Summary of all compulsory chapters: chapter 1-8, 11-12, 14-15 of the book 'Strategic Management' (Volberda et al.) & chapter 1-4 of the book 'Organization theory and design'.
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 develop and exploit core competencies and gain a competitive advantage. A firm’s
strategy demonstrates how it differs from its competitors.
A firm has a competitive advantage when it implements a strategy competitors are unable to
duplicate or find too costly to try to imitate. Competitive advantages are not timeless. The speed with
which competitors are able to acquire the skills needed to duplicate the benefits of a firm’s value-
creating strategy determines how long the competitive advantage will last.
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’s uncertainty about the economic gains
or losses that will result from a particular investment. Managing risk reduces the uncertainty of
investors. Returns can be measured in different ways, such as return on assets, return on sales, stock
market returns or the amount and speed of growth (new ventures). Average returns are returns equal
to those an investor expects to earn from other investments with a similar amount of risk. Firms that do
not earn at least average returns are likely to head for bankruptcy, because investors withdraw their
investments from those firms earning less-than-average returns.
The strategic management process is the full set of commitments, decisions and actions required
for a firm to achieve strategic competitiveness and earn above-average returns. All firms use the
strategic management process as the foundation for the commitments, decisions and actions they will
take.
A
global economy is one in which goods, services, people, skills and ideas move freely across
geographic borders. A global economy complicates a firm’s competitive environment. 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
increases the range of opportunities for companies competing in the current competitive landscape.
,Technology-related trends and conditions can be placed into two categories: technology diffusion and
disruptive technologies. Technology diffusion is the speed at which new technologies become
available and are used (eg it took the telephone 35 years to get into 25 per cent of all homes in the
US). Perpetual innovation describes how rapidly and consistently new information-intensive
technologies replace older ones. Disruptive technologies can destroy the value of an existing
technology and create new markets.
Knowledge (information, intelligence and expertise) is gained through experience, observation and
inference. Firms should acquire and develop knowledge, integrate it into the organization and then
apply it to gain a competitive advantage. Firms are better able to do these things when they have
strategic flexibility. Strategic flexibility is a set of capabilities used to respond to various demands
and opportunities existing in a dynamic and uncertain competitive environment. Strategic flexibility
involves coping with uncertainty and it accompanying risks. A firm’s focus and past core competencies
however may slow change and limit strategic flexibility.
The I/O model explains the external environment’s dominant influence on a firm’s strategic actions.
This model has four underlying assumptions:
The external environment is assumed to impose pressures and constraints that determine the
strategies that would result in above-average returns. (Strategic determination by external
environment)
Similarity of most firms’ resources and strategies within a given industry.
Resources are highly mobile across firms.
Rational decision-making for profit.
The I/O model challenges firms to find the most attractive industry in which to compete and shape the
structure of the industry to their advantage. The five forces model is used to find the industry that is the
most attractive for a firm. The model
suggests that a firm’s profitability is
a function of interactions among five
forces: suppliers, buyers,
competitive rivalry among firms,
product substitutes and potential
entrants to the industry. The model
suggests two strategies: cost
leadership (producing at costs
below those of competitors) or
differentiation (differentiated goods
for which customers are willing to
pay a price).
The resource-based model
assumes that each organization is a
collection of unique resources and
,capabilities. The uniqueness of a firm’s resources is the basis for its ability to earn above-average
returns. Resources are inputs into a firm’s production process, such as capital equipment, the skills of
individual employees, patents, finances and talented managers. There are three categories of
resources: physical, human and organizational capital. A capability is the capacity for a set of
resources to perform a task or an activity in an integrative manner. Core competencies are resources
and capabilities that serve as a source of competitive advantage for a firm over its rivals. Resources
are valuable when they allow a firm to take advantage of opportunities or neutralize threats in its
external environment. They are rare when possessed by few, are costly to imitate and are non-
substitutable when they have no structural equivalents.
A 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.
Stakeholders are the individuals and groups who can affect the firm’s vision and mission, are affected
by the strategic outcomes the firm achieves through its operations, and who have enforceable claims
on the firm’s performance. There are three groups of stakeholders:
Capital market stakeholders: shareholders and the major suppliers of a firm’s capital
Product market stakeholders: the firm’s primary customers, suppliers, host communities and
unions representing the workforce
Organizational stakeholders: all of a firm’s employees, including both non-managerial and
managerial personnel.
Strategic leaders are people located in different parts of the firm using the strategic management
process to help the firm reach its vision and mission. Organizational culture refers to the complex set
of ideologies, symbols and core values that are shared throughout the firm and that influence how the
firm conducts business.
A profit pool entails the total profits earned in an industry at all points along the value chain. There
are four steps to identifying profit pools:
Define the pool’s boundaries
, Estimate the pool’s overall size
Estimate the size of the value-chain activity in the pool
Reconcile the calculations
CHAPTER 2: THE EXTERNAL ENVIRONMENT
The general environment is composed of dimensions in the broader society that influence an
industry and the firms within it. These dimensions are grouped into seven environmental segments:
Demographic: population size, age structure, geographic distribution, ethnic mix, and income
distribution.
Economic: refers to the nature and direction of the economy in which a firm competes or may
compete. Inflation rates, interest rates, trade deficits or surpluses, budget deficits or surpluses,
personal savings rate, business savings rate and GDP.
Sociocultural: concerned with a society’s attitudes and cultural values. Women in the
workforce, workforce diversity, concerns about environment, attitudes about the quality of
work life, shifts in work and career preferences and shifts in preferences regarding product
and service characteristics.
Technological: includes the institutions and activities involved with creating new knowledge
and translating that knowledge into new outputs, products, processes and materials. Product
innovations, applications of knowledge, new communications technologies and focus of
private and government-supported R&D expenditures.
Political/legal: the arena in which organizations and interest groups compete for attention,
resources and a voice in overseeing the body of laws and regulations guiding interactions
among nations as well as between firms and various local governmental agencies. Antitrust
laws, taxation laws, deregulation philosophies, labour training laws, educational philosophies
and policies.
Physical: refers to potential and actual changes in the physical environment and business
practices that are intended to positively respond to and deal with those changes. Sustainable
technologies, waste reduction, environmental risk management, natural resources (finite
supply), advocacy groups and increasing demand (conflicts of interests).
Global: important political events, critical global markets, newly industrialized countries and
different cultural and institutional attributes.
Opportunities and threats
The industry environment is the set of factors that directly influences a firm and its competitive
actions and competitive responses: the threat of new entrants, the power of suppliers, the power of
buyers, the threat of product substitutes and the intensity of rivalry among competitors (five forces
Porter).
How companies gather and interpret information about their competitors is called competitor analysis
or competitive intelligence.
The analysis of the external environment has four parts:
Scanning: identifying early signals of environmental changes and trends.
Monitoring: detecting meaning through on-going observations of environmental changes and
trends.
Forecasting: developing projections of anticipated outcomes based on monitored changes and
trends.
Assessing: determining the timing and importance of environmental changes and trends for
firms’ strategies and their management.
Scanning and monitoring are particularly important when a firm competes in an industry with a high
rate of change and technological or legal uncertainty.
An opportunity is a condition in the general environment that, if exploited effectively, helps a
company achieve strategic competitiveness. A threat is a condition in the general environment that
may hinder a company’s efforts to achieve strategic competitiveness.
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