive Landscape• A Perilous Business World

– Rapid changes in industry boundaries and markets

– Conventional sources of competitive advantage losing effectiveness

– Enormous investments required to compete globally

– Severe consequences for failure

• Developing and Implementing Strategy– Allows for planned actions rather than reactions

– Helps coordinate business unit strategies


DynamicDynamicGlobal EconomyGlobal EconomyRapid technological Rapid technological

changechangeStrategic maneuvering Strategic maneuvering

among global and innovative among global and innovative combatantscombatants

The Competitive Landscape

HypercompetitionA condition of rapidly escalating competition based on:

• Price-quality positioning

• Competition to create new know-how and establish first-mover advantage

• Competition to protect or invade established product or geographic markets


Global Economy

• The Global Economy– Goods, people, skills, and ideas move freely across

geographic borders.– Movement is relatively unfettered by artificial

constraints.– Expansion into global arena complicates a firm’s

competitive environment.• Short-term: Where is the fastest growth likely to occur?• Long-term: Where will sustainable growth occur?

X


Global Economy (cont’d)

• The March of Globalization

– Increased economic interdependence among countries—the flow of goods and services, financial capital, and knowledge across country borders

• Higher performance levels—quality, cost, productivity, product introduction time, and operational efficiency

– Increased range of opportunities for companies competing in the 21st-century competitive landscape

• Liability of foreignness—the risks of participating outside of a firm’s domestic country in the global economy

• The amount of time required for firms to learn how to compete in markets that are new to them.

X

Sleeping Dragon Awakening

• Today, China is seen as an extremely competitive market in which local market-seeking MNCs (multinational corporations) fiercely compete against other MNCs and local low-cost producers.

• China has long been viewed as a low-cost producer of goods, but China is now an exporter of local management talent. (YOU!)



Technology and Technological Changes• Technology Diffusion

– The speed at which new technologies become available

• Disruptive Technologies– Technologies that destroy the value of existing

technology and create new markets

• Perpetual Innovation– The rapidity and consistency with which new,

information-intensive technologies replace older ones


Technological Changes

• The Information Age

– The ability to effectively and efficiently access and use information has become an important source of competitive advantage.

– Technology includes personal computers, cellular phones, artificial intelligence, virtual reality, massive databases, electronic networks, internet trade.

X


Technological Changes (cont’d)

• Increasing Knowledge Intensity

– Knowledge as a critical organizational resource for creating an intangible competitive advantage

– Strategic flexibility: the set of capabilities used to respond to various demands and opportunities in dynamic and uncertain competitive environments

– Organizational slack: slack resources that allow the firm flexibility to respond to environmental changes

– Organizational capacity to learn


Strategic Management Processes

• We’re in St. Louis (or Wuhan)–Go east, west, north, south, or

stay put

–Fly, drive, train, walk

–Lease, rent, or buy vehicle

–Portland, San Francisco, San Diego (Wulumuchi, Lhasa, Kunming)

Hedgehog Concept of Jim Collins (Good to Great, 2001)

• What are you (collectively) deeply passionate about?– Why bother getting dressed (corporately)

each and every day?• What can you be the best in the world at?

– Not “want” or “should”. An understanding of what you can and can’t be. Not just a competence, but truly the best.

• What drives your economic engine?– One denominator (profit per x, or cash flow

per x) that has the single greatest impact.©2011 Cengage Learning. All rights reserved. 1–30


Three Circles of Hedgehog Concept—Jim Collins


Industrial Organization (I/O) Model of Above-Average Returns

• Dominance of the External Environment– The industry in which a firm competes has a stronger

influence on the firm’s performance than do the choices managers make inside their organizations.

• Industry Properties Determining Performance– Economies of scale– Barriers to market entry– Diversification– Product differentiation– Degree of concentration of firms in the industry


Four Assumptions of the I/O Model

External environment imposes pressures and constraints that determine strategies leading to above-average returns.11

22Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies.

Resources used to implement strategies are highly mobile across firms.

33

44Organizational decision makers are assumed to be rational Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests (profit-and committed to acting in the firm’s best interests (profit-maximizing).maximizing).

X

X


FIGURE 1.2

The I/O Model of Above-Average Returns

X

X


GlobalGlobalGlobalGlobal

TechnologicalTechnologicalTechnologicalTechnological

Eco

nom

ic

Eco

nom

ic

Eco

nom

ic

Eco

nom

ic

Dem

ograp

hic

Dem

ograp

hic

Dem

ograp

hic

Dem

ograp

hicS

ocio

cultu

ral

Socio

cultu

ral

Socio

cultu

ral

Socio

cultu

ral

Politi

cal/Le

gal

Politi

cal/Le

gal

Politi

cal/Le

gal

Politi

cal/Le

gal

IndustryIndustryEnvironmentEnvironment

IndustryIndustryEnvironmentEnvironment

CompetitorCompetitorEnvironmentEnvironmentCompetitorCompetitor

EnvironmentEnvironment

GeneralGeneral

EnvironmentEnvironment

I/O Model of Above-Average Returns

1. Strategy is dictated by the external environment of the firm—what opportunities exist in these environments?

2. Firm develops internal skills required by external environment—what can the firm do about the opportunities?

External Environments

X

X


Industrial Organization Model

1. Study the external environment, especially the industry environment:• Economies of scale• Barriers to market entry• Diversification• Product differentiation• Degree of concentration of

firms in the industry

The External EnvironmentThe External Environment

Don’t bother to analyze the situation, unless you are going to do something with/about it!–Applies to all calls for “analysis” in this course.–Be very specific when telling employees to go analyze something.



2. Locate an attractive industry with a high potential for above-average returns.

Attractive industry:Attractive industry:One whose structural One whose structural characteristics suggest characteristics suggest above-average returns.above-average returns.


Attractive IndustryAttractive Industry

X

X



3. Identify the strategy called for by the attractive industry to earn above-average returns.

Strategy formulation: Strategy formulation: Selection of a strategy Selection of a strategy linked with above-average linked with above-average returns in a particular returns in a particular industry.industry.



Strategy FormulationStrategy Formulation

X

X



4. Develop or acquire assets and skills needed to implement a chosen strategy.

Assets and skills: those Assets and skills: those assets and skills required assets and skills required to implement a chosen to implement a chosen strategy.strategy.




Assets and SkillsAssets and Skills

X

X



5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy.

Strategy implementation: Strategy implementation: select strategic actions select strategic actions linked with effective linked with effective implementation of the implementation of the chosen strategy.chosen strategy.





Strategy ImplementationStrategy Implementation

X

X


Industrial Organization (I/O) Model





Strategy ImplementationStrategy Implementation

Superior returns: earning above-average returns

Superior ReturnsSuperior Returns

X

X


Porter’s Five Forces Model of Competition• Industry Profitability

– The industry’s rate of return on invested capital relative to its cost of capital

– Porter’s Five Forces Model is used to predict industry profitability

• An industry’s profitability results from interaction among these five forces according to Porter:– Suppliers– Buyers– Competitive rivalry among firms currently in the

industry– Product substitutes– Potential entrants to the industry


Five Forces Model of Competition (cont’d)• Firms earn above-average returns by:

– Cost leadership• Producing standardized products or services

– Differentiation• Manufacturing differentiated products for which

customers are willing to pay a price premium

X

X


The Resource-Based Model of Above-Average Returns

• Model Assumptions– Each organization is a collection of unique resources

and capabilities that provides the basis for its strategy and that is the primary source of its returns.

– Capabilities evolve and must be managed dynamically.

• Dominance of the Internal Environment– Differences in firms’ performances are due primarily to

their unique resources and capabilities rather than structural characteristics of the industry.

– Firms acquire different resources and develop unique capabilities.


FIGURE 1.3

The Resource-Based Model of Above-Average Returns

X

X


EnvironmentEnvironmentEnvironmentEnvironment

Resource-Based Model of Above-Average Returns (cont’d)

1. Strategy is dictated by the firm’s unique resources and capabilities.

2. Find an environment in which to exploit these assets (where are the best opportunities?)

Strategy:Strategy:Competitive AdvantageCompetitive Advantage

Core CompetenciesCore Competencies

CapabilitiesCapabilities

ResourcesResources

X

X


Resources and Capabilities

• Resources– Inputs into a firm’s

production process:• Capital equipment

• Skills of individual employees

• Patents or other Intellectual Property

• Finances

• Talented managers

• Capabilities– Capacity of a set of

resources to perform in an integrative manner

– A capability should not be:

• So simple that it is highly imitable.

• So complex that it defies internal steering and control.


Resource-Based Model (cont’d)

1. Identify the firm’s resources—strengths and weaknesses compared with competitors

ResourcesResources

Resources: inputs into a Resources: inputs into a firm’s production processfirm’s production process

X

X



2. Determine the firm’s capabilities—what it can do better than its competitors.

ResourcesResources

CapabilityCapability

Capability: capacity of an integrated set of resources to integratively perform a task or activity.

X

X



3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage.

ResourcesResources


Competitive AdvantageCompetitive Advantage

Competitive advantage: Competitive advantage: ability of a firm to ability of a firm to outperform its rivals.outperform its rivals.

X

X



4. Locate an attractive industry.

ResourcesResources




Attractive industry: an Attractive industry: an industry with opportunities industry with opportunities that can be exploited by the that can be exploited by the firm’s resources and firm’s resources and capabilities.capabilities.

X

X



5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment.

ResourcesResources




Strategy Formulation Strategy Formulation and Implementationand Implementation

Strategy formulation Strategy formulation and implementation: and implementation: strategic actions taken strategic actions taken to earn above average to earn above average returns.returns.

X

X



ResourcesResources




Strategy FormulationStrategy Formulationand Implementationand Implementation

Superior ReturnsSuperior Returns

Superior returns: earning above-average returns

X

X


Criteria for Resources and Capabilities That Become Core Competencies

Core Core CompetenciesCompetencies

Core Core CompetenciesCompetencies

ValuableValuableValuableValuable RareRareRareRare

Costly to ImitateCostly to ImitateCostly to ImitateCostly to ImitateNonsubstitutableNonsubstitutableNonsubstitutableNonsubstitutable

X


How Resources and Capabilities Provide Competitive Advantage

The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage

Valuable Allow the firm to exploit opportunities or neutralize threats in its external environment

Rare Possessed by few, if any, current and potential competitors

Costly to imitate

When other firms cannot obtain them or must obtain them at a much higher cost

Nonsubstitutable


Core Competencies

• When the four key criteria of resources and capabilities are met, they become core competencies.

• Managerial competencies are especially important.

• Core competencies serve as a source of competitive advantage, create value, and provide the opportunity for above-average returns.

• Does it provide potential access to a wide variety of markets?

• Does it significantly add to the customer value derived from the end product?

• Can different elements of the company benefit from the competency?


Why Two Models?

• Industrial Organization (I/O) Model– Focuses on the

environment outside the firm.

• Resource-Based Model– Focuses on the inside

of the firm

Successful strategy formulation and implementation actions result only when the firm properly uses both models.


Vision and Mission

• Vision– A enduring picture of what the firm wants to be and, in

broad terms, what it wants to ultimately achieve.• Stretches and challenges people and evokes

emotions and dreams.

• Effective vision statements are:– Developed by a host of people from across the

organization.– Clearly tied to external and internal environmental

conditions.– Consistent with strategic leaders’ decisions and

actions.


Vision and Mission (cont’d)

• Mission– Specifies the business or businesses in which the firm

intends to compete and the customers it intends to serve.

– Is more concrete than the firm’s vision.– Is more effective when it fosters strong ethical

standards.


Stakeholders

• Individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.– Claims on the firm’s performance are enforced by the

stakeholder’s ability to withhold participation essential to the firm’s survival.

– The more critical and valued a stakeholder’s participation, the greater a firm’s dependency on it.

– Managers must find ways to either accommodate or insulate the organization from the demands of stakeholders controlling critical resources.


Stakeholder Involvement

• Two issues affect the extent of stakeholder involvement in the firm:– How to divide returns

to keep stakeholdersinvolved?

– How to increase returns so everyone has more to share?

X


FIGURE 1.4 The Three Stakeholder Groups

Which stakeholder is most important?


Capital Market Capital Market StakeholdersStakeholders

ShareholdersShareholdersMajor suppliers of Major suppliers of capitalcapital

• BanksBanks

• Private lendersPrivate lenders

• Venture capitalistsVenture capitalists

Stakeholders


X

X


Capital Market Stakeholders

• Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it.– Want the return on their investment (and, hence, their

wealth) to be maximized.– Expect returns to be commensurate with the degree

of risk to the shareholder.

• Management must balance the interests of shareholders and lenders with its concerns for the firm’s future competitive ability.


Stakeholders (cont’d)


Product Market Product Market StakeholdersStakeholders


• CustomersCustomers

• SuppliersSuppliers

• Host communitiesHost communities

• UnionsUnions

X

X


Product Market Stakeholders

• Customers– Demand reliable products at low prices

• Suppliers– Seek loyal customers willing to pay highest

sustainable prices for goods and services

• Host communities– Want companies willing to be long-term employers

and providers of tax revenues while minimizing demands on public support services

• Union officials– Want secure jobs and desirable working conditions


Stakeholders (cont’d)



Organizational Organizational StakeholdersStakeholders

Organizational Organizational StakeholdersStakeholders

•EmployeesEmployees•ManagersManagers•NonmanagersNonmanagers

X

X


Organizational Stakeholders

• Employees – Expect a dynamic, stimulating, and rewarding work

environment.– Are satisfied by a company that is growing and

actively developing their skills.


Strategic Leaders

• Strategic Leaders– People located in different parts of the firm who are

using the strategic management process to help the firm reach its vision and mission.

• Prerequisites for Effective Strategic Leadership– Hard work– Thorough analyses– Honesty– Desire for accomplishment– Common sense


Strategic Leaders (cont’d)

• Organizational Culture

– The complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business.

• The Value of a Functional Organizational Culture

– Supports effective delegation of strategic responsibilities

– Provides support for strategic leaders

– Encourages social energy

– Fosters respect for others


Predicting Outcomes of Strategic Decisions: Profit Pools

• Profit Pool

– The total profits earned in an industry at all points along the value chain

• Identifying the components of a profit pool:

– Define the pool’s boundaries.

– Estimate the pool’s overall size.

– Estimate size of each value-chain activity in the pool.

– Reconcile the calculations—which activity provides the most profit potential?

X


Strategic Management Process

• Study the external and internal environments.

• Identify marketplace opportunities and threats.

• Determine your core competencies and how to use them.

• Use strategic intent to leverage resources, capabilities, and core competencies to win competitive battles.

• Integrate formulation and implementation of strategies.

• Seek feedback to improve strategies.

• Repeat


Professional Reading List

• Local Daily Newspaper (Front Page and Business Section)• Other current publications (Newsweek, WSJ, etc.)• TV business shows and internet research • Good to Great by Jim Collins• Built to Last by Jim Collins• Execution: The Discipline of Getting Things Done by Larry Bossidy• Competing for the Future by Gary Hamel• Leading the Revolution by Gary Hamel• The Discipline of Market Leaders by Michael Treacy• The 7 Habits of Highly Effective People by Stephen Covey• Who Moved My Cheese? By Spencer Johnson

– With Sniff, Scurry, Hem, and Haw (Who are You?)


Discussion Questions

1. What is a strategy course about?

2. What is strategy?

3. What is happening in the strategic environment?

4. What is the industrial organization (IO) model?

5. What is the resource-based model?

6. Who are a firm’s key stakeholders?

7. What affects do firm stakeholders have on strategy?

X

X

if you fail this course, this may become your office. office

Documents

decisions2011 cengage

office2011 cengage learning

simulation decisions

itthe ability

leadersthe ability

capsim simulation

competitioncapstone

course philosophyfrontend