Transcript Chapter 1
Chapter 1 What is Strategy & the Strategic Management Process? Key Chapter Objectives Have an understanding of: • • • • • • what is strategic management. the strategic management process. what competitive advantage is why stakeholders are important. key environmental forces that are creating dynamic fast-paced change. the need for a hierarchy of goals What is Strategic Management? “The analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages” (Dess & Lumpkin, 2003; p.3). “A pattern in a stream of actions or decisions (Henry Mintzberg). Types of Strategies Strategy Strategy Strategy Strategy Strategy as as as as as a a a a a Plan Ploy Pattern Perspective Position Key Attributes of Strategy Directs organization toward overall goals & objectives. Includes multiple stakeholders in decision making. Must incorporate short- & long-term perspectives. Recognizes trade-offs between efficiency & effectiveness. Challenges of Strategic Managers Short-term Goals Key Stakeholders Changing Landscape Long-term Goals Profitability Network Long-Term Planning Quarterly Performance Diverse Workforce Develop Cohesive Organization Overall View of the Strategic Management Process Analysis Decisions Actions Strategic Management Process Mission & Objectives External Analysis Feedback Internal Analysis Strategy Formulation Strategy Implementation Strategic Management Process External Analysis Strategic Choice Objectives Strategy Implementation Competitive Advantage Internal Analysis Mission Barney & Hesterly p. 5 Analysis: Mission & Objectives Vision statements are an inspiring, overarching, and long-term statement. Mission statements encompasses both the purpose of the company and the basis of competition and competitive advantage. Objectives are developed from the vision and mission statements. Analysis: External & Internal Analysis of the Firm’s External Environment: What are the trends in the industry? What are the trends in the general environment? What are the competitor’s trends? Analysis of the Firm’s Internal Environment: What are the firm’s resources? What are the firm’s capabilities? What are the firm’s distinctive competencies? Decisions (Strategic Choice) Strategy Formulation: Functional-level (HR, Manufacturing, Marketing, etc.) Business-level (Cost, differentiation, focus, or integrative) Corporate-level (diversification, restructuring) Actions (Strategy Implementation) Strategy Implementation through: Organizational Structure. Control Systems. Leadership. Response to Change. Competitive Advantage Definition: the ability to create more economic value than competitors Competitive Parity The firm’s offerings are ‘average’ People do not have a preference for the firm’s offering The firm does not have a cost advantage over others Some things that may lead to competitive parity may still be critical to success (e.g., telephones) Competitive Disadvantage People may have an aversion to the firm’s offering. A firm may have outdated technology/ equipment. The firm may have a cost disadvantage. A firm may have a negative reputation. Competitive Advantage Two Types of Difference: 1. Preference for the firm’s output 2. people choose the firm’s output over others’ people are willing to pay a premium Cost advantage vis-à-vis competitors lower costs of production/distribution Competitive Advantage Competitive advantage is often temporary: Competitive advantage typically results in high profits. Profits attract competition. Competition limits the duration of competitive advantage in most cases. Competitive Advantage However, may be sustainable if: Competitors are unable to imitate the source of advantage No one conceives of a better offering. Measuring Competitive Advantage Two Classes of Measures: Accounting Measures 1. 2. ROA, ROS, ROE, etc. that exceed industry averages. Economic Measures earning a return in excess of the cost of capital Emergent vs. Intended Strategies The strategic management process leads managers to intended strategies. However, Conditions often change or new information becomes available. Managers respond and adopt emergent strategies. Stakeholders Stakeholders are individuals or groups inside or outside the company, that has a stake in and can influence an organization’s performance. Five primary stakeholder groups: 1. 2. 3. Customers, Employees, Suppliers 4. the Community 5. Owners Strategic Management Process Summary: This course is not about mere survival, it is about thriving—achieving competitive advantage. the strategic management process helps managers achieve competitive advantage. competitive advantage depends on differences. strategy is about discovering and exploiting these differences. Strategic Management Process Applying Strategy to Your Career: a solid understanding of strategy concepts will help set you apart from other job candidates. you can use the process to identify and exploit difference between you and others. you can use the process to determine if you want to stay with a company.