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Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Business Policy and Strategy University of Management and Technology 1901 North Fort Myer Drive Suite 700 Arlington, VA 22209 USA Phone: (703) 516-0035 Fax: (703) 516-0985 Website: www.umtweb.edu Page 1 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Chapter 1 Strategic Management: Creating Competitive Advantages Dess, G.G, Lumpkin, G.T., & Eisner, A.B., Strategic Management: Creating Competitive Advantages (4th ed.) © 2008 McGraw-Hill. ISBN 978-0-07-338121-3 Page 2 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Copyright Warning This presentation is the intellectual property of the textbook publisher McGraw-Hill 2008. Students are hereby advised that they may not copy or distribute this work to any third party Page 3 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Learning Objectives Upon successfully completing this module, the student should be able to: The definition of strategic management and its four key attributes. The strategic management process and its three interrelated and principal activities. The vital role of corporate governance and stakeholder management as well as how “symbiosis” can be achieved among an organization’s stakeholders. The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy. The need for greater empowerment throughout the organization. How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction. Page 4 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Two Perspectives of Leadership Romantic view Leader is the key force in organization’s success External control perspective Focus is on external factors that affect an organization’s success Leaders can make a difference Must be aware of opportunities and threats faced in external environment Must have thorough understanding of the firm’s resources and capabilities Page 5 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Management Analysis Strategic goals (vision, mission, strategic objectives) Internal and external environment of the firm Strategic decisions What industries should we compete in? How should we compete in those industries? Actions Allocate necessary resources Design the organization to bring intended strategies to reality Page 6 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Management Strategic management is the study of why some firms outperform others How to compete in order to create competitive advantages in the marketplace How to create competitive advantages in the market place Unique and valuable Difficult for competitors to copy or substitute Page 7 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Key Attributes Key Attributes of strategic management: Directs the organization toward overall goals and objectives Includes multiple stakeholders in decision making Needs to incorporate short-term and long-term perspectives Recognizes trade-offs between efficiency and effectiveness Page 8 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Question The final realized strategy of a firm is a combination of: Intended and unrealized strategies Unrealized and emergent strategies Emergent and deliberate strategies Deliberate and unrealized strategies Page 9 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Management Process Adapted from Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same Source: H. Mintzberg and J. A. Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6 (1985), pp. 25772. Page 10 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Analysis Starting point in the strategic management process Precedes effective formulation and implementation of strategies Page 11 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Analysis (cont.) Clear goals and objectives permit effective allocation of resources Hierarchy of goals Vision Mission Strategic objectives Analyzing external environments Managers must scan the environment and analyze competitors General environment Industry environment Page 12 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Analysis (cont.) Frameworks for analyzing a firm’s internal environment Strengths Weaknesses Analyzing strengths can uncover potential sources of competitive advantage Page 13 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Analysis (cont.) Intellectual assets are drivers of Competitive advantage Wealth creation Networks and relationships among Employees Customers Suppliers Alliance partners Page 14 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategy Formulation Business level strategy: Successful firms develop bases for competitive advantage Cost leadership Differentiation Focusing on narrow or industry-wide market segments Sustainability Industry life cycle Page 15 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategy Formulation (cont.) Corporate-level strategy addresses: Firm’s portfolio or group of businesses What business(es) should we be in? How can we create synergies among the businesses? Diversification Related Unrelated Page 16 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategy Formulation (cont.) International Strategy Appropriate entry strategies for foreign markets Sustain competitive advantage in global markets Effective strategies for entrepreneurial initiatives Page 17 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategy Implementation Informational control Monitor and scan the environment Respond effectively to threats and opportunities Behavioral control Effective corporate governance Interests of managers and owners of the firm Organizational structure and design Page 18 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategy Implementation (cont.) Organizational boundaries Flexible Permeable Strategic Alliances Develop organization that is committed to Excellence Ethical behavior Page 19 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategy Implementation (cont.) Learning organization responsive to Rapid and unpredictable change Corporate entrepreneurship and innovation New opportunities Enhance innovative capacity Autonomous entrepreneurial behavior Product champions Page 20 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Corporate Governance and Stakeholder Management Corporate governance: the relationship among various participants in determining the direction and performance of corporations Shareholders Management (led by the CEO) Board of Directors Page 21 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Question Briefly describe the role of board of directors in corporate governance. Page 22 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Corporate Governance and Stakeholder Management (cont.) Board of Directors Elected representatives of the owners Ensure interests and motives of management are aligned with those of the owners Effective and engaged Board of Directors Shareholder activism Proper managerial rewards and incentives Page 23 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Example: New Rules for Directors In light of numerous corporate scandals, the role and rules for board of directors are being redefined. Few areas of focus : Numbers Knowledge Strategy Focus Time & Understanding Watchdog Source: Tipsheet, Business Week, January 22, 2007 Page 24 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Stakeholder Management Two views of stakeholder management Zero sum Stakeholders compete for attention and resources of the organization Gain of one is a loss to the other Symbiosis Stakeholders are dependent upon each other Mutual benefits Page 25 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Social Responsibility Social responsibility: the expectation that businesses or individuals will strive to improve the overall welfare of society Managers must take active steps to make society better Socially responsible behavior changes over time Triple bottom line Page 26 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Example: Social Responsibility Starbucks Coffee Company Corporate social responsibility is embedded throughout the organization. The following are some of the commitments they have made to be socially responsible: Commitment to origins Helping protect the environment Starbucks in your community Commitment to partners Source: www.starbucks.com Page 27 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Strategic Management Perspective Integrative view of the organization Assess how functional areas and activities “fit together” to achieve goals and objectives All managers and employees must take and integrative, strategic perspective of issues facing the organization Page 28 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Enhancing Employee Involvement Local Line Leaders Have significant profit and loss responsibility Page 29 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Enhancing Employee Involvement Local Line Leaders Executive Leaders Champion and guide ideas Create a learning infrastructure Establish a domain for taking action Page 30 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Enhancing Employee Involvement Local Line Leaders Executive Leaders Have little positional power and formal authority Generate their power through the conviction and clarity of their ideas Internal Networkers Page 31 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Coherence in Strategic Direction Company vision Massively inspiring Overarching Long-term Driven by and evokes passion Fundamental statement of the organization’s Values Aspiration Goals Page 32 of 35 Chapter 1, MGT 195 Company vision Hierarchy of Goals Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Coherence in Strategic Direction Mission statements Purpose of the company Basis of competition and competitive advantages More specific than vision Focused on the means by which the firm will compete Company vision Mission statements Hierarchy of Goals Page 33 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Coherence in Strategic Direction Strategic objectives Operationalize the mission statement Provide guidance on how the organization can fulfill or move toward the “higher goals” More specific Cover a more well-defined time frame Company vision Mission statements Strategic objectives Hierarchy of Goals Page 34 of 35 Chapter 1, MGT 195 Version 131509 Visit UMT online at www.umtweb.edu © 2008 McGraw-Hill © 2009 UMT Coherence in Strategic Direction Strategic objectives Measurable Specific Appropriate Realistic Timely Challenging Resolve conflicts that arise Yardstick for rewards and incentives Page 35 of 35 Chapter 1, MGT 195 Company vision Mission statements Strategic objectives Hierarchy of Goals