Strategic Management

Ahmet Tamtekin
‡ Strategy studies with Coopers & Lybrand ‡ European Logistics Director for Sabena Technics, Tenneco and Mattel ‡ Business Unit President Arkas Holding ‡ Borad member Borusan Lojistik ‡ Executive coach e-mail:

The course :
‡ 3 days, 18 hours ‡ Lecturing, DISCUSSION and assignments ‡ 20% attendance 30% class assignments 50% active class participation

Strategic Management What do you think the strategic management is? .

This is a philosophy of management that links strategic planning with day-to-day decision making.Strategic Management Strategic Management is about evaluating the environment against the firm·s mission and objectives and developing long term strategies to maximize its competitive advantage. . Strategic management seeks fit between an organization·s external and internal environment.

Strategic Management Why? Why would you spend time. money and energy to try to link the external and internal environment? .

A firm without a purpose is like a ship without a rudderµ .

Know Yourself .

Leadership . Focus 2. Leadership 4. Big Pitfalls 5. Analysts 3.Why Strategic Management? 1.

Why is it the crown jewel? 1. Long term walk within uncertainty 6. Day-to-day temptations 5. Most people will not see . Thinking outside the box 3. Requires a combination of skills 4. Need to process lot of complex and ambigious data to come to very simple plans 2.

The Business Vision .

The Business Vision Whilst a firms needs to adapt to its competitive environment there are certain core ideals that remain relatively steady and provide guidance in the strategic decision making. .

but lacking the power of persuasion.Cassandra (also called Alexandra) is the Trojan seeress who uttered true prophecies. was never believed. .

.Built to Last In order to survive over a long time it is important to build an organization·s ´core value systemµ instead of relying on great product ideas. and paying too much attention to profit. charismatic leaders.

companies ´must be prepared to change everything about itself except its basic beliefs as it moves through corporate life. since everything around you is always changing. This means product lines. profit strategies. cultural tactics. and organization structure can change ² but a core ideology should not .Preserve the core and stimulate progress ‡ ‡ Core ideology alone does not make a visionary company. In order to meet the demands of a changing world.µ ‡ ‡ Companies must preserve core ideology while allowing room for the manifestations of the core ideologies to change.

but not both. . ‡ Look for a balance ²acquire both to the max.µ ‡ This limits companies to a short-minded frame of reference where there is only one choice.Visions bring together several contradictory ideas ‡ Inferior companies hold proclamations such as ² ´you can invest for the future or do well in the short-termµ and ´you can have low cost or high quality.

‡ . ‡ ‡ One visionary company preserving its core Boeing In the 1950s. which earned most of its profit. its rival Douglas Aircrafts was left in the dust. Boeing ventured into new territory and took a gamble on building commercial airliners instead of sticking to military aircraft. As a result.Do business by being able to adapt and change over time in response to market conditions.

Visionary companies often have Cult-like Cultures ‡ visionary companies are demanding of its employees to seek accomplishment and to follow the core ideology. Indoctrination Management is responsible for introducing and encouraging the proper work culture to employees. Tightness of fit Employees not believe in the same ideology should switch positions or be fired altogether. . ‡ ‡ ‡ ‡ Fervently held ideology All employees believe strongly in the company ideology. Elitism Recognizing the sense of responsibility that comes from being a member of a visionary company.

.Preserve the core Yes but what about stimulate development? Visionary companies do try a lot of stuff and keep what works ‡ ‡ ‡ ‡ Giving ideas a quick try Accept mistakes and letting the weakest die Taking small steps to achieve small failures in order to get ahead Persistence.

. even when it is hard to do so. It asks potential visionary organizations to strive for self-improvement day in and day out and to invest in new technologies and new management methods to take risks instead of lying back and remaining conservative.Building a vision Building the vision is a rearrangement of values intended to stimulate progress. An eye should always be kept for the long term instead of the short term.

After many years of trying to stay profitable he was about to give up when a shipping company has asked if he could represent him for commercial goods transport. This gave him the advantage to him of handling loads much faster then his competitors. He also moved out of tourism business. He started to grow his business and recruited university graduates and gave them hell so that they could give their 100% to grow the business. The company was a travel agency representing some shipping lines. People working for him feared him but also saw him as a father figure. The company was growing but he was thinking that he could grow faster if the ports were handling his loads fasters. he would then ring them later and make them understand indirectly that he appreciated them. He wanted to try this and finally realized it was more profitable than agency for tourism as there were too few tourist but a regular flow of imports and exports. He was really a tough guy and would put real pressure if people could not achieve the stretch targets that he would give. He would make them feel bad right in front of everybody. They accepted. He offered to the port authorities to buy a crane to handle his loads and said when the cranes were not utilized by Arkal Shipping the port authorities could make use of them. However. His company was growing and so was his staff. .Case: Arkal Holding (1) Luciano Arkal had taken over the company from his father when he was only 21. Many customers switched to road transport when they saw their loads can be blocked in the state ran ports for weeks.

Luciano Arkal saw shipping containers. Due to the competitive advantage he had more and more shipping lines asked to be represented by Arkal Shipping. He spent days visiting his customers and explaining to them why containers would benefit them. They knew in other companies they would never grow both in knowledge and in rank.Case: Arkal Holding (2) They would not leave the Arkal Shipping company. . When the law passed that private owners can operate ports the country was in a deep financial crisis and no one believed he the international trade would last for very long time. But the slowness of ports was really the bottleneck. when Luciano Arkal came back to his country he asked one of his managers to offer container shipping to the customers. His business boomed further but he had to learn how to handle container business which was very different from bulk cargo. It was the early days then and no one thought shipping containers would be big. in the end they made transporting goods much cheaper. However. Now he was handling almost 25% of the volume handled in his country. For a start no other company was growing as fast as his one. In one of his visits to Europe. Plus he would let them develop as he would give them assignments in areas that they never had experience. The containers allowed the customers to ship goods in smaller units. He was not paying a lot and people had to work very long hours but they knew Luciano would never sack them. in a safe way and as they were so easy to handle.

Luciano decided to take a gamble and said all these people will need to sell something. He bought land started to built a big port at a time everyone was selling off.Case: Arkal Holding (3) This also made the costs for setting up a port very cheap. trucking companies would take over and make the final delivery. . Sooner his country would recover. the crisis came to an end and actually the business was booming. He started to worry that he could not grow anymore. The container trucking business grew very fast and soon became the biggest trucking company in his country. By the time the construction of the port was over. When he brought imported containers. No one was going to let him handle more than 50%. Then he decided to buy some container trucks. the handling will be much faster at the port as he owned the port. His company was almost handling 50% of the container volume in his country. The company was employing over a thousand people and his managers who started to work in his company straight out of university were behaving like him as they did not know any other way of conducting business. He thought he would be in a better position to do trucking as then he can offer to his customers door-to-door service and this would make things easier for the customers. Plus everyone knew that when he did the trucking.

One year the chicken had a disease so the production was very low. Equally he once ventured into car dealership.e. Soon he had one of the largest small vessel fleet in the Mediterranean and Black Sea. It required a lot of investment and had very low margins. But this was a very different world. he gave up and sold the poultry business at a very big loss.Case: Arkal Holding (4) It was not always success. He gave up. Despite all these issues his company grew and continued to grow on liner shipping business i. The other year there was a food scare over salmonella and consumers switched to red meat. He thought by putting pressure on his sales managers he could make them sell more but here bigger car dealers always had the price advantage and eventually the losses amounted to figures that he could not handle. the business of taking the loads from his large ports and carrying the containers into smaller ports nearby. . For instance one he started a poultry farm. From that day onward no one would dare mentioning the word ¶chicken· in his presence. Finally.

Case: Arkal Holding (5) Container ship container .

Case: Arkal Holding (6)
1. What do you observe the ¶values· of Arkal holding to be? 2. What was constant and what was changing?

What about Toyota?
"From now on I want everybody to put their efforts together and unite in finding a way to make superior vehicles Kiichiro Toyoda Founder Toyota Motor Corporation, May 1939

What about Toyota?

What about Toyota? .

sales of 8 models for gas pedal problem By Steven Mufson and V. .Toyota stops production. a senior analyst with Edmunds. 2010 Toyota took the extraordinary step Tuesday of suspending the manufacture and sale of eight of its most popular models because of an unresolved mechanical flaw that might cause the accelerator to get perilously stuck in the depressed position. We've never seen an automaker pull the sales of so many models." BECAUSE WE HAVE ALWAYS DONE SO. "In the past. we have seen an automaker stop production of one specific vehicle or . January 27. Dion HaynesWashington Post Staff Writer Wednesday. ." said Michelle Krebs. "This is unprecedented.. .

Use visual control so no problems are hidden.Create a continuous process flow to bring problems to the surface. not the hare).Base your management decisions on a long-term philosophy. to get quality right the first time 6. (Work like the tortoise.Build a culture of stopping to fix problems.Use "pull" systems to avoid overproduction.Toyota Principles 1.. 2.Level out the workload (heijunka). 3. 5.Standardized tasks and processes are the foundation for continuous improvement and employee empowerment. 4. . even at the expense of short-term financial goals. 7.

14. live the philosophy.Develop exceptional people and teams who follow your company's philosophy.Toyota Principles (cont d) 8. .Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu). 11. 10.Make decisions slowly by consensus. thoroughly considering all options.Use only reliable.Grow leaders who thoroughly understand the work.Respect your extended network of partners and suppliers by challenging them and helping them improve. 9. implement decisions rapidly (nemawashi).Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen). 12. 13. thoroughly tested technology that serves your people and processes. and teach it to others.

The Mission Statement ? .

Mission and Objectives The mission statement describes the firm·s: .core purpose of the firm .visionary goals the firm will pursue to fulfill its purpose Why would you need this?????? .

Mission and Objectives .

Mission and Objectives Clear Directional Short Means what is says .

Mission Statement ‡ ‡ ‡ ‡ ‡ ‡ ‡ Define what the company is Define what the company aspires to be Limited to exclude some ventures Broad enough to allow for creative growth Distinguish the company from all others Serve as framework to evaluate current activities Stated clearly so that it is understood by all .

in addition to the general community. enhanced by a diverse cognizant membership.Mission Statement ‡ Some mission statements are long and complex« Since its inception in 1982. . LUL strives to preserve and promote an inclusive intellectual environment for its members. LUL is committed to academic excellence. La Unidad Latina has remained on the vanguard of political and community empowerment by developing influential leaders that strive to exert knowledge and power into its peers in order to attain mutual success. leadership development and cultural enlightenment.

Mission Statement In contrast. some mission statements are simple and direct. for example: ´ To protect and promote the interests of motorcyclists while serving the needs of its members.µ .

Strategic targets are related to the firm·s business position and may include measures such as market share. . Financial objectives involve measures such as sales revenue targets and earnings growth.Mission and Objectives Guided by the business vision the firm·s leaders can define measurable financial and strategic objectives.

Mission and Objectives Each mission statement has a story. Each mission says more than meets the eye. .

Example Mission Statement To be the world s premier toy brand: today and tomorrow. .

Bratz vs Barbie .

The Learning Company Adventure .

Premier 3. The world·s 2.What are the key words? Why? 1. Today and tomorrow . Brand 5. Toy 4.

4. 1. 3. Improve execution across all business segments. 2. 5. develop people to carry out these missions. catch new trends with existing and future businesses.Example of objectives that support the Mission Statement To be the world s premier toy brand: today and tomorrow. extend technologies and licenses. globalize into new markets. .

and value." . so that we make every customer in every restaurant smile. Being the best means providing outstanding quality. cleanliness. service.Example Mission Statement "McDonald's vision is to be the world's best quick service restaurant experience.

independent restaurant brands. .What do you think of the following mission statements? A Tradition of Quality Food and Service Vision To continuously grow stakeholder value by leveraging the strengths of our vibrant.

. independent restaurant brands.What do you think of the following mission statements? A Tradition of Quality Food and Service Vision To continuously grow stakeholder value by leveraging the strengths of our vibrant.

.The Mission Statement 1. What would be missing if this was not the the case? Discuss. Why have a sentence that descibes it all? 2..

but this time they do so in terms of the organization s values rather than bottom line measures (don t forget values are guiding beliefs about how things should be done.) The vision statement communicates both the purpose and values of the organization. Shared with customers. Vision Statements also define the organizations purpose. .Mission Statement vs Vision Statement A Mission Statement defines the organization's purpose and primary objectives. For employees. Its prime function is internal to define the key measure or measures of the organization s success and its prime audience is the leadership team and stockholders. it gives direction about how they are expected to behave and inspires them to give their best. it shapes customers understanding of why they should work with the organization.

Mission Statement vs Vision Statement Coca Cola Vision Statement Profit: Maximizing return to shareowners while being mindful of our overall responsibilities. Partners: Nurturing a winning network of partners and building mutual loyalty. desires and needs. . Planet: Being a responsible global citizen that makes a difference. People: Being a great place to work where people are inspired to be the best they can be. Portfolio: Bringing to the world a portfolio of beverage brands that anticipate and satisfy peoples.

" . through our brands and our actions. To Create Value and Make a Difference.......Mission Statement vs Vision Statement Coca Cola Vision Statement "Everything we do is inspired by our enduring mission: To Refresh the World. mind. everywhere we engage. To Inspire Moments of Optimism. in body. and spirit.

.Mission Statement Creation To create your mission statement. which expresses your ideas. and is the reason that customers will come to you and not your competitors Next identify the key measures of your success. measures and desired result. first identify your organization s winning idea . Make sure you choose the most important measures (and not too many of them!) Combine your winning idea and success measures into a tangible and measurable goal. This is the idea or approach that will make your organization stand out from its competitors. Refine the words until you have a concise and precise statement of your mission.

µ .Mission Statement Creation (Example) Take the example of a produce store whose winning idea is ´farm freshnessµ. The owner identifies two keys measures of her success: freshness and customer satisfaction. The mission statement of Farm Fresh Produce is: ´To become the number one produce store in Main Street by selling the highest quality. freshest farm produce. from farm to customer in under 24 hours on 75% of our range and with 98% customer satisfaction. She creates her mission statement ² which is the action goal that combines the winning idea and measures of success.

Next.Vision Statement Creation Once you·ve created your mission statement. Distil these into the values that your organization has or should have. human value in that mission. move on to create your vision statement: First identify your organization·s mission. Combine your mission and values. and polish the words until you have a vision statement inspiring enough to energize and motivate people inside and outside your organization. identify what you. your customers and other stakeholders will value most about how your organization will achieve this mission. Then uncover the real. .

Vision Statement Creation (Example) Using the example mission statement developed for Farm Fresh Produce. The four most important things she identifies are: freshness. her customers and her employees value about her mission. tastiest and most nutritious local produce: From local farms to your table in under 24 hours. Here·s the Vision Statement she creates and shares with employees.µ . tastiness and ´localnessµ of the produce. the owner examines what she. customers and farmers alike: ´We help the families of Main Town live happier and healthier lives by providing the freshest. healthiness.

Exercise For the Arkal Holdings example create a mission and a vision statement .

Exercise (2) To be told during the class .

The Environmetal Scanning .

to overcome the foolish by intelligence is in accord with the natural order." (Zhuge Liang. you are not wise. To overcome the intelligent by intelligence. ca. you are not smart. and conditions. The Way of the General) . When opportunities occur through events but you are unable to respond. When opportunities emerge through conditions but you cannot act on them. Those skilled in generalship always achieve their victories by taking advantage of opportunities. you are not bold. 200 AD. trends."To overcome the intelligent by folly is contrary to the natural order of things. There are three avenues of opportunity: events. however. When opportunities become active through a trend and yet you cannot make plans. is a matter of opportunity.

and others would be spurious (not indicative of a true change) .Detecting Change From an information perspective. Some of the signals would be weak (difficult to detect). every change or development in the external environment creates signals and messages that an organization may need to heed. many would be confusing (difficult to analyze).

A task of organizations is to interpret equivocal information about the external environment. and make sense of cues in relation to the firm's goals and activities. interpret often confusing messages.Detecting Change In seeking information. . the organization would have to attend selectively to a flood of signals created by a dynamic environment.

situations. the knowledge of which would assist management in planning the organization's future course of action Environmental scanning focuses on the identification of emerging issues.Environmental Scanning Environmental scanning is the acquisition and use of information about events. . trends. and relationships in an organization's external environment. and potential pitfalls that may affect an organization's future.

Although there are many factors. For business organizations. technological. competition. and governmental sectors . it is helpful to divide the external environment into a small number of sectors. suppliers. socioeconomic. the environment may be analyzed as consisting of six sectors: customers.Environmental Scanning The external environment of an organization includes all outside factors which can affect the performance or survival of the organization.

one may distinguish between a macro-environment comprising social. political. and technological sectors.Environmental Scanning Alternatively. economic. and a task/industry environment comprising mainly the customer and competitor sectors .

‡formal search . ‡conditioned viewing.Environmental Scanning One of the earliest studies on environmental scanning differentiated between four styles of scanning: ‡undirected viewing. ‡informal search.

Porter·s Five Forces

Porter·s Five Forces
In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated, passive price takers. Rather firms strive for competitive advantage over their rivals. The intensity of rivalry varies from industry to industry. Part of strategic management is to understand well the rivalry that the firm is facing....

Competitive Advantage When a firm sustains profits that exceed the average of its industry, it is said to possess a competitive advantage.

Competitive Advantage There are two sources of competitive advantage: ‡The cost advantage Same revenue but lower costs ‡Differentiation advantage Higher revenues .

Competitive Advantage Model In other words. you do not create value . if you are creating only the average profit for your industry.

in order to develop a competitive advantage. Without this superiority. the competitors could simply replicate what the firm was doing and any competitive advantage would disappear. the firm must have resources or capabilities that are superior to those of its competitors.Resources and capabilities According to the resource based view. .

.Porters Generic Strategies If the primary determinant of the firm·s profitability is the attractiveness of the industry in which it operates an important second determinant is its position in that industry. Even though an industry may have below average profitability a firm that is optimally positioned can generate higher returns.

Porters Generic Strategies A firm positions itself by leveraging its strengths (dost or differentiation). By applying those strengths in either a broad or narrow scope Three generic strategies may result: ‡ ‡ ‡ Cost leadership Differentiation Focus .

accessible.Porters Generic Strategies Market segment: satisfying the needs of a portion of the industry that is identifiable. with unique needs and durable . substantial.

Cost leadership The firm sells its products either at average industry price to earn a profit higher than its rivals or below the industry average to gain a market share. . In the event of a price war. the firm can mainatain some profitability whilst the competitors suffer losses.

High volumes that make unit cost low Skill in designing efficient processes. ‡ ‡ ‡ . This investment creates a barrier to entry that many firm·s may not be able to overcome. Efficient distribution channels.Cost leadership (how?) ‡ Access to the capital in order to make investment to assets.

Cost leadership (risks) ‡ ‡ . The other firm·s may find ways of lowering their costs Competitors may target various narrow markets Example : Department stores vs Category killers vs .

Cost leadership (examples) Low cost focus .

Cost leadership (examples) ‡ Give examples for companies that use cost leadership .

Differentiation strategy This calls for offering product or service that have unique quality that are appreciated by the customers (enough to generate a price differential) Differentiation is aimed at the broad market that involves the creation of a product or services that is perceived throughout its industry as unique. Research does suggest that a differentiation strategy is more likely to generate higher profits than is a low cost strategy because differentiation creates a better entry barrier. . The company or business unit may then charge a premium for its product.

Differentiation strategy (how?) ‡ ‡ ‡ ‡ ‡ ‡ Access to leading scientific research Highly skilled and creative team Strong sales team with the ability to successfully communicate the benefits to the customers Coroporate reputation for quality and innovation A process design focussing on customer·s needs and reflecting this on the way the product or service is delivered Emotional value .

Emotional value .

Differentiation strategy (risks) ‡ ‡ ‡ Imitation by competitors Change in customer·s tastes Company·s with focus strategies that provide even more differentiation vs .

Differentiation (examples) .

.Differentiation (examples) ‡ Give examples for companies that use differentitation What products and services would you pay more than similar ones available in the market just because you trust the brand or the emotional value it has...

with provides short-haul point-to-point flights in contrast to the hub-and-spoke model of mainstream carriers .Focus Strategy The firm focuses on a few target markets (also called a segmentation strategy or niche strategy). Examples of firm using a focus strategy include Southwest Airlines. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets. you can better meet the needs of that target market.

Stuck in the middle? What do you think if a firm uses a combination of these strategies? .

Generic Strategies and Industry Forces .

Iphone vs HTC .

.SWOT Analyis Environmental factors that are internal to the firm can be usually classified as Strengths and Weaknesses and factors that are external to the firm can be classified as Opportunities or Threats.

you can manage and eliminate threats that would otherwise catch you unaware.SWOT Analyis What makes SWOT particularly powerful is that. . so that you can compete successfully in your market. with a little thought. More than this. you can start to craft a strategy that helps your firm distinguish yourself from your competitors. it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business.

‡ patents ‡ strong brand names ‡ good reputation among customers ‡ cost advantage from processes ‡ ability give more complete service ‡ favourable access to resources ‡ favourable access to distribution channels Important: a strength is a strength if it turns to higher revenue .Strengths A firm s Strengths are its resources and capabilities that can be used as a basis for creating a competitive advantage.

Weaknesses The absence of certain strengths is viewed as weakness. ‡ lack of patent protection ‡ a weak brand name ‡ poor reputation among customers ‡ high cost structure ‡ lack of access to resources ‡ expensive cost base or processes ‡ weak distribution .

e. : large manufacturing capacity gives strength as it means low cost base but also weakness because it prevents flexibility .Weaknesses In some cases the weakness can be the flip side of a strength.g.

Opportunities The external anlysis may reveal may reveal new opportunities for profit and growth. ‡ an unfulfilled customer need ‡ arrival of new technology ‡ loosening of regulations ‡ removal of internal trade barriers What you need to ask is: ‡ do we benefit at the same extend as our rivals ‡ do I need to do something to benefit from this opportunity .

‡ shift in consumer tastes away from the firm·s products or services ‡ emergence of substitute products ‡ new regulations ‡ increased trade barriers ‡ arrival of a new competitor ‡ change in tactics of a competitor .Threats Changes in the external environment also may present threats to the firm.

Products pass through all activities of the chain in order. . The chain of activities gives the products more added value than the sum of added values of all activities. and at each activity the product gains some value.Value Creation A value chain is a chain of activities for a firm operating in a specific industry. It is important not to mix the concept of the value chain with the costs occurring throughout the activities.

Value Creation (Example) Design Manufacturing Distribution Retailing .

The market is not homogenous .

The Gap Analyisis Firm 1 Firm 4 Price Firm 5 Firm 2 Firm 3 Comfort or Quality or Service Level .

The Boston Consultancy Matrix .

The Boston Consultancy Matrix (variation) Profit .

Strategic Management Process Terms of Reference Mission and Objective Environmental Scanning Strategy Formulation Strategy Implementation Evaluation & Control .