CHAPTER 1: MASTERING STRATEGY: ART & 3 Stages of Management

SCIENCE 1. Strategic Formulation -

Stage of planning
2. Strategic Implementation -
Strategic management is analyzing the internal and Execution of strategies
external resources and capabilities to attain the overall 3. Strategic Evaluation -
goals and objectives of the org. determine if strategy is
● is a comprehensive process designed for effective or not.
firms to best use their resources and
capabilities to provide superior firm
performance. Annual Objectives - objectives made for a
year/ short- term milestone.
Resources- what does the org have/ assets.
Capabilities- what does the org can do or capable Long- term objectives - results expected
of. in the long run.

Strategies - are broad goals that, as accomplished,

help the organization move forward toward its vision. Intended, Deliberate, Emergent, Realized
and Unrealized Strategies
Strategy - is a complex concept that involves many
different processes and activities within an
Intended - strategy that an organization
organization. It involves goals and objectives that an
organization needs to achieve to be successful in the hopes to execute. Intended strategies are
usually described in detail within an
marketplace.
organization’s strategic plan.
● It is a long-term plan/ objectives of the
● the firm planned to do.
organization. (Action plan)
● planned by top level management ● When a strategic plan is created
● 3,514 years for a new venture, it is called a
business plan.
● came from the greek word "strategos"
meaning “army leader” and the idea of
● stratego (from which we get the word Deliberate the parts of the intended
strategy) refers to defeating an enemy by strategy that the firm continues to pursue
effectively using resources meaning defeating over time
your enemies by using effective resources.

Emergent - unplanned strategy that

Policy - set of rules and regulations. There's a sanction arises in response to unexpected
and penalty. opportunities and/or challenges.
● Emergent strategies can also
lead to tremendous success/
Tactics - is under/part of strategy that is mini strategy.
● has specific object to attain Sometimes emergent strategies
result in disasters.

Planning - process of establishing the goals and

objectives. Realized - the strategy that an
organization actually follows. Realized
Strategist - top level management, individuals who are strategies are a product of a firm’s
intended strategy.
responsible for the formulation and implementation of a
strategy. Unrealized - refers to the abandoned
parts of the intended strategy. These are
strategies that are not applicable to the
organization.

The History of Strategic Management

Strategy in Ancient Times

1491 BC: Moses uses hierarchical
delegation of authority during the exodus
from Egypt. Dividing a large set of people
into smaller groups creates
a command structure that enables strategies to 1865: The American Civil War ends. Historians
be implemented. consider the Confederacy to have had better
generals, but the Union possessed greater
resources. Sometimes good strategies simply
500 BC: Sun Tzu’s The Art of War provides a
cannot overcome a stronger adversary.
classic handbook on military strategy with
numerous business applications, such as the
idea “to win without fighting is the best.” This 1944: Following a series of deceptions designed
type of approach was used by businesses, such to confuse and fool German forces, the Allies
as Gap Inc. when they decided to create their launch the D-Day invasion in an effort to liberate
own stores rather than competing for shelf space Europe from Nazi control.
for their clothing within traditional department
stores. Strategic Management as a Field of Study

In The Principles of Scientific Management,

70 BC: Roman poet Virgil tells the story of the
Frederick W.Taylor stressed how organizations
Trojan horse, a classic strategic ploy where the
could become more efficient through identifying
Greek forces hid a select number of soldiers in a
large wooden horse that the Trojan army took the “one best way” of performing important
into their heavily guarded city gates. Once inside tasks. Implementing Taylor’s principles was
the city, Greek soldiers were able to open the thought to have saved railroad companies
gates and allow in reinforcements which hundreds of millions of dollars. Although many
eventually led to the end of the war. later works disputed the merits of trying to find
the “one best way,” Taylor’s emphasis on
maximizing organizational performance became
c. 530: King Arthur rules Britain. Legend says he the core concern of strategic management as
made his famed round table so that no one,
the field developed. Strategic management as a
including him, would be seen as above the
field of study has largely developed over the
others. His mission to find the Holy Grail serves
as an exemplar for the importance of the central past century
mission to guide organizational actions.
Contemporary Critique of Strategic
Management
Classic Military Strategy ● Strategic Management is typically a
1532: Machiavelli’s book The Prince offers complex process that is high in cost,
clever recipes for success to government time, and difficulty.
leaders. Some of the book’s suggestions are ● Some critics go so far as to suggest that
quite devious, and the word Machiavellian committing to a strategy may limit a
comes to refer to firm’s ability to respond to a changing
acts of deceit and manipulation. environment when companies “make
future decisions on obsolete data”
1775: The American Revolutionary War between ● Michael Raynor’s bestselling book The
the United States and Great Britain begins. Strategy Paradox “Most strategies are
Weaker American forces win the war in part by built on specific beliefs about the future".
relying on nontraditional tactics such as guerrilla Unfortunately, the future is deeply
warfare and the strategic targeting of British unpredictable.
● The result is the Strategy Paradox:
officers. They also depend on help from the
strategies with the greatest possibility of
French navy, illustrating the potential value of
success also have the greatest
strategic alliances. possibility of failure”
● other strategy scholars raise concerns
1815: Napoleon’s defeat at Waterloo about how the dominant approaches to
demonstrates how spreading resources too thin strategic management reinforce existing
can result in defeat of even one of the most assumptions about power and
famed militaries of all time. inequalities within organizations and in
the global market
 ● Some critics focus on the inadequacies analysis. Strengths and weaknesses are
of specific strategic tools or theories. assessed by examining the firm’s
internal resources, while opportunities
and threats refer to external events and
The Strategic Management Process trends.
● Chapter 3 “Evaluating the External
Module 1: Introduction to Strategic Management Environment” examines the topic of
Chapter 1: Mastering Strategy – Art & evaluating the external environment in
Science detail, and
Chapter 2: Assessing Organizational ● Chapter 4 “Evaluating the Internal
Performance Environment” presents concepts and
Module 2: External Analysis tools for managing firm resources.
Chapter 3: Evaluating the External ● Synthesizing the information gained in
Environment the external and internal analysis into a
Module 3: Internal Firm Analysis SWOT framework is addressed in
Chapter 4: Evaluating the Internal Chapter 5. The SWOT is then used to
Environment formulate the strategic issue(s) that the
Chapter 5: Synthesis of Strategic Issues firm must deal with as it formulates
& Analysis strategies.
Module 4: Business- Level, Innovation, ● Strategy formulation is the next step in
Corporate and Internal Strategies the strategic management process. This
Chapter 6: Selecting Business – Level involves developing specific strategies
Strategies and actions.
Chapter 7: Innovation Strategies ● In Chapter 6 “Selecting Business-Level
Chapter 8: Selecting Corporate – Level Strategies”, we discuss how selecting
Strategies business-level strategies helps to
Chapter 9: Competing in International provide firms with a recipe that can be
Market followed that will increase the likelihood
Module 5: Executing Strategy that their strategies will be successful.
Chapter 10: Executing Strategy through ● In Chapter 7, “Innovation Strategies”,
Organizational Design we present insights on the role
Module 6: Leading an Ethical Organization innovation plays in strategy
Chapter 11: Leading an Ethical development and implementation.
Organization: Corporate Governance, ● Chapter 8 “Selecting Corporate-Level
Corporate Ethics and Social Strategies” focuses on selecting
Responsibility corporate-level strategies, and
● Chapter 9 “Competing in International
● The strategic management process Markets” presents possibilities for firms
begins with an understanding of strategy competing in international markets.
and performance. ● Strategy implementation is the final
● Chapter 2 “Assessing Organizational stage of the process. One important
Performance”, we focus on how the element of strategy implementation
organization’s mission and vision shape entails crafting an effective
the development of the firm’s strategy. organizational structure and corporate
● Environmental and internal scanning is culture.
the next stage in the process. Managers ● Chapter 10 “Executing Strategy through
must constantly scan the external Organizational Design” offers ideas on
environment for trends and events that how to manage these elements of
affect the overall economy, and they implementation. The final chapter
must monitor changes in the particular explores how to lead an ethical
industry in which the firm operates. organization through corporate
● A classic management tool that governance, social responsibility, and
incorporates the idea of scanning sustainability.
elements both external and internal to
the firm is SWOT (strengths,
weaknesses, opportunities, and threats)
CHAPTER 2: ASSESSING ORGANIZATIONAL Organizational performance - refers to how
PERFORMANCE well an organization is doing to reach its vision,
mission, and goals.

The foundation of strategic management is for

an organization to answer three questions: Two important considerations are
1. Where are we? 1. performance measures - is a metric by
2. Where are we going? which an organization’s progress can be
3. How are we going to get there gauged. (measures such as profits,
stock price, and sales)
2. performance benchmarks - is used to
Vision - describes what the organization make sense of an organization’s
hopes/desires to become in the future. standing compared to its own or a
● one key tool available to executives to competitor’s financial measures and/or
inspire the people in an organization. performance indicators.
Visions highlight the values and
aspirations that lay at the heart of the
organization. Using a variety of performance measures
“Vision animates, inspires, transforms purpose provide different information about an
into action.” – Warren Bennis organization’s functioning. The story of the blind
men and the elephant provides a metaphor for
understanding the complexities of measuring
Mission - outlines the reasons for the organizational performance. An organization
organization’s existence and explains must consider organizational performance from
what role it plays in society. An organization’s various and multiple perspectives to achieve an
mission is grounded in the past and present. accurate assessment.

While a vision looks to the future, a mission The Balanced Scorecard

captures the key elements of the organization’s ● Professor Robert Kaplan and
past and present. Professor David Norton of Harvard
University developed a tool called the
balanced scorecard.
Abraham Lincoln’s best-known statement is
that “a house divided against itself cannot
stand.” The balanced scorecard- a tool that firms can
use to measure their progress.
● It is a framework that provides a
Pursuing the Vision and Mission through
“balance” between financial measures
and other measures that are important
SMART Goals
for understanding organizational
The most effective goals are those that are
activities that lead to sustained, long-
Specific
term performance.
Measurable
● It encourages managers to also monitor
Attainable
how well the organization is serving
Realistic
customers, managing internal activities,
Time-bound
and setting the stage for future
improvements. This provides a fast but
Corporate values - are key principles that a comprehensive view of the
company endorses and lives by. organization.

Organizational Performance: A Complex Financial Measures - Financial measures of

Concept performance relate to organizational
effectiveness and profits. Financial ratios such
as return on assets, return on equity, and return
on investment.
 ● “How do we look to CHAPTER 3: EVALUATING THE EXTERNAL
shareholders?" ENVIRONMENT
Customer measures - Customer measures of
performance relate to customer attraction,
satisfaction, and retention. Examples might Business Environment - factors or forces that
include the number of new customers, customer have the potential to influence or affect the
satisfaction, and the percentage of repeat performance and profitability of the business.
customers.
● “How do customers see us?"
Internal Environment - factors or forces that
Internal business process measures- Internal
have direct impact within the organization.
business process measures of performance
External Environment - factors or forces that
relate to organizational efficiency. Examples
are beyond the control of the organization.
include the time it takes to manufacture the
organization’s goods or deliver a service.
Another example of this type of measure is the Two components of External Environment
time it takes to create a new product and bring it The general environment (macro-
to market. environment) - includes overall trends and
● “What must we excel at?” events in society such as social trends,
Learning and growth measures - Learning and technological trends, demographics, and
growth measures of performance relate to the economic conditions.
future. An example of a learning and growth The industry ( competitive environment) -
measure is the number of new skills learned by consists of multiple organizations that
employees every year. collectively compete with one another by
● “Can we continue to improve providing similar goods, services, or both.
and create value?”

Importance of environment
Measuring Performance Using the Triple 1. The environment provides resources
Bottom Line that an organization needs in order to
create goods and services.
2. The environment is a source of
three P's: People - making sure that the actions
of the organization are socially opportunities and threats for an
responsible. (social concerns) organization. Opportunities are events
and trends that create chances to
Planet - making sure organizations act in a way
improve an organization’s performance
that promotes environmental sustainability),
level. Threats are events and trends
and traditional organization profits.
that may undermine an organization’s
(environmental concerns)
Profit - economic concern performance.
3. The environment shapes the various
strategic decisions that executives make
Competitive Advantage - attribute that allows
as they attempt to lead their
an organization to outperform its competitors.
organizations to success.
Economic value creation (EVC)- the
difference between what a customer is willing to The Elements of the General
Environment: PESTEL Analysis
pay (WTP) for a product and the cost incurred to
produce the product.

EVC = WTP – Cost - this equation, cost reflects PESTEL analysis is one important tool that
the cost incurred by the producer. executives can rely on to organize factors within
the general environment and to identify how
these factors influence industries and the firms
Willingness to pay - the maximum price they within them.
are willing to pay for the product or service.
P Political factors centers on the role of
governments in shaping business.
 include elements such as tax policies,
changes in trade restrictions and tariffs,
and the stability of governments.

E Economic factors centers on the economic

conditions within which organizations operate.

include elements such as interest rates,

inflation rates, gross domestic product,
unemployment rates, levels of
disposable income, and the general
growth or decline of the economy.

S Socio-cultural factors include trends in

demographics such as population size, age, and The Rivalry among Competitors in an
ethnic mix, as well as cultural trends such as Industry
attitudes toward obesity and consumer activism. ● The competitors in an industry are firms
that produce similar products or
T Technological factors centers on services. Competitors use a variety of
improvements in products and services that are moves such as advertising, new
provided by science. offerings, and price cuts to try to
outmaneuver one another to retain
include, for example, changes in the rate existing buyers and to attract new ones.
of new product development, increases Because competitors seek to serve the
in automation, and advancements in same general set of buyers, rivalry can
service industry delivery. become intense.

E Environmental factors (also called ecological

factors) involves the physical and ecological High levels of rivalry tend to reduce the profit
conditions within which organizations operate. potential of an industry. A number of
characteristics that affect the intensity of the
include, for example, natural disasters, rivalry among competitors are illustrated below.
global warming, pollution, and weather
patterns.
Competitors are numerous or are roughly
L Legal factors centers on how the courts and equal in size and power.
laws influence business activity. ● No one firm rules the industry, and
cutthroat moves are likely as firms
include laws involving issues such as jockey for position.
employment, health and safety, The growth rate of the industry is slow.
discrimination, and antitrust. ● A shortage of new customers leads
firms to steal each other’s customers.
The Purpose of Five Forces Analysis Competitors are not differentiated from each
other.
There are five key forces that determine the ● This forces firms to compete based on
profitability of a particular industry. price rather than based on the
uniqueness of their offerings.
Professor Michael Porter of the Harvard Fixed costs in the industry are high.
Business School established Five Forces ● These costs must be covered, even if it
Analysis. means slashing prices in order to do so.
Exit barriers are high.
● The purpose of Five Forces Analysis is
● Firms must stay and fight rather than
to identify how much profit potential leaving the industry gracefully.
exists in an industry. Excess capacity exists in the industry.
 ● When too much of a product is Switching costs - Switching costs endured by
available, firms must work hard to earn consumers are one of the challenges facing the
sales. makers of alternative fuel vehicle.
Capacity must be expanded in large Expected retaliation - New firms must be
increments to be efficient. concerned about whether current industry
● The high costs of adding these members will aggressively respond to them
increments needs to be covered. entering the market.
The product is perishable Cost advantages independent of size -
● Firms need to sell their wares before Proprietary technology, access to raw materials,
they spoil and become worthless. and desirable geographic location are all
examples of cost advantages not directly
associated with size and economies of scale. A
Threat of potential entrants to an Industry new entrant would struggle to duplicate this
● are firms that are not currently know-how at any price.
considered viable competitors in the
industry but that may become viable
competitors in the future. New entrants Threat of substitutes for an Industry’s
tend to reduce the profit potential of an Offerings
industry by increasing its ● Substitutes are offerings that differ from
competitiveness. If, for example, an the goods and services provided by the
industry consisting of five firms is competitors in an industry but that fill
entered by two new firms, this means similar needs to what the industry
that seven rather than five firms are now offers.
trying to attract the same general pool of ● In business, the competitors in an
customers. industry not only must watch each other,
they must keep an eye on firms in other
industries whose products or services
The Great Wall of China effectively protected can serve as effective substitutes for
China against potential raiders for centuries. The their offerings.
metaphor of a high wall as a defense against
potential entrants is a key element in Porter’s
Five Forces model. Industries with higher Bargaining power of suppliers/ The Power of
barriers to entry are in a safer defensive position Suppliers to an Industry
than industries with lower barriers. ● Suppliers provide inputs that the firms
in an industry need to create the goods
and services that they in turn sell to their
factors that make it difficult for would-be buyers.
invaders to enter an industry. ● the pressure that suppliers can put on
companies by raising their prices,
Economies of scale - As the number of lowering their quality, or reducing the
customers a firm serves increases, the cost of availability of their product.
serving each customer tends to decrease. ● If suppliers have greater leverage over
Capital requirements - The more expensive it the firms then suppliers can increase
is to enter a business, the less likely a new firm their prices over time. On the other
is to attempt to enter it. hand, if suppliers have less leverage
Access to distribution channels - The ability over the firms then suppliers may be
to get goods and services to customers can forced to lower their prices over time.
pose a significant challenge to would-be
newcomers.
Government policy - Decisions made by A number of characteristics that impact the
governments can deter or encourage potential power of suppliers to a given industry are
new entrants. illustrated below.
Differentiation - A new entrant would struggle
to match the differentiation that years of
advertising have created for various brands. Power of Suppliers
● A supplier group is powerful if it is
dominated by a few companies or is
 ● more concentrated than the industry that ● represents a high percentage of the
it supplies. buyer’s costs, encouraging ongoing
● A supplier group is powerful if there is searches for
no substitute for what the supplier group ● lower-priced suppliers.
provides. ● A buyer group is powerful if it can
● A supplier group is powerful if industry credibly threaten to compete (integrate
members rely heavily on suppliers to be backward)
profitable. ● in the industry if motivated.
● A supplier group is powerful if industry ● A buyer group is powerful when the
members face high costs when good or service purchased by buyer
changing suppliers. groups is of
● A supplier group is powerful if their ● limited importance to the quality or price
products are differentiated. of the buyer’s offerings.
● A supplier group is powerful if it can
credibly threaten to compete
● (integrate forward) in the industry if Interpreting the Five Forces
motivated. When using Porter’s Five Forces tool, it is
important to note the strength of each of the five
forces that are analyzed. The forces are typically
Bargaining power of buyers /The Power of an ranked as Strong/High, Moderate/Medium, or
Industry’s Buyers Weak/Low. If these competitive forces within an
● Buyers purchase the goods and industry are high, then the profit potential in that
services that the firms in an industry industry is low. Strong forces indicate high
produce. competition for the profits within that industry,
● Customers can apply pressure to making it a less desirable industry to be in.
vendors in order to lower product prices, Conversely, if the forces within an industry are
increase product quality, or provide generally weak, this indicates a stronger
better customer care. potential for profit and a desirable industry to be
● If buyers have greater leverage over the in. A mixture of strong and weak forces means
vendors then the vendors may be forced there is profit potential, but there exist
to lower their prices over time. On the competitive forces within the industry that can
other hand, if buyers have less leverage dilute the profit potential. Upon doing Porter’s
over the vendors than the competitors Five Forces Analysis, companies should make
have over the buyers, then vendors can an informed decision on entering that market,
raise their prices and enjoy greater and how they might compete, given the various
profit. strengths of the force.

A number of characteristics that impact the The Limitations of Five Forces Analysis
power of the buyer. One implication is that if a firm is to make more
profit, it must take that profit from a rival, a
supplier, or a buyer. Five Forces Analysis tends
Power of Buyers Example to portray a firm’s relationships with its suppliers
● A buyer group is powerful when there and buyers as adversarial, but many firms find
are relatively few buyers compared to ways to collaborate with these parties for mutual
the number of firms supplying the benefit.
industry.
● A buyer group is powerful when the
industry’s goods or services are Understanding Strategic Groups
standardized or undifferentiated.
● A buyer group is powerful when they Strategic groups - are sets of firms that follow
face little or no switching costs in similar strategies to one another. It consists of a
changing vendors. set of industry competitors that have similar
● A buyer group is powerful when the characteristics to one another but differ in
good or service purchased by the important ways from the members of other
buyers groups.
Understanding the nature of strategic groups
within an industry is important in part because
the members of a firm’s group are usually that Strategic Resources
firm’s closest rivals. ● VALUABLE resources aid in improving
Understanding the nature of strategic groups the organization’s effectiveness and
within an industry is important for at least three efficiency while neutralizing the
reasons. opportunities and threats of competitors.
1. First, emphasizing the members of a
firm’s group is helpful because these ● RARE resources are those held by few
firms are usually its closest rivals. When or no other competitors.
assessing their firm’s performance and
considering strategic moves, the other ● DIFFICULT-TO-IMITATE resources
members of a group are often the best often involve legally protected
referents for executives to consider. intellectual property such as trademarks,
2. Second, the strategies pursued by firms patents, or copyrights. Other difficult-to-
within other strategic groups highlight imitate resources, such as brand names,
alternative paths to success. A firm may usually need time to develop fully.
be able to borrow an idea from another
strategic group and use this idea to ● ORGANIZED TO CAPTURE VALUE:
improve its situation. Having in place the organizational
3. Third, the analysis of strategic groups systems, processes, and structure to
can reveal gaps in the industry that capitalize on the potential of the
represent untapped opportunities. resources and capabilities of the firm to
provide a competitive advantage.

Designing a Strategic Group Map

To develop a strategic group map for an If a resource or capability cannot be imitated by
industry, the competitive factors for each a competitor, then that resource may create a
of the two axes must be selected. On sustained competitive
the vertical axis, price is often the
measurement used. A different
parameter that further differentiates the Important Points to Remember:
members of the industry is chosen for 1. Resources that reflect all four qualities—
the horizontal axis. valuable, rare, difficult to imitate, and organized
to capture value—are ideal because they can
CHAPTER 4: EVALUATING THE INTERNAL create sustained competitive advantages. A
ENVIRONMENT resource that has three or less of the qualities
can provide an edge in the short term, but
competitors can overcome such an advantage
Resource-Based View - One method of internal eventually.
assessment is using the Resource-Based View.
This model examines any resources and/or 2. Firms often bundle together multiple
capabilities of the firm that may provide a resources and strategies (that may not be
competitive advantage. unique in and of themselves) to create uniquely
powerful combinations.

According to resource-based theory, 3. Satisfying only one or two of the valuable,

organizations that own “strategic resources” rare, difficult-to-imitate, organized to capture
have important competitive advantages over value criteria will likely only lead to competitive
organizations that do not. Some resources, such parity or a temporary advantage.
as cash and trucks, are not considered to be
strategic resources because an organization’s
competitors can readily acquire them. Instead, a Resources and capabilities are the basic
resource is strategic to the extent that it is building blocks that organizations use to create
valuable, rare, difficult to imitate, and strategies. These two building blocks are tightly
organized to capture value. linked—capabilities from using resources over
time.
 that provides added value and,
Resources and Capabilities hopefully, advantage over
competitors.

VRIO: Four Characteristics of Strategic

Resources

The VRIO framework is a tool that can be used

to determine if resources or capabilities are
valuable, rare, difficult-to-imitate, and organized
to capture value, and thereby understand what
type of competitive advantage they offer to a
firm.

The key to using the Resource Based View is to

evaluate a firm’s resources and capabilities
using the VRIO framework decision tree. that the
decision tree is used to assess resources and
capabilities, NOT a firm’s products, services, or
the firm itself. The evaluation occurs within the
industry of the firm being evaluated.

Intellectual Property - refers to creations of the

mind, such as inventions, artistic products, and
symbols.

Resources - refer to what an organization owns. If a piece of intellectual property is also

(Asset) valuable, rare, difficult to imitate, and organized
● Tangible resources are to capture value, it constitutes a strategic
resources that can be readily resource. Even if a piece of intellectual property
seen, touched, and quantified. does not meet all four criteria for serving as a
Physical assets such as a firm’s strategic resource, it can be bundled with other
property, plant, and equipment, resources and activities to create a resource
as well as cash, are considered
to be tangible resources.
● Intangible resources are quite Types of Intellectual Property
difficult to see, to touch, or to 1. Patents are legal decrees that protect
quantify. Intangible resources inventions from direct imitation for a
include, for example, the limited period of time.
knowledge and skills of
employees, a firm’s reputation, 2. Trademarks are phrases, pictures,
brand name, exclusive rights to names, or symbols used to identify a
intellectual property, leadership particular organization. Trademarks are
traits of executives, and a firm’s important because they help an
culture. organization stand out and build an
identity in the marketplace.

Capabilities - refer to what the organization can 3. Copyrights provide exclusive rights to
do. the creators of original artistic works
● More specifically, capabilities such as books, movies, songs, and
refer to the firm’s ability to screenplays for an author’s lifetime plus
bundle, manage, or otherwise 70 years. Piracy has become a huge
exploit resources in a manner
 issue for the owners of copyrighted
work.

4. Trade secrets refer to formulas,

practices, and designs that are central to
a firm’s business and that remain
unknown to competitors. Trade secrets
are protected by laws on theft, but once
a secret is revealed, it cannot be a
secret any longer. This leads firms to
rely mainly on silence and privacy rather
than the legal system to protect trade
secrets.

Isolating Mechanisms - If a firm can prevent a

competitor from imitating the resource or
capability that gives it a competitive advantage,
it is able to sustain that advantage longer. This ● Intellectual property can serve as a
strategy is called isolating mechanisms. strategic resource for organizations.
While some sources of intellectual
property such as patents, trademarks,
Other isolating mechanisms are Social and copyrights can receive special legal
Complexity, Path Dependence, and Causal protection, trade secrets provide
Ambiguity. competitive advantages by simply
staying hidden from competitors.
● Utilizing isolating mechanisms
Social Complexity - it creates a barrier to
strategically is a way for organizations to
imitation and can prolong a competitive
prevent imitation and maintain their
advantage possessed by an organization. Social
competitive advantage.
complexity might arise through certain customer
relationships or with key political figures,
provided they can help the firm’s competitive Value Chain - The value chain provides a useful
position. tool for managers to examine systematically
The interrelationships within a firm, along with where value may be added to their
relationships within or across a business organizations. This tool is useful in that it
process, can be difficult to imitate. examines key elements in the production of a
good or service, as well as areas in which value
Path Dependence - The path that a firm takes may be added in support of those primary
over time to achieve the point of a competitive activities.
advantage may also provide a barrier to ● A value chain charts the path by
imitation. Decisions made in the past that which products and services are
brought a firm to its current position may make it created and eventually sold to
very difficult for other firms to imitate. The customers. The term value
accumulated learning and experience gained chain reflects the fact that, as
along the historical path are not easily each step of this path is
duplicated. This path dependence can serve as completed, the product
an isolating mechanism to block competitors becomes more valuable than it
from gaining the same position in the market. was at the previous step.
Causal Ambiguity - means the reason for Value chains include both primary and
achieving a competitive advantage is not
secondary activities.
apparent. The cause for success is obscure and
not understood well. Because the firm itself does
not really know why it has achieved success, it is Primary activities - are actions that are directly
quite difficult for a competitor to replicate involved in creating and distributing goods and
services.
 There are five primary activities. and develop new products have resulted in a
1. Inbound logistics - refers to the arrival competitive advantage.
of raw materials.
2. Operations - refers to the actual
production process.
3. Outbound logistics - tracks the
movement of a finished product to
customers.
4. Marketing and sales- attracting
potential customers and convincing
them to make purchases.
5. Service - refers to the extent to which a
firm provides assistance to their
customers.

Secondary activities - are not directly involved

in the evolution of a product, but instead provide
important underlying support for primary
activities.

1. Firm infrastructure - refers to how the

firm is organized and led by executives.
The effects of this organizing and
leadership can be profound.
2. Human resource management -
involves the recruitment, training, and
compensation of employees. A recent
research study used data from more
than twelve thousand
3. organizations to demonstrate that the
knowledge, skills, and abilities of a firm’s
employees can act as a strategic
resource and strongly influence the
firm’s performance.
4. Technology - refers to the use of
computerization and
telecommunications to support primary
activities.
5. Procurement - is the process of
negotiating for and purchasing raw
materials.

Sometimes competitive advantage is achieved

from the support activities of a firm as opposed
to the primary activities. Superior technology
development or human resource management
can produce a temporary if not a sustained
competitive advantage. A strong research and
development arm in a pharmaceutical company
can develop medications that are patented and
cannot be imitated. Incentives to staff such as
those provided by 3M and Google to be creative