MAN 4720– Global

Policy and Strategy
Professor Joseph Patton
Spring 2013
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Follow along on the recorded call
 In this PPT presentation, I am going to
review the major concepts of Strategic
Management that we are going to focus on in
this course.

 Please read the chapter powerpoints as well
– those will be more comprehensive about all
of the chapter material. This presentation will
highlight the major concepts, and those that
will be on the exams.
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What is strategy? The big plan
Strategy is the THINKING behind business actions.

It answers the question: What is our plan for growing the
business and attracting customers, operating, and
achieving our financial and strategic objectives?

Top management needs to decide the big questions such as:

 Who are our customers?
 What products do we sell?
 What business(es) do we want to be in?
 Do we want to merge or acquire or expand or shrink?
 How is the market changing, and what are we going to do
to keep up?

It is really about, “What is the plan?”
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Strategy is the THINKING
 Strategy is not the “doing”, (that is called
execution), it is the thinking, and
answering HOW will we achieve our goals.

 Thinking strategically is the working
smart, whereas executing and day to day
work is “working hard”. We want to do
both, but in this class we are focused on
the thinking BEHIND what we do.
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What is the plan? Let’s decide
before we start working hard.
 Actually running a business however is a
process of ACTION, not thinking. Just
thinking and strategizing without doing
anything is useless.

 But we need to decide WHAT we want to
do, then HOW we are going to do it before
we run off and start DOING things.
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Actions (the work) must support
Strategy

To work smart, we operate in this order:

1. What are our Goals/Objectives?

2. Decide our Strategy (HOW to reach goal)

3. Implement our Action Steps/Tactics (this is
where most of your day to day work will
take place)
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Example of different strategies to
achieve our goal of more sales
For example, suppose we are a manufacturer of ice cream
that sells in the Southern USA, and decide that we want to
sell more ice cream and have higher sales.

We could do this in a variety of ways:
1) Launch new flavors of ice cream or other products
2) Expand into new markets like the Western USA or Mexico
3) Acquire one of our competitors and take over their
business.

All of these will help us achieve these goals of higher sales.

But before we start working hard, we need to decide WHAT
strategy we are going to pursue. Only then can we
decide our TACTICS and then execute those tactics.
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What strategy we pick affects
what action steps we take.
Strategy:
Launch New Flavors
Strategy:
Acquire Competitors
Action Steps:
 Decide what flavors
 Test new flavors with
customers
 Design new
packaging
 Develop advertising
or marketing plan
 Decide pricing for
new flavor


Action Steps:
1. Identify criteria for who
to buy
2. Contact competitors
3. Enter into negotiations
to purchase
4. Develop plan to merge
new operations with our
existing
5. Decide what to do with
new and old employees
6. Inform customers about
new management

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Three different strategies to sell
our juice
 Goal: Sell More Juice

 Only after we decide what our positioning is can we
start the work of executing:

We could sell it as:
1. Cool
2. Heart Healthy
3. Eco Friendly

 Our action steps to sell our new juice might involve
deciding on label, package, slogan, celeb
endorsement, where to advertise, etc.

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Different strategies = Different
action steps needed.
Eco Friendly Heart Healthy
 Package: recyclable
 Ad: Drink our juice,
save the planet
 Celeb: Bono
 Advertising: Yoga and
Nature Magazines

 Package: Has sporty
athlete on it
 Ad: Good for your
heart!
 Celeb: Lance
Armstrong
 Advertising: Health &
Fitness Magazines
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Break top strategy into tasks and
objectives
Only after we set our plans can we break down the work into
action steps that middle or lower employees can work on,
and be given goals with timelines and measurements

For example in the ice cream example:
1. A manager might be given the task of developing new
packaging for the new flavor.
2. A salesperson will be given new monthly sales targets for
their region for the new flavor.
3. A plant manager tasked with test producing the new
flavor

These smaller actions will help the company achieve its
larger goal of higher overall sales.

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Your strategies have to adapt over
time
 Strategy is always a work in progress, because
market conditions, technologies and customer
preferences change

 Kodak used to make its $$ in film, now it does
with digital cameras etc – it still focuses on
IMAGES, but has adapted to changing market

 Apple used to make its money on Computers,
now it makes a lot with phones, iPods, etc.

 Encyclopedia Britannica practically went out of
business.




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Balanced Scorecard of Objectives
 Strategic Objectives (like customer
satisfaction, market share, launching new
products, going into new markets)

 Financial Objectives(such as sales, profits,
share price)

 We need both in rough balance. We can’t
have one without the other over the long
term
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How can we tell if our strategy is a
good one?
You should now know the difference between
strategy and tactics.

What strategy is best for our company?

It should match up with the resources that we
have
It should match up with what the market
wants
It should show results (like sales, profits,
customers, market share)
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If you can’t do it, bad strategy for
you
 A strategy that doesn’t match with our
capabilities is not a good one.

 You might see a profitable market in
making some product, but you don’t know
how to make it

 If the market doesn’t want what you sell,
don’t blame the market.
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We need to understand our
internal and external environment
We will look at:

 The Internal environment - inside our
company and organization

 The External environment - outside our
organization…where our competitors are
and our customers exist.
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SWOT Analysis – a basic overview
 Most basic tool of analysis is called a S.W.O.T. analysis

 Strengths
 Weaknesses
 Opportunities
 Threats

 Gives a good overall situational overview, and lets us craft
a strategy well matched to our situation.

 We need to know what we are good at and not so good at.
What things we have going for us, and what we don’t.
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What are Competencies?
 Competencies – things you know how to
do

 Core competencies – competencies that
are central to your business

 Distinctive competencies – you can do it
differently and hopefully better than
others

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What are the resources and
capabilities that we have?
Resources: Money, Land, Brands,
Customers, Machines, Reputation,
Contracts, Monopoly, Rights, Permits.

Capabilities / Competencies:
Inventing, Manufacturing, Selling,
Distributing, Advertising, Getting legal
permissions, Attracting customers.
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We need a competitive advantage
 The idea is to leverage our resources and
capabilities to create a competitive
advantage – a situation where we have an
advantage over our rivals in attracting
and pleasing our customers.

 Gaining a competitive advantage is the
best long term predictor of sales and
profits. Without it, we are forced to
compete on lowest price.

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Examples of Competitive
Advantage
 Examples of competitive advantage:

 Our product is superior
 Our customer service is superior
 The experience of buying from us is great
 We have a cool and attractive brand image
 We have the only store in town
 We control the market here in FLA
 We have a monopoly
 Our cost structure is the lowest in the industry
 We are the only ones that know how to build this
 Our drugs are approved by the FDA.
 We have a superior distribution network and lots of customers

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All Competitive Advantage is
about the customer
 Whatever route we take to get to a
competitive advantage, we must deliver
superior value to the customer in a way
that rivals cannot match (in the mind of
the customer, not our own)
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What is the Industry like?
 We also want to understand the Industry in
which we operate

 Dominant Characteristics: What is this
industry like currently?

 How big is this industry ($ sales?) Is it
growing or shrinking, by how much? How
many buyers and sellers are there for this
product, and how powerful is each? What is
the level of government regulation?
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Driving Forces of Change
What is causing this industry to change?

 Changes in consumer preferences (We don’t buy Vienna
Sausages anymore, give us organic food please- and btw
we don’t want FAX machines anymore either)

 Changes in technology (Sorry travel agents, we don’t need
you much anymore)

 Changes in government regulation (New laws and
regulations on your industry makes it less attractive)

 Entry/Exit of major players (Google is coming in to our
market, panic!)
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Key Success Factors - KSFs
 What are the keys to competing in this Industry?

 Things you MUST have high level of strength in

 An airline MUST get landing spots and FAA permission
to fly

 A drug company MUST get FDA permission to sell its
drugs

 Having a good accounting or IT department are good
for these companies, but not essential. KSFs are.
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Porter 5 forces model – rate each
factor as High or Low
 What is competition like in this industry?

 Porter 5 forces model of Industry
Competition
1. Intensity of the Rivalry among Sellers
2. Threat of Substitutes
3. Threat of New Entrants
4. Power of our Buyers (Customers)
5. Power of our Suppliers
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Rivalry Among Existing Sellers
 The force measuring existing rivalry is usually
the strongest.

If this rivalry is strong/high, we will see:
 Lots of advertising, price wars, fighting for
customers, lots of free giveaways and good
service, lower profit margins

 If it is low: opposite of above.

 We prefer this rivalry to be LOW


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Power of our Customers &
Suppliers: We want them low
 If our buyer has power, they will want: Free delivery, easy
return policy, pay me months from now, great customer
service, and responsibility if the products cause legal
problems later. We don’t like this.

If our supplier has power they want the opposite: Buyer, you
come pick it up, you cannot return it, pay me in advance,
don’t call me for service, you are liable for any problems
later. We don’t like this either.

Our company is a supplier to our customers , and we are the
customers of our suppliers
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What’s the Threat of Substitutes?
 A substitute is NOT a different brand of the product sold by
a competitor (even though it has difference), it is a
DIFFERENT PRODUCT that meets the same needs of the
customer.

 If a customer can easily switch to a substitute product, that
makes me less powerful.

 If chicken becomes too expensive (among all sellers)
consumers can buy pork or beef instead and get roughly
the same benefit. (so threat of substitutes is HIGH)

 If all the gasoline stations make me unhappy, I cannot
easily switch to other substitutes..such as diesel or ethanol
(or taking the bus), because those do NOT work in my car
or give me the same benefit. Threat of substitutes here is
LOW



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Threat of New Entrants
What is the likelihood that that companies that
are NOT currently in the market might enter
and compete with you?

This threat is higher when:
 The industry is attractive (profitable $)
 There are low entry barriers

I don’t want new competitors, I have enough
problems with my current competitors, so I
want this threat to be LOW.
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Entry Barriers
 Entry Barriers are things that make it
harder for a new competitor to get into
the market:

 High Cost, Permits, Difficulty technology,
Patents, Exclusive contracts, high brand
loyalty, switching costs, etc

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Results of a the 5 forces analysis
Is this industry attractive?

Evaluate the 5 forces Analysis.

 As a company, we would like all of these 5 forces to be
LOW.

 If they are LOW, we have more power, and industry is more
attractive from the standpoint of making profits.

 If they are HIGH, I have little power and need to compete
fiercely for sales and profits, my customers easily can
abandon me, and this industry is LESS attractive from the
standpoint of making profits

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The Generic Strategies
 The four generic strategies that
companies use are

 Broadly Differentiated
Narrowly Differentiated

 Broadly Low Cost
 Narrow Low Cost
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Differentiated vs. Low Cost
(Undifferentiated)
 The Generic Strategies – based on:

 Differentiation – how different is your
product? Does it have special quality, service,
brand image? Or is it a commodity type
product that is similar or same as others,
therefore needs to compete on a low cost
basis.

 Scope of Market: Do we focus on a broad
market (All US adults) or a narrow (small)
market (Teenagers in Florida)
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4 different Hotel strategies
 Examples of Strategies for different hotels

 Focused, Differentiated – The Delano, Miami Beach

 Focused, Undifferentiated – No name hotel, Miami
Beach

 Broad, Undifferentiated – Econolodge, Motel 6 chains

 Broad, Differentiated – Ritz-Carlton, Sheraton chains
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Differentiation is the most
expensive – but allows higher
prices and brand loyalty
 Differentiated is the most expensive strategy
to pursue..because it is about ADDING costs

 High quality of product
 High level of service
 Advertising to build brand image

 Low cost (undifferentiated) is more about
REMOVING costs and ending up with the
leanest meanest way to deliver the product
at a low cost and still make a profit.
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Vertical & Horizontal Integration
 Vertical Integration – moving up or down
in the sales channel: A FL pork processor
buying a farm to raise its own pigs, or
launching new line of bacon

 Horizontal Integration – staying in the
same part of industry, doing it in more
markets: FL Pork processor expands into
Georgia and Alabama and starts
processing pork there.
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Cooperative Strategies / M&A
Strategic Alliances – agreement between two
companies to work together (be careful you
don’t become dependent)

Outsourcing – hiring another company to do
some of your work (best if it is not Core or
essential functions)

Merger – combining companies

Acquisition – one company taking over another
company

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