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Competing for Advantage

Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
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Professor of Management
Colorado State University
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Chapter 1

Introduction to
Strategic Management

Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland

©2003 Southwestern Publishing Company 2


The Strategic Management Process
Strategic Chapter 1
Chapter 2
Introduction to
Thinking Strategic Leadership
Strategic Management

Strategic Chapter 3 Chapter 4


Strategic Intent
The External The Internal
Analysis Strategic Mission
Environment Organization

Chapter 5 Chapter 6
Chapter 7
Business-Level Competitive Rivalry and
Creating Strategy Competitive Dynamics
Corporate-Level Strategy
Competitive
Advantage Chapter 8
Chapter 9 Chapter 10
Acquisition and
International Strategy Cooperative Strategy
Restructuring Strategies

Monitoring
And Creating Chapter 11 Chapter 12
Entrepreneurial Corporate Governance Strategic Entrepreneurship
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Opportunities
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.
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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

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Definitions
Risk
An investor’s uncertainty about the
economic gains or losses that will result
from a particular investment

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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
Fundamental nature of geographic markets
competition is changing 7
Competitive Landscape
Goods, services, people,
Emergence of skills, and ideas move
global economy freely across geographic
borders

Spread of economic
innovations around the
world
Hypercompetitive Political and cultural
environments adjustments are
Fundamental nature of required
competition is changing 8
Competitive Landscape
Increasing rate of
Emergence of technological change and
global economy diffusion
Rapid technological The information age
change
Increasing knowledge
intensity
Hypercompetitive
environments
Fundamental nature of
competition is changing 9
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

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Strategic Flexibility
Organizational
slack

Strategic Strategic
reorientation Flexibility
flexibility

Capacity to
learn
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I/O Model of Above-Average Returns
1. External Environments
General 1. Strategy dictated by the
Global external environment of
the firm (what
Industry
opportunities exist in
Environment
these environments?)
2. Firm develops internal
skills required by
Competitor external environment
Environment (what can the firm do
Technological about the opportunities?)
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Environment
Four Assumptions of the I/O Model
1. The external environment is assumed to
possess pressures and constraints that
determine the strategies that would result
in above-average returns
2. 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

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Four Assumptions of the I/O Model
3. Resources used to implement strategies
are highly mobile across firms
4. 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

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I/O Model of Above-Average Returns
Industrial Organization 1. Study the external
Model environment, especially the
industry environment
The External Environment • economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of
firms in the industry

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I/O Model of Above-Average Returns
Industrial Organization 2. Locate an attractive industry
Model with a high potential for
above-average returns
The External Environment

An Attractive Industry Attractive industry: one whose


structural characteristics
suggest above-average returns

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I/O Model of Above-Average Returns
Industrial Organization 3. Identify the strategy called
Model for by the attractive industry
to earn above-average returns
The External Environment

An Attractive Industry

Strategy Formulation Strategy formulation: selection


of a strategy linked with
above-average returns in a
particular industry

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I/O Model of Above-Average Returns
Industrial Organization 4. Develop or acquire assets and
Model skills needed to implement
the strategy
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Assets and skills: those assets


and skills required to
implement a chosen strategy

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I/O Model of Above-Average Returns
Industrial Organization 5. Use the firm’s strengths (its
Model developed or acquired assets
and skills) to implement the
The External Environment strategy
An Attractive Industry

Strategy Formulation

Assets and Skills


Strategy implementation: select
Strategy Implementation strategic actions linked with
effective implementation of the
chosen strategy 19
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
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Resource-based Model of Above Average
Returns

1. Firm’s Resources 1. Strategy dictated by the


firm’s unique resources
and capabilities
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?)

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Resource-based Model of Above Average
Returns
Resource-based 1. Identify the firm’s resources--
Model strengths and weaknesses
compared with competitors
Resources
Resources: inputs into a firm’s
production process

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Resource-based Model of Above Average
Returns
Resource-based 2. Determine the firm’s
Model capabilities--what it can do
better than its competitors
Resources

Capability Capability: capacity of an


integrated set of resources to
integratively perform a task or
activity

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Four Attributes of Resources and
Capabilities (Competitive Advantage)
Valuable allow the firm to exploit opportunities or
neutralize threats in its external

Resources and Capabilities


environment

Rare possessed by few, if any, current and


potential competitors

Costly to imitate when other firms cannot obtain them or


must obtain them at a much higher cost

Nonsubstitutable the firm is organized appropriately to


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

Valuable

Resources and Capabilities


Rare
Core Competencies
Costly to imitate

Nonsubstitutable

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Core Competencies are the basis for a
firm’s

Competitive
advantage

Value Creation
Core Competencies
Ability to earn
above-average
returns

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Resource-based Model of Above Average
Returns
Resource-based 3. Determine the potential of the
Model firm’s resources and
capabilities in terms of a
Resources competitive advantage
Capability

Competitive Advantage Competitive advantage: ability


of a firm to outperform its
rivals

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Resource-based Model of Above Average
Returns
Resource-based 4. Locate an attractive industry
Model
Resources

Capability

Competitive Advantage

An Attractive Industry An attractive industry: an


industry with opportunities that
can be exploited by the firm’s
resources and capabilities
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Resource-based Model of Above Average
Returns
Resource-based 5. Select a strategy that best
Model allows the firm to utilize its
resources and capabilities
Resources relative to opportunities in
Capability the external environment

Competitive Advantage

An Attractive Industry
Strategy formulation and
Strategy Form/Impl implementation: strategic
actions taken to earn above
average returns 29
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
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Strategic Intent & Mission
 Strategic Intent
 Winning competitive battles by leveraging the
firm’s resources, capabilities, and core
competencies
 Strategic Mission
 An application of strategic intent in terms of
products to be offered and markets to be
served

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The Firm and Its Stakeholders
Stakeholders

Groups
The firmwho
mustaremaintain
affected by a
firm’s performance
performance and who
at an adequate
have
level claims
in orderontoits
retain
wealth
the
participation of key
stakeholders

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

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The Firm and Its Stakeholders
Stakeholders

Capital Market Stakeholders

Primary customers
Product Market Stakeholders Suppliers
Host communities
Unions

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The Firm and Its Stakeholders
Stakeholders

Capital Market Stakeholders

Product Market Stakeholders

Employees
Organizational Stakeholders Managers
Nonmanagers
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Stakeholder Involvement

Two issues affect the


extent of stakeholder
involvement in the firm Capital
Organizational Market
1
How do you divide the Product
returns to keep Market
stakeholders involved?

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Stakeholder Involvement

Two issues affect the


extent of stakeholder
involvement in the firm Capital
Organizational Market
2
How do you increase the Product
returns so everyone has Market
more to share?

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Organizational Strategists
 Serve as a major source of
competitive advantage
 Are held responsible by stakeholders
 Make decisions regarding
development, acquisition, cost and
use of resources
 Assess risks of strategic actions

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