30/9/2021

STRATEGIC
MANAGEMENT
Semester 1/2021-2022

Lecturer in charge: Mr. Nguyen Hiep (Ph.D)

Co-lecturers: Mr. Huynh Phan Thang (MBA)
Mr. Le Gia Phuc (MBA)

MAIN PARTS
STRATEGIC MANAGEMENT INPUTS

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

CHAPTER
1

Strategic Management
&
Strategic Competitiveness

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Learning objectives

• Key concepts: strategic competitiveness, strategy, competitive

advantage, above-average returns, and the strategic management
process.
• Competitive landscape and drivers (globalization and technological
changes).
• Models of above-average returns: I/O model resource-based model.
• Vision, mission and their values.
• Stakeholders and their ability to influence organizations.
• The work of strategic leaders.
• The strategic management process.

Opening Case: THE HONEST CO.

What it tells us about the Company

o Strategic competitiveness Skimming

o Competitive advantage
o Competititive landscape Sentence
by
o Vision and mission sentence

o Strategy Paragraph by
paragraph
o Resources and capabilities
o Core competences

Key concepts
 Strategic competitiveness
 Strategic achievement firms gain in competition.
 Competitive advangtage
 Advantages that differentiate a firm from competitors.
 A firm has a competitive advantage over its competitors they
deliver the same value to customers as competitors deliver but at a
lower cost, or when they deliver benefits for which customers are
willing to pay that exceed the benefits competitors offer.

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Key concepts
 Strategy
 Goals, direction, actions.
 An integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain a
competitive advantage.
 Above-average returns
 Returns that exceed what investors expect to earn from
investments with similar levels of risk.

Above
Key concepts -average
 Above-average returms: Benefited from returns
strategic competitiveness.
 Strategic competitiveness: Achieved by Competitiveness
possessing and effectively/stratigically using
competitive advantages.
Competitive
 Competitive advangtage: created by Advantage
implementing a chosen strategy, in ways it
creates superior value for customers and
when competitors are not able to imitate the Strategy
value the firm’s products create or find it too
expensive to attempt imitation.

Key concepts
 When choosing a strategy, firms make choices among many
alternatives as the pathway for deciding how they will pursue
strategic competitiveness.
 Chosen strategy indicates what the firm will do and will not do.
 Competitive advantage is not permanent.
 The speed with which competitors are able to acquire the skills
needed to duplicate the benefits of a firm’s value-creating strategy
determines how long the competitive advantage will last.

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Key concepts
 Firm creates a competitive advantage by being as different as possible
from competitors in ways that are important to customers and in ways
that competitors cannot duplicate.
 Having competitive advantage helps firm create superior value for its
customers and superior profits for itself.
 So long as a firm can sustain (or maintain) a competitive advantage,
investors will earn above-average returns
 Competitive advantage is source of strategic competitiveness and
above-average returns.

Key concepts

 Above-average returns are returns in excess of what an investor

expects to earn from other investments with a similar amount of risk.
 Risk is an investor’s uncertainty about the economic gains or losses
that will result from a particular investment.
 Firms without a competitive advantage or those that do not compete
in an attractive industry earn, at best, average returns.
 Over time, an inability to earn at least average returns results first in
decline and, eventually, failure.
 There are no guarantees of permanent above-average return.

Key concepts
 Strategic Management Process effectively facilitates firms’ efforts to
achieve success across time.
 Strategic management process: full set of commitments, decisions, and
actions to achieve strategic competitiveness and earn above-average
returns
 The process involves analysis, strategy, and performance (the A-S-P
model): A firm analyzes the external environment and its internal
organization, then formulates and implements strategies to achieve a
desired level of performance.

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Strategic Management Process

Strategy

• Business-level • Earn above-average

strategy return
• External • Action and reactions • Outperform
• Internal • Corporate-level competitors
• Competitiveness strategy • Value for
• Diversification stakeholders
• International
strategy
Analysis • Cooperative strategy Performance
• Organizational
structure
• Entrepreneurship

Competitive Landscape
The fundamental nature of competition in many of the world’s industries is
changing.
• Digitalization: key dimension affecting the competition level in various industries
• Firms must understand the strategic implications and integrate digitalization (the
process of converting something to digital form) effectively into their strategies.
• Conventional sources of competitive advantage (large advertising budgets,
economies of scale) are not as effective as they once were.
• Managers must adopt a new mind-set that values:
• Flexibility
• Speed
• Innovation
• Integration
• The challenges flowing from constantly changing conditions

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Competitive Landscape
 Apple Watch demonstrates that digitalization can transform an
ordinary watch to the wrist's advanced technology device with
phone capabilities, messaging, and even Internet capabilities
 PwC analysts indicate that firms committed to digital
transformation are able to distinguish themselves from competitors
by producing innovative products that unique groups of customers
value. In addition, digitalization allows firms to identify the right
customer segments to serve them better.
 There are 2.5 billion customers involving digital who are under 25
years old. They are ‘always on’ and that have different behavior,
compared to traditional analog customers.

Competitive Landscape
Hypercompetition: a condition where competitors engage in intense
rivalry, markets change quickly and often, and entry barriers are low.
 Hypercompetition makes it difficult for firms to maintain a
competitive advantage.
 It is a condition of rapidly escalating competition based on:
Price-quality positioning
• Competition to create new know-how and establish first-mover
advantage
• Competition to protect or invade established product and/or
geographic markets
 Two primary drivers of hypercompetition:
• The emergence of a global economy
• Rapid technological change

Globalization
 A global economy is one in which goods, services, people, skills, and
ideas move freely across geographic borders.
 The global economy significantly expands and complicates a firm’s
competitive environment.
 The March of Globalization
• Globalization is the increasing economic interdependence among
countries and their organizations as reflected in the flow of products,
financial capital, and knowledge across country borders.
• Globalization is a product of a large number of firms competing
against one another in an increasing number of global economies.
• The increasing opportunities available in emerging economies is a
major driver of growth in the size of the global economy.

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Globalization
 Globalization has led to higher performance standards with respect to:
• Quality
• Cost
• Productivity
• Product introduction time
• Operational efficiency
 Globalization is not without risks
• “Liability of foreignness”
• The amount of time required to learn to compete in new markets
• Entering too many global markets either simultaneously or too quickly
 Entry into international markets, even for firms with substantial
experience in the global economy, requires effective use of the strategic
management process.

Technology and technological changes

 Three categories of technology-related trends and conditions

• Technology diffusion and disruptive technologies
• The information age
• Increasing knowledge intensity
 Technology Diffusion and Disruptive Technologies
• Technology diffusion: the speed at which new technologies become
available to firms and when firms choose to adopt them.
• Perpetual innovation: how rapidly and consistently new,
information-intensive technologies replace older ones.
• Disruptive technologies: technologies that destroy the value of an
existing technology and create new markets.

Technology and technological changes

 The Information Age

• Data and information are vital to firms’ efforts to:
 Understand customers and their needs
 Implement strategies in ways that satisfy customers’ needs
 Implement strategies in ways to satisfy the interests of all other
stakeholders
• The most successful firms envision information technology-derived
innovations as opportunities to identify and serve new markets rather
than as threats to the markets they serve currently.

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Technology and technological changes

 Increasing Knowledge Intensity

Knowledge:
• Consists of information, intelligence, and expertise
• Is the basis of technology and its application
• Is acquired through experience, observation, and inference
• Is developed by firms through training programs
• Is acquired by firms by hiring educated and experienced employees
• Must be integrated into the organization to create capabilities and
then applied to gain a competitive advantage
• Is necessary to create innovations

Technology and technological changes

 Strategic flexibility
• A set of capabilities firms use to respond to various demands and
opportunities existing in today’s dynamic and uncertain competitive
environment.
• Strategic flexibility:
 Is not easy to build, largely because of inertia that can build over
time
 Requires developing the capacity for continuous learning and
applying quickly the new and up-to-date skill sets achieved from
learning
 Increases the probability of dealing successfully with uncertain,
hypercompetitive environments

Competitive Landscape
TECHNOLOGY HAS CHANGED THE GAMES VERY SIGNIFICANTLY

Perpetual innovation is a The life cycle of products tend

term used to describe how to become shorter and Many employees, workers,
rapidly and consistently shorter. The competive even industries have high risks
information-intensive advantages tend to be of being removed from the
technologies replace older iliminated or imitated very games
ones fast

Companies must adopt the new rules of the

To protect copyright or invention, corporations
consantly changing business environment so
need to have patents in order avoid competitors
that they would be be less competitive than
from imitating them
others

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Models of Above-Average Returns

 Industrial Organazition Model of Above-Average Returns

 Resource-Based Model of Above-Average Returns

Industrial Organization (I/O) Model

 Leading organizations believed that the external environment rather

than the internal organization was the strongest influence on the
choice of strategy (1960s to 1980s)

 The industrial organization model of above-average returns explains

the external environment’s dominant influence on the choice of
strategy and the actions associated with it.

Industrial Organization (I/O) Model

 The logic of the I/O model is that the profitability potential of an
industry or a segment of it as well as the actions firms should take
to operate profitably are determined by a set of industry
characteristics, including
• Economies of scale
• Barriers to market entry
• Diversification
• Product differentiation
• The degree of concentration of firms in the industry
• Market frictions

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Industrial Organization (I/O) Model

 4 underlying assumptions to interpret I/O model

• External environment imposes pressures and constraints that

determine the strategies
• Most firms within an industry assumed to control similar resources
and to pursue similar strategies
• Firms assume that their resources are highly mobile, meaning that
any resource differences will be short-lived.
• Decision makers are rational, committed to acting in the firm’s best
interests
 The I/O model challenges firms to find the most attractive
industry in which to compete.

IO model of above-average return

Industrial Organization (I/O) Model

The five forces model of

competition is an analytical
tool firms use to find the
industry that is the most
attractive for them.

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Industrial Organization (I/O) Model

The five forces model suggests that:
 An industry’s profitability is a function of interactions among:
1. Suppliers
2. Buyers
3. Competitive rivalry among firms currently in the industry
4. Product substitutes
5. Potential entrants to the industry
 Firms can earn above-average returns by producing either:
• Standardized products at costs below those of competitors (a cost
leadership strategy)
• Differentiated products for which customers are willing to pay a
price premium (a differentiation strategy)

The Resource-Based Model

 Resource-based model of above-average returns assumes that each

organization is a collection of unique resources and capabilities.

 The uniqueness of resources and capabilities is the basis of a firm’s

strategy and its ability to earn above-average returns.

 Three key concepts

• Resources
• Capabilities
• Core competencies

The Resource-Based Model

 Resources are inputs into a firm’s production process, such as

capital equipment, the skills of individual employees, patents,
finances, and talented managers.

 Firms use three categories to classify their resources:

• Physical capital
• Human capital
• Organizational capital

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The Resource-Based Model

 Individual resources alone may not yield a competitive advantage;

resources have a greater likelihood of being a source of
competitive advantage when integrated to form a capability.

 A capability is the capacity for a set of resources to perform a task

or an activity in an integrative manner

The Resource-Based Model

 Core competencies are capabilities that serve as a source of

competitive advantage for a firm over its rivals.

 Core competencies are often visible in the form of organizational

functions.
• Apple’s R&D function is one of its core competencies, as is its
ability to produce innovative new products that create value for
customers.
• Amazon’s distribution function is a core competence
• Information technology is a core competence for Walmart

The Resource-Based Model

 Four underlying assumptions of the resource-based model
• Differences in firms’ performances across time are due primarily to
their unique resources and capabilities rather than the industry’s
structural characteristics.
• Firms acquire different resources and develop unique capabilities
based on how they combine and use the resources.
• Resources and capabilities are not highly mobile across firms.
• Differences in resources and capabilities are the basis of competitive
advantage.
 As a source of competitive advantage, a capability must not be easily
imitated but also not too complex to understand and manage.

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The Resource-based Model

 Not all of a firm’s resources and capabilities have the potential to be the
foundation for a competitive advantage. This potential is realized when
resources and capabilities meet some certain criteria (VRIO framework):
• Valuable: when they allow a firm to take advantage of opportunities or
neutralize threats in its external environment
• Rare: when possessed by few, if any, current and potential competitors
• Costly to imitate: when other firms either cannot obtain them or are at a
cost disadvantage in obtaining them compared with the firm that already
possesses them.
• Non-substitutable: when they have no structural equivalents

Resource-based model of
above-average return

Vision and Mission

Vision is a picture of what the firm wants to be and, in broad terms,
what it wants to achieve

• Our vision is to be the world’s best quick service restaurant.

(McDonald’s)
• To make the automobile accessible to every American (Ford
Motor Company’s vision when established by Henry Ford)
• Delivering happiness to customers, employees, and vendors.
([Link])

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Vision and Mission

 A vision statement:
• Articulates the ideal description of an organization and gives shapes
to its intended future
• Tends to be relatively short and concise
 An effective vision:
• Stretches and challenges people
• Is developed by the CEO and other top-level managers, employees,
suppliers, and customers
• Is consistent with the decisions and actions of those involved with
developing it
 Conditions in the firm’s external environment and internal organization
influence the forming of a vision statement.

Vision and Mission

Mission specifies the businesses in which the firm intends to compete
and the customers it intends to serve

• 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. (McDonald’s)
• Provide the best customer service possible. Deliver WOW through
service. ([Link])

Vision and Mission

 A mission:
• Is more concrete than a firm’s vision
• Should establish a firm’s individuality
• Should be inspiring and relevant to all stakeholders
• Deals more directly with product markets and customers
• Should be developed by the CEO, top-level managers, and other
organizational members
• Has a higher probability of being effective when employees have a
strong sense of ethics

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Vision and Mission

 Why vision and mission are very important?

• Ineffectively developed vision and mission statements fail to provide

the direction a firm needs to take appropriate strategic actions.
• Vision and mission are critical aspects of the analysis and the base
required to engage in strategic actions that help the firm achieve
strategic competitiveness and earn above-average returns. Therefore,
firms must accept the challenge of forming effective vision and
mission statements.
• In the bad scenarios, a misleading vision and mission can lead firms to
failure or a low competition position in the market

Stakeholders

 Stakeholders are individuals, groups, and organizations that can

affect the firm’s vision and mission, are affected by the strategic
outcomes achieved, and have enforceable claims on performance.
 Firms can separate the parties involved with their operations into at
least three groups:
• Capital market stakeholders
• Product market stakeholders
• Organizational stakeholders

Stakeholders

Each group has

different interests so
they may have conflict
with one another.

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Stakeholders

Stakeholders’ conflict: how to deal with it?

 Understand their interests
 Prioritize these interests in case company cannot satisfy all of them
• When earning above-average returns, a firm generally has the
resources to satisfy the interests of all stakeholders.
• When earning only average returns, the firm must satisfy each
stakeholder group’s minimal expectations.
• A firm earning below-average returns must make trade-offs to
minimize the amount of support it loses from unsatisfied
stakeholders.

Stakeholders

 Power is the most critical criterion in prioritizing stakeholders; the

stakeholder group with whom the firm has the greatest dependence
for its commitment has the greatest amount of power to influence
the firm’s actions.

 Societal values also influence stakeholder: cultural norms and

institutional rules, regulations, and laws influence how firms
interact with stakeholders in different countries and regions of the
world.

Stakeholders
Capital Market Stakeholders
• Shareholders and lenders both expect a firm to preserve and enhance the wealth
they have entrusted to it.
• The returns they expect are commensurate with the degree of risk they accept with
those investments (i.e., Lower returns are expected with low-risk investments while
higher returns are expected with high-risk investments).
• Dissatisfied shareholders may reflect their concerns through several means,
including selling their stock. Institutional investors too (e.g., pension funds, mutual
funds) may choose to sell their stock if the returns fail to meet their expectations.
• These investors might take actions to improve the firm’s performance.
Communicating clearly their expectations regarding performance to the firm’s
board of directors and top-level managers is an example of such actions.

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Stakeholders
Product Market Stakeholders
 Some might think that product market stakeholders (customers, suppliers, host
communities, and unions) share few common interests. However, these four groups
can benefit as firms engage in competitive battles.
• Customers, as stakeholders, seek reliable products at the lowest possible prices.
• Suppliers seek loyal customers who are willing to pay the highest sustainable prices for
the products they receive.
• Host communities (the national, state / province, and local government entities with
which the firm interacts) want companies willing to be long-term employers and
providers of tax revenue without placing excessive demands on public support services.
• Unions seek secure jobs and desirable working conditions for members.
 Product market stakeholders are generally satisfied when a firm’s profit margin
reflects at least a balance between the returns to capital market stakeholders and the
returns in which they share.

Stakeholders

Organizational Stakeholders
 Employees:
• expect the firm to provide a dynamic, stimulating, and rewarding
work environment.
• prefer to work for a company that is growing and in which they can
develop their skills, especially those required to be effective team
members and to meet or exceed global work standards.
• are critical to organizational success when they learn how to use new
knowledge productively.

Stakeholders

Organizational Stakeholders
 Leaders:
• Must use the firm’s human capital successfully to serve the day-to-
day needs of stakeholders
• Help a firm’s employees understand competition in the global
competitive landscape through international assignments

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Strategic Leaders
 Strategic leaders are people located in different areas and levels of the
firm using the strategic management process to select actions that help
the firm achieve its vision and fulfill its mission.
 CEOS are clearly strategic leaders. In the final analysis, CEOs are
responsible for making certain their firm uses the strategic management
process successfully.
 Organizational culture has impact to strategic leaders. Organizational
culture refers to the complex set of ideologies, symbols, and core
values that individuals throughout the firm share and that influence
how the firm conducts business

Effective Strategic Leaders

 Prerequisites to an individual’s success as a strategic leader:
• Hard work
• Thorough analyses
• A willingness to be brutally honest
• A penchant for wanting the firm and its people to achieve success
• Tenacity
 Strategic leaders must:
• Have a strong strategic orientation while embracing change in today’s
dynamic competitive landscape
• Be innovative
• Promote innovation in their organization to deal with change
effectively
• Have a global mind-set

SUMMARY

Firms use the strategic

The fundamental nature of Firms use two major models to
management process to
competition is different in help develop their vision and
achieve strategic
the current competitive mission: IO model and resource-
competitiveness and earn
landscape. based model
above-average returns

The firm’s vision and mission

guide its selection of strategies Stakeholders are those who Strategic leaders are people
based on the information from can affect, and are affected located in different areas and
analyses of its external by firm’s performance levels of the firm using the
environment and internal strategic management process
organization.

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END OF CHAPTER 1

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