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Dr Udo C Braendle Strategic Management

Strategic Management
Welcome
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Strategic Management Dr Udo C Braendle
Definition of Strategy
The only thing I know about strategy is that everything the manager does
is crap. Unless it works, in which case (s)he's a button pusher.
(Moe, The Simpsons)
I hope you know more about strategy already! Strategy is more!
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Strategic Management Dr Udo C Braendle
Definition of Strategy
Strategy is the direction and scope of an
organization over the long term, which
achieves advantage in a changing
environment through its configuration of
resources and competences with the aim
of fulfilling stakeholder expectations.
Johnson and Scholes, Exploring Corporate Strategy
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Strategic Management
Its a dirty little secret: Most executives
cannot articulate the objective, scope,
and advantage of their business in a
simple statement.
If they cant, neither can anyone else.
Source: Collins, Ruckstad, HBR, Can You Say What Your Strategy Is?
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Welcome
Dr. Udo Braendle, MBA, LL.M (Com.)
Chair, Business and Economics
Department
Associate Professor of Management
10 years of University teaching experience
University of Vienna (alma mater)
University of Manchester (UK)
University of Nuremberg (Germany)
5 years in Business practice
Consultancy (Strategy)
Banking Sector / Corporate Governance
& Compliance
Contact details
Tel.: 04-318-3322
@: ubraendle@aud.edu
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Learning Outcomes
1. Demonstrate the understanding of the concepts, framework and tools
used for analyzing external, internal environment, and generic
business strategies.
2. Assess the industry, value creation activities, and business strategies of
the firms.
3. Appreciate the impact of changes (e.g. technological, regulation etc.)
on strategic management of large organizations.
4. Analyze value creation through corporate strategies.
5. Construct business-level and corporate-level strategies in different
competitive environments.
Develop the ability to formulating and execute strategy
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Course Materials
Required:
Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson, 2012;
Strategic Management: Concepts: Competitiveness and
Globalization. 10th Edition. Cengage.
Case Studies (as instructed)
Class Handouts / Readings
Registration for simulation
Recommended:
Reading list in selected chapters
Business news and articles
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Evaluation
Evaluation device Learning Outcome % allotted
Case Analyses (15%) & Simulation (5%) Cases cover all outcomes. 20
Quiz 1, 2, 3 10
Midterm exam 1, 2, 3, and 5 partially 25
Course Project (report and presentation) Collectively projects cover all
outcomes
20
Final exam 3, 4, and 5 partially 25
TOTAL 100
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Syllabus
Our Contract for
this semester
Dr Udo C Braendle Strategic Management
Strategic Management
Chapter 1
Strategic Management and Competitiveness
Slides copyright 2014 Cengage and Braendle
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We know the definition of strategic management, so
what does it include?
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control
The study of strategic management
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The strategic management process
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Knowledge Objectives I
Define strategic competitiveness, strategy,
competitive advantage, above-average returns, and
the strategic management process.
Describe the competitive landscape.
Use the industrial organization (I/O) model to explain
how firms can earn above-average returns.
Use the resource-based model to explain how firms
can earn above-average returns.
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Knowledge Objectives II
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 - achieved when
a firm successfully formulates and implements a value-
creating strategy
STRATEGY - an integrated and coordinated set of
commitments and actions designed to exploit core
competencies and gain a competitive advantage
COMPETITIVE ADVANTAGE - when a firm
implements a strategy that creates superior value for
customers; competitors are unable to duplicate it or find too
costly to imitate it
The Vocabulary in Strategic
Management
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RISK - an investors uncertainty about the economic gains
or losses that will result from a particular investment
ABOVE-AVERAGE RETURNS - returns in excess of
what an investor expects to earn from other investments with a
similar amount of risk
AVERAGE RETURNS - returns equal to those an
investor expects to earn from other investments with a similar
amount of risk
The Vocabulary in Strategic
Management
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The competitive landscape
GLOBALIZATION - emergence of a global economy
TECHNOLOGY - rapid technological changes
INDUSTRY BOUNDARIES BLURRING
EXAMPLES - computer networks and telecommunications have
blurred the boundaries of the entertainment industry
General Electric owns 49 percent of NBC Universal and Comcast
owns the remaining 51 percent
STRATEGIC MANAGEMENT PROCESS - effective use of the
strategic management process reduces the likelihood of failure for
firms as they encounter the conditions of todays competitive
landscape
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Competitive landscape
The global economy
Competitive environments are broader and increasingly more complex
The European Union has become one of the worlds largest markets, with 700
million potential customers
China has become the second largest economy in the world surpassing Japan
India, has an economy that now ranks as the fourth largest in the world
GE - headquartered in the U.S., yet up to 60% of its revenue growth through
2015 will be generated from rapidly developing economies such as China and
India
We have entered a new economic era in which the global economy will be
more volatile and emerging economies such as Brazil, China, and India will be
the major drivers of growth
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Globalization is
increasing economic
interdependence
among countries and
their organizations as
reflected in the flow
of goods and services,
financial capital, and
knowledge across
country borders.
Globalization is the
product of a large
number of firms
competing against
one another in an
increasing number of
global economies.
Highly globalized firms
must anticipate ever-
increasing
complexities in their
operations as goods,
services, people, etc.
move freely across
geographic borders.
Competitive landscape
Globalization
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Globalization has led
to higher performance
standards in quality,
cost, productivity,
product introduction
time, and operational
efficiency. These
standards translate
and impact domestic-
only firms as well.
Free flow of resources
among global
economies, global
sourcing for firms,
global purchasing for
customers, and a
global forum for
workers all serve as a
key source of
competitive
advantage for firms.
Firms must learn that
in this twenty-first
century competitive
landscape, only firms
capable of meeting, if
not exceeding, global
standards, have the
capability to earn
above-average
returns.
Competitive landscape
Globalization
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Significant time is
required for firms to
learn how to compete
in new markets, and
performance may
suffer during this
time.
With globalization,
firms may over-
diversify
internationally, which
can have strong
negative effects on a
firms overall
performance.
It is critical for firms
competing globally to
remain strategically
committed to and
competitive in both
domestic and
international markets.
Competitive landscape
The risks of globalization
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Competitive landscape
Information Age
Dramatic Changes - in information technology have occurred in recent
years, e.g., personal computers, cellular phones, artificial intelligence,
virtual reality, massive databases, and multiple social networking sites
Competitive Advantage - the ability to effectively and efficiently access
and use information has become an important source of competitive
advantage in virtually all industries
Information Technology - enables small firms to be flexible and
competitive in the global arena
Patents - may be an effective protection of proprietary technology in a
small number of industries, e.g., pharmaceuticals
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EXTERNAL
I/O
MODEL
INTERNAL
RESOURCE-
BASED
MODEL
Firms use two major models to help develop their vision and mission and then
choose one or more strategies in pursuit of strategic competitiveness and
above-average returns.
Models of strategic decision making
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Grounded in economics, the I/O model has four underlying
assumptions
First, the external environment is assumed to impose pressures
and constraints that determine the strategies that would result in
above-average returns.
Second, most firms competing within an industry or within a
segment of that industry are assumed to control similar
strategically relevant resources and to pursue similar strategies in
light of those resources.
Third, resources used to implement strategies are assumed to
be highly mobile across firms, so any resource differences that
might develop between firms will be short-lived.
Fourth, organizational decision-makers are assumed to be
rational and committed to acting in the firms best interests, as
shown by their profit-maximizing behavior.
The I/O model of above average returns
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The Five Forces Model of competition is an
analytical tool used to help firms find the industry
that is the most attractive, as measured by its
profitability potential.
The Five Forces Model suggests that an industrys
profitability (i.e., its rate of return on invested
capital relative to its cost of capital) is a function of
interactions among the Five Forces: suppliers,
buyers, rivalry, product substitutes, and potential
entrants to the industry.
The I/O model of above average returns
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Cost Leadership Strategy producing standardized
goods or services at costs below those of competitors
Differentiation Strategy - producing differentiated goods
or services for which customers are willing to pay a price
premium
The I/O model suggests that above-average returns are
earned when firms are able to effectively study the external
environment as the foundation for identifying an attractive
industry and implementing the appropriate strategy.
The I/O model of above average returns
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Research findings support the I/O model, in that
approximately 20% of a firms profitability is explained by
the industry in which it chooses to compete.
However, this research also shows that 36%of the
variance in firm profitability can be attributed to the firms
characteristics and actions.
These findings suggest that the External AND Internal
environments influence the companys ability to achieve
strategic competitiveness and earn above-average returns.
The I/O model of above average returns
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FIGURE 1.2
The I/O Model
of Above
Average
Returns
The I/O model of above average returns
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The resource based model of above
average returns
The resource-based model assumes that each organization is a
collection of unique resources and capabilities.
The uniqueness of its resources and capabilities is the basis of a
firms strategy and its ability to earn above-average returns.
The core assumption of the resource-based model is that the firms
unique resources, capabilities, and core competencies have more
influence on selecting and using strategies than does the firms
external environment.
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There are FOUR components to the Resource- Based Model:
Resources
Capabilities
Core Competencies
Competitive Advantage
There are FOUR criteria that if resources and capabilities fulfill, then they become Core
Competencies:
Valuable
Rare
Costly to Imitate
Nonsubstitutable
The resource based model of above
average returns
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Resources are inputs into a firms production process, such as capital
equipment, the skills of individual employees, patents, finances, and
talented managers.
A firms resources are either tangible or intangible and are classified into
three categories: physical, human, and organizational capital.
Resources alone may not yield a competitive advantage. Many resources
can either be imitated or substituted over time, therefore, it is difficult to
achieve and sustain a competitive advantage based on resources alone.
The resource based model of above
average returns
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First, differences in firms performances across time are
due primarily to their unique resources and capabilities
rather than the industrys structural characteristics.
Second, firms acquire different resources and develop
unique capabilities based on how they combine and use
the resources.
The resource based model of above
average returns
4 underlying principles
Third, that resources and capabilities are NOT highly
mobile across firms.
Fourth, that the differences in resources and
capabilities are the basis of competitive advantages.
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FIGURE 1.3
The Resource-
Based Model
of Above
Average
Returns
The resource based model of above
average returns
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Vision is a picture of what the firm wants
to be and, in broad terms, what it wants
to ultimately achieve.
A vision statement is short and concise,
making it easy to remember.
It articulates the ideal description of the
organization and gives shape to its
intended future.
Vision
A firms vision tends to be enduring,
whereas its mission can change in light of
changing environmental conditions.
vision statements reflect a firms values and
aspirations and are intended to capture the
heart and mind of each stakeholder.
Executives and top-level managers must
formulate and implement strategies
consistent with the vision.
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Vision
Examples:
Our vision is to be the worlds best quick
service restaurant. (McDonalds)
To make the automobile accessible to
every American.
(Ford Motor Companys vision when
established by Henry Ford)
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The vision is the foundation for the firms
mission.
The firms mission is more concrete than its
vision.
A mission specifies the business or businesses
in which the firm intends to compete and the
customers it intends to serve.
Mission
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Examples:
Be the best employer for our people in each community around
the world and deliver operational excellence to our customers in
each of our restaurants. (McDonalds)
AUD Mission
The Mission of The American University in Dubai is to fulfill the broad
educational needs of a culturally diverse student body by achieving
excellence in teaching and learning, ultimately resulting in the
intellectual, personal, and professional success of its graduates and
the advancement of society.
Mission
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The probability of forming an effective mission increases
when employees have a strong sense of the ethical
standards that guide their behaviors.
Deciding what a firm wants to
become
Vision
Deciding who it intends to serve
and how it wants to serve those
individuals and groups
Mission
Business
ethics
Vison, Mission and Ethics
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Are there individuals, groups, and organizations who have a stake in the
organization
Who can affect the firms vision and mission?
Are affected by the strategic outcomes achieved?
Have enforceable claims on the firms performance?
Competitive Advantage
Firms effectively managing stakeholder relationships outperform those that
do not.
Stakeholders
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Organizations are not equally dependent on all
stakeholders, so not every stakeholder has the same level
of influence.
The more critical and valued a stakeholders participation,
the greater a firms dependence on it, which gives the
stakeholder more potential influence over the firm.
Managers must find ways to accommodate or insulate
the organization from the demands of stakeholders
controlling critical resources.
Stakeholders
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Three groups of stakeholders:
C
Shareholders and the major suppliers of a firms
capital
A firms primary customers, suppliers, host
communities, and unions representing the
workforce
Firms employees, including both non-managerial
and managerial personnel
Capital market stakeholders
Product market stakeholders
Organizational stakeholders
Classification of Stakeholders
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CHALLENGES:
When earning above-average returns, a firm can more
easily satisfy multiple stakeholders simultaneously.
When earning only average returns, a firm is unable to
maximize the interests of all stakeholders, thus
stakeholders should be at least minimally satisfied.
Cultural differences and societal values also influence
stakeholder priorities.
Managing stakeholder conflicts

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