Chapter 1.

strategic management and strategic competitiveness

Strategic competitiveness is achieved when a firm successfully formulates and
implements a value-creating strategy.
A strategy is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive advantage. When
choosing a strategy, firms make choices among competing alternatives as the
pathway for deciding how they will pursue strategic competitiveness.
A firm has a competitive advantage when it implements a strategy competitors are
unable to duplicate or find too costly to try to imitate.
Above average returns are returns in excess of what an investor expects to earn
from other investments with a similar amount of risk. Risk is an investor uncertainty
about the economic gains or losses that will result from a particular investment. The
most successful companies learn how to effectively manage risk. Effectively
manage risks reduces investor uncertainty about the result of their investment.
Return are often measured in terms of accounting figures, such as return on assets,
return on equity, or return on sales. Alternatively, returns can be measured on the
basis of stock market returns, such as monthly returns.
Firms without a competitive advantage or that are not competing in an attractive
industry earn, at best, average returns. Average returns are returns equal to those
an investor expects to earn from other investments with a similar amount of risk.
The strategic management process is the full of commitments, decisions, and
actions required for a firm to achieve strategic competitiveness and earn aboveaverage returns.
The competitive landscape
The fundamental nature of competition in many of the worlds industries is
changing. Conventional sources of competitive advantage such as economics of
scale and huge advertising budgets are not as effective as they once were in terms
of helping firms earn above-average returns. Hypercompetition is a term often used
to capture the realities of the competitive landscape. Under the condition of
hypercompetition, assumptions of market stability are replaced by notions of
inherent instability and change. Hypercompetition results from the dynamics of
strategic maneuvering among global and innovative combatants. It is a condition of
rapidly escalating competition based on price-quality positioning, competition to
create new know-how and establish first-mover advantage, and competition to
protect or invade established product or geographic markets.
Several factors create hypercompetitive environments and influence the nature of
the current competitive landscape. The emergence of global economy and
technology, specifically rapid technological change, are the two primary drivers of
hypercompetitive environments and the nature of todays competitive landscape.
The global economy.

Is one in which goods, services, people, skills, and ideas move freely across
geographic borders. Relatively unfettered by artificial constraints, such as tariffs,
the global economy significantly expands and complicates a firms competitive
environment.
The march of globalization
Globalization is the increasing economic interdependence among countries and
their organizations as reflected in the flow of goods and services, financial capital,
and knowledge across country borders. Globalization is product of a large number of
firms competing against one another in an increasing number of global economies.
Technology and technological changes. Technology-realted trends and conditions
can be placed into three categories.
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Technology diffusion and disruptive technologies. The rate of diffusion, which

is the speed at which new technologies become available and are used, has
increased substantially over the past 15 to 20 years. Perpetual innovation is a
term used to describe how rapidly and consistently new, informationintensive technologies replace older ones. The shorter product life cycles
resulting from these rapid diffusions of new technologies place a competitive
premium on being able to quickly introduce new, innovative goods and
services into marketplace. Disruptive technologies-the technologies that
destroy the value of an existing technology and create new market-surface
frequently in todays competitive markets. A disruptive or radical technology
can create what is essentially a new industry or can harm industry
incumbents. Some incumbents though, are able to adapt based on their
superior resources, experience, and ability to gain access to the new
technology through multiple sources.
The information age. The internet is another technological innovation
contributing to hypercompetition.
The increasing knowledge intensity. Knowledge is gained through experience,
observation, and inference and is an intangible resource. The value of
tangible resources, including knowledge is growing as a proportion of total
shareholder value in today competitive language. The probability of achieving
strategic competitiveness is enhanced for the firm that realizes that its
survival depends on the ability to capture intelligence, transform it into
usable knowledge, and diffuse it rapidly throughout the company. Therefore,
firms must develop and acquire knowledge, integrate it into the organization
to create capabilities, and then apply it to gain a competitive advantage.

Strategic flexibility is a set of capabilities used to respond to various demands and

opportunities existing in a dynamic and uncertain competitive environment. Thus,
strategic flexibility involves coping with uncertainty and its accompanying risks. To
be strategically flexible on a continuing basis and to gain the competitive benefits
such flexibility, a firm has to develop the capacity to learn. Firms capable of rapidly
and broadly applying what they have learned exhibit the strategic flexibility and the
capacity to change in ways that will increase the probability of successfully dealing
with uncertain, hypercompetitive environments.

The I/O model of above-average returns.

The firms performance is believed to be determined primarily by a range of industry
properties, including economics of scale, barriers to entry, diversification, product
differentiation, and the degree of concentration of firms in the industry.
The I/O model has four underlying assumptions.
1. The external environment is assumed to impose pressures and constraints
that determine the strategies that would result in above-average returns.
2. Most firms competing within an industry or within a segment of that industry
are assumed to control similar strategically relevant resources and to pursue
similar strategies in light of those resources.
3. Resources, used to implement strategies are assumed to be highly mobile
across firms, so any resource differences that might develop between firms
will be short-lived.
4. Organizational decision makers are assumed to be rational and committed to
acting in the firms best interest, as shown by their profit-maximizing
behaviors.
The I/O model challenges firms to find the most attractive industry in which to
compete. Because most firms are assumed to have similar valuable resources that
are mobile across companies, their performance generally can be increased only
when they operate in the industry with the highest profit potential and learn how to
use their resources to implement the strategy required by the industry structural
characteristics.
The resource based model of above average returns
Vision and mission
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Vision
Mission

Stakeholders
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Classification of stakeholders
o Capital market stakeholders
o Product market stakeholders
o Organizational stakeholders

Strategic leaders
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The work of effective strategic leaders

Predicting outcomes of strategic decisions: profit pools

Strategic management process