Extensive book chapter summary for the exam in 2020. Bullet points for greater overview. Includes thorough explanations of concepts and graphics from the book!
Summarized in bullet points for better overview. Includes graphics from the book.
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,Week 1
Chapter 1 - Strategic Management and Strategic Competitiveness
The strategic management process
- Full set of commitments, decisions and
actions required for a company to achieve
strategic competitiveness and earn above-
average returns
- Step 1: Inputs; company analyzes external
environment and internal organization to
determine its resources, capabilities, and core
competencies (sources of strategic input)
- Step 2: Formulation; development of vision
and mission and formulation of strategy with
results of analyses
- Step 3: Implementation; actions toward
achieving strategic competitiveness and
above-average returns to implement strategy, e ective integration increases e ectiveness of
company’s implementation and formulation actions
- Dynamic in nature as ever-changing markets and and competitive structures are coordinated with
company’s continuously-evolving strategic inputs
Strategic competitiveness
- Achieved when a company successfully formulates and implements a value-creating strategy
- Strategy: an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage
- Chosen strategy indicated what the company will do as well as what the company will not do
Competitive advantage
- Company has competitive advantage when it implements a strategy competitors are unable to
duplicate or nd too costly to try to imitate
- Organization can be con dent that its strategy has resulted in one or more useful competitive
advantages only after competitors’ e orts to duplicate the strategy have ceased or failed
- No competitive advantage is permanent
- Speed with which competitors are able to acquire skills needed to duplicate the bene ts of a
company’s value-creating strategy determines how long competitive advantage will last
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, Returns
- Measured in terms of accounting gures (return on assets, return on equity, return on sales); on the
basis of stock market returns (e.g. monthly returns, end-of-period stock price minus beginning stock
price divided by beginning stock price yielding a percentage return); in terms of amount and speed of
growth (e.g. annual sales; used by new venture rms)
- Above-average returns: returns in excess of what an investor expects to earn from other investments
with a similar amount of risk
- Risk: investor’s uncertainty about the economic gains and losses that will result from a particular
investment; e ectively managing risks reduces investors’ uncertainty about the results of their
investment in individual companies
- Average returns: returns equal to those an investor expects to earn from other investments with a
similar amount of risk
- Companies without competitive advantage that are not competing in an attractive industry earn
average returns at best
- In long run inability to earn at least average returns results in decline and eventually failure (as
investors withdraw investments; option to le for bankruptcy or liquidate operations)
The competitive landscape
- Fundamental nature of competition in many of the world’s industries is changing, reasons such as
scarce nancial capital and increasingly volatile markets
- Partnerships among companies in di erent segments of the entertainment industry further blur
industry boundaries
- Conventional sources of competitive advantage such as economies of scale and huge advertising
budgets are not as e ective as they once were
- Traditional managerial mindset unlikely to lead company to strategic competitiveness; managers
must adopt new mindset that values exibility, speed, innovation, integration and challenges that
evolve from constantly changing conditions
- Governments take a more active stance, have begun to interfere with markets where they perceive
them to fail (i.e. banking, IT, oil); interference of governments particularly important when companies
are active in many countries
- Hypercompetition
- Assumptions of market stability are replaces by notions if inherent instability and change
- Results from dynamics of strategic maneuvering among global and innovative combatants
- Companies often aggressively challenge their competitors in hopes of improving their competitive
position and performance
- Two primary drivers of hypercompetitive environments; nature of today’s competitive landscape:
emergence of a global economy and technology (rapid technological change)
The global economy
- Global economy: economy in which goods, services, people, skills and ideas move freely across
geographic borders; expands and complicates a company’s competitive environment
- Opportunities and challenges associated with the emergence of the global economy
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, - Strategic decision to invest in emerging markets to improve their competitive position in what they
believe are becoming vital sources of revenue and pro tability
- Globalization: increasing economic interdependence among countries and their organizations as
re ected in the ow of goods and services, nancial capital and knowledge across country borders;
product of large number of companies competing against one another in an increasing number of
global economies
- Globalization increases the range of opportunities for companies competing in the current
competitive landscape
- Financial capital may be obtained in one national market and used to buy raw materials in another
market, manufacturing equipment can be used to produce in another market and can then be sold
in yet a fourth market
- Companies experiencing and engaging in globalization must make culturally sensitive decisions
when using the strategic marketing process; must anticipate ever-increasing complexity in their
operations as goods, services and people move freely across geographic borders and throughout
di erent economic markets
- Globalization has led to higher levels of performance standards in many competitive dimensions
(quality, cost, productivity, product introduction time, operational e ciency)
- These standards a ect domestic companies as customers may purchase from global company of
goods or services are superior; only companies capable of meeting or exceeding global standards
have the capability to earn above-average returns
- Globalization not without risks, yet biggest risk might be to divide not to bene t from what
globalization o ers as competitors will seize the opportunity
- Liability of foreignness: risks of participating outside company’s domestic country in global
economy
- Amount of time required for companies to learn how to compete in markets that are new to them,
company’s performance can su er until knowledge is developed locally or transferred from the
home market
- Company’s performance can su er with substantial amounts of globalization, companies may over
diversify internationally beyond their ability to manage these extended operations
- Companies in industries with open markets see opportunities and threats and are more likely to have
both higher degree and greater scope of international diversi cation
Technology and technological changes
- Technology-related trends and conditions can be placed into two categories: technology di usion
and disruptive technology
- Technology di usion: rate at which new technologies come available and are used
- Perpetual innovation: describes how rapidly and consistently new information-intensive technologies
replace older ones
- Shorter product life cycles resulting from these rapid di usions of new technologies place a
competitive premium in being able to quickly introduce new, innovate goods and services into the
marketplace
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