Introduction to Strategic

Management

What is Strategy?

Strategy is the overall plan for deploying

resources to establish a favorable position.
Tactic is a scheme for a specific maneuver.

 Characteristics

of strategic decisions

Important
Involve a significant commitment of resources
Not easily reversible

Basic Framework
External
Environment

The firm
Goals & Values
Resources &
Capabilities
Structures &
Systems

Competitors
Strategy

Customers
Suppliers
etc

Definitions
Strategic Management Process
The full set of commitments, decisions, and
actions required for a firm to create value and
earn above-average returns

Value Creation
What is achieved when a firm successfully
formulates and implements a strategy that
other companies are unable to duplicate or
find too costly to imitate.

Definitions
Average Returns
Returns that are equal to those an investor
expects to earn from other investments with a
similar amount of risk

Above-Average Returns
Returns that are in excess of what an investor
expects to earn from other investments with a similar
amount of risk

Definitions
Risk
An investors uncertainty about the economic
gains or losses that will result from a
particular investment

Competitive Landscape
Dynamics of strategic
maneuvering among global
and innovative combatants
Price-quality positioning,
new know-how, first
mover
Hypercompetitive
environments
Fundamental nature of
competition is changing

Protect or invade
established product or
geographic markets

Competitive Landscape
Emergence of global
economy

Goods, services, people,

skills, and ideas move
freely across geographic
borders
Spread of economic
innovations around the
world

Hypercompetitive
environments
Fundamental nature of
competition is changing

Political and cultural

adjustments are required

Competitive Landscape
Emergence of global
economy
Rapid technological
change

Increasing rate of
technological change and
diffusion
The information age

Hypercompetitive
environments
Fundamental nature of
competition is changing

Increasing knowledge
intensity

Strategic Flexibility
A set of capabilities used to respond to
various demands and opportunities existing
in a dynamic and uncertain competitive
environment
It involves coping with uncertainty and the
accompanying risks

Strategic Flexibility
Organizational
slack

Strategic
reorientation

Capacity to
learn

Strategic
Flexibility
flexibility

I/O Model of Above-Average Returns

1. External Environments

Global

ral
ltu
cu
cio
So

Competitor
Environment
Technological

Environment

Ec
on o
mi c

Industry
Environment

ic
ph
gra
mo
De

Po
liti
ca
l /L
ega
l

General
Strategy dictated by the
external environment of
the firm (what
opportunities exist in
these environments?)
Firm develops internal
skills required by external
environment (what can
the firm do about the
opportunities?)

Four Assumptions of the I/O Model

The external environment is assumed to possess
pressures and constraints that determine the
strategies that would result in above-average returns
Most firms competing within a particular industry or
within a certain segment of it are assumed to control
similar strategically relevant resources and to pursue
similar strategies in light of those resources

Four Assumptions of the I/O Model

Resources used to implement strategies are highly
mobile across firms
Organizational decision makers are assumed to be
rational and committed to acting in the firms best
interests, as shown by their profit-maximizing
behaviors

I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment

Study the external

environment, especially
the industry environment
economies of scale
barriers to market entry
diversification
product differentiation
degree of concentration of
firms in the industry

I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment
An Attractive Industry

Locate an attractive
industry with a high
potential for aboveaverage returns
Attractive industry: one
whose structural
characteristics suggest
above-average returns

I/O Model of Above-Average Returns

Industrial Organization
Model
Identify
the strategy called

The External Environment

An Attractive Industry
Strategy Formulation

for by the attractive

industry to earn aboveaverage returns

Strategy formulation:
selection of a strategy linked
with above-average returns
in a particular industry

I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills

Develop or acquire assets

and skills needed to
implement the strategy
Assets and skills: those
assets and skills required to
implement a chosen
strategy

I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation

Use the firms strengths (its

developed or acquired assets
and skills) to implement the
strategy
Strategy implementation:
select strategic actions
linked with effective
implementation of the
chosen strategy

I/O Model of Above-Average Returns

Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Superior Returns

Superior returns: earning of

above-average returns

Resource-based Model of Above Average

Returns
1. Firms Resources

Strategy dictated by the

firms unique resources and
capabilities
Find an environment in
which to exploit these
assets (where are the best
opportunities?)

Resource-based Model of Above Average Returns

Resource-based
Model
Resources

Identify the firms

resources-- strengths and
weaknesses compared
with competitors
Resources: inputs into a
firms production process

Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Capability

Determine the firms

capabilities--what it can do
better than its competitors
Capability: capacity of an
integrated set of resources
to integratively perform a
task or activity

Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Capability
Competitive Advantage

Determine the potential of

the firms resources and
capabilities in terms of a
competitive advantage
Competitive advantage:
ability of a firm to
outperform its rivals

Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Capability
Competitive Advantage
An Attractive Industry

Locate an attractive industry

An attractive industry: an
industry with opportunities
that can be exploited by the
firms resources and
capabilities

Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Form/Impl

Select a strategy that best

allows the firm to utilize its
resources and capabilities
relative to opportunities in
the external environment
Strategy formulation and
implementation: strategic
actions taken to earn above
average returns

Resource-based Model of Above Average Returns

Resource-based
Model
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Form/Impl
Superior Returns

Superior returns: earning

of above-average returns

Strategic Intent & Mission

Strategic

Winning competitive battles by leveraging the firms

resources, capabilities, and core competencies

Strategic

Intent

Mission

An application of strategic intent in terms of products to be

offered and markets to be served

Emergent and Deliberate

Strategies
Intended
Strategy

Deliberate
Strategy

Unrealized
Strategy

Realized
Strategy

Emergent
Strategy

From Strategy Formation in an Adhocracy by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly,
Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.

Strategic Management Process for Intended

Strategies
Missions
Missions
and
andGoals
Goals

External
External
Analysis
Analysis

Strategic
Strategic
Choice
Choice
INTENDED STRATEGY

Organizing
Organizingfor
for
Implementation
Implementation

Internal
Internal
Analysis
Analysis

Strategic Management Process for Emergent

Strategies
External
External
Analysis
Analysis

Missions
Missions
and
andGoals
Goals

Strategic
StrategicChoice
Choice
Does
DoesItItFit?
Fit?
EMERGENT STRATEGY

Organizational
Organizational
Grassroots
Grassroots

Internal
Internal
Analysis
Analysis

The Firm and Its Stakeholders

Stakeholders
The firm who
mustare
maintain
Groups
affected by a
performance
at an adequate
firms
performance
and who
level in order to retain the
have
claims on its wealth
participation of key
stakeholders

The Firm and Its Stakeholders

Stakeholders
Capital Market Stakeholders

Shareholders
Major suppliers of capital
Banks
Private lenders
Venture capitalists

The Firm and Its Stakeholders

Stakeholders
Capital Market Stakeholders

Product Market Stakeholders

Primary customers
Suppliers
Host communities
Unions

The Firm and Its Stakeholders

Stakeholders
Capital Market Stakeholders

Product Market Stakeholders

Organizational Stakeholders

Employees
Managers
Nonmanagers

Values
Johnson

& Johnsons credo

sets its responsibilities to:
1.
2.
3.
4.

J&J product users.

J&J employees.
Communities in which J&J
employees live and work.
J&J stockholders.

Source: Courtesy of Johnson & Johnson.

Johnson & Johnson Credo*

First

Responsibility Is to Those Who

Use J&J Products
Next Come Its Employees
Next, the Communities in Which the
Employees Live and Work
Its Final Responsibility Is
to Its Stockholders

Levels of Strategy
Functi
onal

Business
Corp

o r at e

Global