Business Policy and Strategy

Prepared by:
Kelechi Nwoke
RBS







Strategic Management
and
Strategic Competitiveness


Session 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.
Describe vision and mission and discuss their value.
Define stakeholders and describe their ability to influence
organizations.
Describe the work of strategic leaders.
Explain the strategic management process.
Strategic competitiveness. The position of a company with respect to
its competitors, achieved by a firm successfully formulating and
implementing a value-creating strategy

Strategy. An integrated and coordinated set of plans, commitments
and actions by a firm, aimed at exploiting its core competencies and
gaining a competitive advantage.

Competitive Advantage. A relatively superior position a firm obtains by
implementing a strategy that yields superior value for customers and
that is difficult to imitate.

Competitive advantage is not permanent: it can be lasting or fleeting

Above-average returns . Returns that exceed an investors expected
earnings from other investments with a comparable level of risk.

Returns can be measured in terms of return on assets, return on
equity, or return on sales, stock market returns, amount and speed of
growth

Risk. The investor's uncertainty about the economic results (gains or
losses) which might obtained from a particular investment.

Without a competitive advantage or involvement in competing in an
attractive industry, firms can be limited to earning average returns

Not earning at least average returns can lead firms first to decline and,
eventually, failure.

When investors withdraw their investments from those firms earning
less-than-average returns, this leads to the failure of these firms
The Competitive Landscape

. The world is experiencing changes in the fundamental nature of competition in many
industries.
Issues: Scarce financial capital; increasingly volatile markets; ever-increasing pace of change;
blurring industry boundaries
Examples: cable companies and satellite networks competing for entertainment revenue from
television; Software companies moving into the entertainment business; etc

Managers must be prepared to deal with constantly changing conditions, and need to imbibe
the values of flexibility, speed, innovation, and integration.

Managers need to use the strategic management process in order to reduce the likelihood of
failure for their firms which are impacted by the nature of today's competitive landscape.

Hypercompetition. This term defines the nature of today's competitive landscape where there is
inherent market instability

Hypercompetition arises from strategic maneuvering among global and innovative competitors,
and is characterized by rapidly escalating competition in terms of price-quality positioning,
competition in terms of creating new know-how and establishing first-mover advantage, as well
as competition to protect partake in existing product or geographic markets.

Primary factors that create hypercompetitive environments: The emergence of a global
economy and rapid technological change.

The Competitive Landscape

A global economy: One where goods, services, people, skills, knowledge and ideas move freely
across geographic borders, relatively unhindered by artificial constraints like tariffs.

Globalization is the increasing economic interdependence among countries and their
organizations as reflected in the flow of goods and services, financial capital, and knowledge
across country borders.

Globalization. The increasing economic interaction among organizations and countries,
manifesting through both interdependence and competition between these entities.

Because of the nature of the global economy, firms must seriously consider where they should
establish their presence, and be strategic in how those firms carry out their activities.

Firms involved in globalization of their operations need to be culturally sensitive in
implementing the strategic management process

globalization has brought about higher performance standards in various competitive
dimensions such as quality, cost, productivity, and operational efficiency

In the twenty-first century competitive landscape, companies intending to earn above-average
returns need to be capable of meeting, if not exceeding, global standards.

The I/O Model of Above-Average Returns

The industrial organization model of above-average returns explains the dominant
influence of the external environment on the strategic actions of a firm.
From the 1960s through the 1980s, the external environment was considered as
the primary determinant of strategies that firms selected, to be successful.

According to the I/O model, the industry or industry segment of a firm has a
stronger influence on its performance than do the choices managers make inside
these firms.

Industry properties affecting the performance of the firm: economies of scale;
barriers to market entry; diversification; product differentiation; and the degree of
concentration of firms in the industry

The I/O Model of Above-Average Returns
(Hitt, Ireland and Hoskisson, 2013)
.
The External Environment
The general environment
The industry environment
The competitor environment
An Attractive Industry
One whose structural characteristics suggest above-
average returns
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
Strategy Implementation
Selection of strategic actions linked with effective
implementation of the chosen strategy
Superior Returns
Earning of above-average returns
The I/O Model of Above-Average Returns

The four underlying assumptions of the I/O model (Grounded in economics):
1. It is assumed that the external environment imposes pressures and constraints
that determine the strategies that would result in above-average returns for
companies.

2. Homogeneity. Most firms competing within an industry or industry segment are
assumed to control similar strategically relevant resources and to follow similar
strategies reflecting those resources.

3. Resources used to execute strategies are assumed to be highly mobile across
firms, thus any resource differences that might arise between firms will be
temporal.

4. It is assumed that organizational decision makers are rational and committed to
acting in the firm's best interests, as is evidenced by their profit-maximizing
behaviors

The I/O Model of Above-Average Returns

In line with the I/O model, firms are to find the most attractive industry in which to
compete.

Since it is assumed that most firms have similar valuable resources which can be
moved across companies, their performance generally can be increased only by
operating in the industry with the highest profit potential and by learning how to use
their resources to implement the strategy determined by the external environment.

Firms use the five forces model to figure out how attractive an industry is - as gauged
by its profitability potential - as well as the most favorable position for the firm to take
in that industry, considering the industry's structural characteristics.

Two strategies which a firm can implement in a bid to survive in its environment are:
1. A cost leadership strategy: by producing standardized goods or services at lower
costs than those of their competitors
2. A differentiation strategy: by producing differentiated goods or services which will
attract customers willing to pay a price premium


The Resource-Based Model of Above-Average Returns

According to the resource-based model, each organization is a collection of unique
resources and capabilities. The uniqueness of the resources and capabilities of the
firm is the basis of that firm's strategy and its ability to earn above-average returns.

Resources: Inputs into a firm's production process, such as capital equipment, the
employees skills, patents, finances, and the management team

A capability is the capacity for a number of resources to carry out a task or an activity
in an integrative manner.
Core competencies are resources and capabilities that enable a firm to gain
competitive advantage over its rivals.

This resource-based model suggests that the strategy of choice for the firm should
allow it to use its competitive advantages in an attractive industry

The resource based model recognizes firm heterogeneity


The Resource-Based Model of Above-Average Returns
(Hitt, Ireland and Hoskisson, 2013)
.
Resources
Inputs into a firms production process
Capabilities
Capacity of 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
One with opportunities that can be exploited by the
firms resources and capabilities
Strategic Formulation and
Implementation
Strategic actions taken to earn above-average returns
Superior Returns
Earning of above-average returns
Vision and Mission
The Vision of a firm is a picture of what the firm wants to be and, broadly speaking,
what the firm wants to ultimately achieve


A firms Mission tells of the business(es) which the firm intends to compete in, as well
as the customers it intends to serve.
The firm's mission is more concrete than its vision.

The vision and mission of the firm provide the foundation for the firm to choose and
implement one or more strategies.
Stakeholders
(Hitt, Ireland and Hoskisson, 2013)
.
Stakeholders
Capital Market
Stakeholders

Shareholders
Major suppliers of capital
Product Market
Stakeholders
Primary customers
Suppliers Hotel
communities
Unions
Organizational
Stakeholders
Employees
Managers
Non-managers
The Strategic Management Process


A rational approach used by firms to gain strategic competitiveness and obtain above-
average returns

The full set of commitments, decisions, and actions which a firm needs to achieve
strategic competitiveness and obtain above-average returns.

A firm devises its strategy through knowledge about its external environment, its
internal organization , and by taking into consideration, the firm's vision and mission.
The Strategic Management Process

Issues in the Strategic management Process
Analyzing the firms external environment
Analyzing the firms internal organization
Business-level strategies
Actions and reactions that occur among firms in marketplace competition
Corporate-level strategy
Restructuring the firm's portfolio of businesses
Selecting an international strategy
Different mechanisms used to govern firms

The Strategic Management Process
(Hitt, Ireland and Hoskisson, 2013)


Strategic
Inputs






Strategic
Actions



Strategic Outcomes

Feedback



The External
Environment
The Internal
organization




Strategy Formulation

Business-level Strategy
Competitive rivalry and competitive dynamics
Corporate-level Strategy
Acquisition and Restructuring Strategies
International Strategy
Cooperative strategy





Strategy Implementation

Corporate Governance
Organizational Structure and Controls
Strategic Leadership
Strategic Entrepreneurship


Strategic
Competitiveness

Above-Average Returns
Vision

Mission
Strategic Focus: Huawei and Apple

.