1. CHAPTER 1
Strategic Management: Creating Competitive Advantages
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1
Learning Objectives
After reading this chapter, you should have a good
understanding of:
1-1 The definition of strategic management and its four key
attributes.
1-2 The strategic management process and its three interrelated
and principal activities.
1-3 The vital role of corporate governance and stakeholder
management as well as how “symbiosis” can be achieved among
an organization’s stakeholders.
1-4 The importance of social responsibility, including
environmental sustainability, and how it can enhance a
corporation’s innovation strategy.
1-5 The need for greater empowerment throughout the
organization.
1-6 How an awareness of a hierarchy of strategic goals can
help an organization achieve coherence in its strategic direction.
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2. 2
The Importance of Leadership
Consider…
Maintaining competitive success or even surviving over long
periods of time is difficult for companies of any size.
SO how much credit (or blame) does a leader deserve?
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See the chapter opener “learning from mistakes.” When things
don’t go well, much of the failure of an organization can also,
rightfully, be attributed to the leader. Introduced are the
concepts of romantic leadership versus the resource perspective.
Even innovative firms struggle in the marketplace if they do not
anticipate and respond proactively to changes in the
environment. Today’s leaders face a large number of complex
challenges in the global marketplace. In considering how much
credit (or blame) they deserve, two perspectives of leadership
immediately come to mind: the “romantic” and “external
control” perspectives.
3
Two Perspectives of Leadership
External control perspective:
External forces determine the organization’s success.
Economic downturns
OR
Romantic view:
A leader is the key force in the organization’s success.
Steve Jobs

3. ©McGraw-Hill Education.
External control view of leadership = situations in which
external forces – where the leader has limited influence –
determine the organization’s success.
Romantic view of leadership = situations in which the leader is
the key force determining the organization’s success – or lack
thereof.
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Leaders Can Make a Difference
Be proactive - anticipate change.
Refine strategies continually.
Be aware of external opportunities and threats.
Understand thoroughly the firm’s resources and capabilities.
Make strategic management both a process and a way of
thinking throughout the organization.
©McGraw-Hill Education.
BUT leaders CAN make a difference.
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Defining Strategic Management
Strategic management involves:
Analysis
Strategic goals (vision, mission, strategic objectives)
Internal and external environment
Decisions - Formulation
What industries should we compete in?
How should we compete in those industries?
Actions – Implementation of strategy
Allocate necessary resources.
Design the organization to bring intended strategies to reality.

4. ©McGraw-Hill Education.
Strategic management = the analyses, decisions, and actions an
organization undertakes in order to create and sustain
competitive advantages. Strategic management is the study of
why some firms outperform others.
Strategy = the ideas, decisions, and actions that enable a firm to
succeed.
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Two Fundamental Questions
How should we compete in order to create a competitive
advantage in the marketplace?
How can we create competitive advantages in the marketplace
that are unique, valuable, and difficult for rivals to copy or
substitute?
NOTE: Operational effectiveness is not enough to sustain a
competitive advantage.
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Competitive advantage = a firm’s resources and capabilities that
enable it to overcome the competitive forces in its industry(ies).
Operational effectiveness = performing similar activities better
than rivals; sustainable competitive advantage is possible only
by performing different activities from rivals, or performing
similar activities in different ways.
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Strategic Management
Key attributes of strategic management:

5. Directs the organization toward overall goals and objectives.
Includes multiple stakeholders in decision making.
Needs to incorporate short-term and long-term perspectives.
Recognizes trade-offs between efficiency and effectiveness.
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Stakeholders = individuals, groups, and organizations that have
a stake in the success of the organization. These include owners
(shareholders in a publicly held corporation), employees,
customers, suppliers, and the community at large.
Efficiency = performing actions at a low cost relative to a
benchmark, or “doing things right.” Effectiveness = tailoring
actions to the needs of an organization rather than wasting
effort, or “doing the right thing.”
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Strategic Management Trade-offs
Managers need to be ambidextrous.
Focus on long-term effectiveness.
Expand product-market scope by proactively exploring new
opportunities.
At the same time:
Focus on short-term efficiency.
Align resources to take advantage of existing product markets.
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Ambidexterity = the challenge managers face of both aligning
resources to take advantage of existing product markets and
proactively exploring new opportunities.
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Question
(1 of 2)
According to Henry Mintzberg, the realized strategies of a firm

6. are a combination of deliberate and emergent strategies.
are a combination of deliberate and differentiation strategies.
must be based on a company’s strategic plan.
must be kept confidential for competitive reasons.
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Answer: A.
Henry Mintzberg, a management scholar at McGill University,
argues that viewing the strategic management process as one in
which analysis is followed by optimal decisions and their
subsequent meticulous implementation neither describes the
strategic management process accurately nor prescribes ideal
practice. He sees the business environment as far from
predictable, thus limiting our ability for analysis. For a variety
of reasons, the intended strategy rarely survives in its original
form. Unforeseen environmental developments, unanticipated
resource constraints, or changes in managerial preferences may
result in at least some parts of the intended strategy remaining
unrealized. Thus, the final realized strategy of any firm is a
combination of deliberate and emergent strategies.
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Intended vs. Realized Strategies
The business environment is far from predictable.
Intended strategy
Organizational decisions are determined only by analysis.
Intended strategies rarely survive in the original form.
VERSUS
Realized strategy
Decisions are determined by both analysis (deliberate) and
unforeseen environmental developments, unanticipated resource
constraints, and/or changes in managerial preferences
(emergent).

7. ©McGraw-Hill Education.
Intended strategy = strategy in which organizational decisions
are determined only by analysis.
Realized strategy = strategy in which organizational decisions
are determined by both analysis and unforeseen environmental
developments, unanticipated resource constraints, and/or
changes in managerial preferences.
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Strategic Management Process
Exhibit 1.3 The Strategic Management Process
Jump to Appendix 1 for long description.
©McGraw-Hill Education.
The Strategic Management Process involves strategy analysis,
strategy formulation, and strategy implementation.
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Strategy Analysis
(1 of 3)
Strategy analysis is the starting point in the strategic
management process.
The analysis needs to be done to effectively formulate and
implement strategies.
It involves careful analysis of the overarching goals of the
organization.
It requires a thorough analysis of the organization’s external
and internal environment.
©McGraw-Hill Education.
Strategy Analysis = study of firms’ external and internal

8. environments, and their fit with organizational vision and goals.
Consider using Case: Robin Hood or Case: QVC to illustrate
how the whole strategic management process works, starting
with strategy analysis. Case: The Casino Industry gives a good
overview of the importance of external environmental analysis
(addressing concepts covered in Chapter 2.)
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Strategy Analysis
(2 of 3)
Analyzing organizational goals & objectives
Establish a hierarchy of goals.
Vision
Mission
Strategic Objectives
Analyzing the external environment of the firm
Managers must monitor and scan the environment as well as
analyze competitors.
General environment
Industry environment
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Chapter 1 = Analyzing Organizational Goals and Objectives
Chapter 2 = Analyzing the External Environment of the Firm
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Strategy Analysis
(3 of 3)
Assessing the internal environment of the firm
Analyze strengths & relationships among activities that
constitute a firm’s value chain.
Analysis can uncover potential sources of competitive
advantage.
Assessing a firm’s intellectual assets
Knowledge workers & other intellectual assets drive

9. competitive advantage & wealth creation.
Networks & relationships plus technology enhance
collaboration, accumulates & stores knowledge.
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Chapter 3 = Assessing the Internal Environment of the Firm
Chapter 4 = Assessing a Firm’s Intellectual Assets
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Strategy Formulation
(1 of 3)
Based on strategy analysis, strategy formulation is developed at
several levels.
Business-
attain competitive advantage
Corporate-
businesses can be managed to achieve synergy
s the
business ventures beyond its national boundaries
value
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Strategy Formulation = decisions made by firms regarding
investments, commitments, and other aspects of operations that
create and sustain competitive advantage. Involves questions
about what businesses to compete in, and how to manage these
businesses in order to achieve synergy – how they can create
more value by working together than by operating as stand-
alone businesses. Requires international strategies and
entrepreneurial initiatives that can recognize viable
opportunities.

10. 16
Strategy Formulation
(2 of 3)
Formulating business-level strategy
Successful firms develop bases for sustainable competitive
advantage through:
Cost leadership and/or
Differentiation, as well as
Focusing on a narrow or industrywide market segment.
Formulating corporate-level strategy
Addresses a firm’s portfolio (or group) of businesses
What business or businesses should we compete in?
How can we manage this portfolio of businesses to create
synergies?
©McGraw-Hill Education.
Chapter 5 = Formulating Business-Level Strategy
Chapter 6 = Formulating Corporate-level Strategy
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Strategy Formulation
(3 of 3)
Formulating international strategy
What is the appropriate entry strategy?
How do we go about attaining competitive advantage in
international markets?
Entrepreneurial strategy and competitive dynamics
How do we recognize viable opportunities?
How do we formulate effective strategies?
©McGraw-Hill Education.

11. Chapter 7 = Formulating International Strategy
Chapter 8 = Entrepreneurial Strategy and Competitive Dynamics
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Strategy Implementation
(1 of 5)
Strategy implementation takes action to implement the
formulated strategy.
Ensure proper strategic control systems.
Establish an appropriate organizational design, coordinating &
integrating activities within the firm.
Coordinate activities with suppliers, customers, alliance
partners.
Leadership ensures organizational commitment to excellence &
ethical behavior.
Promote learning & continuous improvement.
Act entrepreneurially in creating new opportunities.
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Strategy Implementation = actions made by firms that carry out
the formulated strategy, including strategic controls,
organizational design, and leadership.
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Strategy Implementation
(2 of 5)
Strategic control & corporate governance
Informational control
Monitor & scan the environment
Respond effectively to threats & opportunities
Behavioral control
Proper balance of rewards & incentives
Appropriate cultures & boundaries (or constraints)

12. Effective corporate governance
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Chapter 9 = Strategic Control and Corporate Governance
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Strategy Implementation
(3 of 5)
Creating effective organizational designs
Organizational structures must be consistent with strategy.
Organizational boundaries must be flexible & permeable.
Strategic alliances must capitalize on capabilities of other
organizations.
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Chapter 10 = Creating Effective Organizational Designs
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Strategy Implementation
(4 of 5)
Creating a learning organization & an ethical organization
Effective leaders
Set a direction.
Design the organization.
Develop an organization committed to excellence & ethical
behavior.
Create a “learning organization”
Benefit from individual & collective talents
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Chapter 11 = Creating a Learning Organization and an Ethical

13. Organization
22
Strategy Implementation
(5 of 5)
Fostering corporate entrepreneurship
Firms must continually improve & grow.
Firms must find new ways to renew themselves.
Entrepreneurship & innovation provide for new opportunities
enhance a firm’s innovative capacity.
©McGraw-Hill Education.
Chapter 12 = Fostering Corporate Entrepreneurship
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Corporate Governance & Stakeholder Management
Appropriate strategic management requires an effective &
appropriate corporate structure.
Corporate governance is the relationship among various
participants in determining the direction and performance of
corporations.
Primary participants:
Shareholders
Management (led by the Chief Executive Officer)
The Board of Directors (BOD)
©McGraw-Hill Education.
Strategic management = the analysis, formulation &
implementation of strategy, requiring an effective & appropriate
organizational design. A STRUCTURE that can allow for these
strategic activities to take place. According to economist Milton
Friedman, the overall purpose of a public corporation is to

14. maximize the long-term return to the owners (shareholders). But
who is really responsible for fulfilling this purpose?
Corporate governance = the relationship among various
participants in determining the direction and performance of
corporations. The primary participants are (1) the shareholders,
(2) the management (led by the chief executive officer), and (3)
the board of directors.
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Corporate Governance
Board of Directors
Elected representatives of the owners
Ensure interests & motives of management are aligned with
those of the owners:
Create an effective and engaged board.
Address shareholder activism.
Provide proper managerial rewards & incentives.
Establish external control mechanisms.
Exhibit 1.4 The Key Elements of Corporate Governance
Jump to Appendix 2 for long description.
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The board of directors (BOD) provides detailed procedures for
formal evaluation of directors and the firm’s top officers. Such
guidelines serve to ensure that management is acting in the best
interests of shareholders. Chapter 9 highlights important
internal and external control mechanisms to ensure effective
corporate governance.
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Stakeholder ManagementStakeholder GroupNature of

15. ClaimEmployeesWages, benefits, safe working environment, job
securitySuppliersPayment on time, assurance of continued
relationshipCreditorsPayment of interest, repayment of
principalCustomers Value, warrantiesGovernmentTaxes,
compliance with regulationsCommunityGood citizenship
behavior such as charities, employment, not polluting the
environment
Exhibit 1.5 An Organization’s Key Stakeholders & the Nature
of Their Claims
©McGraw-Hill Education.
In addition to shareholders, there are other stakeholders (e.g.
suppliers, customers) who must be taken into account in the
strategic management process. A stakeholder can be defined as
an individual or group, inside or outside the company, that has a
stake in and can influence an organization’s performance. Each
stakeholder group makes various claims on the company.
Stakeholder management = a firm’s strategy for recognizi ng and
responding to the interests of all its salient stakeholders.
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Two Views of Stakeholder Management
Two views of stakeholder management
Zero sum
Stakeholders compete for attention & resources.
The gain of one is a loss to the other.
OR
Symbiosis
Stakeholders are dependent upon each other for success & well -
being.
Stakeholders receive mutual benefits.
©McGraw-Hill Education.

16. Zero-sum view of stakeholder management is rooted, in part, in
the traditional conflict between workers and management,
leading to the formation of unions and sometimes ending in
adversarial union – management negotiations and long bitter
strikes. The stakeholder challenges facing Walmart is an
example of this. However, organizations can achieve mutual
benefit through stakeholder symbiosis. The example given is
how P&G considered the needs of consumers, shippers,
wholesalers, and environmentalists when developing a liquid
concentration for cleaning powder. This product breakthrough
led not only to a change in consumer shopping habits, but also a
revolution in industry supply chain economics. Leading
companies are increasingly realizing that learning to partner
with governments and communities, suppliers and customers,
and even long-term rivals, is essential for dealing with big,
complex problems. Stakeholder groups do not have to be in
conflict with each other.
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Question
(2 of 2)
P&G created a cleaning product that led to a change in
consumer shopping habits and also a revolution in industry
supply chain economics. According to the text, this is an
example of
zero-sum relationship among stakeholders.
stakeholder symbiosis.
rewarding stakeholders.
emphasizing financial returns.
©McGraw-Hill Education.
Answer: B. There will always be conflicting demands on
organizations. However, organizations can achieve mutual
benefit through stakeholder symbiosis, which recognizes that

17. stakeholders are dependent upon each other for their success
and well-being.
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Social Responsibility & Environmental Sustainability
Firms have multiple stakeholders and must go beyond a focus
solely on financial results.
Social responsibility is the expectation that businesses or
individuals will strive to improve the overall welfare of society.
Firms can measure a triple bottom line, assessing financial,
social, AND environmental performance.
Sustainability projects can yield substantial benefits even when
they are difficult to quantify.
©McGraw-Hill Education.
Social responsibility recognizes that businesses must respond
to society’s expectations regarding their obligations to society.
Social responsibility is not just an added cost to business.
Instead businesses are creators of value that they then share
with society in a mutually beneficial relationship. Triple bottom
line = assessment of a firm’s financial, social, and
environmental performance – accounting for the environmental
and social costs of doing business. The case for sustainability
projects needs to be made on the basis of a more holistic and
comprehensive understanding of all the tangible and intangible
benefits, rather than on the possibility for traditional returns.
The alternative of not making these investments is often no
longer feasible.
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Empowered Strategic Management
Strategic management requires an integrative view of the
organization.

18. ALL functional areas & activities must fit together to achieve
goals & objectives.
Leaders are needed throughout.
Local line leaders – have profit & loss responsibility
Executive leaders – champion & guide ideas
Internal networkers – hold little positional power, but have
conviction & clarity of ideas
©McGraw-Hill Education.
An organization can’t succeed if only the top managers in the
organization take an integrative, strategic perspective of issues
facing the firm and everyone else “fends for themselves” in
their independent, isolated functional areas. Instead, people
throughout the organization must strive toward overall goals.
No longer can organizations be effective if the top “does the
thinking” and the rest of the organization “does the w ork.”
Everyone must be involved in the strategic management
process.
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Coherence in Strategic Direction
(1 of 5)
Organizations express priorities best through stated goals &
objectives that form a hierarchy of goals.
Vision evokes powerful & compelling mental images of a
shared future.
Mission encompasses the organization’s current purpose, basis
of competition, & competitive advantage.
Strategic objectives operationalize the mission statement with
specific yardsticks.
©McGraw-Hill Education.

19. Hierarchy of goals = organizational goals ranging from, at the
top, those that are less specific yet able to evoke powerful and
compelling mental images, to, at the bottom, those that are more
specific and measurable. A hierarchy of strategic goals can help
an organization achieve coherence in its strategic direction.
Vision = organizational goal(s) that evoke(s) powerful and
compelling mental images, i.e., “To be the happiest place on
earth” (Disney) Mission statement = a set of organizational
goals that identifies the purpose of the organization, its basis of
competition, and competitive advantage. Strategic Objectives =
a set of organizational goals that are used to put into practice
the mission statement and that are specific and cover a well -
defined time frame.
31
Coherence in Strategic Direction
(2 of 5)
Exhibit 1.6 A Hierarchy of Goals
Jump to Appendix 3 for long description.
©McGraw-Hill Education.
The hierarchy of goals has a relationship to two attributes:
general versus specific (from vision to objectives), and time
horizon (long-term to short-term).
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Coherence in Strategic Direction
(3 of 5)
Organizational vision
A “massively inspiring” goal, overarching, long term
A destination driven by & evoking passion
Developed & implemented by leadership
A fundamental statement of an organization’s values,

20. aspirations, and goals
Captures both the minds & hearts of employees
BUT can backfire and erode a company’s credibility
©McGraw-Hill Education.
Vision = organizational goal(s) that evoke(s) powerful and
compelling mental images, i.e., “To be the happiest place on
earth” (Disney). BUT vision statements are not a cure-all.
Sometimes they can backfire and erode a company’s credibility.
Visions can fail: Walk doesn’t match the talk = idealistic vision
can arouse employee enthusiasm but can be quickly dashed if
employees find senior management’s behavior is not consistent
with the vision. Irrelevance = vision created in a vacuum
unrelated to environmental threats or opportunities, or not a
match for organization’s resources & capabilities. Not the holy
grail = managers continually search for the ONE elusive
solution that will solve their firm’s problems. Too much focus =
by directing people & resources toward a grandiose vision,
losses can be devastating. Ideal future cannot be reconciled with
the present = visions should be anchored in current reality, need
to account for the often hostile environment in which the firm
competes.
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Coherence in Strategic Direction
(4 of 5)
Mission statement
Encompasses both the purpose of the company and the basis of
competition and competitive advantage
More specific than the vision
Focuses on the means by which the firm will compete
Incorporates stakeholder management
Communicates why an organization is special & different
Can & should change when competitive conditions change

21. ©McGraw-Hill Education.
Mission statement = a set of organizational goals that identifies
the purpose of the organization, its basis of competition, and
competitive advantage.
34
Coherence in Strategic Direction
(5 of 5)
Strategic objectives
Used to operationalize the mission statement
Provide guidance on how to fulfill mission & vision
Measurable, specific, appropriate, realistic & timely
Channel all employees’ efforts toward common goals
Can be both financial and nonfinancial
Should be challenging, yet help resolve conflicts
Provide a yardstick for rewards & incentives
BUT too many objectives can result in lack of focus
©McGraw-Hill Education.
Strategic Objectives = a set of organizational goals that are used
to put into practice the mission statement and that are specific
and cover a well-defined time frame. Short-term objectives can
become essential components of a firm’s “action plan,” and
therefore can be critical in implementing the firm’s chosen
strategy. See Chapter 9 for more details. Also see Case 1: Robin
Hood for an example!
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ADA APPENDICES
Descriptions of Images

22. ©McGraw-Hill Education.
Appendix 1 The Strategic Management Process
Return to slide.
Map of the strategic management process, listing all chapters
and their titles.
The chapters for Strategy Analysis are
Chapter 1, Introduction and Analyzing Goals and Objectives.
Chapter 2, Analyzing the External Environment.
Chapter 3, Analyzing the Internal Environment.
Chapter 4, Assessing Intellectual Capital.
The chapters concerning Strategy Formulation are
Chapter 5, Formulating Business-level Strategies.
Chapter 6, Formulating Corporate-Level Strategies.
Chapter 7, Formulating International Strategies.
Chapter 8, Entrepreneurial Strategy and Competitive Dynamics.
Strategy Implementation chapters are
Chapter 9, Strategic Control and Corporate Governance.
Chapter 10, Creating Effective Organizational Designs.
Chapter 11, Strategic Leadership Excellence, Ethics, and
Change.
Chapter 12, Fostering Corporate Entrepreneurship.
and Chapter 13 concerns Case Analysis.
©McGraw-Hill Education.
37
Appendix 2 Corporate Governance
Return to slide.
The graphic is a triangle with Management (headed by the chief
executive officer) at the pinnacle, the Board of Directors
(elected by the shareholders to represent their interests) at the
bottom right corner and Shareholders (owners) at the bottom

23. left corner. This shows, that as Monks and Minow define, it is a
“relationship among various participants in determining the
direction and performance of corporations.”
©McGraw-Hill Education.
38
Appendix 3 Coherence in Strategic Direction (2 of 5)
Return to slide.
The graphic depicts the hierarchy of goals as a triangle on the
left, with vision at the top, mission statement in the middle, and
strategic objectives at the base. To the right of the triangle is a
graphic showing an arrow going both ways between general
(vision) and specific (strategic objectives) and another arrow
going both ways between long time horizon (vision) and short
time horizon (strategic objectives).
Visions might be a general message, lacking specifics, whereas
strategic objectives would be more specific, containing details.
Visions have longer time horizons than would strategic
objectives.
©McGraw-Hill Education.