Discussion question
Elizabeth12345
490_10weeks_week13.pptMGMT 490
Session 1
Global Strategic Management
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process.
Describe the competitive landscape and explain how globalization and technological changes shape it.
Use the industrial organization (I/O) model to explain how firms can earn above-average returns.
Use the resource-based model to explain how firms can earn above-average returns.
Define stakeholders and describe their ability to influence organizations.
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Figure 1.1 The Strategic Management Process
Professor Ranfeng Qiu
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The Global Competitive Landscape
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- Market volatility and instability due to
the rapid pace of change in markets - Blurring of market boundaries
- Globalized flow of financial capital
- Need for flexibility, speed, innovation,
and integration in the use of technology - Strategic and operational complexity
of global-scale competition - Rising product quality standards
- Traditional time for adapting to change
- Traditional sources of competitive advantage
- Traditional managerial mindset
Professor Ranfeng Qiu
Decreasing
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
- Blockbuster Inc., Circuit City and Borders Group Inc.
- What these firms have in common? What cause their market failures?
- April, 2012, Eastman Kodak Co. was contemplating seeking Chapter 11 bankruptcy protection.
- April, 2012, B&N would have double losses in 2011 as it previously expected, ... And it is weighing splitting off the Nook digital-book business.
Twenty-First Century Competition
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Twenty-First Century Competition
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Professor Ranfeng Qiu
The Competitive Landscape
- Businesses fail every year.
“100 largest U.S. industrial corporations in 1900, only 16 remained competitive in the 1990s”
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
The Competitive Landscape
- Businesses fail every year…
“100 largest U.S. industrial corporations in 1900, only 16 remained competitive in the 1990s”
1. Technology Changes
2. The Global Economy
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Professor Ranfeng Qiu
Nature of Competition: Strategy
Resources
Capabilities
External
environment
- Returns
ROI, Stock market returns
Revenue, net (gross) margin
- Growth rate (small firms)
- Etc.
- Above Average Returns (AAR)
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- Above Average Returns (AAR)
- in excess of what investor expects
- in comparison to other investments with similar risk
Strategic Decision Making
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Trade-offs
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Strategic Competitiveness
Professor Ranfeng Qiu
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Formulation and implementation of
a superior value-creating strategy
Commitments and actions to achieve above-average performance and returns
What the firm will do
What the firm will not do
Competitive advantage
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Profitability differences across selected industries in the U.S
Why some industries tend to be more attractive (profitable) than others?
Within each industry, why some firms are more successful than others?
External vs. Internal Analysis
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
I/O (Industry Organization) Model vs. RBV (Resource-Based View)
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Strategic Decision Making
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Industry Organization (I/O) Model
Resource-Based
Model
Competitive Strategy
Decision
Professor Ranfeng Qiu
The Industry Organization (I/O) Model
of Above-Average Returns
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Professor Ranfeng Qiu
Professor Ranfeng Qiu
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Figure 1.2
The I/O Model of
Above-Average
Returns
Professor Ranfeng Qiu
Professor Ranfeng Qiu
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I/O Model Assumptions
The external environment imposes pressures and constraints that determine strategic choices.
Similarity in strategically relevant resources causes competitors to pursue similar strategies.
Resource differences among competitors are short-lived due to resource mobility across firms.
Strategic decision makers are rational and engage in profit-maximizing behaviors.
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Professor Ranfeng Qiu
Professor Ranfeng Qiu
The Resource-Based Model
of Above-Average Returns
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Resources
Physical, human, and organizational capital
(tangible and intangible)
Capability
An integrated set of resources
Core
competence
A source of competitive advantage
Professor Ranfeng Qiu
Professor Ranfeng Qiu
Resource-Based Model Assumptions
Firms acquire different resources.
Firms develop unique capabilities based on how they combine and use resources.
Resources and certain capabilities are not highly mobile across firms.
Differences in resources and capabilities are the bases of competitive advantage and a firm’s performance rather than its industry’s structural characteristics.
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Professor Ranfeng Qiu
Professor Ranfeng Qiu
Resources As Core Competencies
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Professor Ranfeng Qiu
Costly to imitate
Rare
Nonsubstitutable
Valuable
How resources become core competencies
Professor Ranfeng Qiu
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Figure 1.3
The Resource-Based
Model of Above-Average
Returns
Professor Ranfeng Qiu
Professor Ranfeng Qiu
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Vision Statement
- A Successful Vision
is an enduring word picture of what the firm wants to be and expects to achieve in the future.
stretches and challenges its people.
reflects the firm’s values and aspirations.
is most effective when its development includes all stakeholders.
recognizes the firm’s internal and external competitive environments.
is supported by upper management decisions and actions.
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Professor Ranfeng Qiu
Mission Statement
- An Effective Mission
specifies the present business or businesses in which the firm intends to compete and customers it intends to serve.
has a more concrete, near-term focus on current product markets and customers than the firm’s vision.
should be inspiring and relevant to all stakeholders.
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Professor Ranfeng Qiu
Professor Ranfeng Qiu
Classification of Stakeholders
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Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
Categories of stakeholders
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Stakeholder involvement
Professor Ranfeng Qiu
Two issues:
1. Divide the returns
Capital Market
Product Market
Organizational
2. Increase the returns
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Professor Ranfeng Qiu
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External Environmental Analysis
- General environment
Focused on the future
- Industry environment
Focused on factors and conditions influencing a firm’s profitability within an industry
- Competitor environment
Focused on predicting the dynamics of competitors’ actions, responses and intentions
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Professor Ranfeng Qiu
Explain the importance of analyzing and understanding the firm’s external environment.
Define and describe the general environment and the industry environment.
Discuss the four activities of the external environmental analysis process.
Name and describe the general environment’s seven segments.
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
The interactions of three external environments
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Figure 2.1 The External Environment
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Table 2.1 The General Environment: Segments and Elements
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External Environmental Analysis
- General environment
Focused on the future
- Industry environment
Focused on factors and conditions influencing a firm’s profitability within an industry
- Competitor environment
Focused on predicting the dynamics of competitors’ actions, responses and intentions
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Table 2.2 Components of the External Environmental Analysis
External Environmental Analysis
Professor Ranfeng Qiu
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| Scanning | Identifying early signals of environmental changes and trends |
| Monitoring | Detecting meaning through ongoing observations of environmental changes and trends |
| Forecasting | Developing projections of anticipated outcomes based on monitored changes and trends |
| Assessing | Determining the timing and importance of environmental changes and trends for firms’ strategies and their management |
Professor Ranfeng Qiu
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Opportunities and Threats
- Opportunity
A condition in the general environment that, if exploited effectively, helps a firm achieve strategic competitiveness.
- Threat
A condition in the general environment that may hinder
a firm’s efforts to achieve strategic competitiveness.
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Segments of the General Environment
Professor Ranfeng Qiu
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The Demographic Segment
Population
size
Age
structure
Geographic
distribution
Ethnic mix
Income distribution
Professor Ranfeng Qiu
Segments of the General Environment (cont’d)
- The Economic Segment
Uncertainty in
Market growth rates
Consumer demand
Inflation and interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal and business savings rates
Gross domestic product
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Segments of the General Environment (cont’d)
- The Political/Legal Segment
Regulations
Consumer privacy laws
Lobbying
Antitrust, deregulation laws
Taxation
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Segments of the General Environment (cont’d)
- The Sociocultural Segment
Changing attitudes and cultural values
Attitudes and approaches to health care
Attitudes about quality of worklife
Diverse and aging workforce
Women in the workplace
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Segments of the General Environment (cont’d)
- The Technological Segment
Product innovations
Rapid technological change and the risk of disruption
Knowledge application
Growth of the Internet
New communication technologies
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Segments of the General Environment (cont’d)
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Segments of the General Environment (cont’d)
- The Physical Environment Segment
Emerging trends oriented to sustaining the world’s physical environment
Recognition of the interactive influence of ecological, social, and economic systems
Growing concerns for sustainable industry development and increased corporate social responsibility for the future effects of globalized operations
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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The concept of “value”
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Core principles of business
- The value chain
- Value creation and value capture
- Added value
- Willingness to pay (WtP)
- Opportunity cost (O.C)
- Value “wedge”
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
The Value Chain
Customers
Suppliers
Focal Business
Money Flow
Products/Outputs
Resources/Inputs
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
- Suppliers and buyers/customers
Anyone willing to buy from / sell to your products (business).
- Value
is created by business interaction with suppliers and customers along a value chain.
Value and value chain
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Professor Ranfeng Qiu
- Added value = total value with you – total value without you
Added Value
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Consulting firms
Car manufacturers
Retail stores
Coffee shops
Professor Ranfeng Qiu
Value capture vs. value creation
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Professor Ranfeng Qiu
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Firm A takes firm B’s market share.
For instance, in the ever slower cellphone market, Motorola’s share was eaten by Nokia, Samsung, LG and Apple.
Professor Ranfeng Qiu
- How is “value” measured?
Customers value the products they are buying
Suppliers value the resources they are selling
Value for a firm
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Customers
Suppliers
Focal Business
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Principle of Business
WtP - the most a customer would pay for a good or service in relation to next best alternative
Opportunity cost (O.C) - the least a supplier would pay for a good or service in relation to the next best alternative
Value wedge – the difference between WtP and O.C
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Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Principle of Business
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Professor Ranfeng Qiu
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Someone might argue that firm maximize its value by lowering purchasing price from the suppliers and increase selling price to customers. But NO!!!! DO NOT Mix up Price/Costs with WtP and OC.
Why?
Because customers and suppliers will be upset and they will switch to other firms.
Ex.
Subway, bakery will provide bread to other sandwich stores and customers would turn to Mcdonald’s, Wendy’s…
Professor Ranfeng Qiu
Your supplier
You are a customer looking to make one purchase from Firm 1 or Firm 2.
You have a WtP of $50 for firm 1 and a WtP of $70 for firm 2. Given the prices below, which firm do you prefer? Why?
Firm 1 price =$40
Firm 2 price = $50
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Fim 2
$10
$70
Firm 1
$5
$50
Professor Ranfeng Qiu
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Someone might argue that firm maximize its value by lowering purchasing price from the suppliers and increase selling price to customers. But NO!!!! DO NOT Mix up Price/Costs with WtP and OC.
Why?
Because customers and suppliers will be upset and they will switch to other firms.
Ex.
Subway, bakery will provide bread to other sandwich stores and customers would turn to Mcdonald’s, Wendy’s…
Professor Ranfeng Qiu
Your customer
Consider 2 firms in a market:
You are a supplier. Firm 1 offers to pay you $10 for one unit of your goods. Firm 2 offers to pay you $16 for one unit of your goods.
As a supplier, why might your opportunity cost be different for firm 1 and firm 2?
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Firm 2
$10
$70
Firm 1
$5
$50
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Quick facts
- Premium coffee shops.
- The number of coffee cafes in the U.S -- 500 in 1992 to 10000 to 1999
Team Discussion - Starbucks
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| Café latte | Price |
| McCafe | $2.30 |
| Starbucks | $3.10 |
| Octane | $4.00 |
Professor Ranfeng Qiu
Professor Ranfeng Qiu
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Professor Ranfeng Qiu
Local small premium coffee shops
https://www.youtube.com/watch?v=b3gxSyjpRZU
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Professor Ranfeng Qiu
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