STRATEGIC MANAGEMENT LECTURE

By Dr. Peng Chan

” . going around in circles.“Without a strategy the organization is like a ship without a rudder.

Where are we now? 2. Where do we want to go?  Business(es) to be in and market positions to stake out Buyer needs and groups to serve Outcomes to achieve   3. How will we get there? .Thinking Strategically: The 3 Big Strategic Questions 1.

and threatening developments Unifies numerous strategy-related decisions and organizational efforts Creates a proactive atmosphere Promotes development of an evolving business model focused on bottom-line success Provides basis for competing and achieving competitive advantage HELPS A COMPANY PREPARE FOR THE FUTURE! . new opportunities.Benefits of “Strategic Thinking” and a “Strategic Approach” to Managing Guides entire firm regarding “what it is we are trying to do and to achieve” Makes managers more alert to “winds of change.

Evaluate. and Take Corrective Action Set Goals & Objectives Revise as Needed Revise as Needed Improve/ Change Improve/ Change Recycle as Needed .The 5 Tasks of Strategic Management Task11 Develop Vision and Mission Task 2 Task 3 Formulate Strategy to Achieve Goals & Objectives Task 4 Implement and Execute Strategy Task 5 Monitor.

Who Performs the Five Strategic Management Tasks? Senior Corporate Executives Managers of Subsidiary Business Units Functional Area Managers Operating Managers .

SETTING CORPORATE DIRECTION [ TASKS 1 & 2] “IF YOU DON’T KNOW WHERE YOU ARE GOING. ANY ROAD WILL TAKE YOU THERE” .

SETTING CORPORATE DIRECTION TASK 1 – VISION & MISSION TASK 2 – GOALS & OBJECTIVES .

Developing a Strategic Vision Task 1 of the Strategic Management Process Involves thinking strategically about  Future of company  Where are we going? Statement about a company’s long-term direction .

. domestic and international.Example: Vision Statement Verizon Communications To be the customer’s first choice for communications and information services in every market we serve.

.Example: Vision Statement Levi Strauss & Company We will clothe the world by marketing the most appealing and widely worn casual clothing in the world.

Example: Vision Statement Microsoft Corporation (Old Vision) “A computer on every desk. in every home” .

Example: Vision Statement General Electric (Jack Welch) We will become number one or number two in every market we serve. . and revolutionize this company to have the speed and agility of a small enterprise.

Example: Vision Statement Microsoft Corporation (New Vision) "To enable people and businesses throughout the world to realize their full potential" .

To achieve that leadership.Example: Vision Statement General Electric (Jeff Immelt) GE is committed to achieving worldwide leadership in each of its businesses.Customer Centricity .Globalization . GE's ongoing business strategy centers on four key growth initiatives: .Technology .Services .

MISSION DEFINES A COMPANY’S BUSINESS: • PRODUCT / MARKET • TERRITORY / GEOGRAPHY .

. Wit Capital (an Internet startup company) Our mission is to be the premier Internet investment banking firm focused on the offering and selling of securities to a community of online individual investors.Simple Mission Statements Eastman Kodak We are in the picture business.

Our mission is total customer satisfaction. down. Avis Rent-a-Car Our business is renting cars. . and sideways over short distances with higher reliability than any similar enterprise in the world.More Mission Statements … Otis Elevator Our mission is to provide any customer a means of moving people and things up.

Setting Goals & Objectives Second Task of Strategic Management Converts vision and mission into specific performance targets Creates yardsticks to track performance “Management by Objective” (MBO) .focused on results .

GOALS = BROAD TARGETS OBJECTIVES (a) QUANTIFIED (b) TIME-BASED .

2 CATEGORIES 1) FINANCIAL 2) STRATEGIC .

Financial Goals Strive for stock price appreciation equal to or above the S&P 500 average Maintain a positive cash flow every year Achieve and maintain a AA bond rating .

Financial Objectives Grow Boost earnings per share 15% annually annual return on investment (or EVA) from 15% to 20% within three years Increase annual dividends per share to stockholders by 5% each year .

Strategic Goals Increase firm’s market share Overtake key rivals on quality or customer service or product performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities .

STRATEGY FORMULATION [TASK 3] .

What is Strategy? A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company Strategy is management’s “game plan” to      Attract and please customers Stake out a market position Conduct operations Compete successfully Achieve organizational objectives .

Levels of Strategy-Making in a Diversified Company Corporate-Level Managers Corporate Strategy Two-Way Influence Division Managers Business Strategies Two-Way Influence Functional Mgrs Functional Strategies Two-Way Influence Operating Mgrs Operating Strategies .

Goals/Objectives. Lower-Level Supervisors Operating Goals Operating Objectives Operating Strategies . Missions.Networking of Vision. and Strategies Level 1 CorporateLevel Managers Corporate-wide Vision & Mission Two-Way Influence Corporate Level Goals/Objs Two-Way Influence Corporate Level Strategy Two-Way Influence Level 2 Business-Level Managers Business Level Mission Two-Way Influence Business Level Goals/Objs Two-Way Influence Business Level Strategies Two-Way Influence Level 3 Functional Managers Functional Goals Two-Way Influence Functional Objectives Two-Way Influence Functional Strategies Two-Way Influence Level 4 Plant Managers.

regulatory and community factors Competitive conditions and industry attractiveness Company opportunities and threats to company’s well-being  External Factors Company’s Strategic Situation Determine relevance of internal and external factors Identify and evaluate alternatives Craft the strategy Resource strengths.Factors Shaping the Choice of Company Strategy Social. capabilities. and weaknesses Influences of key executives Shared values and company culture  Internal Factors . political.

• Falling behind in R&D • Too narrow product line • Weak marketing skills Potential Company Opportunities • Serving additional customer groups • Expanding to new geographic areas • Expanding product line • Transferring skills to new products • Vertical integration • Take market share from rivals • Acquisition of rivals • Alliances or JVs to expand coverage • Openings to exploit new technologies • Openings to extend brand name/image Potential External Threats • Entry of potent new competitors • Loss of sales to substitutes • Slowing market growth • Adverse shifts in exchange rates & trade policies • Costly new regulations • Vulnerability to business cycle • Growing leverage of customers or suppliers • Reduced buyer needs for product • Demographic changes .What to Look For Potential Resource Strengths • Powerful strategy • Strong financial condition • Strong brand name image/reputation • Widely recognized market leader • Proprietary technology • Cost advantages • Strong advertising • Product innovation skills • Good customer service • Better product quality • Alliances or JVs Potential Resource Weaknesses • No clear strategic direction • Obsolete facilities • Weak balance sheet. excess debt • Higher overall costs than rivals • Missing some key skills/competencies • Subpar profits • Internal operating problems .SWOT Analysis . . .

The Basic Strategy Framework: Link between the Firm and its Environment THE FIRM Goals & Values Resources & Capabilities Structure & Systems STRATEGY STRATEGY THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers .

MARKET-FOCUS VIEW OF STRATEGY (EXTERNAL ANALYSIS) .

The Components of a Company’s Environment .

INDUSTRY ANALYSIS .

5 Forces Model .

Industry Driving Forces Internet and e-commerce opportunities Increasing globalization of industry Changes in long-term industry growth rate Changes in who buys the product and how they use it Product innovation Technological change/process innovation Marketing innovation .

What Are the Key Factors for Competitive Success? Competitive factors most affecting every industry member’s ability to prosper      KSFs spell the difference between   Specific strategy elements Product attributes Resources Competencies Competitive capabilities Profit and loss Competitive success or failure .

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to induce beer drinkers to buy a particular brand .Example: KSFs for Beer Industry Full utilization of brewing capacity -.to keep manufacturing costs low Strong network of wholesale distributors -.to gain access to retail outlets Clever advertising -.

to create buyer appeal Low-cost manufacturing efficiency -.Example: KSFs for Apparel Manufacturing Industry Appealing designs and color combinations -.to keep selling prices competitive .

COMPETITOR ANALYSIS .

What Are the Market Positions of Industry Rivals? One technique for revealing the different competitive positions of industry rivals is strategic group mapping A strategic group consists of those rivals with similar competitive approaches in an industry .

Strategic Group Mapping Firms in same strategic group have two or more competitive characteristics in common        Have comparable product line breadth Sell in same price/quality range Emphasize same distribution channels Use same product attributes to appeal to similar types of buyers Use identical technological approaches Offer buyers similar services Cover same geographic areas .

Example: Strategic Group Map of Selected Retail Chains .

Concept of Competitive Advantage Competitive advantage exists when a firm’s strategy gives it an edge in   Attracting customers and Defending against competitive forces Key to Gaining a Competitive Advantage Convince customers firm’s product / service offers superior value    A good product at a low price A superior product worth paying more for A best-value product .

5 Generic Competitive Strategies

RESOURCE-BASED VIEW
OF STRATEGY

(INTERNAL ANALYSIS)

Core Competencies -- A Valuable Company Resource
A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability Often, a core competence results from collaboration among different parts of a company Typically, core competencies reside in a company’s people, not in assets on the balance sheet A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset

Examples of Core Competencies Expertise in integrating multiple technologies to create families of new products Know-how in creating operating systems for cost efficient supply chain management Speeding new/next-generation products to market Better after-sale service capability Skills in manufacturing a high quality product System to fill customer orders accurately and swiftly .

Example: Honda’s Core Competence Expertise in gasoline engine technology and small engine design .

Example: Intel’s Core Competence Design of complex chips for personal computers .

attractively designed PCs . TVs and VCRs with unique features.Example: Sony’s Core Competence Expertise in electronic technology and ability to translate the expertise into innovative products—miniaturized radios and video cameras.

A Competitively Superior Resource A distinctive competence is a competitively significant activity that a company performs better than its competitors  A distinctive competence  Represents a competitively valuable capability rivals do not have  Presents attractive potential for being a cornerstone of strategy  Can provide a competitive edge in the marketplace—because it represents a competitively superior resource strength #1 .Distinctive Competence -.

Honda. high-quality manufacturing capability and short design-to-market cycles Ability to design and manufacture ever more powerful microprocessors for PCs Store ambience and innovative coffee drinks Starbucks  . Nissan Intel  Expertise in flat-panel display technology Low-cost.Examples: Distinctive Competencies Sharp Corporation   Toyota.

and supporting its product or service The value chain contains two types of activities   Primary activities -. marketing.where most of the value for customers is created Support activities -.facilitate performance of the primary activities . producing. delivering.The Concept of a Company Value Chain A company’s business consists of all activities undertaken in designing.

Representative Company Value Chain .

Representative Value Chain for an Entire Industry .

quality. and performance of inputs provided by suppliers influence a firm’s own costs and product performance Forward channel allies’ costs and margins are part of price paid by ultimate end-user Activities performed affect end-user satisfaction .The Value Chain System for an Entire Industry Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain Suppliers’ value chains are relevant because  Forward channel allies’ value chains are relevant because   Costs.

Example: Key Value Chain Activities Pulp & Paper Industry Timber farming Logging Pulp mills Papermaking .

Example: Key Value Chain Activities Home Appliance Industry Parts and components manufacture Assembly Wholesale distribution Retail sales .

Example: Key Value Chain Activities Soft-Drink Industry Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Advertising Albertson’s Retailing .

Example: Key Value Chain Activities Computer Software Industry Programming Disk loading Marketing Distribution .

Benchmarking Costs of Key Value Chain Activities Focuses on cross-company comparisons of how certain activities are performed and the costs associated with these activities         Purchase of materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of payrolls .

” .STRATEGY IMPLEMENTATION & EXECUTION [TASK 4] “Strategies most often fail because they aren’t executed well.

Crafting vs. Executing Strategy Crafting the Strategy Primarily a marketdriven activity Successful strategy making depends on   Executing the Strategy Primarily an operations-driven    Business vision Perceptive analysis of the situation Attracting and pleasing customers Outcompeting rivals Forging a competitive advantage activity Successful strategy execution depends on     Good organization-building and people management Creating a strategysupportive culture Continuous improvement Getting things done and delivering good results .

Implementing a Newly Chosen Strategy Requires Adept Leadership Implementing a new strategy takes adept leadership to  Convincingly communicate reasons for the new strategy Overcome pockets of doubt Build consensus and enthusiasm     Secure commitment of concerned parties Get all implementation pieces in place and coordinated .

The 8 Actions of Implementing and Executing Strategy .

“UNLESS WE CHANGE OUR DIRECTION WE ARE LIKELY TO END UP WHERE WE ARE HEADED” ~ Ancient Chinese proverb .

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