Professional Documents
Culture Documents
What is a Strategy?
Examples of Corporate Strategy in 2009 GM files for Chapter 11 bankruptcy Chrysler is sold to Fiat and leaving bankruptcy Best Buy is adding patio furniture to its product assortment A strategy is a business approach to a set of competitive moves that are designed to generate a successful outcome A strategy is managements game plan for Strengthening the organizations competitive position Satisfying customers Achieving performance targets Three big questions involved in a strategy Where are we now? Where do we want to go? How will we get there? How do we know if we got there?
Defining business and stating a mission Setting measurable objectives Crafting a strategy to achieve objectives Implementing a strategy Evaluating performance of the strategy, reviewing new developments and taking corrective action
An organizations Mission
Reflects managements vision of what the organization seeks to do and become Provides a clear view of what the organization is trying to accomplish for its customers Indicates intent to take a business position
An organizations Objectives
Convert the mission into performance targets Track performance over time Must be achievable Two types
Financial outcomes that relate to improving financial performance Strategic outcomes that will result in greater competitiveness & stronger long-term market position
Financial
Increase earnings growth from 10 to 15% per year Boost return on equity investment from 15 to 20% in 2009 Achieve and maintain a AAA bond rating
Strategic
Increase market share from 18 to 22% in 2009 Overtake rivals on quality or customer service by 2010 Attain lower overall costs that rivals by 2011 Become leader in new product introductions by 2010 Achieve technological superiority by 2012
How to respond to changing industry and market conditions How to best capitalize on new opportunities How to manage each functional piece of business How to achieve strategic and financial objectives
Where the organization is headed Short and long range performance targets Actions of management to achieve desired outcomes
Mission statement Strategic and financial performance objectives Comprehensive strategy for achieving the objectives
Implementing Strategy
Creating fits between the way things are done and what it takes for effective strategy execution Executing strategy efficiently and effectively Producing desired results on time
Evaluating Performance
The tasks of strategic management are not one-time only exercises because
Times and conditions change Events change over time New ways to do things surface New managers have different ideas take over
Managers must
Constantly evaluate performance Monitor situation and decide how well things are working Make necessary adjustments
Alter organizations long-term direction Raise or lower performance objectives Modify strategy
A Situation Analysis
A situation analysis identifies strategic options and opportunities A situation analysis involves
External factors: Macroenvironment (industry and competitive conditions) Internal factors: Microenvironment (organizations internal situation and competitive position)
External factors
Industrys dominant economic traits Competitive forces Competitive moves of rivals Key success factors Attractiveness of the industry
SWOT
Internal Factors Strengths Weaknesses
E x t e r a l
F Opportunities a c t Threats o r s
Substitute Products
Suppliers
Potential Entrants
Buyers
The analysis is designed to identify the main sources of competitive forces and the strength of the pressure Sources of competitive pressures are defined by
Rivalry among competitors Substitute products Potential entry Bargaining power of suppliers Bargaining power of buyers
Rate the strength of each competitive force Explain how each competitive force works and its role in the overall competitive picture
Environmental Scanning
A way to monitor and interpret social, political, economic, ecological and technological events in an effort to spot trends and conditions that could eventually impact the industry and the organization. The purpose of environmental scanning is to raise the consciousness of managers about potential developments that could have an important impact on industry conditions and pose new opportunities and threats
A Strategic Group consists of those rival firms with similar competitive approaches and positions in an industry A Strategic Group displays different competitive positions that rival firms occupy Organizations in the same strategic group have one or more competitive characteristics in common
Sell in the same price/quality range Cover same geographic areas Be vertically integrated to same degree Emphasize same types of distribution channels Offer buyers similar services Use identical technological approaches
Competitor Analysis
Current position in the industry of each competitor Strategic objectives and recent business plans of each competitor Basic competitive approach of each competitor
Understanding competitor strategies Evaluating their vulnerability to driving forces and competitive pressures Sizing strengths and weaknesses of each competitor Anticipating each competitors next move
A specific skill or talent Competitive capability Something an organization must do to satisfy customers
Being distinctively better than competitors on one or more key success factors produces a competitive advantage Key success factors consist of 3-5 major determinants of financial and competitive success in an industry
Competitive Strategy
Competitive Strategy
The objective of a competitive strategy is to generate a competitive advantage, increase the loyalty of customers and beat competitors A competitive strategy is narrower in scope than a business strategy Five competitive strategies are
Overall low-cost leadership strategy Best cost provider strategy Broad differentiation strategy Focused low-cost strategy Focused differentiation strategy
Strive to be the overall low-cost provider in an industry How to achieve overall low-cost leadership
Scrutinize each cost activity Manage each cost lower year after year Reengineer cost activities to reduce overall costs Cut some cost activities out of the value chain
Organization in a better position to compete offensively on price Organization is better able to negotiate with large customers Organization is able to use price as a defense against substitutes Low cost is a significant barrier to entry Organization is more insulated from the power of suppliers
3Q 2008 (cents)
15.65 14.64 14.21 12.74 12.69
Carrier
Frontier Delta Jet Blue Southwest AirTran
3Q 2008 (cents)
11.92 11.82 10.06 9.74 9.66
When price competition is a dominant competitive force The product is a commodity There are few ways to differentiate the product Most customers have similar needs/requirements Customers incur low switching costs changing sellers Customers are large and have significant bargaining power
When technological breakthroughs open cost reductions for competitors, negating a low-cost providers efficiency advantage Competitors find it relatively easy and inexpensive to imitate the leaders low cost methods Low-cost leader focuses so much on cost reduction that the organization fails to respond to
Changes in customer requirements for quality and service New product developments Reduced customer sensitivity to price
Striving to build customer loyalty by differentiating an organizations products from competitors products Keys to success include
Finding ways to differentiate to create value for customers that are not easily copied Not spending more to differentiate than the price premium that can be charged
Supply chain Research and development Production activities Marketing, sales and service activities
Customers develop loyalty to the brand Brand loyalty acts as an entry barrier Organization is better able to fend off threats of substitute products because of brand loyalty Reduces bargaining power of large customers since other brands are less attractive Seller may be in a better position to resist efforts of suppliers to raise prices
Trying to differentiate on an unimportant product feature that doesnt result in providing more value to the customer Over differentiating the product such that the product features exceed the customers needs Charging a price premium that buyers perceive as too high Ignoring need to signal value Not identifying what customers consider valuable
Striving to give customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation
The objective is to create superior value by meeting or beating customer expectation on product attributes and beating their price expectations Keys to success
Match close competitors on key product attributes and beat them on cost Expertise at incorporating upscale product attributes at a lower cost than competitors Contain costs by providing customers a better product
Competitive advantage comes from matching close competitors on key product attributes and beating them on price Most successful best-cost providers have skills to simultaneously manage costs down and product quality up Best-cost provider can often beat an overall low-cost strategy and a broad differentiation strategy where
Customer diversity makes product differentiation the norm Many customers are price and value sensitive
Focus Strategies
Concentrate on a narrow customer segment beating the competition on lower cost Offering niche customers a product customized to their needs
Overall objective of both focus strategies is to do a better job of serving a niche target market than competitors Keys to success
Choose a niche were customers have a distinctive preference, unique needs or special requirements Develop a unique ability to serve the needs of a niche target market
Large enough to be profitable Good growth potential Not critical to the success of major competitors Organization has the resources to effectively serve the niche Organization can defend itself against challengers through a superior ability to serve the niche No competitors are focusing on the niche
Strengths
Competitors dont have the motivation to meet specialized needs of the niche Organizations competitive advantage could be seen as a barrier to entry Organizations competitive advantage provides an obstacle for substitutes Organizations ability to meet the needs of customers in the niche can reduce the bargaining power of large niche buyers
Risks
Broad differentiated competitors may find effective ways to enter the niche Niche customers preferences may move toward the product attributes desired by a larger market segment Profitability may be limited if too many competitors enter the niche
Stage 1 - Single-business serves a local or regional market Stage 2 Geographic expansion Stage 3 Vertical integration Stage 4 Growth slows so the business diversifies
Present
Market Penetration
Product Development
New
Market Development
Diversification
Market Penetration
Use when markets are not saturated with an organizations products Use when the usage rate of present customers can be increased Use when the market shares of the major competitors has been declining Use when the relationship between sales and marketing expenses is high Use when increased economies of scale provide the opportunity for competitive advantages
Product Development
Use when the organization has successful products that are in the maturity stage of the product life cycle. The objective is to attract satisfied customers to try new, improved products Use when an organization competes in an industry that is characterized by rapid technological change Use when competitors offer better quality products at comparable prices Use if the organization competes in a high-growth industry Use when the organization has strong research and development capabilities
Market Development
Use when channels of distribution are available, reliable and inexpensive Use when the organization is very successful in what it does Use when the organization has excess production capacity Use when the organization possesses the needed capital and human resources to manage the expanded operations Use when unsaturated markets exist
Diversification
Acquire an existing company in the target industry Start a new company internally Form a joint venture
Technological inexperience Gain access to reliable suppliers Being of a size to match competitors in terms of efficiency and costs Get distribution access
Use when ample time exists to enter by starting from scratch Use if existing competitors are slow to respond to changes in the industry Use if it is more economical to start from scratch rather than acquiring an existing company Use if the organization already has most of the needed skills Use if additional capacity will not adversely impact the industry Use when the new company doesnt have to go head-to-head against powerful competitors
Joint Ventures
Use when it is too risky to go it alone Use when pooling competencies of partners provides a stronger competitor Drawbacks
Potential conflicts
Sourcing of components Control over cash flows and profits Whether operations should conform to one partner or the other
Enough resources to support the strategy Screening of requests for new capital projects and bigger operating budgets Shifting resources to support new strategy priorities - Downsizing some areas and upsizing other areas - Eliminating activities that are no longer needed
How well budget allocations are linked to the needs of a strategy can either promote or impede the implementation process.
Defect-free manufacture Superior product quality Superior customer service Total customer satisfaction
Identifying & implementing best practices is a journey, not a destination; its an exercise in doing things in a world-class way.
Accurate & timely information is essential to guide action Prompt feedback on implementation initiatives are needed BEFORE actions are fully completed Monitoring early implementation actions serves two purposes
Quick detection of the need to adjust the strategy or its implementation Making sure things are moving in the planned direction
Accurate information allows a strategy to be monitored and corrective action to be taken promptly
Implementing rewards & incentives inducing employees to make the strategy work
The reward structure must motivate people to do the very things it takes to mjake the strategy work successfully
Make performance targets the basis for structuring the incentive system Ensure performance targets are clearly defined and every person/group is accountable for achieving them Be fair and impartial in comparing actual performance against targets Avoid rewarding non-performers Explore reasons for deviations (poor individual performance or circumstances beyond the individuals control)