Chapter 1

Strategic Management
and Strategic Competitiveness

Hitt, Ireland, and Hoskisson

 Strategic management process
 The full set of
commitments,
Insert figure 1.1 graphic
decisions, and
actions required
for a firm to
achieve strategic
competitiveness
and earn above-
average returns.

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Step 1: Analyze strategic inputs

 Evaluate competitive, global landscape

 Challenging landscape created by an emerging
global economy, its resulting globalization, and
rapid changes in technology.

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2 models to analyze strategic inputs
 Industrial organization
(I/O) model
 External environment is
primary determinant of a
firm’s strategic actions
 Model focuses on the firm’s
external environment
 Resource-based model
 A firm’s unique resources
and capabilities are the
critical link to strategic
competitiveness.
 Model focuses on the firm’s
internal environment

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Technology and technological changes

 Technology significantly alters competition and

contributes to unstable competitive environments.
 3 categories of technology trends and conditions
 technology diffusion and disruptive technologies
 the information age
 increasing knowledge intensity

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I/O model of
above-average returns
 According to the model,
the industry in which a
company chooses to
compete has a stronger
influence on performance
than do the choices
managers make inside
their organizations.

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I/O model suggests strategies

 Firms may earn above-average returns by

 manufacturing standardized products, or producing
standardized services at costs below those of
competitors (a cost leadership strategy), or
 manufacturing differentiated products for which
customers are willing to pay a price premium
(a differentiation strategy).

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Resource-based model
 Assumes each
organization is a
collection of unique Insert Figure 1.3 The
resources and Resource-Based Model
capabilities, and of Above-Average
uniqueness of its Returns
resources and
capabilities is the basis
for a firm’s strategy and
ability to earn above-
average returns.

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Resource-based model

 Using this model, a firm would choose to

enter an industry in which it had competitive
advantages
 To become a competitive advantage, a
resource or capability must be valuable, rare,
costly to imitate, and not substitutable.

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Step 2: Take strategic action

 Vision is a picture of what the firm wants to

be and, in broad terms, what it wants to
ultimately achieve.
 A mission specifies the business(es) in which
the firm intends to compete and the
customers it intends to serve.

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Classifications of stakeholders

Insert figure Figure 1.4 The Three

Stakeholder Groups

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Step 3: Realize strategic outcomes

 Strategic leaders must predict the potential

outcomes of their strategic decisions.
 To do so, they must first calculate profit pools
in their industry that are linked to value chain
activities.
 A profit pool entails the total profits earned in
an industry at all points along the value chain.

Copyright © 2008 Cengage