Chapter 01 – Strategic Management & Strategic Globalization – the increasing economic interdependence among

Competitiveness countries & their organizations as reflected in the flow of goods &
services, financial capital, and knowledge across country borders. It
Strategic competitiveness – Achieved when a firm successfully is a product of a large number of firms competing against one
formulates & implements a value-creating strategy another in an increasing number of global economies
Competitive advantage – achieved when a farm implements a *risks in globalization are liability of foreignness (risk of competing
strategy that creates superior value for customers and that internationally) & Over-diversification beyond the firm’s ability to
competitors are unable to duplicate or find it too costly to try to successfully manage operations in multiple foreign markets
imitate
Three(3) categories of Technology-related trends & conditions:
Strategy – an integrated & coordinated set of commitments & (1) Technology diffusion & disruptive technologies
actions designed to exploit core competencies and gain a competitive (2) Information age
advantage (3) Increasing knowledge intensity
Above-average returns – returns in excess of what an investor Perpetual innovation – used to describe how rapidly & consistently
expects to earn from other investments with a similar amount of risk new, information-intensive technologies replace older ones
Risk – an investor’s uncertainty about the economic gains/losses that Disruptive technologies – technologies that destroy the value of an
will result from a particular investment existing technology and create new markets
Average returns – returns equal to those an investor expects to earn Knowledge (information, intelligence, & expertise) – the basis of
from other investments with a similar amount of risk technology and its application
*performance is sometimes measured in terms of the speed of Strategic flexibility – set of capabilities used to respond to various
growth (in smaller new venture firms) or on the basis of stock demands & opportunities existing in a dynamic & uncertain
market returns (traditional profitability measure) competitive environment
Strategic management process – the full set of commitments, Continuous learning – provides the firm with new & up-to-date skill
decisions, and actions required for a firm to achieve strategic sets, which allow it to adapt to its environment as it encounters
competitiveness and earn above-average returns changes
Feedback linkages among the three primary elements indicate the dynamic
Industrial Organization (I/O) Model of Above-Average Returns -
nature of the strategic management process: strategic inputs, strategic
actions, and strategic outcomes. adopts an external perspective explaining the external environment’s
dominant influence on a firm’s strategic actions. It specifies that the
Analysis, in the form of information gained by scrutinizing the internal industry/segment in which a company chooses to compete has a
environment and scanning the external environment, are used to develop the stronger influence on performance than do the choices managers
firm's vision and mission. make inside their organizations
Strategic actions are guided by the firm's vision and mission, and are
*Four(4) underlying assumptions:
represented by strategies that are formulated or developed and subsequently
implemented or put into action.
(1) The external environment is assumed to impose pressures &
constraints that determine the strategies that would result in above-
Desired performance - strategic competitiveness and above-average returns - average returns
result when a firm is able to successfully formulate and implement value- (2) most firms competing within an industry or within a segment of
creating strategies that others are unable to duplicate. that industry are assumed to control similar strategically relevant
Feedback links the elements of the strategic management process together resources and to pursue similar strategies in light of those resources
and helps firms continuously adjust or revise strategic inputs and strategic (3) resources used to implement strategies are assumed to be highly
actions in order to achieve desired strategic outcomes. mobile across firms, so any resource differences that might develop
between firms will be short-lived
(4) Organizational decision makers are assumed to be rational &
Competitive Landscape – one in which the fundamental nature of committed to acting in the firm’s best interests, as shown by their
competition is changing in a number of the world’s industries profit-maximizing behaviors

Hypercompetition – describes competition that is excessive such that

it creates inherent instability and necessitates constant disruptive
change for firms in the competitive landscape

Global economy – one in which goods, services, people, skills, and

ideas move freely across geographic borders
Five forces model of competition – analytical tool used to help firms (1)Valuable – when they allow a firm to take advantage of
find the industry that is the most attractive for them; suggests that an opportunities or neutralize threats in its external environment
industry’s profitability is a function of interactions among five(5) (2)Rare - when possessed by few, if any, current & potential
forces: competitors
(1)Suppliers (3)Costly to Imitate – When other firms cannot obtain them or are at
(2)Buyers a cost disadvantage in obtaining them compared with the firm that
(3)Competitive rivalry among firms currently in the industry already possesses them
(4)Product Substitutes (4)non-substitutable – When they have no structural equivalents
(5)Potential entrants to the industry
Resource-Based Model 5-Step Process:
I/O Model 5-step Process:
(1) Identify the firm’s resources. Study its strengths &
(1) Study the external environment (general, industry, & weaknesses compared with those of competitors
competitor) (2) Determine the firm’s capabilities
(2) Locate an industry with high potential for above-average (3) Determine the potential of the firm’s resources &
returns capabilities in terms of a competitive advantage
(3) Identify the strategy called for by the attractive industry to (4) Locate an attractive industry
earn above-average returns (5) Select a strategy that best allows the firm to utilize its
(4) Develop or acquire assets and skills needed to implement resources & capabilities relative to opportunities in the
the strategy external environment
(5) Use the firm’s strengths (developed/acquired assets & sets)
to implement the strategy Strategy Formulation & Implementation – Strategic actions taken to
earn above-average returns
The I/O model has been supported by research indicating:
Attractive industry – Industry with opportunities that can be
20% of firm profitability can be explained by industry exploited by the firm’s resources & capabilities
characteristics
Vision – a picture of what the firm wants to be and, in broad terms,
36% of firm profitability can be attributed to firm characteristics what it wants to ultimately achieve
and the actions taken by the firm
Mission – Specifies businesses in which the firm intends to compete
Overall, this indicates a reciprocal relationship - or even an and the customers it intends to serve
interrelationship - between industry characteristics (attractiveness)
and firm strategies that result in firm performance Stakeholders- individuals, groups, and organizations that can affect
the firm’s vision and mission, are affected by the strategic outcomes
The model ultimately suggests (1) producing standardized goods/ achieved, and have enforceable claims on the firm’s performance
services at costs below those of competitors (Cost leadership
strategy); (2) producing differentiated goods/services for which Three(3) general Classifications of Stakeholders:
customers are willing to pay a price premium (differentiation (1) Capital Market or Institutional Stakeholders
strategy) (2) Product Market Stakeholders
(3) Organizational Stakeholders
Resource-Based Model of Above-Average Returns – Adopts an
internal perspective to explain how a firm’s unique bundle/collection Blockholders – Shareholders who hold a large share of stock
of internal resources & capabilities represent the foundation on Stakeholder Members Primary expectation/demand
which value-creating strategies should be built group hip

*according to this, differences in firms’ performances across time Capital Sharehold Wealth enhancement
are due to their unique resources and capabilities rather than the market ers
industry’s structural characteristics Lenders Wealth preservation

Resources- inputs into a firm’s production process, such as capital Product Customer Product reliability at lowest possible price
equipment, the skills of individual employees, patents, finances, & market s
talented managers Suppliers Receive highest sustainable prices

Capability – capacity for a set of resources to perform a task or an Host Long-term employment, tax revenues, minimum use of
activity in an integrative manner communit public support services
ies
Core competencies – capabilities that serve as a source of
Unions Ideal working conditions and job security for
competitive advantage for a firm over its rivals membership

Four (4) criteria for Resources & Capabilities as foundation for Organizatio Employee Secure, dynamic, stimulating, and rewarding work
competitive advantage: nal s environment
Strategic Leaders – People located in different areas and levels of the
firm using the strategic management process to select strategic
actions that help the firm achieve its vision & fulfill its mission

Organizational culture – complex set of ideologies, symbols, and

core values that are shared throughout the firm and that influence
how the firm conducts business

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

The Strategic management process- rational approach firms use to

achieve strategic competitiveness and earn above-average returns

The A-S-P Process: Analyses, Strategies, and Performance