MAF661

1. CHAPTER 1
Strategic Management:
Creating Competitive
Advantages
Copyright Anatoli Styf/Shutterstock

2. ©McGraw-Hill Education.
Learning Objectives
After reading this chapter, you should have a good understanding
of:
1-1 The definition of strategic management and its four key
attributes.
1-2 The strategic management process and its three interrelated
and principal activities.
1-3 The vital role of corporate governance and stakeholder
management as well as how “symbiosis” can be achieved
among an organization’s stakeholders.
1-4 The importance of social responsibility, including
environmental sustainability, and how it can enhance a
corporation’s innovation strategy.
1-5 The need for greater empowerment throughout the
organization.
1-6 How an awareness of a hierarchy of strategic goals can help
an organization achieve coherence in its strategic direction.

3. ©McGraw-Hill Education.
The Importance of Leadership
Consider…
Maintaining competitive success or even surviving
over long periods of time is difficult for companies
of any size.
SO how much credit (or blame) does a leader
deserve?

4. ©McGraw-Hill Education.
Two Perspectives of Leadership
External control perspective:
External forces determine the organization’s
success.
• Economic downturns
OR
Romantic view:
A leader is the key force in the organization’s
success.
• Steve Jobs

5. ©McGraw-Hill Education.
Leaders Can Make a Difference
Be proactive - anticipate change.
Refine strategies continually.
Be aware of external opportunities and threats.
Understand thoroughly the firm’s resources and
capabilities.
Make strategic management both a process and a
way of thinking throughout the organization.

6. ©McGraw-Hill Education.
Defining Strategic Management
Strategic management involves:
• Analysis
• Strategic goals (vision, mission, strategic objectives)
• Internal and external environment
• Decisions - 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.

7. ©McGraw-Hill Education.
Two Fundamental Questions
1. How should we compete in order to create a
competitive advantage in the marketplace?
2. How can we create competitive advantages in
the marketplace that are unique, valuable, and
difficult for rivals to copy or substitute?
NOTE: Operational effectiveness is not enough
to sustain a competitive advantage.

8. ©McGraw-Hill Education.
Strategic Management
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.
• Efficiency = performing actions at a low cost relative to a
benchmark, or “doing things right.”
• Effectiveness = tailoring actions to the needs of an
organization rather than wasting effort, or “doing the right
thing.”

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Strategic Management Trade-offs
Managers need to be ambidextrous.
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.

10. ©McGraw-Hill Education.
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.

11. ©McGraw-Hill Education.
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.
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
Jump to Appendix 1 for long
description.

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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.
• Networks & relationships plus 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
create synergies?

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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
• How do we recognize viable opportunities?
• How do we formulate effective strategies?

19. ©McGraw-Hill Education.
Strategy Implementation
(1 of 5)
Strategy implementation takes action to
implement the formulated strategy.
• 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.

20. ©McGraw-Hill Education.
Strategy Implementation
(2 of 5)
Strategic control & corporate governance
• Informational control
• Monitor & scan the environment
• Respond effectively to threats & opportunities
• Behavioral control
• Proper balance of rewards & incentives
• Appropriate cultures & boundaries (or constraints)
• 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.

22. ©McGraw-Hill Education.
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

23. ©McGraw-Hill Education.
Strategy Implementation
(5 of 5)
Fostering corporate entrepreneurship
• Firms must continually improve & grow.
• Firms must find new ways to renew themselves.
• Entrepreneurship & innovation provide for new
opportunities enhance a firm’s innovative capacity.

24. ©McGraw-Hill Education.
Corporate Governance & Stakeholder
Management
Appropriate strategic management requires an
effective & appropriate corporate structure.
Corporate governance is the relationship among
various participants in determining the direction
and performance of corporations.
Primary participants:
• Shareholders
• Management (led by the Chief Executive Officer)
• The Board of Directors (BOD)

25. ©McGraw-Hill Education.
Corporate Governance
Board of Directors
Elected representatives of
the owners
Ensure interests & motives
of management are aligned
with those of the owners:
• Create an effective and
engaged board.
• Address shareholder
activism.
• Provide proper
managerial rewards &
incentives.
• Establish external control
mechanisms.
Exhibit 1.4 The Key Elements of Corporate
Governance
Jump to Appendix 2 for long description.

26. ©McGraw-Hill Education.
Stakeholder Management
Stakeholder Group Nature of Claim
Employees Wages, benefits, safe working environment,
job security
Suppliers Payment on time, assurance of continued
relationship
Creditors Payment of interest, repayment of principal
Customers Value, warranties
Government Taxes, compliance with regulations
Community Good citizenship behavior such as charities,
employment, not polluting the environment
Exhibit 1.5 An Organization’s Key Stakeholders & the Nature of Their
Claims

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Two Views of Stakeholder Management
Two views of stakeholder management
Zero sum
• Stakeholders compete for attention & resources.
• The gain of one is a loss to the other.
OR
Symbiosis
• Stakeholders are dependent upon each other for
success & well-being.
• Stakeholders receive mutual benefits.

28. ©McGraw-Hill Education.
Question
(2 of 2)
P&G created a cleaning product that led to a change
in consumer shopping habits and also a revolution
in industry supply chain economics. According to
the text, this is an example of
A. zero-sum relationship among stakeholders.
B. stakeholder symbiosis.
C. rewarding stakeholders.
D. emphasizing financial returns.

29. ©McGraw-Hill Education.
Social Responsibility & Environmental
Sustainability
Firms have multiple stakeholders and must go
beyond a focus solely on financial results.
Social responsibility is the expectation that
businesses or individuals will strive to improve the
overall welfare of society.
Firms can measure a triple bottom line, assessing
financial, social, AND environmental performance.
Sustainability projects can yield substantial benefits
even when they are difficult to quantify.

30. ©McGraw-Hill Education.
Empowered Strategic Management
Strategic management requires an integrative
view of the organization.
ALL functional areas & activities must fit together to
achieve goals & objectives.
Leaders are needed throughout.
• Local line leaders – have profit & loss
responsibility
• Executive leaders – champion & guide ideas
• Internal networkers – hold little positional
power, but have conviction & clarity of ideas

31. ©McGraw-Hill Education.
Coherence in Strategic Direction
(1 of 5)
Organizations express priorities best through stated
goals & objectives that form a hierarchy of goals.
• Vision evokes powerful & compelling mental
images of a shared future.
• Mission encompasses the organization’s current
purpose, basis of competition, & competitive
advantage.
• Strategic objectives operationalize the mission
statement with specific yardsticks.

32. ©McGraw-Hill Education.
Coherence in Strategic Direction
(2 of 5)
Exhibit 1.6 A Hierarchy of Goals
Jump to Appendix 3 for long description.

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Coherence in Strategic Direction
(3 of 5)
Organizational vision
• A “massively inspiring” goal, overarching, long
term
• A destination driven by & evoking passion
• Developed & implemented by leadership
• A fundamental statement of an organization’s
values, aspirations, and goals
• Captures both the minds & hearts of employees
• BUT can backfire and erode a company’s credibility

34. ©McGraw-Hill Education.
Coherence in Strategic Direction
(4 of 5)
Mission statement
• Encompasses both the purpose of the company and
the basis of competition and competitive advantage
• More specific than the vision
• Focuses on the means by which the firm will
compete
• Incorporates stakeholder management
• Communicates why an organization is special &
different
• Can & should change when competitive conditions
change

35. ©McGraw-Hill Education.
Coherence in Strategic Direction
(5 of 5)
Strategic objectives
• Used to operationalize the mission statement
• Provide guidance on how to fulfill mission & vision
• Measurable, specific, appropriate, realistic & timely
• Channel all employees’ efforts toward common
goals
• Can be both financial and nonfinancial
• Should be challenging, yet help resolve conflicts
• Provide a yardstick for rewards & incentives
• BUT too many objectives can result in lack of focus