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Strategic Management:
Creating Competitive Advantages

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Learning Objectives

After reading this chapter, you should have a good understanding of:

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.

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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

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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

Strategic Management

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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

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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

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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

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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. 257-72.

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Strategic Analysis

• Starting point in the strategic management process
• Precedes effective formulation and implementation of strategies

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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

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Strategic Analysis (cont.)

• Frameworks for analyzing a firm’s internal environment
• Strengths
• Weaknesses
• Analyzing strengths can uncover potential sources of competitive advantage

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Strategic Analysis (cont.)

• Intellectual assets are drivers of
• Competitive advantage
• Wealth creation
• Networks and relationships among
• Employees
• Customers
• Suppliers
• Alliance partners

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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

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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

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Strategy Formulation (cont.)

• International Strategy
• Appropriate entry strategies for foreign markets
• Sustain competitive advantage in global markets
• Effective strategies for entrepreneurial initiatives

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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

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Strategy Implementation (cont.)

• Organizational boundaries
• Flexible
• Permeable
• Strategic Alliances
• Develop organization that is committed to
• Excellence
• Ethical behavior

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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

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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

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Question

What is the role of the board of directors in corporate governance?

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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

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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

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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

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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

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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

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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

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Enhancing Employee Involvement

Have significant profit and loss responsibility

Local Line Leaders

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Enhancing Employee Involvement

• Champion and guide ideas
• Create a learning infrastructure
• Establish a domain for taking action

Executive Leaders

Local Line Leaders

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Enhancing Employee Involvement

• Have little positional power and formal authority
• Generate their power through the conviction and clarity of their ideas

Executive Leaders

Local Line Leaders

Internal

Networkers

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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

Company vision

Hierarchy of Goals

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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

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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

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Coherence in Strategic Direction

• Strategic objectives
• Measurable
• Specific
• Appropriate
• Realistic
• Timely
• Challenging
• Resolve conflicts that arise
• Yardstick for rewards and incentives

Company vision

Mission statements

Strategic objectives

Hierarchy of Goals

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Strategic Management:
Creating Competitive Advantages