Introduction to Strategic

Management

MANA 5336
What is Strategy?


Strategy is the overall plan for

deploying resources to establish a
favorable position.
Tactic is a scheme for a specific
maneuver.
l Characteristics of strategic decisions…
– Important
– Involve a significant commitment of resources
– Not easily reversible
Basic Framework

The firm External

Environment
Goals & Values
Competitors
Resources &
Capabilities Strategy Customers

Structures & Suppliers

Systems etc
Definitions
Strategic Management Process
The full set of commitments, decisions, and
actions required for a firm to create value and
earn above-average returns

Value Creation
What is achieved when a firm successfully
formulates and implements a strategy that
other companies are unable to duplicate or
find too costly to imitate.
Definitions

Average Returns
Returns that are equal to those an investor
expects to earn from other investments with a
similar amount of risk

Above-Average Returns
Returns that are in excess of what an investor
expects to earn from other investments with a similar
amount of risk
Definitions

Risk
An investor’s uncertainty about the economic
gains or losses that will result from a
particular investment
Competitive Landscape
Dynamics of strategic
maneuvering among global
and innovative combatants

Price-quality positioning,
new know-how, first
mover

Hypercompetitive
Protect or invade
environments
established product or
geographic markets
Fundamental nature of
competition is changing
Competitive Landscape
Emergence of global Goods, services, people,
economy skills, and ideas move
freely across geographic
borders

Spread of economic
innovations around the
world
Hypercompetitive
Political and cultural
environments
adjustments are required
Fundamental nature of
competition is changing
Competitive Landscape
Emergence of global
economy
Increasing rate of
technological change and
Rapid technological diffusion
change

The information age

Increasing knowledge
Hypercompetitive intensity
environments

Fundamental nature of
competition is changing
Strategic Flexibility

A set of capabilities used to respond to

various demands and opportunities existing
in a dynamic and uncertain competitive
environment
It involves coping with uncertainty and the
accompanying risks
Strategic Flexibility
Organizational
slack

Strategic Strategic
reorientation Flexibility
flexibility

Capacity to
learn
 I/O Model of Above-Average Returns
1. External Environments
General
Global Strategy dictated by the
external environment of
al / Leg

De
Industry the firm (what

mo c
cal

Environment opportunities exist in

gra
l iti

these environments?)
Po

ph
i Firm develops internal skills
required by external
So

ic
cio l

environment (what can

om

Competitor
cu

the firm do about the

on
lt u

Environment
Ec

opportunities?)
ra

Technologic
al
Environment
Four Assumptions of the I/O Model

The external environment is assumed to possess

pressures and constraints that determine the
strategies that would result in above-average
returns
Most firms competing within a particular industry or
within a certain segment of it are assumed to
control similar strategically relevant resources and
to pursue similar strategies in light of those
resources
Four Assumptions of the I/O Model

Resources used to implement strategies are highly

mobile across firms
Organizational decision makers are assumed to be
rational and committed to acting in the firm’s best
interests, as shown by their profit-maximizing
behaviors
 I/O Model of Above-Average Returns

Industrial Organization
Model
Study the external
The External Environment environment, especially
the industry environment
economies of scale
barriers to market entry
diversification
product differentiation
degree of concentration of
firms in the industry
 I/O Model of Above-Average Returns

Industrial Organization
Model Locate an attractive industry
with a high potential for
The External Environment above-average returns

An Attractive Industry
Attractive industry: one
whose structural
characteristics suggest
above-average returns
 I/O Model of Above-Average Returns

Industrial Organization
Model
Identify the strategy called
The External Environment for by the attractive
industry to earn above-
An Attractive Industry average returns
Strategy Formulation Strategy formulation:
selection of a strategy linked
with above-average returns
in a particular industry
 I/O Model of Above-Average Returns

Industrial Organization
Model
Develop or acquire assets
The External Environment and skills needed to
implement the strategy
An Attractive Industry

Strategy Formulation Assets and skills: those

assets and skills required to
Assets and Skills implement a chosen
strategy
 I/O Model of Above-Average Returns

Industrial Organization
Model
Use the firm’s strengths (its
The External Environment developed or acquired assets
and skills) to implement the
An Attractive Industry strategy
Strategy Formulation
Strategy implementation:
Assets and Skills select strategic actions
linked with effective
Strategy Implementation implementation of the
chosen strategy
 I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Superior returns: earning of

above-average returns
Strategy Implementation

Superior Returns
 Resource-based Model of Above Average Returns

1. Firm’s Resources
Strategy dictated by the firm’s
unique resources and
capabilities
Find an environment in which
to exploit these assets
(where are the best
opportunities?)

The Firm
Resource-based Model of Above Average Returns

Resource-based
Model
Identify the firm’s resources--
Resources strengths and weaknesses
compared with competitors

Resources: inputs into a

firm’s production process
Resource-based Model of Above Average Returns

Resource-based
Model
Determine the firm’s
Resources capabilities--what it can do
better than its competitors
Capability
Capability: capacity of an
integrated set of resources
to integratively perform a
task or activity
Four Attributes of Resources and Capabilities
(Competitive Advantage)

Valuable allow the firm to exploit opportunities or

neutralize threats in its external environment

Resources and Capabilities

Rare possessed by few, if any, current and potential
competitors

Costly to when other firms cannot obtain them or must

imitate obtain them at a much higher cost

Non the firm is organized appropriately to obtain

substitutable the full benefits of the resources in order to
realize a competitive advantage
 Resources and capabilities that meet these
four criteria become a source of:

Valuable
Co
Resources and Capabilities
re
Rare Co
Core Competencies
mp
Costly to imitate ete
nci
Nonsubstitutable
es
Core Competencies are the basis for a firm’s

Competitive
advantage

Value Creation
Core Competencies
Ability to earn
above-average
returns
Resource-based Model of Above Average Returns

Resource-based
Model Determine the potential of the
firm’s resources and
Resources capabilities in terms of a
competitive advantage
Capability

Competitive Advantage Competitive advantage:

ability of a firm to
outperform its rivals
Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Locate an attractive industry
Capability
An attractive industry: an
Competitive Advantage industry with opportunities
that can be exploited by the
An Attractive Industry firm’s resources and
capabilities
Resource-based Model of Above Average Returns

Resource-based
Model Select a strategy that best
Resources allows the firm to utilize its
resources and capabilities
Capability relative to opportunities in
the external environment
Competitive Advantage
Strategy formulation and
An Attractive Industry
implementation: strategic
Strategy Form/Impl actions taken to earn above
average returns
Resource-based Model of Above Average Returns

Resource-based
Model
Resources

Capability

Competitive Advantage

An Attractive Industry Superior returns: earning

of above-average returns
Strategy Form/Impl

Superior Returns
Strategic Intent & Mission

l Strategic Intent
lWinning competitive battles by leveraging the firm’s
resources, capabilities, and core competencies
lStrategic Mission
lAn application of strategic intent in terms of products to
be offered and markets to be served
Emergent and Deliberate
Strategies

Intended Deliberate Realized

Strategy Strategy Strategy

Unrealized Emergent
Strategy Strategy

From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly,
Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.
Strategic Management Process for Intended
Strategies Missions
Missions
and
and
Goals
Goals

Strategic
Strategic Internal
External
External Internal
Analysis
Analysis Analysis
Analysis
Choice
Choice

INTENDED STRATEGY

Organizing
Organizingfor
for
Implementation
Implementation
Strategic Management Process for Emergent
Strategies
External Missions
Missions Internal
External and Internal
Analysis
Analysis and Analysis
Analysis
Goals
Goals

Strategic
StrategicChoice
Choice
Does
DoesItItFit?
Fit?

EMERGENT STRATEGY

Organizational
Organizational
Grassroots
Grassroots
 The Firm and Its Stakeholders
Stakeholders
The firm who
Groups mustare
maintain
affected by a
performance
firm’s at an adequate
performance and who
level in
have order on
claims to retain the
its wealth
participation of key
stakeholders

THE FIRM
The Firm and Its Stakeholders
Stakeholders
Shareholders
Capital Market Stakeholders Major suppliers of capital
•Banks
•Private lenders
•Venture
capitalists
The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Primary customers
Product Market Stakeholders Suppliers
Host communities
Unions
The Firm and Its Stakeholders

Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Employees
Organizational Stakeholders Managers
Nonmanagers
Values

l Johnson & Johnson’s credo

sets its responsibilities to:
1. J&J product users.
2. J&J employees.
3. Communities in which J&J
employees live and work.
4. J&J stockholders.

Source: Courtesy of Johnson & Johnson.

Johnson & Johnson Credo*

l First Responsibility Is to Those Who

Use J&J Products
l Next Come Its Employees
l Next, the Communities in Which the
Employees Live and Work
l Its Final Responsibility Is
to Its Stockholders
Levels of Strategy
Functi
onal

Business
Corp
orate

Global
• Functional-Level Strategy

– Manufacturing
– Marketing
– Materials Management
– Research and Development
– Human Resources
• Business-Level Strategy

– Cost Leadership
– Differentiation
– Market Niche Focus
• Global Strategies

– Multidomestic
– International
– Global
– Transnational
• Corporate-Level Strategy

– Vertical Integration
– Diversification
– Strategic Alliances
– Acquisitions
– New Ventures
– Business Portfolio
Restructuring