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8/14/2019 MGNT428 WK1 - S05 Overview & Hitt Chapter 1 Lecture - Lachowicz
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Business Policy & Strategy an introduction to the COBE BBA degree
capstone foundations course . . .
MGNT428Spring 2006
Dr. Tom Lachowicz, Instructor
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Instructional techniques
Hitt Text Chapter
readings + lectures +
Supplemental
readings
Five Harvard
Business School
Case Studies Meg Whitman & E-Bay
The Walt Disney Company
Apple Computer
Airborne Express
Husky Injection MoldingSystems
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Course Overview
Learning objectives:
1. To apply tools for
analyzing the financial
and competitive
positioning of firms andindustries.
2. To comprehend the
complexities facing
managers in
implementing strategicplans.
3. To comprehend methods
used for matching a firms
internal capabilities with
the demands ofcompetitive constraints.
4. To examine methods
used to determine where,
how, and for how long a
firm can create its
competitive advantage.
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Learning objectives (contd.)
5. To develop useful
adm inistrat ive and
indiv idual and
group
communicat ion
ski l lsrequired for
achieving successful
outcomes for your
firm in theBSG.
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Any questions?
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The Hitt Text:
Chapter 1 Notes
MGNT428Business Policy
& Strategy
Dr. Tom Lachowicz, Instructor
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When we have completed this chapter
you should be able to:
Define strategic
competitiveness competitive
advantage, and above-
average returns.
Describe the 21st-centurycompetitive landscape and
explain how globalization
and technological changes
shape it.
Use the industrialorganization (I/O) model to
explain how firms can earn
above-average returns.
Use the resource-based
model to explain how
firms can earn above-
average returns.
Describe strategic intentand strategic mission
and discuss their value.
Desc r ibe strategic intent
and strategic m ission
and disc uss their value.
Define stakeholders and
descr ib e their abi l ity to
inf luence organizat ions .
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Learning Objectives (contd)
- Use the resou rce-based model to explain how
firms can earn above-average returns .
- Describ e the work of strategic leaders.
- Explain the strategic management process .
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Lets start by asking some key questions!
1. What is a management
strategy course all
about?
2. Just what is strategy?3. What is happening in
the business strategic
environment?
4. What is the industrial
organization (IO)
model?
5. What is the resource-
based model?
6. Who are a firms key
stakeholders?7. What affects do firm
stakeholders have on
strategy?
8. Who is it who creates
strategy in
organizations?
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Some Important Definitions
Strategic Competitiveness
When a firm successfully formulates and implements a
value-creating strategy.
Sustainable Competitive Advantage
When competitors are unable to duplicate a
companys value-creating strategy.
Strategic Management Process The full set of commitments, decisions, and actions
required for a firm to achieve strategic competitiveness
and earn above-average returns.
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Definitions (contd)
Risk An investors uncertainty about the economic gainsor losses that will result from a particular investment.
Average Returns
Returns equal to those an investor expects to earnfrom 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.
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Figure 1.1
Hitts Strategic
Management
Process
Copyright 2004 South-Western. All rights reserved.
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Current Competitive Landscape
Its a tough world out there!A Perilous BusinessWorld for the faint hearted . . .
Investments required to compete on a global scale are
enormous.
Consequences of failure are severe/
Important Elements of Success
Developing an effective strategy [game plan!] Implementing that strategy [executing the plan!]
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Globaleconomy
Rapid
technologicalchange
Competitive Landscape
Strategicmaneuvering amongglobal and innovative
combatants
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Competitive Landscape: Hypercompetition
Hypercompetition
Hypercompetition . . . A condition of rapidlyescalating competition based on:
Price-quality positioning.
Competition to create newknow-how and establish
first-mover advantage.
Competition to protect or
invade established product
or geographic markets.
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Our Global Economy
The Global Economy is
Goods, people, skills, and ideas move freely
across geographic borders.
Movement is relatively unfettered by artificial
constraints.
Expansion into global arena complicates afirms competitive environment.
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The Global Economy (contd.)
Globalization provides:
Increased economic interdependence among
countries as reflected in the flow of goods and
services, financial capital, and knowledge
across country borders.
Increased range of opportunities for
companies competing in the 21st-centurycompetitive landscape.
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Technology and
Technological Changes
Rate of change of technology and speedat which new technologies becomeavailable
Perpetual innovationhow rapidly andconsistently new, information-intensivetechnologies replace older ones.
The development of disruptive technologiesthat destroy the value of existing technologyand create new markets.
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Technological Change
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, electronicnetworks, internet trade.
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Technological Changes
Increasing Knowledge Intensity
Strategic flexibility:set of capabilities used torespond to various demands and
opportunities in dynamic and uncertaincompetitive environments
Organizational slack:slack resources thatallow the firm flexibility to respond toenvironmental changes
Capacity to learn
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Two Approaches to
Above-Average Returns . . .
Hitts I/O Model of
strategic planning . . .
The Resource-BasedModel of strategic
planning . . .
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Hitts I/O Model of
Above-Average Returns
The industry in which a firm competes has a
stronger influence on the firms performance than
dothe choices managers make inside their
organizations. Industry properties include:
economies of scale
barriers to market entry
diversification
product differentiation
degree of concentration of firms in the industry
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Four Assumptions of the I/O Model
External environment imposes pressures andconstraints that determine strategies leading to above-average returns.
1
2
Most firms competing in an industry control similar
strategically relevant resources and pursue similarstrategies.
Resources used to implement strategies are
highly mobile across firms.3
4Organizational decision makers are assumed to be
rational and committed to acting in the firms best
interests (profit-maximizing.).
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I/O Model of Above-Average Returns
1. Strategy is dictated by
the external
environment of the
firm (what
opportunitiesexist in
these environments?)
2. Firm develops
internal skills requiredby external
environment (what
can the firm do about
the opportunities?)
External Environments
General
Environment
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The I/O Model of
Above-Average Returns
Adapted from Figure 1.2
The External
Environment
1. Study the externalenvironment, especiallythe industry environment.
The general environment The industry environment The competitor environment
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An Attractive
Industry2. Locate an attractive
industry with a highpotential for above-average returns.
An industry whosestructural characteristics
suggest above-averagereturns.
The External
Environment
The I/O Model of
Above-Average Returns
Adapted from Figure 1.2
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The I/O Model of
Above-Average Returns
3. Identify the strategy called
for by the attractive
industry to earn above-average returns.
Selection of a strategylinked with above-
average returns in aparticular industry.
The External
Environment
An Attractive
Industry
StrategyFormulation
Adapted from Figure 1.2
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Assets and Skills
The I/O Model of
Above-Average Returns
4. Develop or acquireassets and skillsneeded to implementthe strategy.
Assets and skillsrequired to implement a
chosen strategy.
The External
Environment
An Attractive
Industry
StrategyFormulation
Adapted from Figure 1.2
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StrategyImplementation
The I/O Model of
Above-Average Returns
5. Use the firms strengths(its developed oracquired assets andskills)to implement thestrategy.
Selection of strategicactions linked witheffective implementationof the chosen strategy.
The External
Environment
An Attractive
Industry
StrategyFormulation
Assets and Skills
Adapted from Figure 1.2
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Superior Returns
The I/O Model of
Above-Average ReturnsThe External
Environment
An Attractive
Industry
StrategyFormulation
Assets and Skills
StrategyImplementation
Superior returns: earning
of above-averagereturns.
Adapted from Figure 1.2
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Michael PortersFive Forces Model
of Competition
An industrys profitability results from
interaction among:
Suppliers
Buyers
Competitive rivalry among firms currently in
the industry
Product substitutes Potential entrants to the industry
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Porters Five Forces Model of Competition (contd.)
Firms earn above average returns by:
Producing standardized products or services.
Manufacturing differentiated products for
which customers are willing to pay a pricepremium.
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The Resource-Based Model
of Above-Average Returns
Each organization is a collection of unique
resources and capabilities that provides the
basis for its strategy and that is the primarysource of its returns.
Capabilities evolve and must be managed
dynamically.
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Resource-Based Model of Above-Average
Returns (contd.)
Differences in firms performances are due
primarily to their unique resources and
capabilities rather than structuralcharacteristics of the industry.
Firms acquire different resources and
develop unique capabilities.
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Resource-Based Model
of Above-Average Returns (contd.)
1.Strategy is dictated by
the firms uniqueresources and
capabilities.
2.Find an environment in
which to exploit these
assets(where are the
best opportunities?)
Firms Resources
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Resources and Capabilities
Resources Inputs into a firms
production process:
Capital equipment Skills of individual
employees
Patents
Finances
Talented managers
Capabilities Capacity of a set of
resources toperform in an
integrative manner.A capability should
notbe:
So simple that it ishighly imitable
So complex that itdefies internalsteering and
control
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The Resource-Based Model
of Above-Average Returns
Adapted from Figure 1.3
Resources
1. Identify the firmsresources. Study itsstrengths and weaknessescompared with those ofcompetitors.
Inputs into a firms
production process
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The Resource-Based Model
of Above-Average Returns
Adapted from Figure 1.3
Capability 2. Determine the firmscapabilities. What do thecapabilities allow the firm to
do better than itscompetitors.
Capacity of an integrated
set of resources tointegratively perform atask or activity.
Resources
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The Resource-Based Model
of Above-Average Returns
Adapted from Figure 1.3
3. Determine the potential of
the firms resources and
capabilities in terms of a
competitive advantage.
Ability of a firm to
outperform its rivals.
CompetitiveAdvantage
Capability
Resources
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The Resource-Based Model
of Above-Average Returns
Adapted from Figure 1.3
An Attractive
Industry
4. Locate an attractiveindustry.
An industry withopportunities that canbe exploited by thefirms resources andcapabilities.
CompetitiveAdvantage
Capability
Resources
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The Resource-Based Model
of Above-Average Returns
Adapted from Figure 1.3
StrategyImplementation
5. Select a strategy thatbest allow the firm toutilize its resources and
capabilities relative toopportunities in theexternal environment.
Strategic actions taken toearn above-averagereturns.
An Attractive
Industry
CompetitiveAdvantage
Capability
Resources
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The Resource-Based Model
of Above-Average Returns
Adapted from Figure 1.3Superior Returns
Superior returns: earning
of above-average returnsStrategyImplementation
An Attractive
Industry
CompetitiveAdvantage
Capability
Resources
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Key Criteriaof Resources and
Capabilities . . .
Valuable
Resources and capabilities are valuable when
they allow a firm to take advantage of
opportunities or neutralize threats in externalenvironment.
Rare
Resources and capabilities are rare whenpossessed by few, if any, current and potential
competitors.
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Key Criteriaof Resources and Capabilities [cont.]
Costly to Imitate
Resources and capabilities are costly to
imitate when other firms either cannot obtain
them or are at a cost disadvantage in obtaining
them.
Nonsubstitutable
Resources and capabilities are
nonsubstitutable when they have no structural
equivalents.
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The all-important Core Competencies
When the four key criteria of resources and
capabilities are met, they become core
competencies.
Core competenciesserve as a source of
competitive advantage.
Managerial competencies are especiallyimportant.
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How Resources and Capabilities Provide
Competitive Advantage . . .
The firm is organized appropriately to obtainthe full benefits of the resources in order torealize a competitive advantage.
Valuable Allow the firm to exploit opportunities orneutralize threats in its external environment.
Rare Possessed by few, if any, current andpotential competitors.
Costly to imitate When other firms cannot obtain them ormust obtain them at a much higher cost.
Nonsubstitutable
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Resources and Capabilities, Core
Competencies, and Outcomes
CoreCompetencies
CompetitiveAdvantage
Value Creation
Above AverageReturns
Valuable
Rare
Costly to Imitate
Nonsubstitutable
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Strategic Intent
Its internallyfocused.
It requires the leveraging of a firms resources,
capabilities and core competencies to accomplish
the firms goals.
It only exists when all employees and levels of a
firm are committed to the pursuit of a specific,
significant performance criterion.
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Strategic Mission
Is externally focused.
Is a statement of a firms unique purpose
and the scope of its operations in productand market terms.
It establishes a firms individuality and is
inspiring and relevant to all stakeholders.
It provides general descriptions of the firms
intended products and its markets.
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Stakeholders
Are all those individuals, groups and
entitieswho can affect, and are affected
by, the strategic outcomes achieved and
who have enforceable claims on a firmsperformance.
Stakeholder claimsare enforced by their
ability to withhold essential participation.
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The Three
Stakeholder
Groups
Figure 1.4
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Capital Market Stakeholders
Shareholders and lenders expect the firm
to preserve and enhance the wealth they
have entrusted to it.
Returns should be commensurate with the
degree of risk to the shareholder.
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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 and their members Want secure jobs and desirable working conditions.
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Organizational Stakeholders
Employees [The worker-bees!]
Expect a dynamic, stimulating and rewarding
work environment.
Are satisfied by a company that is growing
and actively developing their skills.
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Stakeholder Involvement
Two issues affect the extent of stakeholder
involvement in the firm
How to divide returns
to keep stakeholdersinvolved? Capital
Market
ProductMarket
Organizational
How to increase
returns so everyonehas more to share?
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Strategic Leaders
People in the enterprise who are
responsible for the design and execution of
strategic management processes.
Decisions they make include:
How resources will be developed or acquired.
At what price resources will be obtained.
How resources will be used.
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Organizational Culture
The complex set of
Ideologies
Symbols
Core values
that are shared throughout the firm,
that influence how the firm conducts
business.
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Mapping an Industrys Profit Pools
Define the pools boundaries.
Estimate the pools overall size.
Estimate the size of the value-chain activityin the pool.
Reconcile the calculations.
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The Strategic Management Process
1. Study the external and internal environments.
2. Identify marketplace opportunities and threats.
3. Determine how to use core competencies.4. Use strategic intent to leverage resources,
capabilities and core competencies and win
competitive battles.
5. Integrate formulation and implementation of
strategies.