CHAPTER 1: STRATEGIC MANAGEMENT AND an attractive industry, at best, earn average

STRATEGIC COMPETITIVENESS returns.

Average returns are returns that are equal to
those an investor expects to earn from other
Firms achieve strategic competitiveness by
investments with the similar amount of risk.
formulating and implementing a value-creating
strategy. - Over time, an inability to earn, at least,
average returns result first in decline and,
eventually, failure.
Strategy – integrated and coordinated set of
actions and commitment design to exploit core
competencies and gain competitive advantage. The strategic management process is the full set
of commitments, decisions, and actions firms take
- When choosing a strategy, firms make
to achieve strategic competitiveness and earn
choices among competing alternatives as
above-average returns.
the pathway for deciding how they will to
pursue strategic competitiveness. - This process involves analysis, strategy,
- The chosen strategy indicates what a firm and performance (A-S-P Model).
will and will not do. - A firm analyzes their external environment
and internal organization to identify external
opportunities and threats and internal
A firm has competitive advantage when by resources, capabilities, and core
implementing a chosen strategy, it creates superior competencies. The results of these
value for the customers and when competitors are analyses influence the selection of the firm’s
not able to imitate the firm’s products create or find strategy or strategies. The strategy portion
it too expensive to attempt imitation. entails strategy formulation and strategy
implementation. With the information gained
- No competitive advantage is permanent. from external and internal analyses, the firm
- How long a competitive advantage will last develop it vision and mission and formulates
depends on how quickly competitors can one or more strategies. To implement its
acquire skills needed to duplicate the strategies, the firm takes action to enact
benefit of a firm’s value-creating strategy. each one with the intent of achieving
strategic competitiveness and earn above-
average returns (performance).
Above-average returns are returns in excess from
what an investor expects to earn from other
investment with the same amount of risk. The competitive landscape
The fundamental nature of competition in many of
the world’s industries is changing.
Risk is an investor’s uncertainty about the
economic gains or losses that will result from a - Firms must understand the strategic
particular investment. implications and integrate digitalization
- Most successful companies learn how to (process of converting something into digital
form) effectively into their strategies.
manage risk effectively.
- Conventional sources of competitive
- Doing so, reduces the investors’ uncertainty
advantage such as large advertising
about the outcome of their investment.
budgets and economies of scale is not as
effective as they were once in helping firm
earn above-average returns.
 Firms that do not have competitive - Managers must adopt a new mind-set that
advantage or those that do not compete in
values:
o Flexibility
 o Speed Globalization has led to higher performance
o Innovation integration standards with respect to:
o The challenges flowing from
 Quality
constantly changing conditions.
 Cost
Hypercompetition – is a condition where  Productivity
competitors engage in intense rivalry, markets  Product introduction time
change quickly and often, and entry barriers are  Operational efficiency
low.
Globalization is not without risks.
- Hypercompetition makes it difficult for firms
to maintain competitive advantage.  “Liability of foreignness”
 The amount of time required to learn to
- It is a condition of rapidly escalating compete in new markets
competition based on:  Entering too many global market either
o Price-quality positioning simultaneously or too quickly
o Competition to create new-how and Entry into international markets, even for firms with
establish first-mover advantage substantial experience in the global economy,
o Competition to protect or invade requires effective use of the strategic management
established product and/or process.
geographic markets

- Two primary drivers of hypercompetition: Three categories of technology-related trends and

o The emergence of global economy conditions that affect today’s firms:
o Rapid technological change
1. Technology diffusion and disruptive
technologies
2. The information age
The Global Economy
3. Increasing knowledge intensity
A global economy is one in which goods, services,
Technology Diffusion and Disruptive
people, skills, and ideas move freely across
Technologies
geographic borders.
 Technology diffusion is the speed at which
The global economy significantly expands and
new technologies become available to firms
complicates a firm's competitive environment.
and when firms choose to adopt them.
 Perpetual innovation describes how rapidly
and consistently new, information-intensive
The March of Globalization
technologies replace older ones.
Globalization is the increasing economic  Disruptive technologies are technologies
interdependence among countries and their that destroy the value of an existing
organizations as reflected in the flow of products, technology and create new markets.
financial capital, and knowledge across country - Examples: Wi-Fi, iPads, the web browser
borders.
Globalization is a product of a large number of firms
competing against one another in an increasing The Information Age
number of global economies.  Data and information are vital to firms'
The increasing opportunities available in emerging efforts to:
economies is a major driver of growth in the size of • Understand customers and their
the global economy. needs
• Implement strategies in ways that
satisfy customers' needs
 • Implement strategies in ways to are determined by a set of industry characteristics,
satisfy the interests of all other including:
stakeholders
• Economies of scale
 The most successful firms envision
• Barriers to market entry
information technology-derived innovations
• Diversification
as opportunities to identify and serve new
• Product differentiation
markets rather than as threats to the
• The degree of concentration of firms in the
markets they serve currently.
industry
• Market frictions

Increasing Knowledge Intensity The I/O model suggests that returns are influenced
more so by the characteristics of the external
Knowledge: environment than a firm's unique internal resources
• Consists of information, intelligence, and and capabilities.
expertise Four underlying assumptions of the I/O model:
• Is the basis of technology and its
application 1. The external environment imposes
• Is acquired through experience, pressures and constraints that determine
observation, and inference the strategies that would result in above-
• Is developed by firms through training average returns.
programs 2. Most firms competing within an industry or
• Is acquired by firms by hiring educated within a segment of that industry are
and experienced employees assumed to control similar strategically
• Must be integrated into the organization relevant resources and to pursue similar
to create capabilities and then applied to strategies in light of those resources.
gain a competitive advantage 3. Firms assume that their resources are
• Is necessary to create innovations highly mobile, meaning that any resource
differences that might develop between
firms will be short-lived.
Strategic flexibility is a set of capabilities firms 4. Organizational decision-makers are rational
use to respond to various demands and individuals who are committed to acting in
opportunities existing in today's dynamic and the firm's best interests, as shown by their
uncertain competitive environment. profit- maximizing behaviors.

Strategic flexibility: The I/O model challenges firms to find the most
attractive industry in which to compete.
• Is not easy to build, largely because of
inertia that can build over time The five forces model of competition is an analytical
• Requires developing the capacity for tool firms use to find the industry that is most
continuous learning and applying quickly attractive.
the new and up-to-date skill sets • The five forces model suggests that:
achieved from learning
• Increases the probability of dealing • An industry's profitability is a function of
successfully with uncertain, interactions among:
hypercompetitive environments 1. Suppliers
2. Buyers
3. Competitive rivalry among firms currently in
The I/O Model of Above Average Returns the industry
4. Product substitutes
The logic of the I/O model is that the profitability 5. Potential entrants to the industry
potential of an industry or a segment of it as well as
the actions firms should take to operate profitably Firms can earn above-average returns by
producing either:
• Standardized products at costs below those
of competitors (a cost leadership strategy)
• Differentiated products for which customers
are willing to pay a price premium (a
differentiation strategy)