1. STRATEGIC MANAGEMENT AND STRATEGIC
COMPETITIVENESS
• STRATEGIC COMPETITIVENESS = achieved when a firm successfully formulates and implements
a value-creating strategy
• STRATEGY = integrated and coordinated set of commitments and actions designed to exploit
core competencies and gain a competitive advantage
• STRATEGIC POSITIONING = Strategic positioning attempts to achieve sustainable competitive
advantage by preserving what is distinctive about a company. … (by performing different
activities from rivals, or performing similar activities in different ways
- Product-focused VARIETY-BASED
- Costumer needs-focused NEEDS-BASED
- Access-focused ACCESS-BASED
• OPERATIONAL EFFECTIVENESS = performing activities better — that is, faster, or with
fewer inputs and defects— than rivals —> often confused with strategy
• COMPETITIVE ADVANTAGE = a firm has it when it implements a strategy that competitors are
unable to duplicate or find too costly to imitate --> firms know this when they see competitors
fail
- It is not permanent
• ABOVE-AVERAGE RETURNS = returns in excess pf what an investor expects to earn from other
investments with a similar amount of risk (return on assets, equity, sales)
- RISK = an investor's uncertainty about the economic gains or losses that will result from
a particular investment
• AVERAGE RETURNS = returns equal to those an investor expects to earn from other
investments with a similar amount of risk --> firms with no comp advant can at best earn this
• STRATEGIC MANGEMENT PROCESS = the full set of commitments, decisions and actions
required for a firm to achieve strategic competitiveness and earn above-average returns
- First step is to analyze its external and internal environments to determine its resources,
capabilities and core competencies
1. COMPETITIVE LANDSCAPE
• Everything is changing --> conventional sources of competitive advantage such as economies
of scale and huge advertising budgets are not as effective as they once were
- The new mindset values flexibility, speed, innovation, integration
• HYPERCOMPETITION = under this condition, assumptions of market stability are replaces by
notions of inherent instability and change
- Aggressive rivalry to protect or invade established product or geographic markets
- Rapidly escalating competition based on price-quality, know-how and obtaining first-
mover advantage
- 2 main drivers = GLOBAL ECONOMY + TECHNOLOGY
GLOBAL ECONOMY
• GLOBAL ECONOMY = one on which goods, services, people, skills and ideas move freely across
geographic borders --> this expands and complicates a firm's competitive environment
• Firms have to plan the markets in which they want to compete ex. Developing countries are
where the fastest growth is occurring
• GLOBALIZATION = 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
- It is a product of a large number of firms competing against one another in an increasing
number of global economies
• Globalization means more opportunities and more threats
• Effects:
- Firms need to understand the need for culturally sensitive decisions when using the
strategic management process, and to anticipate ever-increasing complexity in their
STRATEGIC MANAGEMENT Page 1
, strategic management process, and to anticipate ever-increasing complexity in their
operations as goods, services, people, and so forth move freely across geographic
borders and throughout different economic markets
- Effects on design, production, distribution and servicing
- Globalization has led to higher levels of performance standards in many competitive
dimensions (quality, cost, productivity etc.) --> reason is that customers will purchase
from a global competitor rather than a domestic firm
• Risks:
- Amount of time required for firms to learn how to compete in markets that are new to
them
- Risk of overdiversifying internationally beyond their ability to manage these extended
operations
• Even though global markets are an attractive strategic option for some companies, they are
not the only source of competitiveness
TECHNOLOGY AND TECHNOLOGICAL CHANGES
Trends can be placed in 3 categories: technology diffusion and disruptive technologies, information
age and increasing knowledge intensity
Technology diffusion and disruptive technologies
• PERPETUAL INNOVATIONS = term used to describe how rapidly and consistently new
information-intensive technologies replace older one
- This aspect places a premium on being able to quickly introduce new, innovative goods
and services into the market-place
• When products become indistinguishable because of the widespread and rapid diffusion of
technologies, speed to market with innovative products may be the primary source of
competitive advantage
• Another indicator of rapid technology diffusion is that it now may take only a small period for
firms to gather information about their competitors' research and development and product
decisions
• DISRUPTIVE TECHNOLOGIES = technologies that destroy the value of an existing technology
and create new markets
- It can create a new industry or it can harm industry incumbents (someone will then be
able to adapt)
- When a disruptive technology creates a new industry, competitors follow
The information age
• Personal computers, cellular phones, artificial intelligence, virtual reality, and massive
databases are examples of how information is used differently as a result of technological
developments
• An important outcome of these changes is that the ability to effectively and efficiently
access and use information has become an important source of competitive advantage in
virtually all industries
- Information technology advances have given small firms more flexibility in competing
with large firms, if that technology can be used with efficiency
Increasing knowledge intensity
• Knowledge is the basis of technology and its application --> critical organizational resource and
increasingly valuable source of competitive advantage
• Gained through experience, observation and inferences and it's an intangible resource
- The value of intangible resources is growing as a proportion of total shareholder value
• Therefore, firms must develop (e.g., through training programs) and acquire (e.g., by hiring
educated and experienced employees) knowledge, integrate it into the organization to create
capabilities, and then apply it to gain a competitive advantage
• STRATEGIC FLEXIBILITY = set of capabilities used to respond to various demands and
opportunities existing in a dynamic and uncertain competitive environment
• Continuous learning provides the firm with new and up-to-date sets of skills, which allow it to
adapt to its environment as it encounters changes. Firms capable of rapidly and broadly
applying what they have learned exhibit the strategic flexibility and the capacity to change in
STRATEGIC MANAGEMENT Page 2
, applying what they have learned exhibit the strategic flexibility and the capacity to change in
ways that will increase the probability of successfully dealing with uncertain, hypercompetitive
environments. Often having a strong ability to manage information systems is associated with
better strategic flexibility because such systems create an advantage over competitors
Models for competitive advantage
2. THE I/O MODEL OF ABOVE-AVERAGE RETURNS
• INDUSTRIAL ORGANIZATION MODEL = external environment is thought to be the primary
determinant of strategies that firm select to be successful
- The industry in which a company chooses to compete has a stronger influence on
performance than the choices managers make
• The firm's performance is determined primarly by economies of scale, barriers to market
entry, diversification, product differentiation and concentration of firms in the industry
• 4 assumption of the I/O model:
- First, the external environment is assumed to impose pressures and constraints that
determine the strategies that would result in above-average returns
- Second, most firms competing within an industry or within a certain segment of that
industry are assumed to control similar strategically relevant resources and to pursue
similar strategies in light of those resources
- Third, resources used to implement strategies are assumed to be highly mobile across
firms, so any resource differences that might develop between firms will be short-lived
- Fourth, 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
• The I/O model challenges firms to locate the most attractive industry in which to compete
- The 5 forces model of competition is an analytical tool used to help firms
- Firms can earn above-average returns by manufacturing standardized products, or
producing standardized services at costs below those of competitors (a cost leadership
strategy), or by manufacturing differentiated products for which customers are willing to
pay a price premium (a differentiation strategy)
• I/O model suggest that above-average returns are earned when firms implement the strategy
dictated by the characteristics of the general industry
STRATEGIC MANAGEMENT Page 3
, 3. RESOURCE-BASED MODEL OF ABOVE -AVERAGE RETURNS
• The uniqueness of a firm's resources and capabilities is the basis for a firm's strategy and its
ability to earn above-average returns
• RESOURCES = inputs into a firm's production process, such as capital equipment, the skills of
employees, talent --> classified in 3 categories = physical, human and organizational
- They can be source of competitive advantage when they are fomed into a capability
• CAPABILITY = the capacity for a set of resources to perform a task or an activity in an
integrative manner --> they evolve over time
• CORE COMPETENCIES = resources and capabilities that serve as a source of competitive
advantage for a firm over its rivals --> ex. Organizational functions
• According to the resource-based model the differences in firms' performances across time are
due primarly to their unique resources and capabilities
- Through continued use, capabilities become stronger and more difficult for competitors
to understand and imitate
STRATEGIC MANAGEMENT Page 4
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