Introduction to Strategic Management

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Introduction to Strategic Management:

Introduction to Strategic Management Pradip Singh Assistant Professor SAMS Varanasi

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What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver.

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Characteristics of strategic decisions… Important Involve a significant commitment of resources Not easily reversible

Basic Framework:

Basic Framework The firm Goals & Values Resources & Capabilities Structures & Systems External Environment Competitors Customers Suppliers etc Strategy

Definitions:

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:

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

Definitions:

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

Competitive Landscape:

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

Competitive Landscape:

Fundamental nature of competition is changing Hypercompetitive environments Competitive Landscape Emergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders Spread of economic innovations around the world Political and cultural adjustments are required

Competitive Landscape:

Hypercompetitive environments Competitive Landscape Emergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Increasing knowledge intensity Fundamental nature of competition is changing

Strategic Flexibility:

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:

Strategic Flexibility Strategic Flexibility Strategic Flexibility Strategic flexibility Strategic reorientation Capacity to learn Organizational slack

Industrial organizational Model of Above-Average Returns:

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?) General Environment Global Technological Economic Sociocultural Political/Legal Demographic 1. External Environments Industry Environment Competitor Environment Industrial organizational Model of Above-Average Returns

Four Assumptions of the I/O Model:

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:

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 firm’s best interests, as shown by their profit-maximizing behaviors

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Industrial Organization Model I/O Model of Above-Average Returns 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 The External Environment

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I/O Model of Above-Average Returns Locate an attractive industry with a high potential for above-average returns Attractive industry: one whose structural characteristics suggest above-average returns Industrial Organization Model The External Environment An Attractive Industry

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I/O Model of Above-Average Returns Identify the strategy called for by the attractive industry to earn above-average returns Strategy formulation: selection of a strategy linked with above-average returns in a particular industry Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation

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I/O Model of Above-Average Returns Develop or acquire assets and skills needed to implement the strategy Assets and skills: those assets and skills required to implement a chosen strategy Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills

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I/O Model of Above-Average Returns Use the firm’s 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 Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation

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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:

Strategy dictated by the firm’s 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 1. Firm’s Resources The Firm

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Identify the firm’s resources-- strengths and weaknesses compared with competitors Resources: inputs into a firm’s production process Resource-based Model of Above Average Returns Resource-based Model Resources

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Determine the firm’s 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

Four Attributes of Resources and Capabilities (Competitive Advantage):

Four Attributes of Resources and Capabilities (Competitive Advantage) the firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage Valuable allow the firm to exploit opportunities or neutralize threats in its external environment Rare possessed by few, if any, current and potential competitors Costly to imitate when other firms cannot obtain them or must obtain them at a much higher cost Non substitutable Resources and Capabilities

Resources and capabilities that meet these four criteria become a source of::

Core Competencies Resources and capabilities that meet these four criteria become a source of: Valuable Rare Costly to imitate Nonsubstitutable Core Competencies Resources and Capabilities

Core Competencies are the basis for a firm’s:

Core Competencies are the basis for a firm’s Competitive advantage Value Creation Ability to earn above-average returns Core Competencies

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Determine the potential of the firm’s 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

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Locate an attractive industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities Resource-based Model of Above Average Returns Resource-based Model Resources Capability Competitive Advantage An Attractive Industry

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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

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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 Intent & Mission Strategic Intent Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies Strategic Mission An application of strategic intent in terms of products to be offered and markets to be served

Emergent and Deliberate Strategies:

Emergent and Deliberate Strategies Intended Strategy Realized Strategy Deliberate Strategy Unrealized Strategy Emergent Strategy

Strategic Management Process for Intended Strategies:

Strategic Management Process for Intended Strategies Missions and Goals Strategic Choice Organizing for Implementation Internal Analysis External Analysis INTENDED STRATEGY

Strategic Management Process for Emergent Strategies:

Strategic Management Process for Emergent Strategies Missions and Goals Internal Analysis External Analysis EMERGENT STRATEGY Strategic Choice Does It Fit? Organizational Grassroots

The Firm and Its Stakeholders:

Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders THE FIRM The Firm and Its Stakeholders Stakeholders

The Firm and Its Stakeholders:

Capital Market Stakeholders The Firm and Its Stakeholders Shareholders Major suppliers of capital Banks Private lenders Venture capitalists Stakeholders

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Capital Market Stakeholders Product Market Stakeholders The Firm and Its Stakeholders Primary customers Suppliers Host communities Unions Stakeholders

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Capital Market Stakeholders Product Market Stakeholders Organizational Stakeholders The Firm and Its Stakeholders Employees Managers Nonmanagers Stakeholders

Values:

Values Johnson & Johnson’s credo sets its responsibilities to: 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*:

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

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Functional Business Corporate Global Levels of Strategy

Functional-Level Strategy:

Functional-Level Strategy Manufacturing Marketing Materials Management Research and Development Human Resources

Business-Level Strategy :

Business-Level Strategy Cost Leadership Differentiation Market Niche Focus

Global Strategies:

Global Strategies Multi-domestic International Global Transnational

Corporate-Level Strategy:

Corporate-Level Strategy Vertical Integration Diversification Strategic Alliances Acquisitions New Ventures Business Portfolio Restructuring