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SM Quiz1
SM Quiz1
What are strategic competitiveness, strategy, competitive advantage, above-average returns, and
the strategic management process?
Strategic competitiveness is achieved when a firm successfully formulates and implements a value-
creating strategy. By implementing a value-creating strategy that current and potential competitors
are not simultaneously implementing and that competitors are unable to duplicate, or find too costly
to imitate, a firm achieves a competitive advantage.
Strategy can be defined as an integrated and coordinated set of commitments and actions designed
to exploit core competencies and gain a competitive advantage.
So long as a firm can sustain or maintain a competitive advantage, investors will earn above-average
returns. Above-average returns represent returns that exceed returns that investors expect to earn
from other investments with similar levels of risk (investor uncertainty about the economic gains or
losses that will result from a particular investment). In other words, above average-returns exceed
investors' expected levels of return for given risk levels.
In smaller new venture firms, performance is sometimes measured in terms of the amount and
speed of growth rather than more traditional profitability measures new ventures require time to
earn acceptable returns.
A framework that can assist firms in their quest for strategic competitiveness is the strategic
management process, the full set of commitments, decisions and actions required for a firm to
systematically achieve strategic competitiveness and earn above-average returns.
2. What are the characteristics of the current competitive landscape? What two factors are the
primary drivers of this landscape?
In the current competitive landscape, the nature of the competition has changed. As a result,
managers making strategic decision must adopt new ways of thinking that is global in orientation.
The new competitive mind set must value flexibility, speed, innovation, integration, and the
challenges that evolve from constantly changing conditions.
A term often used to describe the new realities of competition is hypercompetition, a condition that
results from the dynamics of strategic moves and countermoves among innovative, global firms: a
condition of rapidly escalating competition that is based on price-quality positioning, efforts to
create new know-how and achieve first-mover advantage, and battles to protect or to invade
established product or geographic markets.
The globalization of industries and their markets and rapid and significant technological changes are
the two primary drivers contributing to the turbulence of the competitive landscape .Globalization is
the increasing economic interdependence among countries as reflected in the flow of goods and
services, financial capital, and knowledge across country borders. Three technological trends and
conditions are significantly altering the nature of competition which are increasing rate of
technological change and diffusion, the information age, and increasing knowledge intensity.
3. According to the I/O model, what should a firm do to earn above-average returns?
According to the I/O model there are five-step process for firms to achieve above-average returns.
The first step is to study the external environmentgeneral, industry and competitiveto
determine the characteristics of the external environment that will both determine and constrain
the firm's strategic alternatives.Secondly, select an industry (or industries) with a high potential for
returns based on the structural characteristics of the industry. Thirdly, based on the characteristics
of the industry in which the firm chooses to compete, strategies that are linked
with above-average returns should be selected. A model or framework that can be used to assess
the requirements and risks of these strategies is the Generic Strategies called cost leadership &
differentiation. Next, acquire or develop the critical resources such as skills and assets are needed to
successfully implement the strategy
that has been selected. A process for scrutinizing the internal environment to identify the presence
or absence of critical skills. Lastly,The I/O model indicates that above-average returns will accrue to
firms that successfully implement relevant strategic actions that enable the firm to leverage its
strengths (skills and resources) to meet the demands or pressures and constraints of the industry in
which they have elected to compete.
4. What does the resource-based model suggest a firm should do to earn above-average returns?
1. Firms should identify their internal resources and assess their strengths and weaknesses. The
strengths andweaknesses of firm resources should be assessed relative to competitors.
2. Firms should identify the set of resources that provide the firm with capabilities that are unique to
the firm,relative to its competitors. The firm should identify those capabilities that enable the firm to
perform a task or activity better than its competitors.
3. Firms should determine the potential for their unique sets of resources and capabilities to
outperform rivals in terms of returns. Determine how a firms resources and capabilities can be used
to gain competitive advantage.
4. Locate and compete in an attractive industry. Determine the industry that provides the best fit
between the characteristics of the industry and the firms resources and capabilities.
5. To attain a sustainable competitive advantage and earn above-average returns, firms should
formulate and implement strategies that enable them to exploit their resources and capabilities to
take advantage of opportunities in the external environment better than their competitors.
5. What are vision and mission? What is their value for the strategic management process?
Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately
achieve. Visionis big picture thinking with passion that helps people feel what they are
supposed to be doing.
A firm's mission is an externally focused application of its vision that states the firm's unique purpose
and the scope of its operations in product and market terms.
A firm's vision and mission must provide the guidance that enables the firm to achieve the desired
strategic outcomes which are strategic competitiveness and above-average returns that enable the
firm to satisfy the demands of those parties having an interest in the firm's success: organizational
stakeholders.
Earning above-average returns often is not mentioned in mission statements. The reasons for this
are that all firms want to earn above-average returns and that desired financial outcomes result
from properly serving certain customers while trying to achieve the firms intended future. In fact,
research has shown that having an effectively formed vision and mission has a positive effect on
performance such as growth in sales, profits, employment and net worth.
6. Stakeholders are the individuals and groups who can affect and are affected by the strategic
outcomes achieved and who have enforceable claims on a firm's performance.
If the firm is strategically competitive and earns above average returns, it can afford to
simultaneously satisfy all stakeholders. When earning average or below-average returns, trade offs
must be made. At the level of average returns, firms must at least minimally satisfy all stakeholders.
When returns are below average, some stakeholders can be minimally satisfied, while others may be
dissatisfied. For example, reducing the level of research and development expenditures to increase
short-term profits that enables the firm to pay out the additional short-term profits to shareholders
as dividends. However, if reducing R&D expenditures results in a decline in the long-term strategic
competitiveness of the firm's products or services, it is possible that employees will not enjoy a
secure or rewarding career environment which violates a primary union expectation or demand for
job security for its membership. At the same time, customers may be offered products that are less
reliable at unattractive prices, relative to those offered by firms that did not reduce R&D
expenditures.
Thus, the stakeholder management process may involve a series of trade-offs that is dependent on
the extent to which the firm is dependent on the support of each affected stakeholder and the
firm's ability to earn above average returns.
While it seems simplistic,performing their role effectively requires strategists to work hard, perform
through analyses of available information, be brutally honest, desire high performance, exercise
common sense, think clearly, and ask questions and listen. In addition, strategic leaders must be able
to think seriously and deeply about the purposes of the organizations they head or functions they
perform, about the strategies, tactics, technologies, systems, and people necessary to attain these
purposes and about the important questions that always need to be asked. Additionally, effective
strategic leaders work to set an ethical tone in their firms. Strategists work long hours and face
ambiguous decision situations, but they also have opportunities to dream and act in concert with a
compelling vision that motivates others in creating competitive advantage.
8. What are the elements of the strategic management process? How are they interrelated?
There are three primary elements indicate the dynamic nature of the strategic management
process which are strategic inputs, strategic actions and strategic outcomes.
Strategic inputs, in the form of information gained by scrutinizing the internal environment and
scanning the external environment, are used to develop the firm's vision and mission.
Strategic actions are guided by the firm's vision and mission, and are represented by strategies that
are formulated or developed and subsequently implemented or put into action.
Feedback links the elements of the strategic management process together and helps firms
continuously adjust or revise strategic inputs and strategic actions in order to achieve desired
strategic outcomes.