bps session 1

8/12/2019 BPS Session 1

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Business Policy and Strategy

Prepared by:

Kelechi NwokeRBS


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Strategic Managementand

Strategic Competitiveness


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Session Objectives :

Define strategic competitiveness, strategy, competitive advantage,above-average returns, and the strategic management process.

Describe the competitive landscape and explain how globalizationand technological changes shape it.

Use the industrial organization (I/O) model to explain how firms canearn above-average returns.

Use the resource-based model to explain how firms can earn above-average returns.

Describe vision and mission and discuss their value. Define stakeholders and describe their ability to influence

organizations. Describe the work of strategic leaders. Explain the strategic management process.


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Strategic competitiveness. The position of a company with respect toits competitors, achieved by a firm successfully formulating andimplementing a value-creating strategy

Strategy . An integrated and coordinated set of plans, commitmentsand actions by a firm, aimed at exploiting its core competencies andgaining a competitive advantage.

Competitive Advantage . A relatively superior position a firm obtains by

implementing a strategy that yields superior value for customers andthat is difficult to imitate.

Competitive advantage is not permanent: it can be lasting or fleeting

Above-average returns . Returns that exceed an investors expectedearnings from other investments with a comparable level of risk.

Returns can be measured in terms of return on assets, return onequity, or return on sales, stock market returns, amount and speed ofgrowth


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Risk. The investor's uncertainty about the economic results (gains orlosses) which might obtained from a particular investment.

Without a competitive advantage or involvement in competing in anattractive industry, firms can be limited to earning average returns

Not earning at least average returns can lead firms first to decline and,

eventually, failure.

When investors withdraw their investments from those firms earningless-than-average returns, this leads to the failure of these firms


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The Competitive Landscape

. The world is experiencing changes in the fundamental nature of competition in manyindustries.Issues : Scarce financial capital; increasingly volatile markets; ever-increasing pace of change;

blurring industry boundariesExamples : cable companies and satellite networks competing for entertainment revenue fromtelevision; Software companies moving into the entertainment business; etc

Managers must be prepared to deal with constantly changing conditions, and need to imbibethe values of flexibility, speed, innovation, and integration.

Managers need to use the strategic management process in order to reduce the likelihood offailure for their firms which are impacted by the nature of today's competitive landscape.

Hypercompetition . This term defines the nature of today's competitive landscape where there isinherent market instability

Hypercompetition arises from strategic maneuvering among global and innovative competitors,and is characterized by rapidly escalating competition in terms of price-quality positioning,competition in terms of creating new know-how and establishing first-mover advantage, as wellas competition to protect partake in existing product or geographic markets.

Primary factors that create hypercompetitive environments: The emergence of a global

economy and rapid technological change.


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The I/O Model of Above-Average Returns

The industrial organization model of above-average returns explains the dominantinfluence of the external environment on the strategic actions of a firm.

From the 1960s through the 1980s, the external environment was considered asthe primary determinant of strategies that firms selected, to be successful.

According to the I/O model, the industry or industry segment of a firm has astronger influence on its performance than do the choices managers make insidethese firms.

Industry properties affecting the performance of the firm: economies of scale;barriers to market entry; diversification; product differentiation; and the degree of

concentration of firms in the industry


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The I/O Model of Above-Average Returns(Hitt, Ireland and Hoskisson, 2013)

.The External Environment

The general environmentThe industry environmentThe competitor environment

An Attractive IndustryOne whose structural characteristics suggest above-average returns

Strategy FormulationSelection of a strategy linked with above-averagereturns in a particular industry

Assets and SkillsAssets and skills required to implement a chosen

strategy

Strategy ImplementationSelection of strategic actions linked with effective

implementation of the chosen strategy

Superior ReturnsEarning of above-average returns


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The four underlying assumptions of the I/O model (Grounded in economics): 1. It is assumed that the external environment imposes pressures and constraints

that determine the strategies that would result in above-average returns forcompanies.

2. Homogeneity. Most firms competing within an industry or industry segment areassumed to control similar strategically relevant resources and to follow similarstrategies reflecting those resources.

3. Resources used to execute strategies are assumed to be highly mobile acrossfirms, thus any resource differences that might arise between firms will be

temporal. 4. It is assumed that organizational decision makers are rational and committed to

acting in the firm's best interests, as is evidenced by their profit-maximizingbehaviors


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In line with the I/O model, firms are to find the most attractive industry in which tocompete.

Since it is assumed that most firms have similar valuable resources which can bemoved across companies, their performance generally can be increased only byoperating in the industry with the highest profit potential and by learning how to use

their resources to implement the strategy determined by the external environment.

Firms use the five forces model to figure out how attractive an industry is - as gaugedby its profitability potential - as well as the most favorable position for the firm to takein that industry, considering the industry's structural characteristics.

Two strategies which a firm can implement in a bid to survive in its environment are:1. A cost leadership strategy : by producing standardized goods or services at lowercosts than those of their competitors

2. A differentiation strategy : by producing differentiated goods or services which willattract customers willing to pay a price premium


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The Resource-Based Model of Above-Average Returns

According to the resource-based model, each organization is a collection of uniqueresources and capabilities. The uniqueness of the resources and capabilities of thefirm is the basis of that firm's strategy and its ability to earn above-average returns.

Resources: Inputs into a firm's production process, such as capital equipment, the

employees skills, patents, finances, and the management team

A capability is the capacity for a number of resources to carry out a task or an activityin an integrative manner.Core competencies are resources and capabilities that enable a firm to gain

competitive advantage over its rivals.

This resource-based model suggests that the strategy of choice for the firm shouldallow it to use its competitive advantages in an attractive industry

The resource based model recognizes firm heterogeneity


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The Resource-Based Model of Above-Average Returns(Hitt, Ireland and Hoskisson, 2013)

.

ResourcesInputs into a f irms production process

CapabilitiesCapacity of an Integrated set of resources tointegratively perform a task or activity

Competitive AdvantageAbility of a Firm to outperform its rivals

An Attractive IndustryOne with opportunities that can be exploited by the

firms resources and capabilities

Strategic Formulation andImplementation

Strategic actions taken to earn above-average returns

Superior Returns

Earning of above-average returns


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Vision and Mission

The Vision of a firm is a picture of what the firm wants to be and, broadly speaking,what the firm wants to ultimately achieve

A firms Mission tells of the business(es) which the firm intends to compete in, as well

as the customers it intends to serve.The firm's mission is more concrete than its vision.

The vision and mission of the firm provide the foundation for the firm to choose andimplement one or more strategies.


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Stakeholders(Hitt, Ireland and Hoskisson, 2013)

.

Stakeholders

Capital MarketStakeholders

ShareholdersMajor suppliers of capital

Product MarketStakeholders

Primary customersSuppliers Hotelcommunities

Unions

OrganizationalStakeholders

EmployeesManagers

Non-managers


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The Strategic Management Process

A rational approach used by firms to gain strategic competitiveness and obtain above-average returns

The full set of commitments, decisions, and actions which a firm needs to achievestrategic competitiveness and obtain above-average returns.

A firm devises its strategy through knowledge about its external environment, itsinternal organization , and by taking into consideration, the firm's vision and mission.


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The Strategic Management Process

Issues in the Strategic management Process Analyzing the firms external environment Analyzing the firms internal organization Business-level strategies Actions and reactions that occur among firms in marketplace competition Corporate-level strategy Restructuring the firm's portfolio of businesses Selecting an international strategy

Different mechanisms used to govern firms


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The Strategic Management Process(Hitt, Ireland and Hoskisson, 2013)

StrategicInputs

StrategicActions

Strategic Outcomes

Feedback

The ExternalEnvironment

The Internalorganization

Strategy Formulation

Business-level StrategyCompetitive rivalry and competitive dynamicsCorporate-level StrategyAcquisition and Restructuring StrategiesInternational Strategy

Cooperative strategy

Strategy Implementation

Corporate GovernanceOrganizational Structure and ControlsStrategic LeadershipStrategic Entrepreneurship

StrategicCompetitiveness

Above-Average Returns

Vision

Mission


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Strategic Focus: Huawei and Apple

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bps session 1

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