Chapter 1 Notes

 A guiding policy
o Strategic commitment:
 is a sizable investment or change to an organization’s
incentive and reward system
 Significant investments result in fundamental
changes to the organization’s structure.
 Significant changes that are difficult and costly to
reverse
 Coherent Actions
o 3 steps are crucial in the strategic management process:
 A good strategy must define an organization’s competitive
challenge through a critical and honest assessment of the
status quo.
 A good strategy provides a game plan for dealing with
competitive challenge identified. The firm needs a guiding
policy that provides clear guidance for all employees
 A good strategy requires effective implementations
through a coherent and consistent set of actions.

 The Red Queen Effect

o Situation in which everyone runs faster but there are no changes
in relative strategic positions
o Studying and copying the competition results in unsuccessful
efforts to gain competitive advantage
 If competitors copy ome another, everyone will run faster
but their relative strategic positions may not change.
 Resulting in zero-sum competition in which a firm can gain
market share only at a competitor’s expense
 There is little value creation for customers because the
companies have no resources to invest in product and
process improvements
 Stakeholders
o Different types of benefits to various stakeholders
 Shareholders provide capital with the expectation that they
will receive a return on their investment in appreciation
and dividend payments
  Creditors such as debt holders provide financing for the
firm
 Employees contribute their time and talents to the firm,
receiving wages and salaries in exchange
 Communities furnish real estate, infrastructure and public
safety
 Stakeholder Impact Analysis
o Step 1: identify stakeholders
 Strategic leader focus on stakeholders that currently have
pr potentially can have a material effect on the company
 Prioritization identifies the most powerful internal and
external stakeholders and their needs
o Step 2: identify stakeholders interests
 Goal os to specify ans assess the interests and claims of
the pertinent stakeholders using the power, legitimacy,
and urgency criteria
 Many companies incentivize top executives by paying party
of their overall compensation with stock options
 They also turn employees to purchase stock at a
discounted rate or use company stock as investment
vehicle for retirement savings
 Claims and interests of stakeholders who are
employed by the company and those who depend on
the company for salary, wages and other benefits will
be somewhat different than those who merely own
stock
o Employees tend to be more interested in
career opportunities, job security, employer-
provided health care, paid vacation time and
other perks.
o Shareholder activists
 Buy equity stakes in corporations they
view underperforming
 Pressure company to change strategy
 They are more powerful, as they can buy
and sell many shares at once or exercise
block-voting rights in the corporate
governance process
o Step 3: identify opportunities and threats
  Consumer boycotts (example) can be a powerful threat or
force affecting a companies behavior
o Step 4: identify social responsibilities
 Corporate social responsibility
 A framework that helps firms recognize and address
the economic, legal, social, and philanthropic
expectations that society has of the business
enterprise at a given point in time.
 Use this to help firms recognize and meet social
expectations of business enterprise
 According to CSR, strategic leaders need to realize that
society grants shareholders the right and privilege to
create a publicly traded company
 CSR has four components
o Economic
 Investors expect adequate return for the
risks they take
 Consumers expect safe products and
services at reasonable prices and
acceptable quality
 Suppliers expect to be paid in full on time
 Governments expect the firms to pay its
fair share of taxes and manage natural
resources such as air and water
o Legal
o Ethical
o Philanthropic
 Voluntary give back to society
o Step 5: address stakeholder concerns
 Decide appropriate course of action for the firm, given all
proceeding factors
 Thinking about power, legitimacy, and urgency attributes
helps firms prioritize the legitimate claims and address
them accordingly
 Implications for strategic leaders
o Difference between success and failure lies in strategy
o A good strategy is grounded in a strategic management process
that defines the competitive challenge, provides a guiding policy
and is implemented by coherent actions
 o Enhances the chances of achieving a competitive advantage and
superior performance.
o Leaders realize that they need to be mindful of their intermal and
external stakeholders who have a vested claim or interest in the
form’s performance and continued survival
o Leaders also realize that principles of strategic management can
be applied universally to all organizations
o Using AFI strategy framework:
 Analysis of the external and internal environments
 Formulation of an appropriate business and corporate
strategy
 implementation of the formulated strategy through
structure, culture and controls
o Strategic leaders are making decisions under conditions of
uncertainty and complexity.
 Carefully monitor and evaluate the progress toward key
strategic objectives and make adjustments by fine-tuning
any strategy as necessary
 Take Away concept
o Explain the role a strategy in a firm's quest for
competitive advantage
 strategy is a set of goal directing actions that a firm takes
to gain and sustain superior performance relative to
competitors
 a good strategy enables a firm to achieve superior
performance and results from three elements
 a diagnosis of the competitive challenge
 a guiding policy to address the competitive challenge
 a set of coherent actions to implement the firm's
guiding policy
 a successful strategy requires 3 integrative management
tasks – analysis, formulation, and implementation.
o Define competitive advantage sustainable competitive
advantage competitive disadvantage and competitive
party
 competitive advantage is always judged relative to other
competitors or the industry average
 to obtain a competitive advantage a firm must either
create more value for customers while keeping its cost
 comparable to competitors or it must provide value
equivalent to its competitors but at a lower cost
 A firm that is able to outperform competitors for prolonged
periods of time has a sustained competitive advantage
 A firm that continuously underperforms its rivals or the
industry average has a competitive disadvantage
 Two or more firms that perform at the same level have
competitive party
 an effective strategy requires that strategic trades off be
recognized and addressed - for example, the trade off
between value creation and the costs to create the value.
o Access the relation between stakeholder strategy and
sustainable competitive advantage
 Stakeholders are individuals or groups that have a claim on
or interest in the firm's performance and continued
survival. They make specific contributions for which they
expect rewards in return
 internal stakeholders include stockholders, employees, and
board members
 external stakeholders include customers, suppliers,
alliance partners, creditors, unions, communities,
governments at various levels, and the media
 the effective management of stakeholders is necessary to
ensure the firm's continued survival and to sustain any
competitive advantage. These goals are achieved through
stakeholder strategy
o conduct a stakeholder impact analysis
 stakeholder impact analysis considers the need of different
stakeholders, and enabling the firm to perform optimally
and live up to the expectations of good citizenship
 in a stakeholder impact analysis, managers pay particular
attention to three important stockholder attributes; power,
legitimacy, and urgency
 Stockholder impact analysis is a five-step process that asks
the following questions (refer to questions)
o applying the analysis, formulation, implementation
strategy framework
 the analysis, formulation, implementation strategy
framework
  1) Explains and predicts differences in firm
performance
 2) house managers formulate and implement a
strategy that can result in superior performance
 effective managing the strategy process is the result of the
following
 analysis for A
 formulation for F
 implementation for I