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STRATEGIC

MANAGEMENT

LECTURE

STRATEGIC

MANAGEMENT

LECTURE

““Without a strategy theWithout a strategy the

organization is like aorganization is like a

ship without a rudder,ship without a rudder,

going around ingoing around in

circles.”circles.”

Thinking Strategically:Thinking Strategically:The 3 Big StrategicThe 3 Big Strategic

QuestionsQuestions

1. Where are we now?

2. Where do we want to go?

Business(es) to be in and marketpositions to stake out

Buyer needs and groups to serve

Outcomes to achieve

3. How will we get there?

Benefits of “Strategic Thinking”Benefits of “Strategic Thinking”

and a “Strategic Approach” toand a “Strategic Approach” to

ManagingManaging

Guides entire firm regarding “what it is we are trying to do andto achieve”

Makes managers more alert to“winds of change, new opportunities,

and threatening developmentsUnifies numerous strategy-relateddecisions 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 competitiveadvantage

HELPS A COMPANY PREPARE FOR

THE FUTURE!

Who Performs the FiveWho Performs the Five

Strategic ManagementStrategic Management

Tasks?Tasks?SeniorCorporateExecutives

Managers of SubsidiaryBusiness Units

Functional AreaManagers

OperatingManagers

SETTING CORPORATESETTING CORPORATE

DIRECTIONDIRECTION[ TASKS 1 & 2]

“IF YOU DON’T KNOW “IF YOU DON’T KNOW

WHERE YOU ARE GOING,WHERE YOU ARE GOING,

ANY ROAD WILL TAKE YOU ANY ROAD WILL TAKE YOUTHERE”THERE”

TASK 1 – VISION & MISSION

TASK 2 – GOALS & OBJECTIVES

SETTING CORPORATESETTING CORPORATE

DIRECTIONDIRECTION

Developing a Strategic VisionDeveloping a Strategic Vision

Involves thinking strategically

about Future of company

Where are we going?

Statement about a company’slong-term direction

Task 1 of the Strategic Management ProcessTask 1 of the Strategic Management Process

Example: VisionStatement

To be the customer’s first

choice for communications and

information services in every

market we serve,

domestic and international.

Verizon Communications

We will clothe the world by

marketing the most appealing

and widely worn casualclothing in the world.

Levi Strauss & Company

Example: VisionExample: Vision

StatementStatement

“A computer on every desk, in every home”

Microsoft Corporation

(Old Vision)

Example: VisionExample: Vision

StatementStatement

GE is committed to achieving worldwide leadership in

each of its businesses. To achieve that leadership, GE's

ongoing business strategy centers on four key growth

initiatives:

- Technology

- Services

- Customer Centricity

- Globalization

General Electric

(Jeff Immelt)

xamp e: s onxamp e: s onStatementStatement

MISSIONMISSION

DEFINES A COMPANY’SBUSINESS:

• PRODUCT / MARKET

• TERRITORY /

GEOGRAPHY

More Mission Statements …

Otis Elevator

Our mission is to provide any customer a meansof moving people and things up, down, and

sideways over short distances with higher reliability than any similar enterprise in the world.

Our business is renting cars. Our mission is total

customer satisfaction.

Avis Rent-a-Car

The purpose of the IRS is to collect

the proper amount of tax revenues at

the least cost to the public, and in a

manner that warrants the highest

degree of public confidence in our

integrity, efficiency and fairness.

INTERNAL REVENUE SERVICE

OLD MISSION

Provide America’s taxpayers top

quality service by helping them

understand and meet their tax

responsibilities and by applying the

tax law with integrity and fairness

to all.

IRS - NEW MISSION (Since 1998)

Setting Goals & ObjectivesSetting Goals & Objectives

Converts vision andmission into specific

performance targetsCreates yardsticks totrack performance

“Management byObjective” (MBO) -focused on results

Second Task of Strategic Management

GOALSGOALS

= BROAD TARGETS

OBJECTIVESOBJECTIVES

(a) QUANTIFIED

(b) TIME-BASED

2 CATEGORIES

1) FINANCIAL

2) STRATEGIC

STRATEGY

FORMULATION

[TASK 3]

Levels of Strategy Making inLevels of Strategy Making in

Levels of Strategy-Making inLevels of Strategy-Making in

a Single-Business Companya Single-Business Company

Business

Strategy

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level Managers

Operating

Managers

Functional Managers

Factors Shaping the

Factors Shaping theChoice of Company Strategy

Company’s Strategic SituationCraft

strategy

External Factors

Internal Factors

Social,political,

regulatory

community

factors

Competitive

conditions

and industry

attractiveness

Companyopportunities

and threats to

company’s

well-being

Resource

strengths,

capabilities,

weaknesses

Influences of

executives

Shared values

and company

culture

Identify

evaluate

alternatives

Determinerelevance

of internal

external

factors

SWOT A l iSWOT Analysis

SWOT AnalysisSWOT Analysis

- What to Look For- What to Look ForPotential Resource

Strengths

Potential Resource

Weaknesses

Potential Company

Opportunities

Potential External

Threats

• Powerful strategy

• Strong financialcondition

• Strong brand nameimage/reputation

• Widely recognizedmarket leader

• Proprietarytechnology

• Cost advantages

• Strong advertising

• Product innovation

skills

• Good customer service

• Better productquality

• Alliances or JVs

• No clear strategicdirection

• Obsolete facilities

• Weak balancesheet; excess debt

• Higher overallcosts than rivals

• Missing some keyskills/competencies

• Subpar profits

• Internal operatingproblems . . .

• Falling behind inR&D

• Too narrowproduct line

• Weak marketingskills

• Serving additionalcustomer groups

• Expanding to newgeographic areas

• Expanding productline

• Transferring skillsto new products

• Vertical integration

• Take market sharefrom rivals

• Acquisition of

rivals• Alliances or JVs to

expand coverage

• Openings to exploitnew technologies

• Openings to extendbrand name/image

• Entry of potent newcompetitors

• Loss of sales tosubstitutes

• Slowing marketgrowth

• Adverse shifts inexchange rates &trade policies

• Costly newregulations

• Vulnerability tobusiness cycle

• Growing leverageof customers or suppliers

• Reduced buyer needs for product

• Demographicchanges

The Basic Strategy Framework:

Link between the Firm and its

Environment

The Basic Strategy Framework:

Link between the Firm and its

Environment

THE FIRM

Goals &Values

Resources &

Capabilities

Structure &

Systems

THEINDUSTRY

ENVIRONMENT

Competitors

CustomersSuppliers

STRATEGYSTRATEGY

Market-Focus (External)

Resourced-Based (Internal)

Market-Focus (External)

Resourced-Based (Internal)

Market-Focus – what industry dowe want to be in, the position we

want to take, and then how can weassemble the resources tocompete?

Resource-Based – whatcapabilities do we want to buildand what market opportunities

would exploit them best?

MARKET-FOCUS VIEW

OF STRATEGY (EXTERNAL ANALYSIS)

5 Forces Model5 Forces Model

Industry Driving ForcesIndustry Driving Forces

Internet and e-commerceopportunities

Increasing globalization of industry

Changes in long-term industrygrowth rate

Changes in who buys the product

and how they use itProduct innovation

Technological change/process

innovation

Wh t A th K F tWh t A th K F t

What Are the Key FactorsWhat Are the Key Factorsfor Competitive Success?for Competitive Success?

Competitive factors most affectingevery industry member’s ability toprosper Specific strategy elements Product attributes Resources Competencies Competitive capabilitiesKSFs spell the difference between Profit and loss

Competitive success or failure

Example: KSFs for BeerExample: KSFs for Beer

IndustryIndustry

Full utilization of brewing capacity-- to keep manufacturing costs low

Strong network of wholesaledistributors -- to gain access toretail outlets

Clever advertising -- to inducebeer drinkers to buy a particularbrand

Example: KSFs for ApparelExample: KSFs for ApparelManufacturing IndustryManufacturing Industry

Appealing designs andcolor combinations -- tocreate buyer appeal

Low-costmanufacturing

efficiency -- to keepselling pricescompetitive

COMPETITOR COMPETITOR

ANALYSISANALYSIS

Strategic Group MappingStrategic Group Mapping

Firms in same strategic group have two ormore competitive characteristics incommon

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 Groupxamp e: trateg c roup

Example: Strategic Groupxamp e: trateg c roupMapMapof Selected Retail Chainsof Selected Retail Chains

Concept ofConcept of

Concept of Concept of

Competitive AdvantageCompetitive Advantage

Competitive advantage exists whena firm’s strategy gives it an edge in Attracting customers and Defending against competitive forces

Convince customers firm’s product /

service offers superior value A good product at a low price A superior product worth paying more

A best-value product

Key to Gaining a Competitive Advantage

5 Generic Competiti e5 Generic Competitive

5 Generic Competitive5 Generic Competitive

StrategiesStrategies

RESOURCE-BASED VIEW

OF STRATEGY (INTERNAL ANALYSIS)

Examples of Core CompetenciesExamples of Core Competencies

Expertise in integrating multipletechnologies to create families of newproducts

Know-how in creating operatingsystems for cost efficient supply chainmanagement

Speeding new/next-generationproducts to market

Better after-sale service capability

Skills in manufacturing a high qualityproduct

System to fill customer orders

Example: Honda’sExample: Honda’s

Example: Honda sExample: Honda sCore CompetenceCore Competence

Expertise in gasoline engine

technology and small engine

design

Example: Intel’s CoreExample: Intel’s Core

CompetenceCompetence

Design of complex chips for

personal computers

Example: Procter &Example: Procter &

Example: Procter &Example: Procter &Gamble’sGamble’s

Core CompetenciesCore CompetenciesSuperb marketing-distribution skills and

R&D capabilities in five core

technologies - fats, oils, skin chemistry,

surfactants, emulsifiers

Example: Sony’s CoreExample: Sony’s Core

Example: Sony s CoreExample: Sony s CoreCompetenceCompetence

Expertise in electronic technology and

ability to translate the expertise into

innovative products—miniaturized

radios and video cameras, TVs andVCRs with unique features, attractively

designed PCs

Distinctive Competence -- ADistinctive Competence -- A

ppCompetitivelyCompetitively Superior Superior ResourceResource

A distinctive competence is a competitivelysignificant activity that a company performsbetter 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

com etitivel su erior resource stren th

Examples: DistinctiveExamples: Distinctive

CompetenciesCompetencies

Sharp Corporation Expertise in flat-panel display technology

Toyota, Honda, Nissan Low-cost, high-quality manufacturing

capability and short design-to-marketcycles

Ability to design and manufactureever more powerful microprocessors forPCs

Starbucks

Store ambience and innovative coffee

Example: Key Value ChainExample: Key Value Chain

a p e ey a ue C ap y

ActivitiesActivities

Timber farming

Logging

Pulp mills

Papermaking

Pulp & Paper Industry

Parts and components

manufacture

Assembly

Wholesale distributionRetail sales

Home Appliance Industry

Programming

Disk loading

Marketing

Distribution

Computer Software Industry

Benchmarking Costs ofBenchmarking Costs of

Benchmarking Costs of Benchmarking Costs of Key Value Chain ActivitiesKey Value Chain Activities

Focuses on cross-company comparisons of how certain activitiesare performed and the costs associatedwith 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

Implementing a Newly

Implementing a NewlyChosen Strategy Requires

Adept LeadershipImplementing a new strategy takes adept leadership to

Convincingly communicatereasons for the new strategy

Overcome pockets of doubt

Build consensus and enthusiasm

Secure commitment of concerned parties

Get all implementation pieces in place andcoordinated

Who Are theWho Are the

Strategy Implementers?Strategy Implementers?

Implementing and executing strategyinvolves a company’s wholemanagement team and all of itsemployees Just as every part of a watch plays a role in

making the watch function properly, it takesall pieces of an organization workingcohesively for a strategyto be well-executed

Top-level managers must lead theprocess and orchestrate major initiatives But they must rely on the cooperation of

middle

and lower-level managers to see that things

Numerous RolesNumerous Roles

Visionary

Entrepreneur

& Strategist Capabilities

Builder

Resource Acquirer

& Allocator

Culture

Builder

Administrator

& Strategy

Implementer

Process

Integrator Coach

Crisis

Solver

Taskmaster

Spokesperson

Negotiator

Motivator

Arbitrator

Consensus

Builder

Policymaker Policy

Enforcer

Mentor

Cheerleader

of Strategic Leadersof Strategic Leaders

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