Ch1-1

Sustained Competitive Advantage

Above-Average Returns
Returns in excess of what an investor expects to
earn from other investments with similar risk
Occurs when a firm develops a strategy that
competitors are not simultaneously implementing
Provides benefits which current and potential
competitors are unable to duplicate
Strategic Competitiveness
Achieved when a firm successfully formulates
and implements a value-creating strategy
Ch1-2
which are required for firms to achieve:
Above-Average Returns
Strategic Competitiveness
Sustained Competitive Advantage
The Strategic Management Process
Involves the full set of:
Actions Commitments Decisions
Ch1-3
The Strategic
Management
Process
Chapter 3
Internal
Environment
Chapter 2
External
Environment
Strategic Intent
Strategic Mission
Strategy Formulation Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Strategy
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategies
Chapter 7
Acquisitions &
Restructuring
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 12
Strategic
Leadership
Chapter 13
Entrepreneurship
& Innovation
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Strategic
Competitiveness
Above Average
Returns
Ch1-4
Competitive success is transient...unless care is
taken to preserve competitive position
Only 16 of the 100 largest U.S. companies at
the start of the 20th century are still
identifiable today!
In a recent year, 44,367 businesses filed for
bankruptcy and many more U.S. businesses failed
Challenge of Strategic Management
Ch1-5
Best Stocks of the Decade
% Change 1990-99
Cisco 124,825%
AOL 81,400%
Dell 72,400%
EMC 68,314%
CMGI 57,191%
Solectron 21,233%
JDS Uniphase 18,755%
Tellabs 16,921%
Clear Channel Communications 13,700%
Best Buy 9,376%
Maxim Integrated 8,735%
Veritas Software 8,536%
Charles Schwab 7,985%
Microsoft 7,483%
Sun Microsystems 7,163%
Safeguard Scientifics 6,816%
Qlogic 6,764%
Yahoo 6,744%
Qualcomm 6,388%
Applied Materials 6,350%
Challenge of Strategic Management
The goals of achieving
strategic competitiveness
and earning above-
average returns are
challenging
The performance of
some companies more
than meets strategic
management's
challenge
Ch1-6
Rapid technological changes
Rapid technology diffusions
Dramatic changes in
information and
communication technologies
Increasing importance of
knowledge
Fundamental nature of
competition is changing
The pace of change
is relentless....
and increasing
Traditional industry
boundaries are
blurring, such as...
Computers
Telecommunications

21st Century Competitive Landscape
Ch1-7
The global economy is
changing
People, goods, services and
ideas move freely across
geographic boundaries
New opportunities emerge
in multiple global markets
Markets and industries
become more
internationalized
Traditional sources of
competitive advantage
no longer guarantee
success
New keys to success
include:
Flexibility
Innovation
Speed
Integration
21st Century Competitive Landscape
1999 1998 Country Competitiveness
Index 1999
Competitiveness
Index 1998
1 1 Singapore 2.12 2.16
2 3 United States 1.58 1.41
3 2 Hong Kong 1.41 1.91
4 6 Taiwan 1.38 1.19
5 5 Canada 1.33 1.27
6 8 Switzerland 1.27 1.10
7 10 Luxembourg 1.25 1.05
8 4 United Kingdom 1.17 1.29
9 7 Netherlands 1.13 1.13
10 11 Ireland 1.11 1.05
11 15 Finland 1.11 0.70
12 14 Australia 1.04 0.79
13 13 New Zealand 10.1 0.84
14 12 Japan 1.00 0.97
15 9 Norway 0.92 1.09
16 17 Malaysia 0.86 0.59
17 16 Denmark 0.85 0.61
18 30 Iceland 0.59 -0.18
19 23 Sweden 0.58 0.25
20 20 Austria 0.37 0.37
21 18 Chile 0.57 0.57
22 19 Korea 0.46 0.39
23 22 France 0.44 0.25
24 27 Belgium 0.39 -0.03
25 24 Germany 0.37 0.15
26 25 Spain 0.16 0.02
Country Competitiveness Rankings
A countrys
competitiveness is
achieved through the
accumulation of
individual firms
strategic
competitiveness in
the global economy
Achieving improved
competitiveness
allows a country's
citizens to have a
higher standard of
living
21st Century Competitive Landscape
Ch1-9
Alternative Models of Superior Returns
Resource-Based
Model
Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Superior Returns
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Implementation
Superior Returns
Ch1-10
I/O Model of Superior Returns
The Industrial Organization model
suggests that above-average returns
for any firm are largely determined
by characteristics outside the firm.
This model largely focuses on industry
structure or attractiveness of the
external environment rather than
internal characteristics of the firm.
Ch1-11
Action required:
External
Environment
General Environment
Industry Environment
Competitive
Environment
Study the external
environment, especially
the industry environment.
I/O Model of Superior Returns
Ch1-12
External
Environment
General Environment
Industry Environment
Competitive
Environment
An Attractive
Industry
An industry whose
structural characteristics
suggest above-average
returns are possible
Action required:
Locate an industry with
high potential for above-
average returns.
I/O Model of Superior Returns
Ch1-13
External
Environment
General Environment
Industry Environment
Competitive
Environment
Attractive
Industry
An industry whose
structural characteristics
suggest above-average
returns are possible
Action required:
Identify strategy called for
by the industry to earn
above-average returns.
Selection of a strategy
linked with above-
average returns in a
particular industry
Strategy
Formulation
I/O Model of Superior Returns
Ch1-14
External
Environment
General Environment
Industry Environment
Competitive
Environment
Attractive
Industry
An industry whose
structural characteristics
suggest above-average
returns are possible
Strategy
Formulation
Selection of a strategy
linked with above-
average returns in a
particular industry
Action required:
Develop or acquire assets
and skills needed to
implement the strategy.
Assets and Skills
Assets and skills
required to implement
a chosen strategy
I/O Model of Superior Returns
Ch1-15
External
Environment
General Environment
Industry Environment
Competitive
Environment
Attractive
Industry
An industry whose
structural characteristics
suggest above-average
returns are possible
Strategy
Formulation
Selection of a strategy
linked with above-
average returns in a
particular industry
Assets and Skills
Assets and skills
required to implement
a chosen strategy
Action required:
Use the firms strengths
(its assets or skills) to
implement the strategy.
Strategy
Implementation
Selection of strategic
actions linked with
effective implementation
of the chosen strategy
I/O Model of Superior Returns
Ch1-16
External
Environment
General Environment
Industry Environment
Competitive
Environment
Attractive
Industry
An industry whose
structural characteristics
suggest above-average
returns are possible
Strategy
Formulation
Selection of a strategy
linked with above-
average returns in a
particular industry
Assets and Skills
Assets and skills
required to implement
a chosen strategy
Action required:
Strategy
Implementation
Selection of strategic
actions linked with
effective implementation
of the chosen strategy
Superior Returns
Earning of above-
average returns
Maintain selected strategy
in order to outperform
industry rivals.
I/O Model of Superior Returns
Ch1-17
The Resource-Based model suggests
that above-average returns for any
firm are largely determined by
characteristics inside the firm.
This model focuses on developing or
obtaining valuable resources and
capabilities which are difficult or
impossible for rivals to imitate.
Resource-Based Model of Superior Returns
Ch1-18
Resources
Inputs to a firms
production process.
Action required:
Identify firm resources.
Study strengths and weak-
nesses relative to rivals.
Resource-Based Model of Superior Returns
Ch1-19
Resources
Inputs to a firms
production process.
Action required:
Determine what firm
capabilities allow it to do
better than rivals.
Capability
Capacity for an integrated
set of resources to perform
a task or activity.
Resource-Based Model of Superior Returns
Ch1-20
Resources
Inputs to a firms
production process.
Capability
Capacity for an integrated
set of resources to
integratively perform a
task or activity.
Competitive
Advantage
Ability of a firm to
outperform its rivals
Action required:
Determine how firms
resources and capabilities
may create competitive
advantage.
Resource-Based Model of Superior Returns
Ch1-21
Resources
Inputs to a firms
production process.
Capability
Capacity for an integrated
set of resources to
integratively perform a
task or activity.
Competitive
Advantage
Ability of a firm to
outperform its rivals
An Attractive
Industry
Location of an industry
with opportunities that
can be exploited by the
firms resources and
capabilities
Action required:
Locate an attractive
industry.
Resource-Based Model of Superior Returns
Ch1-22
Resources
Inputs to a firms
production process.
Capability
Capacity for an integrated
set of resources to
integratively perform a
task or activity.
Competitive
Advantage
Ability of a firm to
outperform its rivals
An Attractive
Industry
Location of an industry
with opportunities that
can be exploited by the
firms resources and
capabilities
Action required:
Select strategy that best
exploits resources and
capabilities relative to
opportunities in environs.
Strategy
Formulation and
Implementation
Strategic actions taken to
earn above-average
returns
Resource-Based Model of Superior Returns
Ch1-23
Resources
Inputs to a firms
production process.
Capability
Capacity for an integrated
set of resources to
integratively perform a
task or activity.
Competitive
Advantage
Ability of a firm to
outperform its rivals
An Attractive
Industry
Location of an industry
with opportunities that
can be exploited by the
firms resources and
capabilities
Action required:
Maintain selected strategy
in order to outperform
industry rivals.
Strategy
Formulation and
Implementation
Strategic actions taken to
earn above-average
returns
Superior Returns
Earning of above-
average returns
Resource-Based Model of Superior Returns
Ch1-24
Core Competencies
When these four
criteria are met,
Resources and
Capabilities
become:
Core Competencies are resources and capabilities
that can serve as a source of Competitive Advantage.
The Resource-Based model argues that Core
Competencies are the basis for a firms Competitive
Advantage, Strategic Competitiveness and Ability to
Earn Above-average Returns.
Ch1-25
Stakeholders:
Groups who are affected by a firms
performance and who have claims on its
wealth
The firm must maintain
performance at an adequate level in
order to maintain the participation
of key stakeholders
Organizational
Employees
Managers
Non-Managers
Firm
Capital Market
Stock market/Investors
Debt suppliers/Banks
Product Market
Primary Customers
Suppliers
Ch1-26
Stakeholder Involvement
Each of the key stakeholders
wants a piece of the same pie
1
How do you divide the pie
in order to keep all of the
stakeholders involved?
2
How do you increase the
size of the pie so that there
is more to go around?
Ch1-27
Chapter 3
Internal
Environment
Chapter 2
External
Environment
The Strategic
Management
Process
Strategic Intent
Strategic Mission
Strategic
Competitiveness
Above Average
Returns
Feedback
Strategy Formulation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Strategy
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategies
Chapter 7
Acquisitions &
Restructuring
Strategy Implementation
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 12
Strategic
Leadership
Chapter 13
Entrepreneurship
& Innovation
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