Gerardo M.

Castro, MBA
 Module 1
Part 1

Strategic Management
and Strategic Competitiveness

Course Introduction
 Course Intended Learning Outcomes

After studying this chapter you should be able to:

1-1 Explain the concept of strategic competitiveness and strategy.

1-2 Explain the concept of competitive advantage and above-average returns.
1-3 Explain the framework for executing strategic management.
 Strategic Management –CA51026
Course Description
Actions and processes undertaken by an entity must be aligned with the entity’s mission and
vision. This course will enable the learners to plan, direct and control activities and resources
to transform the enterprise’s collective action and use of resources into targeted performance by
formulating and implementing strategies.

The course covers the strategic management process and policy formulation. This stresses the
importance of basing management decisions on a strategic view of organizations. It involves
frameworks and models to better understand and analyse the macro-environment, the
industrial environment, and firm-level resources which would lead the formulation and
implementation of creative and innovative strategies that are conducive to the demands of the
firm and the environment.

As an integrative course, learners are expected to review an entity’s vision and mission, and
propose a comprehensive strategic plan using appropriate analytical tools and techniques.
 Chapter Introduction
Firms achieve strategic competitiveness by formulating and
implementing a value-creating strategy.
A strategy is an integrated and coordinated set of
commitments and actions designed to exploit core
competencies and gain a competitive advantage.
When choosing a strategy, firms make choices among
competing alternatives as the pathway for deciding how
they will pursue strategic competitiveness.
The chosen strategy indicates what the firm will and will
not do.
 Chapter Introduction
A firm has a competitive advantage when, by implementing a
chosen strategy, it creates superior value for customers and when
competitors are not able to imitate the value the firm’s products
create or find it too expensive to attempt imitation.
No competitive advantage is permanent.
How long a competitive advantage will last depends on
how quickly competitors can acquire the skills needed to
duplicate the benefits of a firm’s value-creating strategy.
 Chapter Introduction

Above-average returns are returns in excess of what an investor

expects to earn from other investments with a similar amount of
risk.
Risk is an investor’s uncertainty about the economic gains or
losses that will result from a particular investment.
The most successful companies learn how to manage risk
effectively.
Doing so reduces investors’ uncertainty about the
outcomes of their investment.
 Chapter Introduction

Firms without a competitive advantage or those that do not

compete in an attractive industry earn, at best, average returns.
Average returns are returns equal to those an investor expects
to earn from other investments possessing a similar amount of
risk.
Over time, an inability to earn at least average returns
results first in decline and, eventually, failure.
 Chapter Introduction

The strategic management process is the full set of

commitments, decisions, and actions firms take to achieve
strategic competitiveness and earn above-average returns.
The process involves analysis, strategy, and performance (the
A-S-P model).
A firm analyzes the external environment and its internal
organization, then formulates and implements strategies to
achieve a desired level of performance.
Figure 1.1
The Strategic Management
Process
Reference:

Hitt, M.A., Ireland, R.D., Hoskisson, R.E. (2017). Strategic Management:

Concepts and Cases, Competitiveness and Globalization, 12th Edition.
Cengage Learning, Boston USA.
End of Part 1
Gerardo M. Castro, MBA
 Module 1
Part 2

Competitive Landscape
Global Economy, Technology
Technological Changes
 Intended Learning Outcomes

Studying this chapter should provide you with the strategic management
knowledge needed to:

1-1 Describe the competitive landscape.

1-2 Explain how globalization and technological changes shape competitive
landscape.
 The Competitive Landscape
The fundamental nature of competition in many of the world’s industries is
changing.
*Firms must understand the strategic implications and integrate
digitalization (the process of converting something to digital form)
effectively into their strategies.
*Conventional sources of competitive advantage such as large advertising
budgets and economies of scale are not as effective as they once were in
helping firms earn above-average returns.
*Managers must adopt a new mind-set that values:
Flexibility
Speed
Innovation
Integration
The challenges flowing from constantly changing conditions
 The Competitive Landscape
Hypercompetition is a condition where competitors engage in intense rivalry,
markets change quickly and often, and entry barriers are low.
Hypercompetition makes it difficult for firms to maintain a competitive
advantage.
It is a condition of rapidly escalating competition based on:
Price-quality positioning
Competition to create new know-how and establish first-mover
advantage
Competition to protect or invade established product and/or geographic
markets
Two primary drivers of hypercompetition:
1. The emergence of a global economy
2. Rapid technological change
 1-1a The Global Economy

A global economy is one in which goods, services, people, skills, and ideas
move freely across geographic borders.
The global economy significantly expands and complicates a firm’s
competitive environment.

The March of Globalization

Globalization is the increasing economic interdependence among countries
and their organizations as reflected in the flow of products, financial capital,
and knowledge across country borders.
Globalization is a product of a large number of firms competing against one
another in an increasing number of global economies.
The increasing opportunities available in emerging economies is a major driver
of growth in the size of the global economy.
 1-1a The Global Economy

*Globalization has led to higher performance standards with respect to:

Quality Product introduction time
Cost Operational efficiency
Productivity

*Globalization is not without risks.

“Liability of foreignness”
The amount of time required to learn to compete in new markets
Entering too many global markets either simultaneously or too quickly

*Entry into international markets, even for firms with substantial experience in
the global economy, requires effective use of the strategic management
process.
 1-1b Technology and Technological Changes
Three categories of technology-related trends and conditions that affect today’s
firms:
1.Technology diffusion and disruptive technologies
2.The information age
3.Increasing knowledge intensity

Technology Diffusion and Disruptive Technologies

Technology diffusion is the speed at which new technologies become available
to firms and when firms choose to adopt them.
Perpetual innovation describes how rapidly and consistently new, information-
intensive technologies replace older ones.
Disruptive technologies are technologies that destroy the value of an existing
technology and create new markets.
Examples: Wi-Fi, iPads, the web browser
 1-1b Technology and Technological Changes

The Information Age

Data and information are vital to firms’ efforts to:
Understand customers and their needs
Implement strategies in ways that satisfy customers’ needs
Implement strategies in ways to satisfy the interests of all
other stakeholders
The most successful firms envision information technology-
derived innovations as opportunities to identify and serve new
markets rather than as threats to the markets they serve
currently.
 1-1b Technology and Technological Changes

Increasing Knowledge Intensity

Knowledge:
Consists of information, intelligence, and expertise
Is the basis of technology and its application
Is acquired through experience, observation, and inference
Is developed by firms through training programs
Is acquired by firms by hiring educated and experienced employees
Must be integrated into the organization to create capabilities and then
applied to gain a competitive advantage
Is necessary to create innovations
 1-1b Technology and Technological Changes

Strategic flexibility is a set of capabilities firms use to respond to various

demands and opportunities existing in today’s dynamic and uncertain
competitive environment.
Strategic flexibility:
Is not easy to build, largely because of inertia that can build over time
Requires developing the capacity for continuous learning and applying
quickly the new and up-to-date skill sets achieved from learning
Increases the probability of dealing successfully with uncertain,
hypercompetitive environments
End of Part 2
Gerardo M. Castro, MBA
 Module 1
Part 3

Industrial Organization (IO) Model

Resource-Based Model
 1-2 The I/O Model of Above-Average Returns

The logic of the I/O model is that the profitability potential of an industry or a
segment of it as well as the actions firms should take to operate profitably are
determined by a set of industry characteristics, including:
Economies of scale
Barriers to market entry
Diversification
Product differentiation
The degree of concentration of firms in the industry
Market frictions
The I/O model suggests that returns are influenced more so by the
characteristics of the external environment than a firm’s unique internal
resources and capabilities.
 1-2 The I/O Model of Above-Average Returns
Four underlying assumptions of the I/O model:
1. The external environment imposes pressures and constraints that
determine the strategies that would result in above-average returns.
2. Most firms competing within an industry or within a segment of that
industry are assumed to control similar strategically relevant resources
and to pursue similar strategies in light of those resources.
3. Firms assume that their resources are highly mobile, meaning that any
resource differences that might develop between firms will be short-
lived.
4. Organizational decision makers are rational individuals who are
committed to acting in the firm’s best interests, as shown by their
profit-maximizing behaviors.
• The I/O model challenges firms to find the most attractive industry in
which to compete.
 1-2 The I/O Model of Above-Average Returns
The five forces model of competition is an analytical tool firms use to find the
industry that is most attractive.
The five forces model suggests that:
An industry’s profitability is a function of interactions among:
1. Suppliers
2. Buyers
3. Competitive rivalry among firms currently in the industry
4. Product substitutes
5. Potential entrants to the industry
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)
1-2 The I/O Model of Above-Average Returns
1-3 The Resource-Based Model of Above-Average Returns

The resource-based model of above-average returns assumes

that each organization is a collection of unique resources and
capabilities.
The uniqueness of resources and capabilities is the basis of
a firm’s strategy and its ability to earn above-average
returns.
 1-3 The Resource-Based Model of Above-Average Returns

Resources are inputs into a firm’s production process, such as capital

equipment, the skills of individual employees, patents, finances, and talented
managers.
Firms typically classify resources into three categories:
1. Physical capital
2. Human capital
3. Organizational capital
Resources have a greater likelihood of being a competitive advantage when
integrated to form a capability.
A capability is the capacity for a set of resources to perform a task or an
activity in an integrative manner.
Core competencies are capabilities that serve as a source of competitive
advantage for a firm over its rivals.
 1-3 The Resource-Based Model of Above-Average Returns

Four underlying assumptions of the resource-based model:

1. Differences in firms’ performances across time are due primarily to
their unique resources and capabilities rather than the industry’s
structural characteristics.
2. Firms acquire different resources and develop unique capabilities
based on how they combine and use the resources.
3. Resources and capabilities are not highly mobile across firms.
4. Differences in resources and capabilities are the basis of competitive
advantage.
• As a source of competitive advantage, a capability must not be easily
imitated but also not too complex to understand and manage.
1-3 The Resource-Based Model
of Above-Average Returns
 1-3 The Resource-Based Model of Above-Average Returns
Resources and capabilities have the potential to be the foundation for a
competitive advantage when they are:

Valuable (allow a firm to take advantage of opportunities or neutralize

threats in its external environment)

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

Costly to imitate (are difficult for other firms to obtain)

Non-substitutable (have no structural equivalents)

End of Part 3
Gerardo M. Castro, MBA
 CHAPTER 1
Module 4

Vision, Mission, & Stakeholders

 Intended Learning Outcomes

At the end of this lesson, you shall be able

to:

1. Discuss the value of vision and mission.

2. Describe the work of strategic leaders.

3. Identify the firm’s stakeholders.

 1-4 Vision and Mission

A key purpose of vision and mission statements is to inform stakeholders of:

What the firm is
What it seeks to accomplish
Who it seeks to serve

The vision and mission provide the foundation the firm needs to choose and
implement one or more strategies.
 Vision
Vision is a picture of what the firm wants to be and, in broad terms, what it
wants to achieve.
A vision statement:
Articulates the ideal description of an organization and gives shapes to its
intended future
Tends to be relatively short and concise
An effective vision:
Stretches and challenges people
Is developed by the CEO and other top-level managers, employees,
suppliers, and customers
Is consistent with the decisions and actions of those involved with
developing it
Conditions in the firm’s external environment and internal organization
influence the forming of a vision statement.
 Mission

A mission specifies the businesses in which the firm intends to compete and
the customers it intends to serve.
A mission:
Is more concrete than a firm’s vision
Should establish a firm’s individuality
Should be inspiring and relevant to all stakeholders
Deals more directly with product markets and customers
Should be developed by the CEO, top-level managers, and other
organizational members
Has a higher probability of being effective when employees have a strong
sense of ethics
 Stakeholders

Stakeholders are individuals, groups, and organizations that can affect the
firm’s vision and mission, are affected by the strategic outcomes achieved, and
have enforceable claims on the firm’s performance.

Because firms are not equally dependent on all stakeholders at all times,
stakeholders possess different degrees of ability to influence an organization.
Greater dependence gives the stakeholder more potential influence over a
firm’s commitments, decisions, and actions.
The Three Stakeholder Groups
 Classifications of Stakeholders

*When earning above-average returns, a firm generally has the resources to

satisfy the interests of all stakeholders.
*When earning only average returns, the firm must satisfy each stakeholder
group’s minimal expectations.
*A firm earning below-average returns must make trade-offs to minimize the
amount of support it lost from unsatisfied stakeholders.

Capital Market Stakeholders

Shareholders and lenders expect a firm to preserve and enhance their wealth.
Expected returns are correlated with the investments’ degree of risk:
Low-risk investments = lower returns
High-risk investments = higher returns
 Classifications of Stakeholders

Product Market Stakeholders

*Customers seek reliable products at the lowest possible prices.
Suppliers seek loyal customers who are willing to pay the highest sustainable
prices for products.
*Host communities (the national, state/province, and local government entities
with which the firm interacts) want companies to be long-term employers and
providers of tax revenue without placing excessive demands on public support
services.
*Unions seek secure jobs and desirable working conditions for members.
*Product market stakeholders are generally satisfied when a firm’s profit
margin reflects at least a balance between the returns to capital market
stakeholders and the returns in which they share.
 Classifications of Stakeholders

Organizational Stakeholders
Employees:
Expect the firm to provide a dynamic, stimulating, and rewarding work
environment
Generally prefer to work for a growing company in which they can develop
their skills
Are critical to organizational success when they learn how to use new
knowledge productively
Leaders:
Must use the firm’s human capital successfully to serve the day-to-day
needs of stakeholders
Help a firm’s employees understand competition in the global competitive
landscape through international assignments
 Strategic Leaders

Strategic leaders are people located in different areas and levels of the firm
using the strategic management process to select actions that help the firm
achieve its vision and fulfill its mission.
Strategic leaders are:
Decisive
Committed to nurturing those around them
Committed to helping the firm create value for all stakeholder groups
In general, CEOs are responsible for making certain that their firms use the
strategic management process properly.
The most effective CEOs and top-level managers understand how to delegate
strategic responsibilities to people throughout the firm.
 Strategic Leaders

Organizational culture affects strategic leaders and their work.

Organizational culture refers to the complex set of ideologies, symbols,
and core values that individuals throughout the firm share and that
influence how the firm conducts business.
It is the social energy that drives—or fails to drive—the organization.
 The Work of Effective Strategic Leaders

Prerequisites to an individual’s success as a strategic leader:

Hard work
Thorough analyses
A willingness to be brutally honest
A penchant for wanting the firm and its people to achieve success
Tenacity
Strategic leaders must:
Have a strong strategic orientation while embracing change in today’s
dynamic competitive landscape
Be innovative
Promote innovation in their organization to deal with change effectively
Have a global mind-set
End of Chapter 1