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Lecture 1

1. I/O Model of above average Returns
Introduction:
It explains influence of external environment influence on a firm's strategic actions and performance.
Assumptions:
1) External environment can leading to AAR.
2) Most firms compete in an industry control similar resources & strategies
3) Resources are highly mobile across firms
4) Decision makers should be rational & act in the firm’s best interests
Steps:
1) Study the external environment
2) Locate the industry
3) Identify the industry’s strategy
4) Develop assets & skills on the strategy
5) Using the firm’s strengths in the strategy
Conclusion:
The I/O model of AAR challenges firms to locate the most attractive industry in which to complete because of the four assumptions.

2. Resource based model
Introduction:
Explain the unique internal resources & capabilities of a firm
1) Acquire different resources & develop unique capabilities
2) Resources are not mobile across firms
3) The unique resources & capabilities lead to differences in firms’ performance
4) Differences in resources & capabilities is the source of competitive advantage
Steps:
1) Identify the firm’s resources
2) Determine the firm’s capabilities
3) Determine the potential of its resources & capabilities in competitive advantage
4) Locate an attractive industry
5) Select a best strategy

3. Vision, Mission
Vision is picture of what the firm want to be & achieve
[Microsoft: A computer on every desk, running Microsoft software]
Mission: Identify the firm’s purpose & reason for existence
[3M: Innovative solutions to problems]

4. Stakeholders
Individuals and group who can affect & are affected by the firm.
Three classifications:
Capital Market: shareholders; capital suppliers (banks)
Product Market: customers; suppliers; unions
Organizational: employees; managers

Topic 1A

Eight Performance...

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