The final result of successful strategic competitiveness is above-average returns.

Hermano Cavalcanti

Hermano Cavalcanti

Associate Product Manager | Salesforce | Omichannel @Dasa

Published May 22, 2020

Firms use the strategic management process to achieve strategic competitiveness and earn above-average returns. Strategic competitiveness is achieved when a firm has developed and learned how to implement a value-creating strategy and above-average returns provide the foundation a firm needs to simultaneously satisfy all of its stakeholders.

The fundamental nature of competition is different in the current competitive landscape. As a result, those making strategic decisions must adopt a different mind-set, one that allows them to learn how to compete in highly turbulent and chaotic environments that are producing disorder and a great deal of uncertainty. The globalization of industries and their markets and rapid and significant technological changes are the two primary factors contributing to the turbulence of the competitive landscape.

Firms use two major models to help them form their vision and mission and then choose one or more strategies to use in pursuit of strategic competitiveness and above-average returns.

1. The core assumption of the I/O model is that the firm’s external environment has more of an influence on the choice of strategies than do the firm’s internal resources, capabilities, and core competencies. Thus, the I/O model is used to understand the effects an industry’s characteristics can have on a firm when deciding what strategy or strategies to use to compete against rivals. The logic supporting the I/O model suggests that above-average returns are earned when the firm locates an attractive industry or part of an industry and successfully implements the strategy dictated by that industry’s characteristics.
2. The core assumption of the resource-based model is that the firm’s unique resources, capabilities, and core competencies have more of an influence on selecting and using strategies than does the firm’s external environment. Above-average returns are earned when the firm uses its valuable, rare, costly-to-imitate, and nonsubstitutable resources and capabilities to compete against its rivals in one or more industries. Evidence indicates that both models yield insights that are linked to successfully selecting and using strategies. Thus, firms want to use their unique resources, capabilities, and core competencies as the foundation for one or more strategies that will allow them to compete in industries they understand.

Vision and mission are formed in light of the information and insights gained from studying a firm’s internal and external environments. Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.

Flowing from the vision, the mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve. Vision and mission provide direction to the firm and signal important descriptive information to stakeholders.

Stakeholders are those who can affect, and are affected by, a firm’s strategic outcomes. Because a firm is dependent on the continuing support of stakeholders (shareholders, customers, suppliers, employees, host communities, etc.), they have enforceable claims on the company’s performance. When earning above-average returns, a firm has the resources it needs to at minimum simultaneously satisfy the interests of all stakeholders. However, when earning only average returns, the firm must carefully manage its stakeholders in order to retain their support. A firm earning below-average returns must minimize the amount of support it loses from unsatisfied stakeholders.

Strategic leaders are people located in different parts of the firm using the strategic management process to help the firm reach its vision and mission. In the final analysis, though, CEOs are responsible for making certain that their firms properly use the strategic management process. Today, the effectiveness of the strategic management process is increased when it is grounded in ethical intentions and behaviors. The strategic leader’s work demands decision trade-offs, often among attractive alternatives

It is important for all strategic leaders and especially the CEO and other members of the top-management team to work hard, conduct thorough analyses of situations facing the firm, be brutally and consistently honest, and ask the right questions of the right people at the right time.

Strategic leaders predict the potential outcomes of their strategic decisions. To do this, they must first calculate profit pools in their industry that are linked to value chain activities. Predicting the potential outcomes of their strategic decisions reduces the likelihood of the firm formulating and implementing ineffective strategies.