CHAPTER 1

Strategic Management:
Creating Competitive
Advantages

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 Defining Strategic Management

 Strategic management consists of the analyses,

decisions, and actions an organization
undertakes in order to create and sustain
competitive advantages.
This definition captures two main elements that go to the
heart of the field of strategic management.
1- First, the strategic management of an organization entails
three ongoing processes: analyses, decisions, and actions.

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 Defining Strategic Management

Strategic management involves:

• Analysis
• Strategic goals (vision, mission, strategic objectives)
• Internal and external environment
• Decisions: address two basic questions:
 Formulation
• What industries should we compete in?
• How should we compete in those industries?
• Actions – Implementation of strategy
• Allocate necessary resources.
• Design the organization to bring intended strategies
to reality.

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 Two Fundamental Questions

2- the Second essence of strategic management is the study of why

some firms outperform others.
That means focusing on two fundamental questions:
1. How should we compete in order to create a
competitive advantage in the marketplace?
(Cost vs differentiation)
2. How can we create competitive advantages in the
marketplace that are unique, valuable, and difficult
for rivals to copy or substitute?
(sustainable, CA)

NOTE: Operational effectiveness is not enough to

sustain a competitive advantage.
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 Two Fundamental Questions

Operational effectiveness means performing

similar activities better than rivals.
- Does not lead to sustainable competitive
advantage because everyone is doing them.
- Sustainable competitive advantage is possible
only by performing different activities from rivals
or performing similar activities in different ways.

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 Strategic Management-Four Key Attributes

Key attributes of strategic management:

• Directs the organization toward overall goals and
objectives.
• Includes multiple stakeholders in decision making.
• Needs to incorporate short-term and long-term
perspectives.
• Recognizes trade-offs between efficiency and
effectiveness.

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 Strategic Management-Four Key Attributes

1- directed toward overall organizational goals and

objectives.
That is, effort must be directed at what is best for the
total organization, not just a single functional area.
That is, what might look “rational” or ideal for one
functional area, may not be in the best interest of the
overall firm.
2- includes multiple stakeholders in decision making:
Stakeholders are those individuals, groups, and
organizations that have a “stake” in the success of the
organization, including owners, employees, customers,
suppliers, the community at large, and so on.

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 3- requires incorporating both short-term and long-
term perspectives.
managers must maintain both a vision for the future
of the
organization and a focus on its present operating
needs.
4- involves the recognition of trade-offs between
effectiveness
and efficiency
Some authors have referred to this as the difference
between “doing the right thing” (effectiveness) and
“doing things right” (efficiency).
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 Strategic Management Trade-offs

Managers need to be ambidextrous.

refers to a manager’s challenge to both align resources to take
advantage of existing product markets and proactively explore
new opportunities.
Focus on long-term effectiveness.
• Expand product-market scope by proactively
exploring new opportunities.
At the same time:
• Focus on short-term efficiency.
• Align resources to take advantage of existing
product markets.

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 Question
(1 of 2)

According to Henry Mintzberg, the realized

strategies of a firm
A. are a combination of deliberate and emergent
strategies.
B. are a combination of deliberate and
differentiation strategies.
C. must be based on a company’s strategic plan.
D. must be kept confidential for competitive
reasons.

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 Intended vs. Realized Strategies

The business environment is far from predictable.

Intended strategy
• Organizational decisions are determined only by analysis.
• Intended strategies rarely survive in the original form.
Because:
A- unforeseen environmental developments
B- Unanticipated resources constraints, or changes in
managerial preferences.

VERSUS
Realized strategy
• Decisions are determined by both analysis (deliberate) and
unforeseen environmental developments, unanticipated
resource constraints, and/or changes in managerial
preferences (emergent).
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 Strategic Management Process

Exhibit 1.3
The Strategic
Management
Process

Strategy Strategy Strategy

Analysis Formulation Implementation

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 Strategy Analysis
(1 of 3)

Strategy analysis is the starting point in the

strategic management process.
The analysis needs to be done to effectively
formulate and implement strategies.
It involves careful analysis of the overarching goals
of the organization.
It requires a thorough analysis of the organization’s
external and internal environment.

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 Strategy Analysis
(2 of 3)

Analyzing organizational goals & objectives

• Establish a hierarchy of goals.
• Vision
• Mission
• Strategic Objectives

Analyzing the external environment of the

firm
• Managers must monitor and scan the environment
as well as analyze competitors.
• General environment
• Industry environment
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 Strategy Analysis
(3 of 3)

Assessing the internal environment of the

firm
• Analyze strengths & relationships among activities
that constitute a firm’s value chain.
• Analysis can uncover potential sources of
competitive advantage.
Assessing a firm’s intellectual assets
• Knowledge workers & other intellectual assets drive
competitive advantage & wealth creation.
• How the organization create Networks &
relationships and how well the technology enhance
collaboration, accumulates & stores knowledge.
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 Strategy Formulation
(1 of 3)

Based on strategy analysis, strategy

formulation is developed at several levels.
• Business-level strategy  how to compete in a given
business to attain competitive advantage
• Corporate-level strategy  what businesses to
compete in; how businesses can be managed to
achieve synergy
• International strategy  what strategies are needed
as the business ventures beyond its national
boundaries
• Entrepreneurial initiatives  how can businesses
create new value
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 Strategy Formulation
(2 of 3)

Formulating business-level strategy

• Successful firms develop bases for sustainable
competitive advantage through:
• Cost leadership and/or
• Differentiation, as well as
• Focusing on a narrow or industrywide market
segment.

Formulating corporate-level strategy

• Addresses a firm’s portfolio (or group) of businesses
• What business or businesses should we compete in?
• How can we manage this portfolio of businesses to
©McGraw-Hill Education. create synergies?
 Strategy Formulation
(3 of 3)

Formulating international strategy

• What is the appropriate entry strategy?
• How do we go about attaining competitive
advantage in international markets?
Entrepreneurial strategy and competitive
dynamics
For entrepreneurial initiatives to succeed
• Managers should recognize viable opportunities
• Know how to formulate effective strategies

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 Strategy Implementation
(1 of 5)

Strategy implementation takes action to

implement the formulated strategy. It involves
• Ensure proper strategic control systems.
• Establish an appropriate organizational design,
coordinating & integrating activities within the firm.
• Coordinate activities with suppliers, customers,
alliance partners.
• Leadership ensures organizational commitment to
excellence & ethical behavior.
• Promote learning & continuous improvement.
• Act entrepreneurially in creating new opportunities.
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 Strategy Implementation
(2 of 5)

Strategic control & corporate governance

Firms must exercise two types of strategic control:
• Informational control
• Monitor & scan the environment
• Respond effectively to threats & opportunities
• Behavioral control
• Proper balance of rewards & incentives
• Appropriate cultures & boundaries (or constraints)

Further, successful firms (those that are

incorporated) practice effective corporate
governance.
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 Strategy Implementation
(3 of 5)

Creating effective organizational designs

• Organizational structures must be consistent with
strategy.
• Organizational boundaries must be flexible &
permeable.
• Strategic alliances must capitalize on capabilities of
other organizations.

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 Strategy Implementation
(4 of 5)

Creating a learning organization & an ethical

organization
• Effective leaders
• Set a direction.
• Design the organization.
• Develop an organization committed to excellence &
ethical behavior.
• Create a “learning organization”
• Benefit from individual & collective talents

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 Strategy Implementation
(5 of 5)

Fostering corporate entrepreneurship

• Firms must continually improve & grow.
• Firms must find new ways to renew themselves.
• Entrepreneurship & innovation provide firms with
new opportunities.
• strategies should be formulated that enhance a
firm’s innovative capacity.

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