Introduction to Strategy

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 management’s game plan for
• Strengthening the organization’s 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?

Kelley Summer 2009 GM 105 Strategic Management

 Tasks Involved in Strategic Management

• 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

Kelley Summer 2009 GM 105 Strategic Management

 Developing a Mission & Objectives

• An organization’s Mission
• Reflects management’s 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 organization’s 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
 Examples of Types of Objectives

• 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
 What Does a Strategy Include?

• How to satisfy customers

• How to grow the business
• Organic growth
• Acquisition
• 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
 What is a Strategic Plan

• A strategic plan maps

• Where the organization is headed
• Short and long range performance targets
• Actions of management to achieve desired outcomes
• A strategic plan consists of
• Mission statement
• Strategic and financial performance objectives
• Comprehensive strategy for achieving the objectives
 Implementing Strategy

• Implementing a strategy involves

• 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

• The most important fit is between a strategy and

• Organizational capabilities
• A reward structure
• Internal support systems
• Organizational culture

Kelley Summer 2009 GM 105 Strategic Management

 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 organization’s long-term direction
• Raise or lower performance objectives
• Modify strategy

Kelley Summer 2009 GM 105 Strategic Management

 What is a Strategy?

• A strategy is a business approach to a set of competitive moves that are designed to generate a successful outcome
• A strategy is management’s game plan for
• Strengthening the organization’s 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?
 Tasks Involved in Strategic Management

• 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
 Developing a Mission & Objectives

• An organization’s Mission
• Reflects management’s 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 organization’s 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
 Examples of Types of Objectives

• 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
 What Does a Strategy Include?

• How to satisfy customers

• How to grow the business
• Organic growth
• Acquisition
• 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
 What is a Strategic Plan

• A strategic plan maps

• Where the organization is headed
• Short and long range performance targets
• Actions of management to achieve desired outcomes
• A strategic plan consists of
• Mission statement
• Strategic and financial performance objectives
• Comprehensive strategy for achieving the objectives
 Implementing Strategy

• Implementing a strategy involves

• 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

• The most important fit is between a strategy and

• Organizational capabilities
• A reward structure
• Internal support systems
• Organizational culture
 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 organization’s 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 (organization’s internal situation and competitive position)
• External factors
• Industry’s dominant economic traits
• Competitive forces
• Competitive moves of rivals
• Key success factors
• Attractiveness of the industry
 Key Industry Success Factors

• Key success factors spell the difference between

• Profit and loss
• Competitive success or failure
• A key success factor can be
• 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
 Strategic Management Model
• Scanning
• Where are we now?
• Strategy Formulation
• Where do we want to be?
• Strategy Implementation
• How do we get there?
• Measurement/Performance
• How do we measure our progress?
 Strategic Management Model
• Strategy Formulation
• Where do we want to be?
• Vision
• Mission
• Values
• Goals
• Objectives
 VISION
Vision without Action is a Daydream
Action without Vision is a Nightmare

• Not Optional
• Stretch – 30+ Years
• 8-10 Words in length
• Future State
• Brief and Memorable
 VISION (Continued)
• Inspiring and Challenging
• Descriptive of the Ideal
 Vision Examples
• “Light the Fire Within”
• “A Safer Future for All Communities”
• “See the Mountains – Breathe Freely”
• To Be the Happiest Place on Earth
• To Be the World’s Best Quick Service Restaurant
 Vision Levels of People
• Some people never see it. (Wanderers)
• Some people see it but never pursue it on their own. (Followers)
• Some people see it and pursue it. (Achievers)
• Some people see it and pursue it and help others see it. (Leaders)

John Maxwell, Developing The Leader Within You, 1993.

 Mission Statement
In the absence of a clearly defined direction one is forced to concentrate on
confusion that will ultimately consume you.
 MISSION
• What is our purpose?
• Describes current state
• Timeline is 3-5 Years
• Builds on our distinctive competencies
• Tends to focus on Core Business
• 30-35 Words in length
 Mission Examples
• “To Lead All Communities in Disaster Preparedness, Mitigation,
and Recovery by Maximizing Assistance and Support.”
• “Caltrans Improves Mobility Across California.”
• To produce superior financial returns for our shareholders as we
serve our customers with the highest quality transportation,
logistics, and e-commerce.
 Strategic Management Model
• Scanning:
• Where are we now?
• Macro Analysis (STEP, PESTEL, ETC.)
• Industry Analysis – Competitive Intelligence
• SWOT Analysis
• Internal versus
External Elements
 Why Scan?
• To know your position in the environment
• To respond effectively to constant change
• To see the organization as a whole
• To avoid surprises
• To survive
• To lay the foundation for strategic issues
 SCANNING:
Key Environmental Variables
• Macro Environment: STEP, PESTEL
• Task Environment: Industry
• Internal Environment: Focal Organization
 Socio-Cultural Variables
• Lifestyle Changes
• Career Expectations
• Regional Shifts in Population
• Life Expectancies
• More women in workforce
• Greater concern for fitness
• Postponement of family formation
• Increase in temporary workers
 Technological Variables
• Total Federal Spending for R&D
• Total Industry Spending for R&D
• Focus of Technological Efforts
• Patent Protection
• Wireless Communications
• Nanotechnology
• Productivity Improvements
• Genetic engineering
 Economic Variables
• GDP Trends
• Interest Rates
• Money Supply
• Inflation Rates
• Unemployment Levels
• Wage/Price Controls
• Energy Availability & Cost
• Disposable & Discretionary Income
 Political-Legal Variables
• Antitrust Regulations
• Tort Reform
• Environmental Protection Laws
• Taxation at local, state, federal levels
• Hiring and Promotion Laws
• Americans Disabilities Act of 1990
• Sarbanes-Oxley Act of 2002
 Demographic Variables
• Aging Population
• Rising affluence
• Changes in Ethnic Composition
• Geographic distribution of population
• Disparities in income levels
 Global Variables
• Increasing Global Trade
• Currency Exchange Rates
• Emergence of Indian and Chinese Economies
• Trade agreements (NAFTA, EU, ASEAN)
• Creation WTO
 STEP EXERCISE
• Socio-Cultural
• Technological
• Economic
• Politico-Legal
 Industry Analysis
• 6 Forces Analysis
• Industry Competitors
• Suppliers/Vendors
• Customers/Clients
• Potential New Entrants
• Substitutes
• Other Stakeholders
• Role of Complementors
 New Entrants and Entry Barriers
• Absolute cost advantages
• Access to inputs
• Government policy
• Economies of scale
• Capital requirements
• Brand identity
• Switching costs
• Access to distribution
• Proprietary products
 Buyer Power (Channel and End Consumer)

• Buyer volume and information

• Brand identity
• Price sensitivity
• Threat of backward integration
• Product differentiation
• Substitutes
 Supplier Power
• Supplier concentration
• Differentiation of inputs
• Switching costs
• Threat of forward integration
• Cost relative to total purchases in industry
 Substitutes
• Switching costs
• Buyer inclination to substitute
• Variety of substitutes
• Price-performance tradeoff of substitutes
• Necessity for product or service
 Degree of Rivalry
• Exit barriers
• Industry concentration
• Fixed costs
• Industry growth
• Intermittent overcapacity
• Switching costs
• Brand identity
• Diversity of rivals
• Corporate stakes
 Other Stakeholders
• Employees
• Unions
• Government
• Trade and Professional Associations
• Other Direct Influencers
 Role of Complementors
• Number of complements
• Relative value added
• Difficulty of engaging complements
• Buyer perception of complements
• Complement exclusivity
• Tend to increase profits by increasing demand for an industry’s products
 Competitive Profile Analysis
• Identify Key Competitive Factors
• Identify key Competitors
 Industry Foresight
Customer
Needs

Unarticulated

Articulated
Custo
mer
Served Unserved Types
 Internal Environment
• Internal Profile Analysis
• SWOT Analysis
 Internal Profile Analysis
• Identify Key Core Functions
• Identify Key Measures for Core Functions
• Build Matrix
 SWOT Analysis
• Internal Environment
• Strengths
• Weaknesses
• External Environment
• Opportunities
• Threats
SWOT EXERCISE
 Strategic Management Model
• Strategy Formulation
• Where do we want to be?
• Vision
• Mission
• Values
• Goals
• Objectives
 GOAL
• Supports the Mission
• Deals with One Issue or Item of Focus
• Reflects a primary activity or strategic direction
• Describes the “To Be” State
• “BHAG”
• Encompasses a long period, i.e. at least 3 years
 Goal Examples
• Achieve excellence in the delivery of disaster recovery and mitigation
programs.
• Professionally develop our employees as a reflection of DAD’s key
attributes and values.
• Increase the supply of housing, especially affordable housing.
• Become a model for customer service.
• To provide benefits in correct amounts and issued in a timely manner.
 OBJECTIVES
• Add specificity beyond Goals
• Answer the questions
• What is to be accomplished?
• When?
• Should contain the SMART Elements
 OBJECTIVES: SMART Model
• Specific
• Measurable
• Aggressive but Attainable
• Results-Oriented
• Timeframe
 Strategic Objective Examples
• By June 30, 2005 achieve 75% rating on the DAD service index from
all stakeholders.
• Increase sales growth 6-8% in the next 5 years. (P&G)
• Cut corporate overhead costs by $30 million per year. (Fortune Brands)
• Operate 6,000 stores by 2010 – up from 3,000 in the year 2000.
(Walgreen’s)
• Reduce greenhouse gases by 10 percent (from a 1990 bast) by 2010.
(BP Amoco)
Objectives Litmus Test
 Strategic Management Model
• Strategy Implementation
• Everyone is Responsible
• Few Guidelines
• No Easy 10-Step Checklist to Follow
 Strategic Management Model
• Strategy Implementation
• Most open-ended part of Strategic Mgmt
• People implement strategies not Organizations
 Strategic Management Model
• Strategy Implementation
• How do we get there?
• Work Action Plans
• GOOMs
 Strategy Implementation Considerations
• 7-S Framework – Strategic Fit
• Human Resources
• Patience
 7-S Framework
• Shared Values
• Strategy
• Structure
• Systems
• Skills
• Style
• Staff
Key Performance Indicator
 Terminology
• Key Performance Indicators (KPI) - “Measurable
indicators that will be used to report progress that is
chosen to reflect the critical success Strategic
• Critical Success Factors (CSF)-“A factor considered to
be most conducive to the achievement of a successful
• Strategic Aims-” Are the tools we use to organise and
focus our diverse activities. Through the Corporate Plan,
we will define specific objectives and targets relating to
each Strategic Aim
 Key Performance Indicator
• Generally there are two approaches
KPI based on Strategic themes
KPI Based on Critical success factors

They both drive from:

Objectives from strategic aims
Performance indicators flowing from objectives
Status and progress indicators
Year on year change indicators
 Strategic Aims-
Over the period Jan 2012 to Dec 2012 all employers
are to demonstrate Continuous Improvement in their
health and safety management performance whilst
being benchmarked using a suitable benchmarking
tool.
 What IS A KPI
• A KPI (Key Performance Indicator) is simply a metric that is tied to a target.
• Most often, a KPI represents how far a metric is above or below a pre-
determined target.
• KPI’s usually are shown as a ratio of actual to target and are designed to
instantly let a business user know if they are on or off their plan without the
end user having to consciously focus on the metrics being represented.
 SMART is an abbreviation for
the five conditions of good
KPI’s:
 * Specific – It has to be clear what the KPI exactly measures. There has to be one
widely-accepted definition of the KPI to make sure the different users interpret it
the same way and, as a result, come to the same and right conclusions which they
can act on.
 * Measurable – The KPI has to be measurable to define a standard, budget or
norm, to make it possible to measure the actual value and to make the actual value
comparable to the budgeted value.
 * Achievable – Every KPI has to be measurable to define a standard value for it. It
is really important for the acceptance of KPI’s and Performance Management in
general within the organization that this norm is achievable. Nothing is more
discouraging than striving for a goal that you will never obtain.
 SMART is an abbreviation for the five
conditions of good KPI’s:
 * Relevant – The KPI must give more insight in the performance of
the organization in obtaining its strategy. If a KPI is not measuring a
part of the strategy, acting on it doesn’t affect the organizations’
performance. Therefore an irrelevant KPI is useless.
 * Time phased – It is important to express the value of the KPI in
time. Every KPI only has a meaning if one knows the time dimension
in which it is realized. The realization and standardization of the KPI
therefore has to be time phased.
 Critical Success Factors
Critical success factors – key issues requiring management
attention
• Represent real issues faced “here and now”
Performance indicators relate to critical success factors not
strategic aims – offers greater flexibility
• Critical success factors can be mapped to strategic aims
 How To Achieve Success
• Identify areas of activity that require greater attention
• Performance indicators that are grounded (SMART)
• Striking a balance between a comprehensive set of KPIs and
information overload
 Selecting Project Specific KPI
• “What you measure is what you get.” (Kaplan and Norton, 1992).

• KPI help define the achievement of the CSF

• Number depends on their comprehensiveness and importance of the CSF to overall

project success.
•
Sources of potential KPI
Do the KPIs provide YOU with a clear indication of progress to date and areas
requiring greater attention?

• Strategic aims do not always lend themselves to measurement and require

associated objectives

• No difficulty with objectives extracted from the Corporate Strategy but derived
objectives may have no real ownership
 Introduction of KPI’s
• Introduction of KPIs represents a major step forwards
• Enables YOU to understand where progress is being made
towards achieving strategic aims and those areas which need
to be addressed
• The management review in BS EN ISO and OHSAS standards also help focus
performance
 Meaningful...
• Strategy
• Aims/Objectives
• Policy
• Regulatory requirements
• Industry standards
• Moral
• Health
• Social
 What has been asked of us?
Strategic
Aim

Continuous
improvement
in health and
safety
management
performance
 What are we doing?
Strategic Initiatives
Aim
New inspection regime,
introducing quarterly
Continuous
inspections.
improvement
in health and Destination Zero
safety Poster, email and
management leaflet campaign aimed
performance encouraging staff to
think what if...not if
only.
 Lets introduce our KPIs.....
Strategic Initiatives KPI
Aim
New inspection regime, Number of
introducing quarterly H&S
Continuous
inspections. Inspections
improvement
in health and Destination Zero
safety Poster, email and
Number of
management leaflet campaign aimed
Lost Time
performance encouraging staff to
Accidents
think what if...not if
only.
 Our benchmark or baseline...
Strategic Initiatives KPI Last
Aim year
New inspection regime, Number of
introducing quarterly H&S 3
Continuous
inspections. Inspections
improvement
in health and Destination Zero
safety Poster, email and
Number of
management leaflet campaign aimed
Lost Time 5
performance encouraging staff to
Accidents
think what if...not if
only.
 What is our target?
Strategic Initiatives KPI Last 2012
Aim year Target
New inspection regime, Number of
introducing quarterly H&S 3 4
Continuous
inspections. Inspections
improvement
in health and Destination Zero
safety Poster, email and
Number of
management leaflet campaign aimed
Lost Time 5 2
performance encouraging staff to
Accidents
think what if...not if
only.
 Lets measure how we actually did..
Strategic Initiatives KPI Last 2018Tar Actual
Aim year get
New inspection regime, Number of
introducing quarterly H&S 3 4 4
Continuous
inspections. Inspections
improvement
in health and Destination Zero
safety Poster, email and
Number of
management leaflet campaign aimed
Lost Time 5 2 3
performance encouraging staff to
Accidents
think what if...not if
only.
 Points of note
• Quantity does not equal quality
• Measure what’s most important
• Don’t let the cost of measuring exceed the value of the results
Global Business Environment – The Industry Environment:
The Five forces Model

Link: https://hbr.org/2001/03/strategy-and-the-internet
After this lecture you should be able to:
Learning Outcomes
• Understand the significance of the global industry
environment for the strategies of multinational firms

• Apply the Five Forces Model

• Advise a multinational firm on the techniques for

understanding the future of an industry
 Understanding
• What industry are you in? Your Industry
• A focus on a broad industry may lead to an inaccurate
understanding of the market and the nature of
competition. Indeed, using the word “industry” may be
unhelpful because it is very broad.

• Firms need to identify a precise market, which can be

achieved by conducting a market segmentation analysis and
strategic group analysis.
• Market segmentation analysis identifies similarities and differences
Market Segmentation Analysis
between groups of people who buy and use your goods and services.

• Doyle (1997) argued that strategists should ask three key questions:
• customer segmentation: which customer segments are to be
served by the strategy?

• customer needs: what is the range of customer needs to be met?

• technology: which technologies are required in order to pursue
customers?
 Strategic Group Analysis
• Strategic group analysis is about identifying firms with
similar strategies or those competing on similar bases.

• It helps to understand the nature of competition and

profitability within an industry sub-group and provides
better information about where to invest or what type of
strategic action to expect from competitors.

• A good predictor of strategic groups are “mobility

barriers”, which prevent other firms entering the strategic
group and threatening the existing members.
Strategic groups in the global car industry
 The Five Forces Model

• Michael Porter suggested that managers must understand the underlying

economic and technical characteristics of the industry or strategic group in
which their firms operate.

• Porter believed that the key determinant of a firm’s profitability was

industry attractiveness. As a result of the way a specific industry operates,
some industries are inherently more profitable than other industries.

• The Five Forces Model assumes that industry attractiveness and the firm’s
competitive position in an industry are influenced by five competitive
forces.
 The Five Forces Model
The five forces are:

1. Entry of new competitors

2. Threat of substitutes
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Rivalry amongst existing competitors
The Five Forces model can be used to analyse a firm’s competitive
position in a specific market segment or similar market segments.
 Barriers of Entry
• Barriers to entry are obstacles, which potential newcomers would
encounter when entering the market.

• High barriers to entry help maintain a firm’s profitability.

• Barriers to entry include:

• Capital Requirements

• Economies of Scale

• Product Differentiation

• Access to Distribution Channels

• Government Policy

• Expected Retaliation
 Bargaining Power of Buyers/Suppliers

• Their bargaining power depends on:

• Buyer/Supplier Concentration
• Buyer Switching Costs
• Product Differentiation
• Price/Total Purchases
• Threat of vertical integration
• Buyer information
• Impact on Quality/Performance
• International expansion
 Threat of Substitutes
• A substitute product is a good or service, which is regarded as
interchangeable by buyers. If substitutes are available, buyers will
switch to substitutes when the price of the product increases.

• The existence of substitutes provides a limit as to how much the

seller can charge for a product, so the threat of substitutes
ultimately constrains the profitability of a firm.

• The the threat of substitutes depends on:

1) relative price performance of a substitute

2) switching costs for the buyer

3) buyer’s propensity to substitute

 Rivalry
• Rivalry encourages innovation, but it also reduces profits. In intensely competitive
markets, firms are forced to lower prices or invest in new R&D, just to keep up with
competitors; so intense rivalry leads to lower profits.

• The intensity of rivalry is influenced by:

• Concentration

• Diversity of Rivals

• Product Differentiation and Switching Costs

• Industry Growth
• Fixed Costs and Storage Costs
• Exit Barriers
• Excess Capacity
 Strategic Groups POSITION

Groups of firms that pursue similar strategies with

similar resources

Upscale Chains
Price

Diners/Family Style

Fast Food

Selection
97
 POSITION

Gartner’s Magic Quadrant

Challengers Leaders
Execution

Niche Players Visionaries

Other Possible Quadrants…
•Satisfaction vs. Importance
•Urgent vs. Importance
•Quality vs. Cost
•Risk vs. Value
Vision 98
 POSITION

GARTNER MAGIC QUADRANT

• Gartner rates vendors upon two criteria: completeness of vision and ability to
execute.
– Leaders score higher on both criteria; the ability to execute and completeness of vision.
Typically larger industry developed businesses with vision and potential for expansion.
– Challengers score higher the ability to execute and lower on the completeness of vision.
Typically larger, settled businesses with minimal future plans for that industry.
– Visionaries score lower on the ability to execute and higher on the completeness of vision.
Typically smaller companies that are unloading their planned potential.
– Niche players score lower on both criteria: the ability to execute and completeness of
vision. Typically new additions to the Magic Quadrant, or market fledglings.

99
 POSITION

Dynamic Competitor Analysis

• While useful, the competitor table and the strategic groups

are essentially static.
• It is critical to make guesses about the future -- especially
about when trends might stop and the ground might shift,
and when new competitors might rise, or existing ones die.

100
 POSITION

Exercise: Competitor Analysis

• Make a competitors table, including:

• market share
• how they stack up on crucial dimensions of value
• effectiveness (star the most competent ones)
• resources (underline richest ones)
• aggressiveness (arrows to indicate trajectories)
• Note any natural groupings
• Note any likely changes
• New entrants, mergers, exits?

101