STRATEGIC MANAGEMENT & COMPETITIVENESS

STRATEGIC MANAGEMENT & COMPETITIVENESSChapter 1The Strategic Management ProcessStrategic Management Process: The Strategic Management Process isa rational approach (full set of commitments, decisions, & actionsrequired) to achieve Strategic Competitiveness and Above AverageReturns.

The Strategic Management ProcessStrategic Management Process: The Strategic Management Process isa rational approach (full set of commitments, decisions, & actionsrequired) to achieve Strategic Competitiveness and Above AverageReturns.Strategic Competitiveness; is achieved when a firm successfully formulates implements a value creating strategy. When choosing a strategy, firms make choices among competitive alternates as the pathway for deciding how it will pursue strategic competitiveness.Above Average Returns; are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. The most successful companies learn how to effectively manage risk. Effectively, managing risks reduces investors uncertainty about the results of their investment.

The Strategic Management ProcessStage 1 - Strategic Inputs1st Step: Analyze the External Environment to identify market place opportunities & threats.2nd Step: Determine Internal Organizational Resources & how to use Resources, Capabilities & Core-competencies.3rd Step Firms Develop Vision & Mission

The Strategic Management ProcessStage 1 - Strategic Inputs1st Step: Analyze the External Environment to identify market place opportunities & threats.2nd Step: Determine Internal Organizational Resources & how to use Resources, Capabilities & Core-competencies.3rd Step Firms Develop Vision & MissionStage 2 - Strategic ActionsStrategy FormulationStrategy Implementation

The Strategic Management ProcessStage 1 - Strategic Inputs1st Step: Analyze the External Environment to identify market place opportunities & threats.2nd Step: Determine Internal Organizational Resources & how to use Resources, Capabilities & Core-competencies.3rd Step Firms Develop Vision & MissionStage 2 - Strategic ActionsStrategy FormulationStrategy ImplementationStage 3 Strategic Outcomes; basically the process is developed to gain Strategic Competitiveness & Above Average Returns.

The Competitive LandscapeHyper-CompetitionNature of Competition is ChangingResulting in Highly Turbulent & Chaotic Environment Different Mindset For Strategic LeadersThe Competitive LandscapeHyper-CompetitionNature of Competition is ChangingResulting in Highly Turbulent & Chaotic Environment Different Mindset For Strategic LeadersPrimary Factors For Hyper-competitionGlobal Economy Globalization of Industries & MarketsTechnological ChangesGlobalization of Industries & MarketsGlobal Economy; is the one in which goods, services, people, skills, and ideas move freely across geographic borders. Interesting opportunities and challenges are associated with the emergence of global economyThe March of Globalization; Globalization is the economic interdependence among countries and their organizations as reflected in the flow and goods and services, financial capital, and knowledge across country borders. Globalization is a product of a large number of firms competing against one another in an increasing number of global economics.

GlobalizationGlobalization: Companies are organizing them globally & connected with their customers & marketing partners all over the world.Global MarketingTrade agreements have increased marketing opportunities within countries.Most nations regardless of their degree of economic development & political philosophy-recognize the importance of marketing beyond their national border.Nations designed marketing system for their raw material for global customers.

GlobalizationAn English princess with an Egyptian boyfriend crashes in a French tunnel, riding in a German car with a Dutch engine, driven by a Belgian who was drunk on Scottish whisky. Followed closely by Italian press photographers, on Japanese motorcycles, treated by an American doctor, using Brazilian medicines.This is sent to you by a Canadian, using American Bill Gates' technology, and you're probably reading this on your computer, that uses Taiwanese chips, and a Korean monitor assembled in a Singapore plant transported by Indian truck drivers. That isGlobalization!

Technological Changes

Technology Diffusion; is the speed, at which new technologies become available and are used, has increased substantially over the past 15 to 20 years. Disruptive Technologies; technologies that destroy the value of an existing technology and create new markets surface frequently in todays competitive markets. A disruptive technology can create what is essentially a new industry.

Technological ChangesTechnological TrendsTechnology Diffusion; is the speed, at which new technologies become available and are used, has increased substantially over the past 15 to 20 years. Disruptive Technologies; technologies that destroy the value of an existing technology and create new markets A disruptive technology can create what is essentially a new industry.Information AgeTechnological Development in Information Age; Dramatic advances in IT have given small firms more flexibility in competing with large firms, in case technology is efficiently used. The declining cost of IT & increased accessibility is evident in the current competitive landscape. Increasing Knowledge Intensity: The probability of achieving strategic competitiveness is enhanced for the firm that realizes that it survival depends on the ability to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the company. I/O Model of Above Average ReturnsExternal Environment has a dominant influence on firms performance, the I/O Model challenges firms to identify the most attractive industry to compete.Firms performance is determined by industrial properties like: economics of scale, barrier to market entry, diversification, product differentiation.Assumption of I/O ModelFirst: External Environment impose constraints that determine strategies to achieve Above Average Results.Second: Firms competing within an industry should control strategically relevant resources.Third: Resources used to implement strategies are highly mobile among firms and short lived.Fourth: Organization decision makers should concentrate on profit maximization.

I/O Model of Above Average Returns

The External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.I/O Model of Above Average ReturnsThe External EnvironmentThe External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.Types of External Environment:The General Environment: These are elements in the broader society that affects industry and the firms operating in that industry.The Industry Environment: The model specifies the industry in which in which company chooses to compete. Factors that influence the industry environment are the firms competitive actions and responses, and the industry profit potential.The Competitor Environment: The firms performance is believed to be determined by industry properties, including economics of scale, barriers to market entry, diversification, product differentiation, and the degree of the concentration of firms in the industry. Firm analyzes each major competitor future objectives, current strategies, & capabilities.I/O Model of Above Average Returns

The External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.An Attractive Industry: . Firms performance can be increased only once they operate in the industry with the highest profit potential. Firms can use Five Forces Model to identify the attractiveness of an industry (likely profitable potential). I/O Model of Above Average ReturnsAn Attractive IndustryAn Attractive Industry

Firms performance can be increased only once they operate in the industry with the highest profit potential. Firms can use Five Forces Model to identify the attractiveness of an industry

I/O Model of Above Average Returns

The External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.An Attractive Industry: . Firms performance can be increased only once they operate in the industry with the highest profit potential. Firms can use Five Forces Model to identify the attractiveness of an industry (likely profitable potential). Strategy Formulation: The I/O model suggests that above average returns are earned when firms are able to effectively study the external environment as the foundation for identifying an attractive industry and implementing the appropriate strategy.I/O Model of Above Average Returns

The External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.An Attractive Industry: . Firms performance can be increased only once they operate in the industry with the highest profit potential. Firms can use Five Forces Model to identify the attractiveness of an industry (likely profitable potential). Strategy Formulation: The I/O model suggests that above average returns are earned when firms are able to effectively study the external environment as the foundation for identifying an attractive industry and implementing the appropriate strategy.Assets and Skills: Companies that develop or acquire the internal skills needed to implement a chosen strategies required by external environment are likely to succeed, while those that do not are likely to fail.I/O Model of Above Average Returns

The External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.An Attractive Industry: . Firms performance can be increased only once they operate in the industry with the highest profit potential. Firms can use Five Forces Model to identify the attractiveness of an industry (likely profitable potential). Strategy Formulation: The I/O model suggests that above average returns are earned when firms are able to effectively study the external environment as the foundation for identifying an attractive industry and implementing the appropriate strategy.Assets and Skills: Companies that develop or acquire the internal skills needed to implement a chosen strategies required by external environment are likely to succeed, while those that do not are likely to fail.Strategy Implementation: Use the firms strength (its developed or acquired assets and skills) to implement the strategy. Selection of strategic actions linked with effective implementation of the chosen strategy.I/O Model of Above Average Returns

The External Environment: The external environments dominant influence on the firms strategic actions. It is challenging and complex. Because of the external environments effect firms performance.An Attractive Industry: . Firms performance can be increased only once they operate in the industry with the highest profit potential. Firms can use Five Forces Model to identify the attractiveness of an industry (likely profitable potential). Strategy Formulation: The I/O model suggests that above average returns are earned when firms are able to effectively study the external environment as the foundation for identifying an attractive industry and implementing the appropriate strategy.Assets and Skills: Companies that develop or acquire the internal skills needed to implement a chosen strategies required by external environment are likely to succeed, while those that do not are likely to fail.Strategy Implementation: Use the firms strength (its developed or acquired assets and skills) to implement the strategy. Selection of strategic actions linked with effective implementation of the chosen strategy.Superior Returns: Hence, this model suggests that returns are primarily by external characteristics rather than by the firms unique internal resources and capabilities. Assignment 1Refer Opening Case (page 5)Bharti Airtel Limited started its operations in 1995 as an underdog against a powerful incumbent, the state owned Bharat Sanchar NigamLimited (BSNL). By 2010 it became the leading telecom company inIndia, and Airtels performance during this period suggests that it has become highly competitive and has registered Above Average Returns in the Indian Telecome sector consistently.RequirementHow the Bharti Airtel Limited achieved this position? Identify thedecisions and action it took while pursuing Strategic CompetitivenessAnd Above Average Returns.

The Resource-Based Model of Above-Average Returns

Resources: Resources are inputs into a firms production process, firms resources are classified into three categories; Physical, Human, and Organizational capital. Resources are transformed into a competitive advantage when they are formed into capability.The Resource-Based Model of Above-Average Returns

Resources: Resources are inputs into a firms production process, firms resources are classified into three categories; Physical, Human, and Organizational capital. Resources are transformed into a competitive advantage when they are formed into capability.Capability: A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. Difference in firms performance is primarily due to their unique resources/capabilities rather than the industrys structural characteristics. The Resource-Based Model of Above-Average Returns

Resources: Resources are inputs into a firms production process, firms resources are classified into three categories; Physical, Human, and Organizational capital. Resources are transformed into a competitive advantage when they are formed into capability.Capability: A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. Difference in firms performance is primarily due to their unique resources/capabilities rather than the industrys structural characteristics. Competitive Advantage: Firms acquire different resources and develop unique capabilities based on how they combine and use these resources. The difference in recourses and capabilities are the basis of competitive advantage. The Resource-Based Model of Above-Average Returns

Resources: Resources are inputs into a firms production process, firms resources are classified into three categories; Physical, Human, and Organizational capital. Resources are transformed into a competitive advantage when they are formed into capability.Capability: A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. Difference in firms performance is primarily due to their unique resources/capabilities rather than the industrys structural characteristics. Competitive Advantage: Firms acquire different resources and develop unique capabilities based on how they combine and use these resources. The difference in recourses and capabilities are the basis of competitive advantage. An Attractive Advantage: The strategy a firm chooses should allow it to use its competitive advantages in an attractive industry (the I/O model is used to identify an attractive industry).The Resource-Based Model of Above-Average Returns

Resources: Resources are inputs into a firms production process, firms resources are classified into three categories; Physical, Human, and Organizational capital. Resources are transformed into a competitive advantage when they are formed into capability.Capability: A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. Difference in firms performance is primarily due to their unique resources/capabilities rather than the industrys structural characteristics. Competitive Advantage: Firms acquire different resources and develop unique capabilities based on how they combine and use these resources. The difference in recourses and capabilities are the basis of competitive advantage. An Attractive Advantage: The strategy a firm chooses should allow it to use its competitive advantages in an attractive industry (the I/O model is used to identify an attractive industry).Strategy Formulation and Implementation: Strategic actions are taken to earn above average returns. Organization should select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment.The Resource-Based Model of Above-Average Returns

Resources: Resources are inputs into a firms production process, firms resources are classified into three categories; Physical, Human, & Organizational capital. Resources are transformed into a competitive advantage when they are formed into capability.Capability: A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. Difference in firms performance is primarily due to their unique resources/capabilities rather than the industrys structural characteristics. Competitive Advantage: Firms acquire different resources and develop unique capabilities based on how they combine and use these resources. The difference in recourses and capabilities are the basis of competitive advantage. An Attractive Advantage: The strategy a firm chooses should allow it to use its competitive advantages in an attractive industry (the I/O model is used to identify an attractive industry).Strategy Formulation and Implementation: Strategic actions are taken to earn above average returns. Organization should select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment.Superior Returns: The strategy a firm chooses should allow it to use its competitive advantages in an attractive industry. Not all the firms resources and capabilities have the potential for competitive advantage.Superior ReturnsThe resource-based model suggests that the strategy a firm chooses shouldallow it to use its competitive advantages in an attractive industry. Not allfirms resources & capabilities have the potential for competitive advantage.This potential is realized when resources and capabilities are valuable, rare,costly to imitate, and non-substitutable. Valuable: Resources are valuable once it allows a firm to take advantage of opportunities & neutralize threats.Rare: They are rare when possessed by a few customers.Costly to Imitate: Resources are costly to imitate when other firms cannot obtain them or at a cost disadvantage in obtaining them compared with the firm already possess.Non-Substitutable: These are non-substitutable when they have no structural equivalents. Many resources can be imitated or substituted over time. Therefore, it is difficult to maintain the competitive advantage based on resources alone.

Vision and MissionVision: Vision is a picture what a firm wants to be and in broad terms, what it wants to ultimate achieve. Thus a vision statement articulates the ideal description of an organization and gives shape to its intended future. CEO is responsible for working with others to form firms vision. Experience shoes that the most effective vision statement results when CEO involves a host of stake holders.Example: Nucor, one of the largest steel manufacturers, have tied-up all their strategic actions around its vision to be the worlds lowest cost steel manufacturer. Organizational Mission; Organizational mission is a very broad statement of organizational direction. Adeclaration of anorganizationscore purpose and focus that normally remains unchangedover a period of time. Organization mission comprises of its purpose and philosophy.Mission Statement: A writtendeclaration of an organizations core purpose. . For any firm organizational mission is normally summarized and documented in a mission statement.Difference Between Mission & Vision: A mission is different from avisionin that the former is the cause and thelateris the effect; a mission is to beaccomplished whereas a vision is something to be pursued for that accomplishmentMission & Vision Statements AMOCO CorporationMission Statement; what is our business? AMOCO is a worldwide integrated petroleum and chemical company. We find and develop petroleum resources and provide quality products and services for our customers. We conduct our business responsibly to achieve a superior financial return balanced with our long term growth, benefiting shareholders and fulfilling our commitment to the community and the environment.Vision Statement; what we want to become? Amoco will be a global business enterprise, recognized throughout the world as preeminent by employees, customers, competitors, investors and public. We will be standard by which other businesses measure their performance. Our hallmarks will be the innovation, initiative and teamwork of our people and our ability to anticipate and effectively respond to change and to create opportunity.

ORGANIZATIONAL MISSION

Organizational Mission; Organizational mission is a very broad statement of organizational direction. Adeclaration of anorganizationscore purpose and focus that normally remains unchangedover a period of time. Organization mission comprises of its purpose and philosophy.Organizations Purpose Line of BusinessPurpose identifies why an organization exists & what is the line of business of the organization. It defines the activities that the organization performs or intends to perform and the kind of organization that it is or intends to be.Organization purpose must be defined at its inception but also must be defined regularly during both difficult and successful periods.Defining organizational purpose starts by identifying present & potential customers;Changes in purpose can lead to major changes in organization operations.Organizations Philosophy How to conduct BusinessIt establishes the values, beliefs and guidelines for the manner in which organization is going to conduct its business. Ideally an organizations philosophy should rarely be changedBusiness philosophy reveals;The image company seeks to project.Reflects the firms self concept.CONTENTS OF MISSION

Company Product or Service; This information identifies the goods or services produced by an organization --- that which the company offers to its customers.Market; This information describes the customers of an organization, who these are and where they are located?Technology; The information generally includes such topics as tools, machines, materials, techniques & processes used to produce organizational goods / services.Company Objectives; Most mission statements make general reference to company objectives. For many firms, these include the intention to survive through continuing growth and profitability.Company Philosophy; Statements of company philosophy (also called company creed) commonly appear as part of mission statement. Company philosophy is a statement reflecting the basic beliefs and values that should guide an organization member in conducting organizational business.Company Self-Concept; Mission statements inevitably contain or accompanied by information on self concept of the company. Company self-concept is the companys own view or impression of itself.Public Image; Mission statements generally contain some reference, either direct or indirect, to the type of impression the company is attempting to leave with the organizations public.

Mission & Vision Relationship

The vision is the foundation for firms mission, but the firms mission is more specific than its vision.Vision and mission statements is to inform stake holders of what the firm is, what it seeks to accomplish, and who it seeks to serve.A firms vision tends to be enduring, while its mission can change in light of changing environmental conditions.Vision and mission are critical of strategic inputs it requires to engage in strategic actions as the foundation for achieving.Vision and Mission is a strategic focus, firms must accept the challenge of developing effective vision and mission statement.

Evaluation of INFOSYS Vision and Mission

VisionTo be a globally respected corporation that provides best-of-bread business solutions, leveraging technology, delivered by best-in-class people.MissionTo achieve our objectives in an environment of fairness, honesty and courtesy towards the clients, employees, vendors and society at large.Evaluation; Notice how the mission statement of INFOSYS flows from its vision of being a globally respected software company through technology and people.StakeholdersStakeholders are the individuals and the groups who are affected by the firms performance and who have claims on its performance. Claims on a firms performance and all have their divergent claims. Managers must find ways either accommodate or insulate the organization from the demands of stakeholders controlling critical resources.

StakeholdersStakeholders are the individuals and the groups who are affected by the firms performance and who have claims on its performance. Claims on a firms performance and all have their divergent claims. Managers must find ways either accommodate or insulate the organization from the demands of stakeholders controlling critical resources.

ClaimantsClaimants DemandEmployeesWant higher pay, more benefits and job security.ConsumersSafe and reliable products at reasonable prices.SuppliersWant that their products will be bought.StockholdersHigh return on their investment and security of their money.GovernmentTaxes be paid by the enterprise and comply with their laws.CommunityEnterprise to act as "Good Citizen," provision of jobs, with minimum pollution. Other Claimants Legitimate claim of fair play.

Classification of Stakeholders

Capital Market Stakeholders: They are the shareholders or major suppliers of a firms capital. They expect from the firm to preserve and enhance the wealth they have entrusted, and expect a return commensurating with the degree of risk. Low returns are expected from the low degree investments while higher return is expected with high-risk investments. Dissatisfied shareholders may reflect their concern by selling their stock.

Classification of Stakeholders

Capital Market Stakeholders: They are the shareholders or major suppliers of a firms capital. They expect from the firm to preserve and enhance the wealth they have entrusted, and expect a return commensurating with the degree of risk. Low returns are expected from the low degree investments while higher return is expected with high-risk investments. Dissatisfied shareholders may reflect their concern by selling their stock.Product Market Stakeholders: These are the firms customers, suppliers and host communities. Customers as stakeholders, demand reliable, quality products at the lowest possible prices. Suppliers seek loyal customers who are willing to pay highest sustainable prices for goods, services, and raw-material they receive. The community wants companies to be long term employers and discharge their social responsibility. Thus product-market stakeholders are generally satisfied when a firms profit margin reflects at least a balance between the returns to capital market stakeholders.

Classification of Stakeholders

Capital Market Stakeholders: They are the shareholders or major suppliers of a firms capital. They expect from the firm to preserve and enhance the wealth they have entrusted, and expect a return commensurating with the degree of risk. Low returns are expected from the low degree investments while higher return is expected with high-risk investments. Dissatisfied shareholders may reflect their concern by selling their stock.Product Market Stakeholders: These are the firms customers, suppliers and host communities. Customers as stakeholders, demand reliable, quality products at the lowest possible prices. Suppliers seek loyal customers who are willing to pay highest sustainable prices for goods, services, and raw-material they receive. The community wants companies to be long term employers and discharge their social responsibility. Thus product-market stakeholders are generally satisfied when a firms profit margin reflects at least a balance between the returns to capital market stakeholders.Organizational Stakeholders: All of the firms employees include both managerial and non-managerial personnel. They expect the firm to provide a dynamic, stimulating, and rewarding work environment. Employees are usually satisfied working for a company that is growing and actively developing employees skills, especially the skills required to meet or exceed global work standards. Trade Unions, representing the workers form a separate group of stakeholders interested in secure jobs, financial and non financial rewards, with good working conditions.

Strategic Leaders

CEO and other top level managers are the strategic leaders.Responsibility: Strategic Leaders are people located in different parts of the firm using the strategic management process to help the firm in reaching its vision and mission. Regardless of their locations successful strategic leaders are decisive, and committed in helping the firm to create value for all stakeholder groups.Delegation of Responsibility: The effective CEOs and top level managers understand how to delegate strategic responsibilities to people throughout the firm who influences to use the organizational resources.Organizational Culture : Strategic Leaders decisions and their work shape a firms culture. Organizational culture refers to complex set of ideologies, symbols, myths, core values that are shared throughout the firm and that influence how the firm conducts business.

Profit PoolsPredicting Outcomes of Strategic Decisions: Strategic leaders attempt to predict the outcomes of their decisions before taking efforts to implement them, which is difficult to do. Many decisions are the part of strategic management process is connected with an uncertain future.Profit Pools: Entails the total profit earned in an industry, analyzing an industrys profit pool is something strategic leaders can do to anticipate the possible outcome of different decisions. It helps a firm see something others are unable to see (to understand the primary sources of profit in an industry). There are four steps in identifying a profit pool:Define the pool boundaries.Estimate the pools overall size.Estimate the size of value chain activity in the poolReconcile the calculations