17-Page Summary on Strategic Management and Competitive Advantage
This 17-page summary distills essential insights from key academic works on strategic management and competitive advantage. It includes critical perspectives on collaboration from Collaboration Reduces Contentions (Odziemkowska & ...
1. MISSION
This process starts with a mission statement: a long-term purpose of a firm.
Visionary firms: firms whose mission is central to all they do.
2. OBJECTIVES
Objectives are specific measurable targets a firm can use to evaluate the extent to
which it is realizing its mission. These should connect to the mission,
3.1. (EXTERNAL) ANALYSIS
Identifying threats and opportunities in its competitive environment and how competition
is likely to evolve.
GENERAL ENVIRONMENT
Trends in the context within which a firm operates that can have an impact on a firm’s
strategic choices. This consists of six different elements:
Technological change Demographics Culture Economic climate Legal
and political conditions Specific international events
INDUSTRY
Set of companies that fulfill a similar need with a similar production process.
STRUCTURE CONDUCT PERFORMANCE MODEL (SCP):
Structure: number of competitors, , heterogeneity of products, cost of entry and
exit etc.
Conduct: Strategies firms in an industry implement
Performance: The performance of individual firms/ the economy as a whole
5 FORCES OF PORTER
Environmental threats increase the competitiveness of an industry and force firm
performance to competitive parity level. There are five common environmental threats:
1. Threat of new competition industry growth rate and barriers of entry
economies of scale product differentiation valuable resources
government regulations of entry
, 2. Threat from existing competitors lot of firms in a slow/declining industry
with, lack of USP’s
Large number of firms, same size slow/declining industry growth rate lack
of product differentiation capacity added in large increments
3. Threat of substitute products customers looking for alternatives
product that fulfil same need in a different way Low switching costs
4. Threat of supplier leverage dependability from supplier’s
less choice of supplier unique/ highly differentiated product forward
integration importance
5. Threat from buyer influence dependability from buyers
few buyers significant % of buyer’s costs buyers aren’t earning economic
profits backward integration
6. Complements (6th) When customer value of your product is more when they
have a product of another firm.
INDUSTRY STRUCTURE AND ENVIRONMENTAL OPPORTUNITIES
Emerging industries: perfect competition/ monopolistic competition. New
industry based on breakthrough technology/ product (disruptive innovation).
First mover advantage
Fragmented industries: perfect competition/ monopolistic competition.
Industries in which many small or medium sized firms operate and no small set of
firms has dominant market share Implementation of strategies that begin to
consolidate the industry into a smaller number of firms.
Mature industries: Oligopoly. Slowing growth %, experienced repeat customers,
increase international competition. process innovation
Declining industries: Oligopoly/ monopoly. An industry that has experienced a
decline in unit sales over a sustained period. market leadership, niche, harvest
or/and divest.
STRATEGIC GROUP
Set of companies with similar strategies, more competition within these groups than
between different strategic groups.
3.2. (INTERNAL) ANALYSIS
Identify organizational strengths and weaknesses of a firm. Helps to understand which
resources and capabilities are likely to be sources of competitive advantage.
THE RESOURCE BASED VIEW
This is a model of firm performance that focuses on resources and capabilities controlled
by a firm as sources of competitive advantage.
- Why do some firms better economic performance than others?
- Assume that a firm resources and capabilities are primary of competitive advantage.
Resources: Tangible and intangible assets that a firm controls and can use to conceive
and implement strategies Financial resources Physical resources Human
resources organizational resources
Capabilities: Subset of a firm’s resources. Tangible and intangible assets that enable a
firm to take full advantage of the other resources it controls.
, Resource heterogeneity: For a given business activity, some firms may be more
skilled than other firms.
Resource immobility: Some resources and capabilities differences among firms may be
long lasting because it may be very costly for firms without certain resources to develop
or acquire them.
THE VRIO FRAMEWORK
The primary tool to identify a firm’s internal strengths and weaknesses is the VRIO
framework. This contains of the four elements; Value, Rarity, Imitability and Organization.
Value: do resources and capabilities enable a firm to exploit an external opportunity or
neutralize an external threat?
Rarity: number of firms that posses the resource < number of firms to generate perfect
competition.
Imitability: Do firms without a resource or capability face a cost disadvantage in
obtaining or developing it compared to firms that already possess it?
Organization: Is a firm organized to exploit the full competitive potential of its
resources?
Valuable Rare Costly to Exploited by Competitive Strength or weakness
imitate Organization implications
No - - - Competitive Weakness
disadvantage
Yes No - - Competitive parity Strength
Yes Yes No - Temporary competitive Strength and distinctive
advantage competence
Yes Yes Yes Yes Sustained competitive Strength and sustained CA
advantage
These components are called complementary resources and capabilities because
they do not generate CA, but enable a firm to realize its full potential with resources to
gain CA.
COMPETITIVE DYNAMICS IN AN INDUSTRY
1. Limit the response: a firm might have its own competitive advantage it could
destroy by responding, when a firm does not have the resources and capabilities
to do so, because a firm is trying to reduce the level of rivalry in an industry
2. Modify tactics: specific actions a firm takes to implement its strategies.
This is often used to counter temporary CA, which happens when companies
follow approximately the same strategy.
3. Fundamentally alter strategy: In this case a firm will not be able to gain even
competitive parity and is therefore forced to change strategy.
IMPLICATIONS
The responsibility for creating resources for CA is for every employee create value
in the same way as competitors best performance it can ever expect is competitive
parity Manager can under/over estimates the uniqueness of their resources
Employee empowerment, organizational culture and teamwork are economically valuable
and socially complex resources are difficult and costly to imitate A firm’s structure,
control systems and compensation policies should support and enable a firm’s efforts to
fully exploit the resources
4.1. STRATEGIC CHOICE: BUSINESS LEVEL STRATEGIES
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