Strategic Management

Genie in a Lamp A man was walking along a road when he found a lamp. Upon rubbing the lamp a genie appeared who stated "I am the most powerful genie in the world. Because I am so powerful, I can grant you any wish you want, but only one wish." The man pulled out a map of Asia and said "I'd like there to be peace among the people." The genie responded, "Gee, I don't know. Those people have been fighting since the beginning of time. They are always going to be fighting. I can do just about anything, but this is beyond my limits." The man then said, "Well, we are starting a Management programme. I wonder if you could teach the students this MBA thing." Genie: "Uh, let me see that map again."

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Strategic Management

If a Manager Were a Car...
It would crash two or three times per day for no apparent reason. The driver is often hurt, but the car itself receives no permanent damage. You'd just accept this fact, restart the car, and begin your trip again. Occasionally, your car would fail to restart after a crash, and you'd have to reinstall the engine. For some strange reason, you'd just accept this too. You would be forced to buy a new model every 18 months, and your old model would have no resale value. Each new model would be bigger than the previous one, require more petrol, and would operate differently. Furthermore, parts from the old car would not be interchangeable with the new car. You could call a special phone number when you have a problem. The phone would be staffed by people who know less about your car than you do. However, there is available a special MBA-Telecom model, powered by Amity. Since we know what you want It can run on 100 percent of the roads and requires easy driving skills. & The newest Model is here now! 1-2

Strategic Management

Scientists Tell Us...
The average MBA spends: 9.5 years sleeping 4.2 years eating 3.8 years on the toilet 2.8 years traveling and... 1.9 years waiting for a job!

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“Strategy is a framework which  guides those choices that determine  the nature and direction of an  organization.”
­Benjamin B. Tregoe & John W. Zimmerman “Top Management Strategy”
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“Strategy is the creation of a unique  and valuable position, involving a  different set of activities.”
­Michael Porter “What is Strategy?” Harvard Business Review

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“In terms of the three key players  (competitors, customers, company)  strategy is defined as the way in which a  corporation endeavors to differentiate  itself positively from its competitors,  using its relative corporate strengths to  better satisfy customer needs.”
­Kenichi Ohmae “The Mind of the Strategist”
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Planning Defined
In the business world, Henri Fayol, the French industrialist, is credited with the first successful attempts at formal planning. Growth is an accepted expectation of a firm; however, growth does not happen by itself. Growth must be carefully planned: questions such as how much, when, in which areas, where to grow, and who will be responsible for different tasks must be answered. Unplanned growth will be haphazard and may fail to provide desired levels of profit. Planning is required in making a choice among the many equally attractive alternative investment opportunities a firm may have. Thus, the introduction of the concept of risk & uncertainty Planning for future action has been called by many different names: long-range planning, corporate planning, comprehensive planning, and formal planning. Whatever its name, the reference is obviously to the future. Planning is essentially a process directed toward making today’s decisions with tomorrow in mind and a means of preparing for future decisions so that they may be made rapidly, economically, and with as little disruption to the business as possible.
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Planning
Planning Principles As far as possible the following principle should be adhered to: • Plans should be based on facts rather than opinions. • Plans should include some degree of flexibility to allow for unforeseeable events. • A plan should be as detailed as expenditure constraints allow. • Plans should not extend too far into the future as accurate prediction of the distant future is impossible. • All alternative courses of action should be considered. • Side effects and implications of the actions envisaged should be examined. • Instructions to individuals and departments should be incorporated into the plan. • Plans should be concise and easy to understand. • Plans should be monitored for effectiveness as they are implemented. • Targets embodied in plans should be reasonable and not overambitious. • The key factors determining the success of the plan should be identified and receive the greatest emphasis.
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Philosophies of Planning
Three different philosophies of planning - satisfying, optimizing, and adaptivizing.

Planning on the basis of the satisfying philosophy aims at easily achievable goals and molds planning efforts accordingly. This type of planning requires setting objectives and goals that are “high enough’’ but not as “high as possible.’’ The satisfying planner, therefore, devises only one feasible and acceptable way of achieving goals, which may not necessarily be the best possible way. Under a satisfying philosophy, confrontations that might be caused by conflicts in programs are diffused through politicking, underplaying change, and accepting a fall in performance as unavoidable. For example, the present government.

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Philosophies of Planning
Three different philosophies of planning - satisfying, optimizing, and adaptivizing.

The philosophy of optimizing planning has its foundation in operations research. The optimizing planner seeks to model various aspects of the organization and define them as objective functions. Efforts are then directed so that an objective function is maximized (or minimized), subject to the constraints imposed by management or forced by the environment. For example, an objective may be to obtain the highest feasible market share; planning then amounts to searching for different variables that affect market share: price elasticity, plant capacity, competitive behavior, the product’s stage in the life cycle, and so on. The effect of each variable is reduced to constraints on the market share. Then an analysis is undertaken to find out the optimum market share to target.

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Philosophies of Planning
Three different philosophies of planning - satisfying, optimizing, and adaptivizing.

The philosophy of adaptivizing planning is an innovative approach. To understand the nature of this type of planning, let us compare it to optimizing planning. In optimization, the significant variables and their effects are taken for granted. Given these, an effort is made to achieve the optimal result. With an adaptivizing approach, on the other hand, planning may be undertaken to produce changes in the underlying relationships themselves and thereby create a desired future. Underlying relationships refer to an organization’s internal and external environment and the dynamics of the values of the actors in these environments (i.e., how values relate to needs and to the satisfaction of needs, how changes in needs produce changes in values, and how changes in needs are produced). Example, acceptance of mobiles.
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Planning in Organizations
Every plan should have: Objectives, Strategies, Programmes, Controls

Mission : purpose, scope Vision/Intent, desired future state Goal Objectives : SMART Strategies : How to Achieve the Objective Policies – Clear guidelines for decisions and actions Programmes: The Operational Activities Involved The programmes are the details of the plan; they clarify: • Responsibilities • Money • Controls - Measurements
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Planning in Organizations
Evolution of Strategic Management

Strategy’s Military Roots •Battlefield strategies to gain an edge •Exploit weak spots

Academic Origins of Strategic Management •Economic theory •Early organizational studies

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Planning in Organizations
Evolution of Strategic Management

• 1960s • 1970s • 1980s • Early 1990s

Design School BCG Portfolio Management Porter Positioning School Resource-based View (Core Competence), & Learning Organization

• Mid 1990s

Stretching ambition, not just positioning/Fit

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Planning in Organizations
Levels of Strategy; Hierarchy of Strategies Unfortunately, these sets of processes are not carried out as discrete actions and do not follow nicely in a linear manner. • Corporate level: Purpose and scope, Long Term Survival • Business Level: Competition • Operations Level: Action plans and implementation for human resources, financing, manufacturing, R&D, etc. • • • Short term 0 to 12 months. Medium term 12 to 36 months. Long term over three years.

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Planning in Organizations
The concern of strategy is effectiveness (doing the right things). The concerns of operations are efficiency (doing things right).

Strategic Planning Strategic planning is a systematic, analytical approach that reviews the business as a whole in relation to its environment, with the objective of: • Developing an integrated, co-ordinated and consistent view of the route the company wishes to follow. • Facilitating the adaptation of the organisation to environmental change. The aim of strategic planning is to create a viable link between the organisation’s objectives and resources and its environmental opportunities. Strategic And Operational Planning Strategic management planning produces both the primary goals for operational plans and the framework in which they can be realised. The main intended outcome of strategy is the successful positioning of the company in the market place (including satisfactory market share, adequate profitability, possible market leadership, etc.). The main intended outcome of operational planning is the efficient attainment of budgeted sales and/or revenue targets. Operational planning is sometimes also referred to as tactical planning.
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Planning Process
The Planning Cycle Major corporate planning exercises normally take place every three to six years Operational planning exercises may take place every year or half year. Benefits to be gained from planning include: •Risk Reduction •Reduction of Uncertainty •Setting Targets and Standards •Guidance •Commitment •Improves Decision Making

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Planning Process
No Strategic Planning Poor Reward Structures. Fire-fighting. Waste of Time. Too Expensive. Laziness. Content with Success. Fear of Failure. Overconfidence. Prior Bad Experience. Self-Interest. Fear of the Unknown. Honest Difference of Opinion. Suspicion.

• • • • • • • • • • • • •

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Planning Process Activity

Take an organisation that you are familiar with and answer the following questions: 1. Does the organisation have a mission statement? • Yes • No • Don’t Know • • • If the answer to 1 is Yes, write out the mission statement as accurately as you can. If the answer to 1 was No or Don’t Know, suggest a suitable mission statement from your knowledge of the organisation and its activities. What do you think is the best way of making employees aware of an organisation’s mission statement.

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Strategic Planning Models
The Linear Static Model of Strategy
Strategic thinking can be divided into two segments : strategy formulation and strategy implementation. Strategy formulation involves: 4. Doing a situation analysis: both internal and external; both micro-environmental and macroenvironmental. (where you are now) 5. Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term), mission statements (medium term), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. (where you want to go) 6. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to obtain these goals. (how to get there) The next phase, is the implementation of the strategy. This involves: 8. Allocation of sufficient resources 9. Establishing a chain of command or some alternative structure 10. Assigning responsibility of specific tasks or processes to specific individuals or groups 11. Involves managing the process - this includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.
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Strategic Planning Models
The Dynamic Model of Strategy Charles Lindblom (1959) claimed that strategy is a fragmented process of serial and incremental decisions. James Brian Quinn (1980) developed an approach that he called "logical incrementalism“ : "Constantly integrating the simultaneous incremental process of strategy formulation and implementation is the central art of effective strategic management." Whereas Lindblom saw strategy as a disjointed process without conscious direction, Quinn saw the process as fluid but controlable. Henry Mintzberg (1978) made a distinction between deliberate strategy and emergent strategy. Emergent strategy originates not in the mind of the strategist, but in the interaction of the organization with its environment. He claims that emergent strategies tend to exhibit a type of convergence in which ideas and actions from multiple sources integrate into a pattern. This is a form of organizational learning, in fact, on this view, organizational learning is one of the core functions of any business enterprise (Peter Senge's The Fifth Discipline)

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Strategic Planning Models
The Dynamic Model of Strategy Constantinos Markides (1999) describes strategy formation and implementation as an on-going, never-ending, integrated process requiring continuous reassessment and reformation. In this model, strategy is both planned and emergent, dynamic, and interactive.

The alignment of action with strategic intent (the top line in the diagram), is the blending of strategic intent, emergent strategies, and strategies in action, to produce strategic outcomes. The continuous monitoring of these strategic outcomes produces strategic learning (the bottom line in the diagram). This learning is comprised of feedback into internal processes, the environment, and strategic intentions.

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Strategic Management Defined

Set of managerial decisions and actions that determines the long-run performance of a firm.

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The Four Stages of Strategic Management

Stage 1
Basic Financial Planning

Stage 2
Forecast Based Planning

Stage 3
Externally Oriented Planning

Stage 4
Full Strategic Management

Rs

sales, production, manpower

markets, industry, benchmarking

people, markets, numbers, industry, production

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Basic Concepts of Strategic Management

Basic Elements of the Strategic Management Process

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Strategic Management Model
Environmental Scanning External
Societal Environment General Forces Task Environment Industry Analysis

Strategy Formulation
Mission
Reason for existence

Strategy Implementation

Evaluation and Control and Control and Control

Objectives
What results to accomplish by when

Strategies
Plan to achieve the mission & objectives

Policies
Broad guidelines for decision making

Internal
Structure Chain of Command Culture Beliefs, Expectations, Values Resources Assets, Skills Competencies, Knowledge

Programs
Activities needed to accomplish a plan

Budgets
Cost of the programs

Procedures
Sequence of steps needed to do the job

Process to monitor performance and take corrective action

Performance

Feedback/Learning

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Outcome of Strategic Management

Superior Profit

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Alternative Models of Superior Returns Industrial Organization Model
The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns

Resource-Based Model
Resources Capability Competitive Advantage An Attractive Industry Strategy Implementation Superior Returns
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I/O Model of Superior Returns
The Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.

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I/O Model of Superior Returns
External Environment
General Environment Industry Environment Competitive Environment Action required:
Study the external environment, especially the industry environment.

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I/O Model of Superior Returns
External Environment
An Attractive General Environment Industry IndustryAn industry whose Environment structural characteristics Competitive suggest above-average Environment returns are possible

Action required: Locate an industry with high potential for aboveaverage returns.

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I/O Model of Superior Returns
External Environment Attractive GeneralIndustry Environment Industry Environment An industryStrategy whose Competitive Formulation structural characteristics
Environment suggest above-average a Selection of returns are possible

Action required: Identify strategy called for by the industry to earn above-average returns.

strategy linked with above-average returns in a particular industry

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I/O Model of Superior Returns
External Environment Attractive Industry General Environment Strategy Formulation Industry Environment An industry whose Competitive structural characteristics Environment Assets and suggest above-average a strategy Skills Selection of returns are linked with abovepossible Assets a average returns inand skills required particular industry to implement a chosen strategy

Action required: Develop or acquire assets and skills needed to implement the strategy.

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I/O Model of Superior Returns
External Environment Attractive Industry General Environment Strategy Formulation Industry Environment An industry whose Competitive structural characteristics Environment Assets and suggest above-average a strategy Skills Selection of returns are linked with abovepossible Assets a Strategy average returns inand skills Implementation required particular industry to implement a chosen strategy Selection of strategic actions linked with effective implementation of the chosen strategy

Action required: Use the firm’s strengths (its assets or skills) to implement the strategy.

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I/O Model of Superior Returns
External Environment Attractive Industry General Environment Strategy Formulation Industry Environment An industry whose Competitive structural characteristics Environment Assets and suggest above-average a strategy Skills Selection of returns are linked with abovepossible Assets a Strategy average returns inand skills Implementation required particular industry to implement a chosen strategy Superior Returns Selection of strategic actions linked with Earning of aboveeffective implementation average returns of the chosen strategy

Action required: Maintain selected strategy in order to outperform industry rivals.

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Resource-Based Model of Superior Returns
The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.
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Resource-Based Model of Superior Returns
Resources

Inputs to a firm’s production process

Action required: Identify firm resources. Study strengths and weaknesses relative to rivals.

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Resource-Based Model of Superior Returns
Resources Capability Action required: Determine what firm capabilities allow it to do better than rivals.

Inputs to a firm’s production process. an integrated Capacity for set of resources to perform a task or activity.

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Resource-Based Model of Superior Returns
Resources Capability Action required: Determine how firm’s resources and capabilities may create competitive advantage.

Inputs to a firm’s production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform a Ability task or activity. of a firm to outperform its rivals

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Resource-Based Model of Superior Returns
Resources Capability Action required: Locate an attractive industry.

Inputs to a firm’s production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivals Location of an industry with opportunities that can be exploited by the firm’s resources and capabilities

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Resource-Based Model of Superior Returns
Resources Capability Action required: Select strategy that best exploits resources and capabilities relative to opportunities in environs.

Inputs to a firm’s production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivalsStrategy Location of an Formulation and industry with opportunities that can Implementation be exploited by the Strategic actions taken to firm’s resources and earn capabilities above-average returns

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Resource-Based Model of Superior Returns
Resources Capability Action required: Maintain selected strategy in order to outperform industry rivals.

Inputs to a firm’s production process. an integrated Competitive Capacity for set of resources to Advantage integratively perform An Attractive a Ability firm to task or activity. of aIndustry outperform its rivalsStrategy Location of an Formulation and industry with Superior opportunities that can Implementation Returns be exploited by the Strategic actions taken to firm’s resources and Earning of aboveearn average capabilities above-averagereturns returns

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Resources and capabilities lead to Competitive Advantage when they are:
Valuable
allow the firm to exploit opportunities or neutralize threats in its external environment

Rare Costly to Imitate

possessed by few, if any, current and potential competitors when other firms either cannot obtain them or must obtain them at a much higher cost

Non-substitutable the firm must be organized appropriately to

obtain the full benefits of the resources in order to realize a competitive advantage
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When these four criteria are met, Resources and Capabilities become:

Core Competencies

Core Competencies are resources and capabilities that can serve as a source of Competitive Advantage. The Resource-Based model argues that Core Competencies are the basis for a firm’s Competitive Advantage, Strategic Competitiveness and Ability to Earn Above-average Returns.
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Competitive Advantage and the Value Chain
• A firm can gain competitive advantage by finding differentiation or low costs in its activities • Value chain is a convenient way of looking at the firm’s activities • Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product
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The Value Chain

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Components of the Value Chain
• Primary activities: physical actions of creating, selling, and after-sale service of products • Upstream: early activities in the value chain
– R&D – Dealing with suppliers

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Components of the Value Chain (cont.)
• Downstream: later value chain activities
– Sales and dealing with distribution channels

• Support activities: systems for human resources management, organizational design and control, and technology

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Core Competency

The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.

Strategy

An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.

Business Level Strategy

Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.
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Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness

Breadth of Competitive Scope

Broad Target Market

Cost Cost Leadership Leadership

Differentiation

Narrow Target Market

Focused Low Cost

Focused Differentiation
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Value Creating Activities Common to a Cost Leadership Business Level Strategy Firm Infrastructure
Support Activities

Human Resource Management Technological Development Procurement Operations Outbound Logistics Marketing & Sales Inbound Logistics

M

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R

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Service A RG IN
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Primary Activities

Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems

Firm Infrastructure

Simplified Planning Practices to Reduce Planning Costs

Relatively Few Management Layers to Reduce Overhead

Support Activities

Consistent Policies to Reduce Turnover Costs

Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Carriers Purchases Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes

Effective Training Programs to Improve Worker Efficiency and Effectiveness

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Easy-to-Use Manufacturing Technologies

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Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials

Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances

Operations

Outbound Logistics

Located in Close Proximity with Suppliers

Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning

National Scale Advertising

Marketing & Sales

Inbound Logistics

Interrelationships with Sister Units

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Service A RG IN
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Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes

Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume

Primary Activities

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Can frighten off New Entrants due to the need to:

* *

Enter at large scale to be Cost Competitive Take time to move down the “Learning Curve”

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Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”

Threat of New Entrants

Can mitigate Buyer Power by: * Driving prices far below competitors may cause exit and shift power back to firm

Bargaining Power of Buyers

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Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”

Well positioned relative toThreat of New Substitutes in order to: Entrants * Make investments to create
substitutes first * Buy patents developed by potential substitutes

* Lower prices to maintain
value position Threat of Substitute Products

Bargaining Power of Buyers
Can mitigate Buyer Power by: Driving prices far below competitors which may cause exit and shift power back to firm

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Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”

Bargaining Power of Suppliers

Threat of New Entrants

Can mitigate Supplier Power by:

* Low cost position makes them better able to absorb cost increases Well positioned relative to Can mitigate Buyer Power by:
Substitutes in order to: Driving prices far * More likely to make very large purchases whichbelow Threat of competitors may Can buy patents developed by * which reduces chance Substitute of supplier power and shift power cause exit potential substitutes * Make investments to create substitutes * Lower prices to maintain value position

Bargaining Power of Buyers

Products

back to firm

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Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Can mitigate Supplier Power by: * Low cost position makes them better able to absorb cost increases * More likely to make very large purchases which reduces chance of supplier power

Threat of New Entrants

Competitors avoid price wars with Cost Leaders, which due Can frighten off New Entrants to the need higher profits createsto: Scale to be * Enter at Large Cost Competitive for entire industry
* Take time to move down the “Learning Curve”

Bargaining Power of Suppliers
Well positioned relative to Substitutes in order to:

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers
Can mitigate Buyer Power by:

* Make investments to create substitutes * Can buy patents developed by potential substitutes * Lower prices to maintain value position

Threat of Substitute Products

Driving prices far below competitors which may cause exit and shift power back to firm

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Major Risks of Cost Leadership Business Level Strategy

Dramatic technological change could take away your cost advantage Competitors may learn how to imitate Value Chain Focus on efficiency could cause Cost Leader to overlook changes in customer preferences

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Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness

Breadth of Competitive Scope

Broad Target Market

Cost Cost Leadership Leadership

Differentiation

Narrow Target Market

Focused Low Cost

Focused Differentiation
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Differentiation Business Level Strategy Key Criteria: •Value provided by unique features and value characteristics •Command premium price •High customer service •Superior quality •Prestige or exclusivity •Rapid innovation

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Differentiation Business Level Strategy Requirements: Constant effort to differentiate products through: •Developing new systems and processes •Shaping perceptions through advertising •Quality focus •Capability in R&D •Maximize H R contributions through low turnover and high motivation

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Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences

Firm Infrastructure
Extensive use of subjective rather than objective performance measures

A companywide emphasis on producing high quality products Superior personnel training

Support Activities

Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing

Human Resource Management Technological Development Procurement parts replacement Operations Outbound Logistics
Accurate and responsive order processing procedures Purchase of highest quality Consistent manufacturing of attractive products Investments in technologies that will allow the firm to consistently produce highly differentiated products

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Strong capability in basic research

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Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product

Rapid responses to customers unique manufacturing specifications

Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing

Marketing & Sales

Inbound Logistics

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Service A RG IN
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Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development

Primary Activities

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Can fend off New Entrants because:

* *

New products must surpass proven products Or be equal to performance at lower prices

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Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices

Threat of New Entrants

Can mitigate Buyer Power because: Well differentiated products reduce customer sensitivity to price increases

Bargaining Power of Buyers

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Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices

Threat of New Entrants

Well positioned relative to Substitutes because: * Brand loyalty tends to reduce new product trial and brand switching
Threat of Substitute Products

Bargaining Power of Suppliers

Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
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Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices

Threat of New Entrants
Bargaining Power of Suppliers

Can mitigate Supplier Power by:

Well positioned relative to Substitutes because:

Bargaining * Absorbing price increases due to Power of higher margins Suppliers

* Passing on higher supplier prices * Brand loyalty tends to because buyers are brand loyal reduce new product trial
and brand switching

Threat of Substitute Products

Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
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Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Can mitigate Supplier Power by: * * Absorbing price increases due to higher margins Passing on higher supplier prices because buyers are brand loyal

Threat of New Entrants

Can fend off New Entrants because:

Brand loyalty New products must surpass proven much overcomes products * Or be equal to performance price competition at lower prices
*

Bargaining Power of Buyers
Well positioned relative to Substitutes because: * Brand loyalty tends to reduce new product trial and brand switching

Rivalry Among Competing Firms in Industry

Bargaining Power of Suppliers

Threat of Substitute Products

Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
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Major Risks of a Differentiation Business Level Strategy •Customers may decide that the cost of “uniqueness” is too great •Competitors may learn how to imitate Value Chain •The means of uniqueness may no longer be valued by customers

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Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness

Breadth of Competitive Scope

Broad Target Market

Cost Cost Leadership Leadership

Differentiation

Narrow Target Market

Focused Low Cost

Focused Differentiation

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Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: •Large firms may overlook small niches •Firm may lack resources to compete industry-wide •May be able to serve a narrow market segment more effectively than Industry wide competitors •Focus can allow you to direct resources to certain value chain activities to build competitive advantage •May be able to retrofit old factories to keep costs down •Minimize R&D costs by copying innovators
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Major Risks Involved With a Focused Differentiation Business Level Strategy •Firm may be “outfocused” by competitors

•Large competitor may set its sights on your niche market

•Preferences of niche market may change to match those of broad market

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Integrated Low Cost/Differentiation Strategy Firms using an Integrated Strategy may: •Adapt more quickly •Learn new skills and technologies •Utilize Flexible Manufacturing Systems to create differentiated products at low costs •Leverage core competencies through Information Networks across multiple business units •Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs

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Strategic Management Questions

1. 2. 3. 4. 5. 6.

Why has strategic management become so important to today’s organizations? How does strategic management typically evolve in an organization? In what ways could a typical organization’s strategic management process be improved ? How are strategic decisions different from other kinds of decisions? When is the planning mode of strategic decision making superior to the entrepreneurial and adaptive modes? What are common differences between functional and strategic actions and decisions?

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