The primary drivers of hypercompetition are

Senior Seminar in Business Administration BUS499

Strategic Management and Strategic Competitiveness

Welcome to the Government Contract Law.

In this lesson we will discuss Strategic Management and Strategic Competitiveness.

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Objectives

Upon completion of this lesson, you will be able to:

Identify the vision, mission, and stakeholders of a firm

When you complete this lesson you will be able to:

Identify the vision, mission, and stakeholders of a firm.

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Supporting Topics

The Competitive Landscape

The I/O Model of Above Average-Returns

The Resource-Based Model of Above Average-Returns

Vision and Mission

Stakeholders

Strategic Leaders

The Strategic Management Process

In order to achieve this objective, the following supporting topics will be covered:

The competitive landscape;

The I/O model of above average-returns;

The resource-based model of above average-returns;

Vision and mission;

Stakeholders;

Strategic leaders; and

The strategic management process.

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The Competitive Landscape

Competition is Changing

Money is scare

Markets are becoming volatile

Firms effectively using the strategic management process

Hypercompetition

Challenge competitors

Competition between many of the world’s industries is changing. Many of these industries are competing due to money being scare and markets becoming volatile. Boundaries that once seemed drawn between industries are becoming blurred. An example of this challenge would be the advances in interactive computer networks and telecommunications. These advancements have entered into the realm of the entertainment industry. We also see that many partnerships in the entertainment industry further blur the boundaries of the industry. In order to be successful and maintain a competitive edge, managers must adopt new strategies to stay current with the evolving conditions.

Many firms effectively use the strategic management process to help reduce the likelihood of failure with various challenges they may encounter.

Hypercompetition is a term often used to illustrate the competitive landscape. The conditions of hypercompetition assume that market stability is replaced by notions of inherent instability and change.

Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants. It is a condition of rapidly escalating competition based on the following:

Price quality positioning;

Competition to create new know-how and establish first mover advantage; and

Competition to protect or invade established product or geographic markets.

In a hypercompetitive market, firms will want to challenge their competitors with the end goal of improving their competitive position and performance. The emergence of a global economy and technology along with specifically rapid technological changes are the two primary elements of hypercompetitive environments and help create today’s competitive landscape.

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The Competitive Landscape, continued

Global Economy

Helps create opportunities and challenges

Examples

European Union

700,000,000 potential customers

China

Seen as a low competition market and low cost producer

Now is an extremely competitive market

A global economy refers to the goods, services, people, skills, and ideas that move freely across geographic borders. The emergence of the global economy helps create interesting opportunities and challenges. For example, the European Union has become one of the world’s largest markets, with seven hundred million potential customers. For several years China was seen as a low competition market and a low cost producer. Today, China is now an extremely competitive market, with local markets seeking MNCs or multinational corporations. Now these local markets must fiercely compete against other MNCs and those local companies that are more cost effective and faster with their product development.

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The Competitive Landscape, continued

Globalization

Seen as a product of large firms competing against each other

Can increase the range of opportunities for companies

Higher Performance Standards

Firms must exceed global standards to earn above average returns

Overdiversification

Globalization refers to a growing interdependence among countries and their organizations, as shown by the flow of goods and services, financial capital, and knowledge across the countries’ borders. Globalization can be seen as a product of large numbers of firms competing against each other throughout a number of global economies.

In some globalized markets and industries, financial capital can be obtained in one national market and used to buy raw materials in another. This goes to show that globalization can increase the range of opportunities for companies competing in the current competitive landscape. Firms must make culturally sensitive decisions when engaging in globalization with their operations. Overall, it is important to note that globalization has led to higher performance standards in many competitive dimensions, including the following:

Quality;

Cost;

Productivity;

Product introduction time; and

Operational efficiency.

Firms must understand that in order to compete in today’s world, companies must exceed global standards to earn above average returns. Globalization, while positive, does offer potential risks. Risks of participating outside of the firm’s domestic country in the global economy is referred to as a liability of foreignness. One risk of entering the global market is the amount of time required for firms to learn the proper ways to be competitive in new markets. If a firm does not grasp the concepts of being competitive, their performance can suffer until this knowledge is grasped sufficiently.

Additionally, a firm’s performance may suffer with substantial amounts of globalization. A firm may suffer from this principle by overdiversifying internationally beyond their ability. As a result of this, overdiversification negatively affects a firm’s overall performance.

Due to all of these possible issues, it is best to effectively use the strategic management process. While getting involved in global markets is an attractive option for some companies, it is not the only way a company can be strategically competitive.

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The Competitive Landscape, continued

Technology Related Trends and Conditions

Technology Diffusion

Has increased greatly over 15-20 years

Perceptual innovation

Imitation of Competitor Actions

Technology-related trends and conditions can be placed into the following three categories:

Technology diffusion and disruptive technologies;

The information age; and

Increasing knowledge intensity.

These three categories illustrate several different ways that technology is significantly altering competition and contributing to unstable competitive environments.

The rate of technology diffusion has increased greatly over the past fifteen to twenty years. A word often used along with technology diffusion is perpetual innovation. This term refers to the rapidly and consistently new technologies that replace older ones. A competitive premium is placed on being able to produce new innovative and creative products quickly. We see that products which are somewhat indistinguishable because of the growth of technology use the speed to market strategy. These new innovative products derive from an understanding of global standards and expectations of product functionality.

Another indicator of rapid technology diffusion is that it now may take less time for firms to gather information about their competitors’ research, development and product decisions. We see that in the global economy, competitors will often imitate a firm’s successful competitive actions within a few days. As a result of methods like this, we see a reduction in the competitive benefits of patents. However, we also see that patents used today are an effective way of protecting proprietary technology.

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The Competitive Landscape, continued

Changes in Information Technology

Technological Developments

Cell phones, computers, and social networking

Declining Costs of Information Technologies

Global proliferation

Availability of Information Technologies

Internet

Price changes from ISPs

Hypercompetition

Dramatic changes in information technology have occurred in recent years. Everything we use in our daily live, such as personal computers, cellular phones, and multiple social networking sites, shows the end result of technological developments. An important outcome of these changes is the ability to effectively and efficiently access and use information. These information technology advances have given small firms more flexibility in competing with large firms. Using technology efficiently will help promote and increase technology diffusion.

The declining costs of information technologies and the increased accessibility to these technologies further paints an image of the current competitive landscape. We also see that the global proliferation of relatively inexpensive computing power and the ability to link on a global scale via computer networks further supports the diffusion of information technologies.

Due to this unification and diffusion, the competitive potential of information technologies is now available to companies of all sizes throughout the world. The Internet has really boomed, and is a centerpiece in our everyday lives. The Internet has also promoted hypercompetition amongst its users. Because the Internet is available to people throughout the world, it allows the delivery of information to computers in any location. Access to the Internet on smaller devices such as cell phones is another aspect that is having an impact on competition between companies.

However, there is a possibility that changes to Internet Management and Strategic Competitiveness Service Providers’ or ISPs’ pricing structures could affect the rate of growth for Internet-based applications. Many users today are downloading or streaming high definition movies, playing video games online, and so forth. If these pricing changes were to be implemented, the users would be affected the most by a pricing structure based around total usage.

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The Competitive Landscape, continued

Knowledge

Basis of technology and its applications

Shift from hard assets to intangible resources

Today’s competitive landscape puts a huge value on intangible resources

Capturing Intelligence

Turn intelligence into usable knowledge

Gaining of a competitive advantage

Develop and acquire knowledge to integrate into the organization

Strategic Flexibility

The basis of technology and its applications is knowledge. In today’s competitive world, knowledge is a critical organizational resource and increasingly a very valuable source of competitive advantage. We saw that starting in the 1980s, the basis of competition shifted from hard assets to intangible resources. An example of intangible resources would be relationships with customers and suppliers. Intangible resources build knowledge through experience, observation, and inference. Today’s competitive landscape puts a huge value on intangible resources, and they are expanding as a proportion of total shareholder value.

To enhance the probability of achieving strategic competitiveness, firms want to develop the ability to capture intelligence. They then want to transform this intelligence into usable knowledge, and then diffuse it rapidly throughout the company. Therefore, to gain a competitive advantage, firms must develop and acquire knowledge and then integrate it into the organization. Innovations require a strong knowledge base. Firms that lack the appropriate internal knowledge resources are less likely to invest money into research and development.

Knowledge spillovers are common, so firms must continue to keep current with their information. Due to this risk of spillovers, firms try to use their knowledge in productive ways. Firms will often build routines that facilitate the diffusion of local knowledge throughout the organization.

Strategic flexibility allows firms to get better in areas in which they may be lacking Using strategic flexibility allows for a set of capabilities to respond to various demands and opportunities that exist in today's dynamic and uncertain competitive environments. Being strategically flexible sometimes means coping with uncertainty and risks that may follow. Firms should try to develop strategic flexibility in all areas of their operations. However, it is important for firms to develop strategic flexibility because inertia can build up over time. It is also important to note that a firm’s focus and past core competencies may actually slow change and affect strategic flexibility.

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The I/O Model of Above- Average Returns

Determining Strategies to Be a Successful Firm

External Environment

1960s-1980s

Industrial Organization Model of Above-Average Returns

Performance based on range of industry properties

Contains four assumptions

Challenges firms to find the best industry to thrive in

From the 1960s through the 1980s, the external environment was thought to be the most important factor in determining strategies firms need in order to be successful. The external environment’s influence on a firm's strategic actions is shown using the industrial organization model of above-average returns. This model specifies that the industry or segment of an industry that chooses to compete in the market has a stronger influence on performance than the decisions mangers make within the company. The firm’s performance is believed to be determined primarily by a range of industry properties, including the following:

Economies of scale;

Barriers to market entry;

Diversification;

Product differentiation; and

The degree of concentration of firms in the industry.

Based around economics, the I/ O model contains four underlying assumptions. The first assumption is that the external environment is assumed to impose pressures and constraints that determine the strategies of above-average returns. Secondly, it is assumed that most firms competing within an industry are controlled using similar strategically relevant resources. These firms then pursue similar strategies in light of those resources. The third assumption is that resources used to implement strategies are highly mobile across firms. This would mean that any resource differences that might develop between firms will be short-lived. Lastly, it is assumed that organizational decision-makers are rational and committed to acting in the firm’s best interests. This can be attributed to their various profit maximizing behaviors.

The I/ O model challenges firms to find the best industry to thrive in. Since most firms have similar valuable resources that are mobile, performance can only increase if they operate in an area of high profit potential. It is also important to use resources wisely to implement a successful strategy.

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The I/O Model of Above-Average Returns, continued

The Five Forces Model of Competition

Suppliers

Buyers

Competitive Rivalry Among Industry Firms

Product Substitutes

Potential Entrants to the Industry

Many firms use this model to identify the attractiveness of an industry

The five forces model of competition is an analytical tool that firms use to help find the most attractive area of operation. The model encompasses several variables and tries to capture the complexity of competition. The five forces model suggests that the industry’s profitability results from the interactions among five forces which include the following: