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Strategic Management the integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage. Strategy set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors. Three things for good strategy 1. diagnosis of competitive challenge 2. guiding policy to address competitive challenge 3. A set of coherent actions to implement the firm's guiding policy. competitive advantage firm that achieves superior performance relative to other competitors in the same industry or the industry average sustainable advantage A firm that is able to outperform its competitors or the industry average over a prolonged period of time competitive disadvanatge firm underperforms its rivals or the industry average industry effects describe the underlying economic structure of the industry. firm effects attribute firm performance to the actions managers take. Stakeholder strategy integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage. corporate social responsibility (CSR). 1. philanthropic: corporate citizenship 2. ethical: do what is right 3. legal 4. economic: gain/sustain competitive advantage AFI framework 1. Analyze 2. Formulate 3. Implement A successful strategy requires three integrative management tasks: analysis, formulation, and implementation. competitive parity firms that perform at the same level Which are both are relevant in determining firm performance. firm and industry effects are interdependent A firm's performance is more closely related to managers actions (firm effects) Three components are critical to evaluating any good or service: 1. Value 2. Price 3. Cost To measure competitive advantage, we must be able to (1) accurately assess firm performance, and (2) compare and benchmark the focal firm's performance to other competitors in the same industry or the industry average. Investors are primarily interested in in total return to shareholders, which includes stock price appreciation plus dividends received over a specific period. Economic value value - cost Three dimensions that make up the triple bottom line economic- profits social- people ecological- planet PESTEL Political Economic Social culture Technology Ecological Legal Porters Five Forces 1. Threat of entry 2. Power of Suppliers 3. Power of buyers 4. Threat of substitutes 5. Rivalry Perfect competitive industry a bunch of small firms commodity product low entry barriers no pricing power for individual firms. Monopolistic industry characterized by many firms, a differentiated product, medium entry barriers, and some pricing power. Oligopoly characterized by few (large) firms, a differentiated product, high entry barriers, and some degree of pricing power. Monopoly exists when there is only one (large) firm supplying the market. In such instances, the firm may offer a unique product, the barriers to entry may be high, and the monopolist usually has considerable pricing power. Core Competencies unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at lower cost. 2 critical assumptions resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. resource immobility—is that resources tend to be "sticky" and don't move easily from firm to firm. VRIO attributes valuable rare costly to imitate organize Dynamic capabilities allow a firm to create, deploy, modify, reconfigure, or upgrade its resource base to gain and sustain competitive advantage in a constantly changing environment. Business-level strategy determines a firm's strategic position in its quest for competitive advantage when competing in a single industry or product market. Strategic positioning requires that managers address strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost. scope of competition whether to pursue a specific market niche or go after the broader market. differentiation strategy is to increase the perceived value of goods and services so that customers will pay a higher price for additional features. focus of competition is on value-enhancing attributes and features, while controlling costs. Cost Leadership strategy strategy is to reduce the firm's cost below that of its competitors. Corporate strategy addresses Where to compete Business strategy addresses how to compete Corporate strategy concerns the boundaries of the firm along three dimensions 1. industry value chain 2. product and services 3. geography Firm growth is motivated by the following: -increasing profit -lowering costs