Strategic Management. Competitiveness and Globalization.
Concepts and Cases
H. Volberda, R. Morgan, P. Reinmoller, R. Ireland, R. Hoskisson
Cengage Learning, 2011
STRATEGY is defined as the long-term direction of an organization.
Strategy should be communicated throughout the organization.
Effective implementation of strategies requires the organization to be sufficiently flexible in its organizational
structure and design. No strategy is risk-free.
Strategy is not necessarily going step by step → otherwise, you will never achieve your competitor.
The purpose is to help organizations to achieve a sustainable competitive advantage.
The competitive advantage must be difficult for competitors to imitate. No competitive advantage is permanent.
STRATEGIC MANAGEMENT is the process of bringing about the strategy.
It is about how strategies are formed and how they are implemented in order to achieve strategic competitiveness
and earn above average returns.
Above average returns (in excess of what investors expect to earn from other investments with similar levels of risk) provide
the foundation a firm needs to simultaneously satisfy all of its stakeholders.
Firms without a competitive advantage or that are not in an attractive industry earn average returns.
In the long run, the inability to earn at least average returns results first in decline and then, eventually, failure.
When a failure happens, firms file for bankruptcy or sometimes liquidate their operations. The nature of competition is changing, due to the current competitive landscape (21st Century).
As a result, those making strategic decisions must adopt a different mindset, that values flexibility, speed,
innovation, integration and the challenges that evolve from constantly changing conditions.
Under conditions of hypercompetition, assumptions of market stability are replaced by notions of instability and
Hypercompetition is a situation in which there is a lot of very strong competition between companies, markets are
changing very quickly, and it is easy to enter a new market, so that it is not possible for one company to keep a
competitive advantage for a long time. Main drivers of hypercompetitive environments are:
GLOBAL ECONOMY is one in which goods, services, people, skills, and ideas move freely across geographic
The two primary factors contributing to the turbulence of the competitive landscape are
1. the globalization of industries and their markets,
2. and rapid and significant technological changes.
Globalization increases the range of opportunities for companies competing in the current competitive
Globalization is not without risks, it may open up new markets, but also increases the competition on home
TECHNOLOGY AND TECHNOLOGICAL CHANGES
• Technology diffusion is the rate at which new technologies become available and are used.
• Perpetual innovation describes how rapidly and constantly new information-intensive technologies
replace older ones.
• Disruptive innovation can destroy the value of existing technology and create new markets.
INCREASING KNOWLEDGE INTENSITY
• Knowledge (information, intelligence, and expertise) is the basis of technology and its application.
Knowledge is gained through experience, observation, inference and is an intangible resource.
• Strategic flexibility is a set of capabilities used to respond to various demands and opportunities existing in
a dynamic and uncertain competitive environment. It involves coping with uncertainty and its accompanying
Firms should try to develop strategic flexibility in all areas of their operations.
Firms use two major models to help them form their vision and mission and then choose one or more strategies to
use in the pursuit of strategic competitiveness and above-average returns:
• Industry Organization (I/O) model suggests that above-average returns for any firm are largely determined by
characteristics outside the firm. This model largely focuses on industry structure or attractiveness of the external
environment rather than internal characteristics of the firm
• The Resource-Based View (RBV) model focusing on internal competencies and capabilities
THE I/O MODEL OF ABOVE-AVERAGE RETURNS
The I/O model challenges firms to locate the most attractive industry in which to compete.
Four underlying assumptions:
1. The external environment is assumed to impose pressures and constraints that determine the
strategies that would result in above-average returns;
2. most firms competing within an industry are assumed to control similar resources and to pursue
3. resources used to implement strategies are assumed to be highly mobile across firms;
4. managers are rational and profit-maximizing
Based on its underlying assumptions, the I/O model prescribes a 5-step process for companies to achieve
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.
Capability is the capacity for a set of resources to perform a task or an activity in an integrative manner.
Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.
THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS
The resource-based model assumes that each organization is a collection of unique resources and
The uniqueness of its resources and capabilities is the basis for a firm’s strategy and its ability to earn above-
According to the resource-based model, differences in firms’ performances across time are due primarily to
their unique resources and capabilities rather than to the industry’s structural characteristics.
This model suggests that the strategy the firm chooses should allow it to use its competitive advantages in an
attractive industry (while the I/O model is used to identify an attractive industry).
Vision and mission are formed in light of the information and insights gained from studying a firm’s internal and
-Vision is a picture of what the firm wants to be and what it wants to ultimately achieve. A vision statement tends to
be relatively short, it’s easily remembered.
-Mission specifies the business or businesses in which the firm intends to compete and the customers it intends to
serve. The firm’s mission is more concrete than its vision.
Vision and mission provide direction to the firm and signal important descriptive information to stakeholders. Primary stakeholders→ Have a direct relationship with the company, their involvement is necessary for the firm to achieve its
mission/objectives (owners, employees, suppliers)
Secondary stakeholders→ Affect profit indirectly and consist of governments, social activists, the media, lobbyist groups etc.
Many of these secondary stakeholders expect the company to behave in a socially responsible way and often impose constraints
on the company.
Secondary stakeholders are especially important for firms that are highly dependent on reputation, image, branding and public
opinion. The relationship between the firm and its stakeholders is one of mutual interdependence.
Stakeholders depend on the firm, the firm is impacted by the stakeholders.
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.
In the final analysis, though, CEOs are responsible for making certain that their firms properly use the strategic
The strategic leader’s work demands decision trade-offs, often among attractive alternatives.
It is important for all strategic leaders, and especially the CEO and other members of the top management team, to
work hard, conduct thorough analysis of situations, be brutally and consistently honest, and ask the right questions
at the right people at the right time.
Strategic leaders must predict the potential outcomes of their strategic decisions.
To do so, they must first calculate profit pools in their industry that are linked to value chain activities.
Strategic leaders’ actions
• Organizational culture: consists of a complex set of ideologies, symbols, and core values shared throughout the
firm and influence the way business is conducted.
These shared values have a strong influence on the people in the organization and dictate how they dress, act, and
perform their jobs.
Every organization develops and maintains a unique culture, which provides guidelines and boundaries for the
behavior of the members of the organization.
• Profit pools is the total profits earned at all points along the value chain of an industry.
The Profit Pools method is a strategy model that can be used to help managers or companies focus on profits, rather
than on revenue growth.
The idea behind it is: managers need to look beyond revenues to see the shape of their industry’s profit pool. In this
way strategies can be created which result in profitable growth.
Strategic intent can be understood as the philosophical base of strategic management process.
It implies the purpose, which an organization attempt to achieve.
It is a statement, that provides a perspective of the means, which will lead the organization, reach the vision in the
It indicates the long-term market position, which the organization desires to create or occupy and the opportunity
for exploring new possibilities.
Strategic intent encompasses an active management of the strategy process:
focusing the organization's attention on the essence of winning
keeping the direction stable
motivating people by communicating the value of the target
leaving room for individual and team contributions
sustaining enthusiasm by providing new operational definitions as circumstances change
using intent consistently to guide resource allocations
For a strategic intent to be effective, individuals and teams in the organization must understand it and see its
implications for their own jobs… and therefore top management need to:
Create a sense of urgency, by amplifying weak signals in the environment that point up the need to improve.
You must have a sense of urgency to motivate people, you should never be satisfied with what you achieved.
Develop a competitor focus at every level where every employee should be able to benchmark his or her
Provide employees with the skills they need to work.
Give the organization time to digest one challenge before launching another.
Establish clear milestones and review mechanisms to track progress and ensure that internal recognition and
rewards reinforce desired behavior.
“A business model describes the rationale of how an organization creates, delivers, and captures value”.
A business model is the way in which a company generates revenue and makes a profit from company operations.
Companies follow different business models depending on their products and services. Companies choose or invent
the model that will generate the most profit.
example: Wal-Mart follows a business model of offering the lowest possible price so it can sell more
products - maximizing its profit that way.
By contrast, another retailer like Coach follows a business model of selling fewer, higher quality
items while earning a higher profit per product.
Business models → some of them are designed in order to offer a service for free and getting money (creating value)
with ads or adding services not for free (e.g. facebook, skype..).
The most difficult thing is capturing value: at a certain point, the platform wants to be paid.
Good in creating value, but not in capturing value → not a good business. New business models innovate going beyond existing processes & products:
adding service components to the offering
redesigning the revenue stream, in particular, the pricing model (as in the case of “freemium”)
redefining the cost structure, making it more flexible, as in the case of cloud applications
It can be described through the Business Model Canvas → a way to represent the model in a piece of paper
The firm’s external environment is challenging and complex, it affects a firm’s strategic actions.
For most organizations, the external environment is filled with uncertainty.
Firms understand the external environment by acquiring information about competitors, customers, and other
stakeholders to build their own base of knowledge and capabilities.
EXTERNAL ENVIRONMENT ANALYSIS
Most firms face highly turbulent/complex external environments.
To increase their understanding of the general environment, firms engage in a process of external environmental
Through environmental analysis, the firm identifies opportunities and threats.
An opportunity is a condition in the general environment that, if exploited, helps a company achieve
(e.g. new markets open up, new technologies enable to cut costs).
A threat is a condition in the general environment that may hinder a company’s efforts to achieve strategic
(e.g. new competitors entering the market, enduring economic recession causing consumers to look for alternatives).
The external environmental analysis process has four steps:
1. Scanning → Identifying early signals of environmental changes and trends – to have a general idea of the
2. Monitoring →Detecting meaning through ongoing observations of environmental changes and trends – in
order to take action;
3. Forecasting →Developing projections of anticipated outcomes based on monitored changes and trends
4. Assessing →Determining the timing and importance of environmental changes and trends for firms’
strategies and their management → most of the growth is in the emerging market.
The external environment has three major parts:
1. The general environment is composed of dimensions in the broader society that influence an industry and
the firms within it.
We group these dimensions into 7 environmental segments: demographic, economic, political/legal,
sociocultural, technological, physical and global.
Firms cannot directly control the general environment’s segments and elements.
2. The industry environment is the set of factors that directly influences a firm and its competitive actions and
Porter's Five Forces Model of Competition illustrates the industry environment: the threat of new entrants,
the power of suppliers, the power of buyers, the threat of product substitutes and the intensity of rivalry
The interactions among these five factors determine an industry’s profit potential.
The challenge for a firm is to locate a position within an industry where a firm can favorably influence those
factors or where it can successfully defend against their influence.
3. The competitor environment relates to the specific competitors and and interpreting information about
competitors is called competitor analysis.
1. SEGMENTS OF THE GENERAL ENVIRONMENT
The general environment has 7 segments.
For each segment, the firm wants to determine the strategic relevance of environmental changes and trends.
1. The demographic segment is concerned with a population’s size, age structure, geographic distribution, ethnic mix,
and income distribution.
2. The economic environment refers to the nature and direction of the economy in which a firm competes or may
3. The political/legal segment is the arena in which organizations and interest groups compete for attention,
resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations.