Chapter 1 Notes
A guiding policy
o Strategic commitment:
is a sizable investment or change to an organization’s
incentive and reward system
Significant investments result in fundamental
changes to the organization’s structure.
Significant changes that are difficult and costly to
reverse
Coherent Actions
o 3 steps are crucial in the strategic management process:
A good strategy must define an organization’s competitive
challenge through a critical and honest assessment of the
status quo.
A good strategy provides a game plan for dealing with
competitive challenge identified. The firm needs a guiding
policy that provides clear guidance for all employees
A good strategy requires effective implementations
through a coherent and consistent set of actions.
The Red Queen Effect
o Situation in which everyone runs faster but there are no changes
in relative strategic positions
o Studying and copying the competition results in unsuccessful
efforts to gain competitive advantage
If competitors copy ome another, everyone will run faster
but their relative strategic positions may not change.
Resulting in zero-sum competition in which a firm can gain
market share only at a competitor’s expense
There is little value creation for customers because the
companies have no resources to invest in product and
process improvements
Stakeholders
o Different types of benefits to various stakeholders
Shareholders provide capital with the expectation that they
will receive a return on their investment in appreciation
and dividend payments
Creditors such as debt holders provide financing for the
firm
Employees contribute their time and talents to the firm,
receiving wages and salaries in exchange
Communities furnish real estate, infrastructure and public
safety
Stakeholder Impact Analysis
o Step 1: identify stakeholders
Strategic leader focus on stakeholders that currently have
pr potentially can have a material effect on the company
Prioritization identifies the most powerful internal and
external stakeholders and their needs
o Step 2: identify stakeholders interests
Goal os to specify ans assess the interests and claims of
the pertinent stakeholders using the power, legitimacy,
and urgency criteria
Many companies incentivize top executives by paying party
of their overall compensation with stock options
They also turn employees to purchase stock at a
discounted rate or use company stock as investment
vehicle for retirement savings
Claims and interests of stakeholders who are
employed by the company and those who depend on
the company for salary, wages and other benefits will
be somewhat different than those who merely own
stock
o Employees tend to be more interested in
career opportunities, job security, employer-
provided health care, paid vacation time and
other perks.
o Shareholder activists
Buy equity stakes in corporations they
view underperforming
Pressure company to change strategy
They are more powerful, as they can buy
and sell many shares at once or exercise
block-voting rights in the corporate
governance process
o Step 3: identify opportunities and threats
Consumer boycotts (example) can be a powerful threat or
force affecting a companies behavior
o Step 4: identify social responsibilities
Corporate social responsibility
A framework that helps firms recognize and address
the economic, legal, social, and philanthropic
expectations that society has of the business
enterprise at a given point in time.
Use this to help firms recognize and meet social
expectations of business enterprise
According to CSR, strategic leaders need to realize that
society grants shareholders the right and privilege to
create a publicly traded company
CSR has four components
o Economic
Investors expect adequate return for the
risks they take
Consumers expect safe products and
services at reasonable prices and
acceptable quality
Suppliers expect to be paid in full on time
Governments expect the firms to pay its
fair share of taxes and manage natural
resources such as air and water
o Legal
o Ethical
o Philanthropic
Voluntary give back to society
o Step 5: address stakeholder concerns
Decide appropriate course of action for the firm, given all
proceeding factors
Thinking about power, legitimacy, and urgency attributes
helps firms prioritize the legitimate claims and address
them accordingly
Implications for strategic leaders
o Difference between success and failure lies in strategy
o A good strategy is grounded in a strategic management process
that defines the competitive challenge, provides a guiding policy
and is implemented by coherent actions
o Enhances the chances of achieving a competitive advantage and
superior performance.
o Leaders realize that they need to be mindful of their intermal and
external stakeholders who have a vested claim or interest in the
form’s performance and continued survival
o Leaders also realize that principles of strategic management can
be applied universally to all organizations
o Using AFI strategy framework:
Analysis of the external and internal environments
Formulation of an appropriate business and corporate
strategy
implementation of the formulated strategy through
structure, culture and controls
o Strategic leaders are making decisions under conditions of
uncertainty and complexity.
Carefully monitor and evaluate the progress toward key
strategic objectives and make adjustments by fine-tuning
any strategy as necessary
Take Away concept
o Explain the role a strategy in a firm's quest for
competitive advantage
strategy is a set of goal directing actions that a firm takes
to gain and sustain superior performance relative to
competitors
a good strategy enables a firm to achieve superior
performance and results from three elements
a diagnosis of the competitive challenge
a guiding policy to address the competitive challenge
a set of coherent actions to implement the firm's
guiding policy
a successful strategy requires 3 integrative management
tasks – analysis, formulation, and implementation.
o Define competitive advantage sustainable competitive
advantage competitive disadvantage and competitive
party
competitive advantage is always judged relative to other
competitors or the industry average
to obtain a competitive advantage a firm must either
create more value for customers while keeping its cost
comparable to competitors or it must provide value
equivalent to its competitors but at a lower cost
A firm that is able to outperform competitors for prolonged
periods of time has a sustained competitive advantage
A firm that continuously underperforms its rivals or the
industry average has a competitive disadvantage
Two or more firms that perform at the same level have
competitive party
an effective strategy requires that strategic trades off be
recognized and addressed - for example, the trade off
between value creation and the costs to create the value.
o Access the relation between stakeholder strategy and
sustainable competitive advantage
Stakeholders are individuals or groups that have a claim on
or interest in the firm's performance and continued
survival. They make specific contributions for which they
expect rewards in return
internal stakeholders include stockholders, employees, and
board members
external stakeholders include customers, suppliers,
alliance partners, creditors, unions, communities,
governments at various levels, and the media
the effective management of stakeholders is necessary to
ensure the firm's continued survival and to sustain any
competitive advantage. These goals are achieved through
stakeholder strategy
o conduct a stakeholder impact analysis
stakeholder impact analysis considers the need of different
stakeholders, and enabling the firm to perform optimally
and live up to the expectations of good citizenship
in a stakeholder impact analysis, managers pay particular
attention to three important stockholder attributes; power,
legitimacy, and urgency
Stockholder impact analysis is a five-step process that asks
the following questions (refer to questions)
o applying the analysis, formulation, implementation
strategy framework
the analysis, formulation, implementation strategy
framework
1) Explains and predicts differences in firm
performance
2) house managers formulate and implement a
strategy that can result in superior performance
effective managing the strategy process is the result of the
following
analysis for A
formulation for F
implementation for I
