Strategic Management CH. 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 15,
16, 17
Chapter 1: Introduction to Strategic Management
What is strategy?
Origin: strategos (Greek for (military) general): “the leader or commander of an army”
Definition of strategy: orchestrated, unified, integrated, and purposeful set of choices,
commitments, and activities directed at achieving and sustaining above-average
performance
Strategic management: the formulation + execution of strategy
To better understand what strategy is, it helps to look at what it is not:
1. Strategy is not operational effectiveness
• Operational effectiveness is about improving efficiency and processes.
• While these improvements are important for performance, they aren’t
enough for long-term success because competitors can quickly copy them.
• Strategy, on the other hand, is about doing things differently or doing
different things in a way that competitors can’t easily imitate, creating lasting
competitive advantage.
2. Strategy is not just a plan
• A plan outlines specific actions on how resources will be used, but It doesn’t
need to be coherent with other activities.
• A strategy, however, focuses on achieving long-term, sustained success and
depends on external factor like competitors and customers, which the firm
cannot directly control.
,Non-profit organizations = have been formed to benefit the public good, for instance, by
promoting a social cause or by advocating for the needs of certain social groups or
communities
Not-for-profit organizations = do not earn profits for their owners (same as non-profit), but
in contrast to nonprofit these organizations are not required to benefit the public good –
instead, they can simply serve the collective goals of their members.
Government organizations = sovereign entities with authoritative power over other
organizations in a certain state or area.
Added value = measures the value created by a firm
Competitive advantage = a firm has something special (e.g., better products, lower costs, or
strong branding) that helps it do better than its competitors.
à Because of this advantage, the firm can earn above-average returns. This means it makes
more profit than other companies in the same industry or more than investors expect from
similar investments.
à Returns refer to the money gained (profit) or lost from an investment. A positive return
means profit, and a negative return means loss.
Connection: Competitive advantage is the reason a firm can generate above-average
returns. Without an advantage, it’s hard for a firm to consistently outperform others or
achieve higher-than-expected profits.
A firm earns above-average returns (or superior returns) when it makes more money than
what investors could have made by putting their money into other investments with similar
risks. In other words, the firm performs better than most others in its field, which
shows above-average performance.
Competitive disadvantage = firms that are outperformed by their rivals or whose returns are
below the industry average
Competitive parity = lies in between competitive advantage and competitive disadvantage
How can we achieve above-average returns?
Two underlying models to achieve above-average returns:
• I/O Model (outside-in)
o Analyze the external environment
o Find an attractive industry
o Formulate a strategy to develop required assets and implement the strategy
o Assumptions: resources are mobile, rational decision-making, firm strategies
are similar in nature
• Resource-based model (inside-out)
o Analyze the internal resources
o Find an attractive industry that can be exploited by firm’s resources
, o Formulate and implement strategy to achieve above-average returns
o Assumptions: heterogenous firm resources, immobile resources, rational
decision-making
Profitability depends on both the industry (I/O model) and the firm’s resources (resource-
based model). A balanced approach combining both models works best. Focusing only on
resources may lead to overdeveloping assets that don’t fit any market. Focusing only on
industry conditions may fail without distinctive internal strengths.
The resource-based model says "Your internal strengths drive success", while the I/O model
says "Pick the right industry to succeed". Combining both is ideal.
Elements of strategy
This framework helps firms design their strategy by addressing:
• Where to compete
• How to succeed
• What makes them unique
• And when to act – all while maintaining a clear understanding of how to create value
Strategy formation: Delibarate and emergent strategy
, Intended strategy = This is the plan a firm initially creates and intends to follow. It
represents the formulated strategy.
Unrealized strategy = Not all parts of the intended strategy are implemented. Some are
abandoned due to changing circumstances, poor fit, or failure to execute.
Deliberate strategy = The parts of the intended strategy that are actually executed as
planned. These are the intentional, carefully thought-out actions.
Emergent strategy = This arises spontaneously as the firm adapts to changes in its
environment. It's a consistent pattern of actions that wasn’t initially planned.
Realized strategy = This is the final outcome of strategy formation – a combination of
deliberate strategies (what was planned and implemented) and emergent strategies (what
arose organically).
How they relate
• Firms rarely stick entirely to their intended strategies because of changing markets,
unexpected challenges, or new opportunities.
• Instead, firms blend deliberate and emergent strategies to create their realized
strategy.
• Think of deliberate strategies as carefully chosen actions and emergent strategies
as flexible responses to real-world dynamics.
In essence:
• Deliberate strategy is planned and intentional, while emergent strategy is reactive
and adaptive.
• A firm’s realized strategy combines both.
Schools of strategy formation
Schools of strategy formation = different ways of thinking about how strategies are created.
They are divided into two types:
• Prescriptive schools = Focus on how strategies should be formed (idealized, planned
approaches).
• Descriptive schools = Focus on how strategies actually form in practice (adaptive,
real-world processes).
Prescriptive schools of strategy formation
• Design school:
• Main idea: Strategy should fit the firm’s strengths/weaknesses with external
opportunities/threats (SWOT analysis).
• Process: The CEO or a central actor creates the "grand strategy," while others
implement it.
• Critiques:
