STRATEGIC

MANAGEMENT

Bùi Đức Tuân, Assoc. Prof., PhD.

NEU Business School
Tel: 09330.23323
Email: [email protected]
 Course Overview
 Designed for BA students in Business Administration
 Learning methods
 Lectures
 Case studies
 Group assignments (see Guidelines for Industry Analysis)
 Course schedule and Assessment plan (see syllabus)
 Class rules
 All acts that affect negatively to the teaching and learning process are strictly
prohibited.
 Students who are late for more than 10 minutes after class starting time will
not be allowed to attend the class.
 Laptops, tablets and cell-phones are only allowed for the learning purpose.
 Textbook:
 Hitt, Ireland, and Hoskisson (2016), Strategic Management: Competitiveness
and Globalization, Concepts and Cases, South-Western Cengage (12e Edittion)

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 Course Learning Outcomes

Students will be able to:

 Understand the SM models, the company’s vision and
mission; the LT objectives;
 Analyze external environmental forces that affect the
opportunities and threats to the business;
 Analyze internal factors of the firm to identify
strengths and weaknesses;
 Describe and develop business level, corporate level
and international strategies
 Describe and develop the means of strategy
implementation and control

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 Course contents

 Chapter 1: Strategic Management and Strategic

Competitiveness
 Chapter 2: The External Environment
 Chapter 3: The Internal Organization
 Chapter 4: Business-Level Strategy
 Chapter 5: Corporate-Level Strategy
 Chapter 6: International Strategy
 Chapter 7: Organizational Structure and Controls
 Chapter 8: Strategic Leadership

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 CHAPTER 1: STRATEGIC MANAGEMENT
AND STRATEGIC COMPETITIVENESS

 Learning objectives
 Nature of strategy
 Importance of strategy
 Strategy models
 Firm’s Vision and Mission
 Stakeholders and Strategic Leaders
 Strategic Management Process

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 Leaning Objectives
1. Define strategic competitiveness, strategy, competitive
advantage, etc.
2. Describe the competitive landscape and explain why
firms need strategies.
3. Use the industrial organization (I/O) model and
resource-based model to explain how firms can earn
above-average returns.
4. Describe vision and mission and discuss their value.
5. Define stakeholders and describe their ability to
influence organizations.
6. Describe the work of strategic leaders.
7. Explain the strategic management process.
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 6
 Nature of strategy

 In military theory
 the employment of battles to gain the end of war
 the art of distributing and applying military means to fulfill the ends
of policy

 In game theory
 the rules that a player uses to choose between the available
actionable options

 In management theory
 … determination of the basic LT goals of an enterprise, and the
adoption of courses of action and the allocation of resources
necessary for carrying out these goals [A. Chandler]
 ... combination of the ends (goals) for which the firm is striving and
the means (policies) by which it is seeking to get there [M.E. Porter]

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 Twenty-First Century Competition

Rapid
Globalization technological
change

Increasing
The global importance of
economy Today’s knowledge
Competitive and people
Markets

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 Importance of strategy

Formulation and
implementation of
a superior value-
creating strategy

Commitments and actions to achieve

above-average performance and returns

What the firm Competitive What the firm

will do advantage will not do

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 Firm’s Vision and Mission

 Vision
 A statement of what the firm wants to be
and expects to achieve
 A dream to be shared to stakeholders
 Guiding light for strategy

 Mission
 A statement of why the firm exists
 Define firm’s businesses

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 Firm’s Vision and Mission (2)

 A successful vision
 An image, NOT a picture
 Ambitious goals for LT
 Firm’s values and aspirations
 Attractive writing

 A good statement of mission

 Businesses in which the firm intends to compete and
customers it intends to serve
 A more concrete, near-term focus on current product markets and
customers than the firm’s vision
 Should be inspiring and relevant to all stakeholders.

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 Stakeholders & Strategic Leaders

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 12

 Stakeholders & Strategic Leaders

Responsibilities of strategic leaders for development

and effective use of the firm’s human capital

Organizational
Education Strategic goals
culture and International
and skills of and global
ethical work assignments
employees standards
environment

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 Strategy models

 Industry Organization (I/O) model

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 Strategy models (2)

 Resource-Based model

Core
competence
Capability A source of
An integrated set competitive
of resources advantage
Resources
Physical, human, and
organizational capital
(tangible and intangible)

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 Strategy models (3)

Industry Organization Resource-Based

(I/O) Model Model

Competitive
Strategy
Decision

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 Strategic Management Process

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 CHAPTER 2: THE EXTERNAL ENVIRONMENT

 Learning objectives
 The nature of External Environment
 Dimensions of External Environment
 External Environment Analysis
 Key Success Factors

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 Leaning Objectives

1. Explain the importance of analyzing and understanding the firm’s

external environment.
2. Define and describe the general environment and the industry
environment.
3. Name and describe the general environment’s seven segments.
4. Identify the five competitive forces and explain how they
determine an industry’s profitability potential.
5. Define strategic groups and describe their influence on firms.
6. Describe what firms need to know about their competitors and
different methods used to collect intelligence about them.

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 The nature of External Environment

 Factors coming from the outside of

the firm that affect its performance
 Factors having impacts on firms
 in different way
 with different level

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 Dimensions of External Environment

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 General Environment

 Dimensions in the broader society that

influence an industry and the firms within it:
 Political/legal
 Economic
 Sociocultural
 Technological
 Demographic
 Global
 Physical
 …

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 Industry Environment

 The set of factors directly influencing a firm

and its competitive actions and competitive
responses New
Entrants

 Threat of new entrants

Industry
 Power of suppliers Suppliers
Competitors
Buyers

 Power of buyers
 Threat of product substitutes Substitute
Products

 Intensity of rivalry among competitors

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 External Environmental Analysis

 General environment
 Focused on the future
 Industry environment
 Focused on factors and conditions influencing a
firm’s profitability within an industry
 Competitor environment
 Focused on predicting the dynamics of
competitors’ actions, responses and intentions

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 External Environmental Analysis
 Components of the External Environmental Analysis

Scanning • Identifying early signals of environmental

changes and trends

Monitoring • Detecting meaning through ongoing

observations of environmental changes and
trends

Forecasting • Developing projections of anticipated outcomes

based on monitored changes and trends

Assessing • Determining the timing and importance of

environmental changes and trends for firms’
strategies and their management

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 External Environmental Analysis

Opportunities Threats

A condition in the general A condition in the general

environment that, if environment that may
exploited effectively, helps a hinder a firm’s efforts to
firm achieve strategic achieve strategic
competitiveness. competitiveness.

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 General Environmental Segments

 The Economic Segment

 Uncertainty in
 Market growth rates
 Consumer demand
 Inflation and interest rates
 Trade deficits or surpluses
 Budget deficits or surpluses
 Personal and business savings rates
 Gross domestic product

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 General Environmental Segments

 The Political/Legal Segment

 Regulations
 Consumer privacy laws
 Lobbying
 Antitrust, deregulation laws
 Taxation

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 General Environmental Segments

 The Sociocultural Segment

 Changing attitudes and cultural values
 Attitudes and approaches to health care
 Attitudes about quality of worklife
 Diverse and aging workforce
 Women in the workplace
 Concerns about environment
 Shifts in work and career preferences
 Shifts in product and service preferences

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 General Environmental Segments

 The Technological Segment

 Product innovations
 Rapid technological change and the risk of
disruption
 Knowledge application
 Growth of the Internet
 New communication technologies

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 General Environmental Segments

Important Critical
geopolitical global niche
trends markets
Global
Growth of Focusing
Different
cultural and
the informal institutional
economy attributes

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 Industry Environment Analysis
 Industry Defined
 A group of firms producing products
that are close substitutes.
 Firms use a rich mix of different
 Competitive strategies to pursue
above-average returns when
competing in a particular industry.
 An industry’s structural characteristics
influence a firm’s choice of strategies
 Factors influence all firms in
the same way
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 Porter’s 5 forces model

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 Threat of New Entrants

 Barriers to Entry
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Access to distribution channels
 Cost disadvantages independent of scale
 Government policy

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 Threat of Substitute Products

 The threat of substitute products increases

when:
 Buyers face few switching costs.
 The substitute product’s price is lower.
 Substitute product’s quality and performance are
equal to or greater than the existing product.

 Differentiated industry products that are

valued by customers reduce this threat.

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 Bargaining Power of Suppliers

 Supplier power increases when:

 Suppliers are large and few in number.
 Suitable substitute products are not available.
 Individual buyers are not large customers of
suppliers and there are many of them.
 Suppliers’ goods are critical to the buyers’
marketplace success.
 Suppliers’ products create high switching costs.
 Suppliers pose a threat to integrate forward into
buyers’ industry.

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 Bargaining Power of Buyers

 Buyer power increases when:

 Buyers are large and few in number.
 Buyers purchase a large portion of an industry’s
total output.
 Buyers’ purchases are a significant portion of a
supplier’s annual revenues.
 Buyers’ switching costs are low.
 Buyers can pose threat to integrate backward into
the sellers’ industry.

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 Rivalry Among Competitors

 Industry rivalry increases when:

 There are numerous or equally balanced
competitors.
 Industry growth slows or declines.
 There are high fixed costs or high storage costs.
 There is a lack of differentiation opportunities or low
switching costs.
 When the strategic stakes are high.
 When high exit barriers prevent competitors from
leaving the industry.

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 Interpreting Industry Analyses

Low entry barriers

Suppliers and buyers

have strong positions

Unattractive
Strong threats from
substitute products
Industry

Intense (mãnh liệt)

(Low profit potential)
rivalry among
competitors

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 Interpreting Industry Analyses (2)

High entry barriers

Suppliers and buyers

have weak positions

Attractive
Few threats from Industry
substitute products

Moderate rivalry
among competitors (High profit
potential)

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 Strategic Groups

 Strategic Group Defined

 A set of firms emphasizing similar strategic
dimensions and using similar strategies.
 Intra-strategic group competition is more
intense than is inter-strategic group competition
due to:
 Similar market positions
 Similar products
 Similar strategic actions

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 Competitor Analysis

 Competitor Intelligence (thông tin đối thủ ->

hiểu)
 The ethical gathering of needed information
and data that provides understanding of:
 What drives the competitor, as shown by its future
objectives.
 What the competitor is doing and can do, as
revealed by its current strategy.
 What the competitor believes about the industry, as
shown by its assumptions.
 What the competitor’s capabilities are, as shown by
its strengths and weaknesses.
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 Competitor Analysis

• How do our goals

Future Objectives
compare with our
competitors’ goals?
• Where will the
emphasis be placed in
the future?
• What is the attitude
toward risk?

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 Competitor Analysis

Future Objectives
• How are we currently
competing?
Current Strategy • Does this strategy
support changes in the
competitive structure?

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 Competitor Analysis

Future Objectives • Do we assume the

future will be volatile?
• Are we operating
Current Strategy
under a status quo?
• What assumptions do
Assumptions our competitors hold
about the industry and
themselves?

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 Competitor Analysis

Future Objectives

Current Strategy
• What are our strengths
Assumptions and weaknesses?
• How do we rate
compared to our
Capabilities competitors?

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 Competitor Analysis

Future Objectives Response

• What will our

Current Strategy
competitors do in the
future?
Assumptions • Where do we hold an
advantage over our
competitors?
Capabilities • How will this change our
relationship with our
competitors?
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 Key Success Factors

 KSF defined
 Important elements required for a company to
compete in its target markets
 Competitive elements that most affect every
strategic group member’s ability to prosper in
the marketplace.
 Examples of KSF:
 Band name
 Service quality
 Innovation
 Leadership
 Etc.

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 External Environmental Analysis

Opportunities
and threats

By studying the external environment, firms

identify what they might choose to do.

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 CHAPTER 3: THE INTERNAL ORGANIZATION

 Learning objectives
 Competitive advantage
 Resources, Capabilities and Core Competencies
 Value Chain Analysis
 Strengths, Weaknesses and Strategic Options

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 Learning objectives
1. Explain why firms need to study and understand their internal
organization.

2. Define value and discuss its importance.

3. Define resources, capabilities and discuss their development.

4. Describe four criteria used to determine whether resources and

capabilities are core competencies.

5. Explain how firms analyze their value chain for the purpose of
determining where they are able to create value when using their
resources, capabilities, and core competencies.

6. Discuss the importance of identifying internal strengths and

weaknesses.

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 Why firms need to understand their
Internal Organization?

Unique resources,
capabilities, and
competencies
(required for sustainable
competitive advantage)

By studying the internal environment, firms identify

what they can do

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 Internal Organization Analysis

Strengths Weaknesses

something a company is something the company does

good at doing or not have or does poorly or a
characteristic that gives it an condition that outs it at a
important capability. disadvantageous positions.

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 Competitive Advantage

 Firms achieve strategic competitiveness

and earn above-average returns when
their core competencies are effectively:
 Acquired.
 Bundled.
 Leveraged. (đòn bẩy)

 Over time, the benefits of any value-

creating strategy can be duplicated by
competitors.
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 Competitive Advantage (2)

 Sustainability of a competitive advantage

is a function of:
 The rate of core competence obsolescence
(lỗi thời) because of environmental
changes.
 The availability of substitutes for the core
competence.
 The imitability (bắt chước) of the core
competence

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 Creating Value

 By exploiting their core competencies or

competitive advantages, firms create value.
 Value is measured by:
 Product performance characteristics
 Product attributes for which customers will pay
 Firms create value by innovatively bundling
and leveraging their resources and
capabilities.
 Superior value  Above-average returns

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 Creating Competitive Advantage

 Core competencies, in combination with

product-market positions, are the firm’s
most important sources of competitive
advantage.

 Core competencies of a firm, in addition

to its analysis of its general, industry, and
competitor environments, should drive its
selection of strategies.

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 Resources, Capabilities
& Core Competencies

 Resources
Competitive
Advantage  Are the source of a
firm’s capabilities.
 Are broad in scope.
Core
Competencies
 Cover a spectrum of
individual, social and
Capabilities organizational
phenomena.
Resources
 Alone, do not yield a
• Tangible competitive advantage.
• Intangible

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 Resources

 Resources  Types of Resources

 Are a firm’s assets,  Tangible resources
including people and  Financial resources
the value of its brand  Physical resources
name that represent  Technological
inputs into a firm’s resources
production process:  Organizational
resources
 Capital equipment
 Skills of employees  Intangible resources
 Brand names  Human resources
 Financial resources  Innovation resources
 Talented managers  Reputation resources

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 Tangible Resources

Financial • The firm’s borrowing capacity

Resources • The firm’s ability to generate internal funds

Organizational • The firm’s formal reporting structure

Resources

Physical • The sophistication and location of a firm’s

Resources plant and equipment and the attractiveness
of its location
• Distribution facilities
• Product inventory

Technological • Availability of technology-related resources

Resources such as copyrights, patents, trademarks,
and trade secrets

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 Intangible Resources

Human • Knowledge
Resources • Trust
• Skills
• Abilities to collaborate with others

Innovation • Ideas
Resources • Scientific capabilities
• Capacity to innovate

Reputational • Brand name

Resources • Perceptions of product quality, durability,
and reliability
• Positive reputation with stakeholders such
as suppliers and customers

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 Capabilities

 Capabilities
Competitive
 Represent the capacity to deploy
Advantage
resources that have been
purposely integrated to achieve a
desired end state
Core
Competencies  Emerge over time through
complex interactions among
tangible and intangible resources
Capabilities
 Often are based on developing,
carrying and exchanging
Resources information and knowledge
• Tangible
• Intangible through the firm’s human capital

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 Capabilities

 Capabilities (cont’d)
Competitive  The foundation of many
Advantage
capabilities lies in:
 The unique skills and
Core knowledge of a firm’s
Competencies employees
 The functional expertise
Capabilities of those employees
 Capabilities are often
Resources
• Tangible
developed in specific
• Intangible functional areas or as
part of a functional area.
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 Capabilities

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 Resources, Capabilities
& Core Competencies

Competitive  The four criteria for

Advantage determining strategic
capabilities:
Core  Value
Competencies
 Rarity
Capabilities
 Costly-to-imitate
Resources  Nonsubstitutability
• Tangible
• Intangible

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 Core Competencies

Core Competencies
Competitive  Resources and capabilities
Advantage
that are the sources of a firm’s
competitive advantage:
Core  Distinguish a firm competitively
Competencies and reflect its personality.
 Emerge over time through an
Capabilities organizational process of
accumulating and learning how
to deploy different resources and
Resources capabilities.
• Tangible
• Intangible

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 Core Competencies

Core Competencies
Competitive
Advantage  Activities that a firm performs
especially well compared to
competitors.
Core
Competencies  Activities through which the
firm adds unique value to its
Capabilities goods or services over a long
period of time.
Resources
• Tangible
• Intangible

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 Resources, Capabilities
& Core Competencies

Sustainable The Four Criteria of

Competitive
Advantage
Sustainable Competitive
Advantage
Four Criteria of  Valuable
Sustainable
Advantages
capabilities
 Rare capabilities
• Valuable  Costly to imitate
• Rare
• Costly to imitate  Nonsubstituable
• Nonsubstitutable

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 Competitive Advantage

Sustainable  Valuable capabilities

Competitive  Help a firm neutralize
Advantage
threats or exploit
opportunities.
Four Criteria of
Sustainable
Advantages
 Rare capabilities
 Are not possessed by
• Valuable many others.
• Rare
• Costly to imitate
• Nonsubstitutable

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 Building Competitive Advantage

 Costly-to-Imitate Capabilities
Sustainable
Competitive  Historical
Advantage  A unique and a valuable
organizational culture or
brand name
Four Criteria of
Sustainable
 Ambiguous cause
Advantages  The causes and uses of a
competence are unclear
 Social complexity
• Valuable  Interpersonal relationships,
• Rare
•
trust, and friendship among
Costly to Imitate
• Nonsubstitutable managers, suppliers, and
customers

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 Building Competitive Advantage

Sustainable  Nonsubstitutable
Competitive Capabilities
Advantage
 No strategic equivalent
Four Criteria of
 Firm-specific
Sustainable knowledge
Advantages
 Organizational culture
 Superior execution of
• Valuable the chosen business
• Rare model
• Costly to imitate
• Nonsubstitutable

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 Value Chain Analysis

Allows a firm to understand the parts of

its operations that create value and those
that do not.
A template that firms use to:
 Understand their cost position.
 Identify multiple means that might be used to
facilitate implementation of a chosen
business-level strategy.
 Xác định hoạt động nào đem lại giá trị
phần nào không
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 Value Chain Analysis

 Primary activities are involved with:

 A product’s physical creation
 A product’s sale and distribution to buyers
 The product’s service after the sale
 Support Activities
 Provide the assistance necessary for the
primary activities to take place.

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 Value Chain Analysis
Support Activities

Firm Infrastructure

Human Resource Mgmt.

M
ar
gi
Technological Development

n
Procurement
Primary Activities

Marketing and Sales

Inbound Logistics

Operations

Service
Outbound Logistics

M
ar
in g
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 Value Chain Analysis

 Value Chain
 Shows how a product moves from the raw-
material stage to the final customer.
 To be a source of competitive advantage, a
resource or capability must allow the firm:
 To perform an activity in a manner that is
superior to the way competitors perform it, or
 To perform a value-creating activity that
competitors cannot complete.

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 Value Chain Analysis: Primary Activities

 Inbound Logistics
 Activities used to receive, store, and
disseminate inputs to a product
 Operations
 Activities necessary to convert the inputs
provided by inbound logistics into final
product form
 Outbound Logistics
 Activities involved with collecting, storing,
and physically distributing the product to
customers
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 Value Chain Analysis: Primary Activities

 Marketing and Sales

 Activities completed to provide the means
through which customers can purchase
products and to induce them to do so.
 Service
 Activities designed to enhance or maintain a
product’s value
 Each activity should be examined relative
to competitor’s abilities and rated as
superior, equivalent or inferior.

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 Value Chain Analysis: Support Activities

 Procurement
 Activities completed to purchase the inputs
needed to produce a firm’s products.
 Technological Development
 Activities completed to improve a firm’s
product and the processes used to
manufacture it.
 Human Resource Management
 Activities involved with recruiting, hiring,
training, developing, and compensating all
personnel.
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 78
 Value Chain Analysis: Support Activities

 Firm Infrastructure
 Activities that support the work of the entire
value chain (general management, planning,
finance, accounting, legal, government
relations, etc.)
 Effectively and consistently identify external
opportunities and threats
 Identify resources and capabilities
 Support core competencies
 Each activity should be examined relative to
competitor’s abilities and rated as superior,
equivalent or inferior.
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 79
 Outsourcing (thuê ngoài)

 The purchase of a value-creating activity

from an external supplier
 Few organizations possess the resources and
capabilities required to achieve competitive
superiority in all primary and support
activities.
 By performing fewer capabilities:
 A firm can concentrate on those areas in
which it can create value.
 Specialty suppliers can perform outsourced
capabilities more efficiently.
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 80
 Competencies, Strengths,
Weaknesses, and Strategic Decisions

 Cautions and Reminders:

 Never take for granted that core competencies
will continue to provide a source of competitive
advantage.
 Determining what the firm can do through
continuous and effective analyses of its internal
environment will increase the likelihood of long-
term competitive success.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 81

 SWOT Analysis

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 82

 Strategic Options

 O/T and S/W combinations

 Options for strategies

 Evaluation of strategic options

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 83

 CHAPTER 4: BUSINESS-LEVEL STRATEGY

 Learning Objectives
 Core Competencies
 Customers and Business-Level Strategies
 Competitive Advantages and Competitive Scope
 Business-Level Strategy: Generic Strategies
 Business-Level Strategies: Trade-off

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 84

 Learning Objectives
1. Define business-level strategy.
2. Discuss the relationship between customers and
business-level strategies in terms of who, what, and
how.
3. Explain the differences among business-level
strategies.
4. Use the five forces of competition model to explain how
above-average returns can be earned through each
business-level strategy.
5. Describe the risks of using each of the business-level
strategies.

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 Business–Level Strategy
 An integrated and coordinated set of
commitments and actions the firm uses to gain
a competitive advantage by exploiting core
competencies in specific product markets.

 Key question: How to compete successfully in

a given business?

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 86

 Core Competencies & Strategy

Resources and superior capabilities that

Core
are sources of competitive advantage
Competencies
over a firm’s rivals

An integrated and coordinated set of

Strategy actions taken to exploit core
competencies and gain competitive
advantage

Providing value to customers and

Business-level
Strategy gaining competitive advantage by
exploiting core competencies in
individual product markets

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 87

 Customers: Their Relationship
with Business-Level Strategies

Who will be
served?

Key Issues
in What needs will
Business-level be satisfied?
Strategy

How will those

needs be satisfied?

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 Determining the Customers to Serve

 Market segmentation
 A process used to cluster people with similar
needs into individual and identifiable groups.

All Customers
Consumer Industrial
Markets Markets

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 Determining Which
Customer Needs to Satisfy

 Customer needs are related to a product’s

benefits and features.
 Customer needs are neither right nor wrong,
good nor bad.
 Customer needs represent desires in terms
of features and performance capabilities.

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 Determining Core Competencies
Necessary to Satisfy Customer Needs

 Firms must decide:

 Who to serve, what customer needs to meet,
and how to use core competencies to implement
value creating strategies that satisfy target
customers’ needs.
 Only firms with capacity to continuously
improve, innovate and upgrade their
competencies can expect to meet and/or
exceed customer expectations across time.

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 Business-Level Strategy: Purpose

 Business-Level Strategies
 Are intended to create differences between the
firm’s competitive position and those of its
competitors.

 To position itself, the firm must decide

whether it intends to:
 Perform activities differently or
 Perform different activities as compared to its
rivals.

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 Competitive Advantage: Types

 Achieving lower overall costs than rivals

 Performing activities differently (reducing
process costs)

 Possessing the capability to differentiate the

firm’s product or service and command a
premium price
 Performing different (more highly valued)
activities.

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 Competitive Scope

 Broad Scope
 The firm competes in many
customer segments.

 Narrow Scope
 The firm selects a segment
or group of segments in
the industry and tailors its
strategy to serving them at
the exclusion of others.

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 Business-Level Strategies: Types
 Choice of Scope & Competitive Advantage
Basis for Customer Value
Lowest Cost Distinctiveness

Broad Cost Leadership Differentiation

Target
Integrated Cost
Target
Leadership/
Market Differentiation

Narrow Focused Cost Focused

Target Leadership Differentiation

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 Cost Leadership Strategy
 An integrated set of actions taken to
produce goods or services with features that
are acceptable to customers at the lowest
cost, relative to that of competitors.
 Product Characteristics
 Relatively standardized (commoditized) products
 Features broadly acceptable to many customers
 Lowest competitive price

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 Cost Leadership Strategy
 Cost saving actions required by this
strategy:
 Building efficient scale facilities
 Tightly controlling production costs and overhead
 Minimizing costs of sales, R&D and service
 Building efficient manufacturing facilities
 Monitoring costs of activities provided by
outsiders
 Simplifying production processes

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 Cost Leadership Strategy

 How to obtain a Cost Advantage?

Determine Reconfigure
and control Value Chain
Cost Drivers if needed

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 Cost Leadership Strategy:
Learning Curver

Unitary
cost

Cummulative
quantity

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 99

 Cost Leadership Strategy:
Cost Drivers

 Econimies of Scale
 Larger production quantity
 Smaller marginal cost
 Lower price policy
 Get market share and become leader

 Other drivers
 Effective management
 Innovation (products, process)
 Automation
 Outbound production
 Etc.
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 Cost Leadership Strategy:
Reconfigure Value Chain

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 101

 Cost Leadership Strategy:
Power against competitive forces
Can frighten off new entrants due to:
- Their need to enter on a large scale
Can mitigate suppliers’ power by: in order to be cost competitive.
New
- Being able to absorb cost - The time it takes to move down the
entrants industry learning curve.
increases due to low cost position.
- Being able to make very large
Due to cost leader’s
purchases, reducing chance of advantageous position:
supplier using power. - Rivals hesitate to compete
on basis of price.
- Lack of price competition
leads to greater profits.

Suppliers Rivalry among Buyers

competitors

Cost leader is well positioned to: Can mitigate buyers’ power by:
- Lower prices in order to maintain Driving prices far below
its value position. competitors, causing them to
- Make investments to add features exit, thus shifting power with
unavailable in substitutes. buyers (customers) back to the
Substitute
- Buy intellectual property and firm.
patents developed by potential products
substitutes.

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 Cost Leadership Strategy
 Competitive Risks
 Processes used to produce and distribute good
or service may become obsolete due to
competitors’ innovations.
 Too much focus on cost reductions may occur at
expense of customers’ perceptions of
differentiation.
 Competitors, using their own core competencies,
may successfully imitate the cost leader’s
strategy.

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 Differentiation Strategy
 An integrated set of actions taken to
produce goods or services (at an acceptable
cost) that customers perceive as being
different in ways that are important to them

 Focus is on nonstandardized products

 Appropriate when customers value differentiated

features more than they value low cost.

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 Differentiation Strategy
 How to obtain a Differentiation Advantage?

Control Reconfigure
Cost Drivers Value Chain to
if needed maximize

 Lower buyers’ costs

 Raise performance of product or service
 Create sustainability through:
 Customer perceptions of uniqueness
 Customer reluctance to switch to non-
unique product or service
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 Differentiation Strategy:
Reconfigure Value Chain

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 106

 Differentiation Strategy:
Power against competitive forces
Can defend against new entrants because:
- New products must surpass proven products.
- New products must be at least equal to
Can mitigate suppliers’ power by: New performance of proven products, but offered at
- Absorbing price increases due to entrants lower prices.
higher margins.
- Passing along higher supplier
prices because buyers are loyal to Defends against competitors
because customer’s brand loyalty
differentiated brand.
to differentiated product offsets
price competition.

Suppliers Rivalry among Buyers

competitors

Well positioned relative to Can mitigate buyers’ power

substitutes because: Brand loyalty because well differentiated
to a differentiated product tends to products reduce customer
reduce customers’ testing of new sensitivity to price increases.
products or switching brands.
Substitute
products

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 Differentiation Strategy:
Competitive Risks

 The price differential between the

differentiator’s product and the cost leader’s
product becomes too large.
 Differentiation ceases to provide value for
which customers are willing to pay.
 Experience narrows customers’ perceptions
of the value of differentiated features.
 Counterfeit goods replicate the differentiated
features of the firm’s products.

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 Focus Strategy [Defined]
 An integrated set of actions taken to
produce goods or services that serve the
needs of a particular competitive segment.
 Particular buyer group—youths or senior citizens
 Different segment of a product line—
professional craftsmen versus do-it-yourselfers
 Different geographic markets—Urban area
versus Rural area

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 Focus Strategy: Types
 Types of focused strategies
 Focused cost leadership strategy
 Focused differentiation strategy

 To implement a focus strategy, firms must

be able to:
 Complete various primary and support
activities in a competitively superior manner, in
order to develop and sustain a competitive
advantage and earn above-average returns.

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 Focus Strategy: Drivers
 Large firms may overlook small niches.
 A firm may lack the resources needed to
compete in the broader market.
 A firm is able to serve a narrow market
segment more effectively than can its larger
industry-wide competitors.
 Focusing allows the firm to direct its
resources to certain value chain activities to
build competitive advantage.

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 Focus Strategy: Competitive Risks

 A focusing firm may be “outfocused” by its

competitors.
 A large competitor may set its sights on a
firm’s niche market.
 Customer preferences in niche market may
change to more closely resemble those of
the broader market.

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 Business-Level Stratetgies: Trade-off

 Often involves compromises

 Becoming neither the lowest cost nor the most
differentiated firm.

 Becoming “stuck in the middle”

 Lacking the strong commitment and expertise
that accompanies firms following either a cost
leadership or a differentiated strategy.

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 CHAPTER 5: CORPORATE-LEVEL STRATEGY

 Learning Objectives
 Corporate – Level Strategies: Definition and
Key Issues
 Corporate – Level Strategies: Diversification
 Resources for Diversification
 Diversification: External Incentives

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 114

 Learning Objectives
1. Define corporate-level strategy and discuss its
purpose.
2. Describe different levels of diversification achieved
using different corporate-level strategies.
3. Explain three primary reasons firms diversify.
4. Describe how firms can create value by using a related
diversification strategy.
5. Explain the two ways value can be created with an
unrelated diversification strategy.
6. Discuss the incentives and resources that encourage
diversification.

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 Corporate-Level Strategy: Defined

 Set of actions taken by the firm to gain a

competitive advantage by selecting and
managing a group of different businesses
competing in different product markets.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 116

 Corporate-Level Strategy: Key Questions

 Corporate-level Strategy’s Value

 The degree to which the businesses in the
portfolio are worth more under the management
of the firm than they would be under other
ownership.
 What businesses should
the firm be in?
 How should the corporate
office manage the
group of businesses?
Business Units
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 117
 Corporate-Level Strategy: Diversification

 Diversification strategies play a major role

in the behavior of large firms.
 Product diversification concerns:
 The scope of the industries and markets in
which the firm competes.
 How managers buy, create and sell different
businesses to match skills and strengths with
opportunities presented to the firm.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 118

 Diversification: Low Level

Single Business
More than 95% of
revenue comes from a A
single business.

Dominant Business
Between 70% and 95% of revenue
comes from a single business.

A
B
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 119
 Diversification: Moderate to High Level

Related Constrained Related Linked (mixed

(Vertical Integration) related and unrelated)
 businesses share product,  limited links between
technological and distribution businesses.
linkages.

A A

B C B C
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 120
 Diversification: Very High Level

 Unrelated Diversification
 no common links between businesses.

B C

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 121

 Diversification:
Value-Creating Strategies

High Both Operational and

Related Constrained Corporate
Diversification Relatedness
Operational Vertical Integration (Rare capability that
(Market Power) creates diseconomies of
Relatedness: scope)
Sharing
Activities
between Unrelated Related Linked
Businesses Diversification Diversification
(Financial Economies) (Economies of Scope)
Low

Low High
Corporate Relatedness: Transferring Skills
into Businesses through Corporate Headquarters

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 122

 Related Diversification:
Economies of Scope

 Value is created from economies of scope

through:
 Operational relatedness in sharing activities
 Corporate relatedness in transferring skills or
corporate core competencies among units.
 The difference between sharing activities
and transferring competencies is based on
how the resources are jointly used to create
economies of scope.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 123

 Related Diversification:
Economies of Scope

 Value is created from economies of scope

through:
 Operational relatedness in sharing activities
 Corporate relatedness in transferring skills or
corporate core competencies among units.
 The difference between sharing activities
and transferring competencies is based on
how the resources are jointly used to create
economies of scope.

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 Sharing Activities

 Operational Relatedness
 Created by sharing either a primary activity such
as inventory delivery systems, or a support
activity such as purchasing.
 Activity sharing requires sharing strategic control
over business units.
 Activity sharing may create risk because
business-unit ties create links between
outcomes.

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 Transferring Corporate Competencies

 Corporate Relatedness
 Using complex sets of resources and capabilities
to link different businesses through managerial
and technological knowledge, experience, and
expertise.

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 Corporate Relatedness
 Creates value in two ways:
 Eliminates resource duplication in the need to
allocate resources for a second unit to develop a
competence that already exists in another unit.
 Provides intangible resources (resource
intangibility) that are difficult for competitors to
understand and imitate.
 A transferred intangible resource gives the unit
receiving it an immediate competitive advantage
over its rivals.

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 Related Diversification: Market Power
 Market power exists when a firm can:
 Sell its products above the existing competitive level and/or
 Reduce the costs of its primary and support activities below the
competitive level.
 Multipoint Competition
 Two or more diversified firms simultaneously compete in the
same product areas or geographic markets.
 Vertical Integration
 Backward integration—a firm produces its own inputs.
 Forward integration—a firm operates its own distribution
system for delivering its outputs.

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 Related Diversification: Complexity
 Simultaneous Operational Relatedness and
Corporate Relatedness
 Involves managing two sources of knowledge
simultaneously:
 Operational forms of economies of scope
 Corporate forms of economies of scope
 Many such efforts often fail because of
implementation difficulties.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 129

 Unrelated Diversification
 Financial Economies
 Are cost savings realized through improved
allocations of financial resources.
 Based on investments inside or outside the firm
 Create value through two types of financial
economies:
 Efficient internal capital allocations
 Purchase of other corporations and the
restructuring their assets

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 130

 Unrelated Diversification (cont’d)

 Efficient Internal Capital Market Allocation

 Corporate office distributes capital to business
divisions to create value for overall company.
 Corporate office gains access to information about
those businesses’ actual and prospective
performance.
 Conglomerate life cycles are fairly short life cycle
because financial economies are more easily
duplicated by competitors than are gains from
operational and corporate relatedness.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 131

 Unrelated Diversification (cont’d)

 Efficient Internal Capital Market Allocation

 Corporate office distributes capital to business
divisions to create value for overall company.
 Corporate office gains access to information about
those businesses’ actual and prospective
performance.
 Conglomerate life cycles are fairly short life cycle
because financial economies are more easily
duplicated by competitors than are gains from
operational and corporate relatedness.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 132

 Unrelated Diversification:
Restructuring

 Restructuring creates financial economies

 A firm creates value by buying and selling
other firms’ assets in the external market.
 Resource allocation decisions may become
complex, so success often requires:
 Focus on mature, low-technology businesses.
 Focus on businesses not reliant on a client
orientation.

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 Resources and Diversification

 A firm must have both:

 Incentives to diversify
 The resources required to create value through
diversification—cash and tangible resources (e.g.,
plant and equipment)
 Value creation is determined more by
appropriate use of resources than by incentives
to diversify.
 Strategic competitiveness is improved when the
level of diversification is appropriate for the
level of available resources.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 134

 Diversification: External Incentives

Anti-trust • Antitrust laws in 1960s and 1970s

Legislation discouraged mergers that created
increased market power (vertical or
horizontal integration.
• Mergers in the 1960s and 1970s thus
tended to be unrelated.
• Relaxation of antitrust enforcement
results in more and larger horizontal
mergers.
• Early 2000: antitrust concerns seem
to be emerging and mergers now
more closely scrutinized.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 135

 Diversification: External Incentives

Anti-trust • Antitrust laws in 1960s and 1970s

Legislation discouraged mergers that created
increased market power (vertical or
horizontal integration.
• Mergers in the 1960s and 1970s thus
tended to be unrelated.
• Relaxation of antitrust enforcement
results in more and larger horizontal
mergers.
• Early 2000: antitrust concerns seem
to be emerging and mergers now
more closely scrutinized.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 136

 Diversification: External Incentives

Anti-trust • High tax rates on dividends cause

Legislation a corporate shift from dividends to
buying and building companies in
high-performance industries.
Tax Laws
• 1986 Tax Reform Act
 Reduced individual ordinary income
tax rate from 50 to 28 percent.
 Treated capital gains as ordinary
income.
 Created incentive for shareholders to
prefer dividends to acquisition
investments.

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 Diversification: External Incentives

Low • High performance eliminates the

Performance need for greater diversification.
• Low performance acts as
incentive for diversification.
• Firms plagued by poor
performance often take higher
risks (diversification is risky).

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 138

 Diversification: External Incentives

Low • Diversification may be

Performance
defensive strategy if:
Uncertain  Product line matures.
Future
Cash Flows  Product line is threatened.
 Firm is small and is in
mature or maturing industry.

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 Diversification: External Incentives

Low • Synergy exists when the value

Performance created by businesses working
together exceeds the value created
Uncertain by them working independently
Future Cash • … but synergy creates joint
Flows
interdependence between business
units.
Synergy and • A firm may become risk averse and
Firm Risk constrain its level of activity sharing.
Reduction
• A firm may reduce level of
technological change by operating in
more certain environments.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 140

 Value-Reducing Diversification:
Managerial Motives to Diversify

 Managerial motives to diversify:

 Managerial risk reduction
 Desire for increased compensation
 Build personal performance reputation

 Effects of inadequate internal firm

governance
 Diversification fails to earn even average returns
 Threat of hostile takeover
 Self-interest actions of entrenched management

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 141

 CHAPTER 6: INTERNATIONAL STRATEGY

 Learning Objectives
 Int’l Opportunities
 Int’l Strategy Benefits
 Int’l Corporate - Level Strategies
 Int’l Modes of Entry
 Int’l Strategies: Pros & Cons
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 142
 Learning Objectives
1. Explain incentives that can influence firms to use an international
strategy.
2. Identify three basic benefits firms achieve by successfully
implementing an international strategy.
3. Explore the determinants of national advantage as the basis for
international business-level strategies.
4. Describe the three international corporate-level strategies.
5. Discuss environmental trends affecting the choice of international
strategies, particularly international corporate-level strategies.
6. Explain the five modes firms use to enter international markets.
7. Discuss the two major risks of using international strategies.
8. Discuss the strategic competitiveness outcomes associated with
international strategies particularly with an international
diversification strategy.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 143

 Identifying Int’l Opportunities
 International Strategy
 A strategy through which the firm sells its goods or
services outside its domestic market.
 Incentives to use international strategy
 New market expansion extends product life cycle.
 Gain access to materials and resources.
 Integration of operations on a global scale
 Better use of rapidly developing technologies
 International markets yield potential new
opportunities.

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 Rationale for Int’l Diversification

 Extend a Product’s Life Cycle

Firm introduces Product demand Foreign

innovation in develops and firm competition
domestic market exports products begins production

Production is standardized
Firm begins
and relocated to low cost
production abroad
countries

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 145

 Int’l. Strategy Benefits

 Increased Market Size

 Domestic market may lack the size to support
efficient scale manufacturing facilities.
 Economies of Scale (or Learning)
 Expanding size or scope of markets helps to
achieve economies of scale in manufacturing
as well as marketing, R&D or distribution.
 Can spread costs over a larger sales base.
 Can increase profit per unit.

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 Int’l. Strategy Benefits

 Location Advantages
 Low cost markets aid in developing competitive
advantage by providing access to:
 Raw materials
 Transportation
 Lower costs for labor
 Key customers
 Energy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 147

 Determinants of National Advantage

 Porter’s Diamond Model

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 148

 Determinants of National Advantage

 Factors of production
 The inputs necessary to compete in any industry
 Labor Land Natural resources
 Capital Infrastructure
 Basic factors
 Natural and labor resources
 Advanced factors
 Digital communication systems and an educated
workforce

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 149

 Determinants of National Advantage

Demand Conditions
 Characterized by the nature and size of buyers’
needs in the home market for the industry’s goods
or services.
Size of the market segment can lead to scale-efficient
facilities.
Efficiency can lead to domination of the industry in
other countries.
Specialized demand may create opportunities beyond
national boundaries.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 150

 Determinants of National Advantage

Related and Supporting Industries

 Supporting services, facilities, suppliers and so on.
 Support in design
 Support in distribution
 Related industries as suppliers and buyers
Firm Strategy, Structure and Rivalry
 The pattern of strategy, structure, and rivalry among
firms.
 Common technical training
 Methodological product and process improvement
 Cooperative and competitive systems

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 151

 Int’l Corporate-Level Strategy
 Focuses on the scope of operations:
 Product diversification
 Geographic diversification
 Required when the firm operates in:
 Multiple industries, and
 Multiple countries or regions
 Headquarters unit guides the strategy
 But business or country-level managers can
have substantial strategic input.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 152

 Int’l Corporate-Level Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 153

 Multidomestic Strategy
Strategy and operating decisions are decentralized to
strategic business units (SBU) in each country.
Products and services are tailored to local markets.
Business units in one country are independent of each
other.
Assumes markets differ by country or regions.
Focus on competition in each market.
Prominent strategy among European firms due to broad
variety of cultures and markets in Europe.

Multidomestic
strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 154

 Global Strategy
 Products are standardized across national markets.
 Business-level strategic decisions are centralized in the
home office.
 Strategic business units (SBU) are assumed to be
interdependent.
 Emphasizes economies of scale.
 Often lacks responsiveness to local markets.
 Requires resource sharing and coordination across
borders (hard to manage).

Global
strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 155

 Transnational Strategy
 Seeks to achieve both global efficiency and local
responsiveness.
 Difficult to achieve because of simultaneous
requirements for:
 Strong central control and coordination to achieve efficiency
 Decentralization to achieve local market responsiveness
 Pursuit of organizational learning to achieve competitive
advantage.

Transnational
strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 156

 Environmental Trends
 Liability of Foreignness
 Legitimate concerns about the relative
attractiveness of global strategies
 Global strategies not as prevalent as once
thought
 Difficulty in implementing global strategies
 Regionalization
 Focusing on particular region(s) rather than on
global markets
 Better understanding of the cultures, legal and
social norms
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 157
 Internationalization: Modes of Entry

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 158

 Choice of Int’l Mode of Entry

What’s the best solution?

Situation Optimal Solution
The
Thefirm
firmhas
hasnonoforeign
foreign Exporting
Exporting
manufacturing
manufacturingexpertise
expertise
and
andrequires
requiresinvestment
investment
only
onlyinindistribution.
distribution.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 159

 Choice of Int’l Mode of Entry

What’s the best solution?

Situation Optimal Solution

The
Thefirm
firmneeds
needsto
to Licensing
Licensing
facilitate
facilitatethe
theproduct
product
improvements
improvements
necessary
necessaryto toenter
enter
foreign
foreignmarkets.
markets.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 160

 Choice of Int’l Mode of Entry

What’s the best solution?

Situation Optimal Solution

The
Thefirm
firmneeds
needsto to Strategic
StrategicAlliance
Alliance
connect
connect withwithanan
experienced
experiencedpartnerpartner
already
alreadyin inthe
thetargeted
targeted
market
market and andtotoreduce
reduce
its
itsrisk
riskthrough
throughthe the
sharing
sharingof of costs.
costs.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 161

 Choice of Int’l Mode of Entry

What’s the best solution?

Situation Optimal Solution

The
Thefirm
firmis
isfacing
facing Strategic
StrategicAlliance
Alliance
uncertain
uncertainsituations
situations
such
suchasasananemerging
emerging
economy
economyin inits
its
targeted
targetedmarket.
market.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 162

 Choice of Int’l Mode of Entry

What’s the best solution?

Situation Optimal Solution

The
Thefirm
firmneeds
needsrapid
rapid Acquisitions
Acquisitions
cross-border
cross-borderaccess
accesstoto
new
new international
international
markets
markets

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 163

 Choice of Int’l Mode of Entry

What’s the best solution?

Situation Optimal Solution

The
Thefirm’s
firm’sintellectual
intellectual Wholly-owned
Wholly-owned
property
propertyrights
rightsininan
an Subsidiary
Subsidiary
emerging
emergingeconomy
economyare are
not
not well
well protected,
protected, the
the
number
numberof offirms
firmsininthe
the
industry
industryis isgrowing
growingfast,
fast,
and
andthe
theneed
needfor forglobal
global
integration
integrationis ishigh.
high.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 164

 Risks in an Int’l Environment

 Political Risks  Economic Risks

 Instability in national  Differences and
governments fluctuations in the value
 War, both civil and of different currencies
international  Differences in prevailing
 Potential nationalization wage rates
of a firm’s resources  Difficulties in enforcing
property rights
 Unemployment

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 165

 Int’l. Diversification and Returns

 Expanding sales of goods or services across

global regions and countries and into
different geographic locations or markets:
 May increase a firm’s returns (such firms usually
achieve the most positive stock returns).
 May achieve economies of scale and experience,
location advantages, increased market size and
opportunity to stabilize returns.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 166

 Int’l. Diversification and Innovation

 Expansion sales of goods or services across

global regions and countries and into
different geographic locations or markets:
 May yield potentially greater returns on
innovations (a larger market).
 Can generate additional resources for
investment in innovation.
 Provides exposure to new products and
processes in international markets; generates
additional knowledge leading to innovations.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 167

 Complexity of Managing
Multinational Firms

 Expansion into global operations in different

geographic locations or markets:
 Makes implementing international strategy
increasingly complex.
 Can produce greater uncertainty and risk.
 May result in the firm becoming unmanageable
 May cause the cost of managing the firm to
exceed the benefits of expansion.
 Exposes the firm to possible instability of some
national governments.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 168

 Limits to Int’l Expansion

 Management Problems
 Cost of coordination across diverse geographical
business units
 Institutional and cultural barriers
 Understanding strategic intent of competitors
 The overall complexity of competition

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 169

 CHAPTER 7: ORGANIZATIONAL
STRUCTURE AND CONTROL

 Learning Objectives
 Organizational Structure and Control
 Organizational Structure: Types
 Matching Business – Level Strategies and Structures
 Matching Corporate – Level Strategies and Structures
 Matching Int’l – Level Strategies and Structures

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 170

 Learning Objectives

1. Define organizational structure and controls and discuss

thedifference between strategic and financial controls.
2. Describe the relationship between strategy and
structure.
3. Discuss the different functional structures used to
implement business-level strategies.
4. Explain the use of three versions of the multidivisional
(M-form) structure to implement different diversification
strategies.
5. Discuss the organizational structures used to implement
three international strategies.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 171

 Organizational Structure and
Controls

 Organizational Structure
 Formal reporting relationships, procedures, controls, and
authority and decision-making processes
 Dividing and regrouping
 Delegation of responsibilities
 Coordination mechanisms
 Organizational Controls
 Indicate how to compare actual results with expected results,
and suggest corrective actions to be taken (if needed)
 Strategic controls
 Financial controls

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 172

 Organizational Structure: Types

 Simple Structure
 the owner-manager makes all major decisions and monitors all
activities, while the staff serves as an extension of the
manager’s
 Functional Structure
 a chief executive officer and a limited corporate
staff, with functional line managers in dominant organizational
areas
 Multidivisional Structure
 a corporate office and operating divisions, each operating
division representing a separate business or profit center

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 173

 Matching Business-Level Strategies
and Functional Structure

 Cost Leadership Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 174

 Matching Business-Level Strategies
and Functional Structure

 Differentiation Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 175

 Matching Corporate-Level Strategies
and Multidivisional Structure

 Differentiation Structure: 3 variations

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 176

 Matching Corporate-Level Strategies
and Multidivisional Structure
 Related Constrained Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 177

 Matching Corporate-Level Strategies
and Multidivisional Structure
 Related Linked Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 178

 Matching Corporate-Level Strategies
and Multidivisional Structure

 Unrelated Diversification Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 179

 Matching Int’l Strategies and
Worldwide Structure

 Multidomestic Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 180

 Matching Int’l Strategies and
Worldwide Structure

 Global Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 181

 Matching Int’l Strategies and
Worldwide Structure

 Transnational Strategy

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 182

 CHAPTER 8: STRATEGIC LEADERSHIP

 Learning Objectives
 Strategic Leadership and Mgnt Process
 Strategic Leadership: Key Actions
 Strategic Leadership: Ethical Practices
 Strategic Leadership: Balanced
Organizational Controls
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 183
 Learning Objectives
 Define strategic leadership and describe top-level managers’
importance.
 Explain what top management teams are and how they affect
firm’s performance.
 Describe the managerial succession process using internal and
external managerial labor markets.
 Discuss the value of strategic leadership in determining the firm’s
strategic direction.
 Describe the importance of strategic leaders in managing the
firm’s resources.
 Explain what must be done for a firm to sustain an effective
culture.
 Describe what strategic leaders can do to establish and
emphasize ethical practices.
 Discuss the importance and use of organizational controls.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 184

 Strategic Leadership
 Strategic leadership is the ability to
anticipate, envision, maintain flexibility, and
empower others to create strategic change
as necessary

 Strategic leadership involves managing

through others, managing an entire
organization rather than a functional
subunit

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 185

 Strategic Leadership and
Strategic Management Process

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 186

 Strategic Leadership:
The Role of Top-Level Managers

 Top-level managers’ roles in verifying

that their firm effectively uses the strategic
management process are complex and
challenging

 Top Management Teams

composed of the individuals who are responsible for
making certain the firm uses the strategic
management process, especially for the purpose of
selecting and implementing strategies.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 187

 Strategic Leadership: Key Actions

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 188

 Strategic Leadership:
Determining Strategic Directions

 Specifying the vision and the strategy or

strategies to achieve this vision over time

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 189

 Strategic Leadership:
Managing the Firm’s Resource Portfolio

 Firm’s resources are categorized as

financial capital, human capital, social
capital, and organizational capital


Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 190

 Strategic Leadership:
Managing the Firm’s Resource Portfolio

 Firm’s resources are categorized as

financial capital, human capital, social
capital, and organizational capital
 Exploiting and Maintaining Core
Competencies
 Developing Human Capital and Social
Capital


Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 191

 Strategic Leadership:
Sustaining an Effective Organizational Culture

 The complex set of ideologies, symbols,

and core values that are shared throughout
the firm and that influence how the firm
conducts business
 Entrepreneurial Mind-Set
 Changing the Organizational Culture and
Restructuring

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 192

 Strategic Leadership:
Emphasizing Ethical Practices

 Ethical companies encourage and enable

people at all levels to act ethically when
taking actions to implement strategies
 Typical actions to be taken:
 Establishing and communicating specific goals to describe the
firm’s ethical standards
 Continuously revising and updating the code of conduct
 Disseminating the code of conduct to all stakeholders
 Developing and implementing methods and procedures
 Creating and using explicit reward systems
 Creating a work environment in which all people are treated
with dignity

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 193

 Strategic Leadership:
Establishing Balanced Organizational Controls

 The “formal, information-based … procedures used by

managers to maintain or alter patterns in organizational
activities”
 Help strategic leaders build credibility, demonstrate the
value of strategies to the firm’s stakeholders, and
promote and support strategic change
 The Balanced Scorecard
 Financial (growth, profitability, and risk from the shareholders’ perspective)
 Customer (value customers perceive was created by the firm’s products)
 Internal business processes (focus on the priorities for various
business processes that create customer and shareholder satisfaction)
 Learning and growth (firm’s effort to create a climate that supports
change, innovation, and growth)

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 194

 Establishing Balanced Organizational Controls:
Balanced Scorecard Framework

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 195

 Course Summary

Questions & Answers

196