STRATEGIC STRATEGIC MANAGEMENT MANAGEMENT LECTURE LECTURE

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

Thinking Strategically: The 3 Big Strategic Questions

1. 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?

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, new opportunities, 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!

The 5 Tasks of Strategic Management

Task11
Develop Vision and Mission

Task 2
Set Goals & Objectives

Task 3
Formulate Strategy to Achieve Goals & Objectives

Task 4
Implement and Execute Strategy

Task 5
Monitor, Evaluate, and Take Corrective Action

Revise as Needed

Revise as Needed

Improve/ Change

Improve/ Change

Recycle as Needed

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 DONT 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 companys long-term direction

Example: Vision Statement

Verizon Communications

To be the customers first choice for communications and information services in every market we serve, domestic and international.

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"

Example: Vision Statement

General Electric (Jeff Immelt)

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

MISSION
DEFINES A COMPANYS BUSINESS: PRODUCT / MARKET TERRITORY / GEOGRAPHY

Simple Mission Statements

Eastman Kodak
We are in the picture business.

(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.

Wit Capital

More Mission Statements

Otis Elevator
Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world.

Avis Rent-a-Car
Our business is renting cars. Our mission is total customer satisfaction.

INTERNAL REVENUE SERVICE

OLD MISSION 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.

IRS - NEW MISSION (Since 1998) Provide Americas 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.

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 firms market share Overtake key rivals on quality or customer service or product performance Attain lower overall costs than rivals Boost firms reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product

STRATEGY FORMULATION
[TASK 3]

What is Strategy?
A companys strategy consists of the set of competitive moves and business approaches that management is employing to run the company Strategy is managements 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

Levels of Strategy-Making in a Single-Business Company

Executive-Level Managers
Business Strategy
Two-Way Influence

Functional Managers

Functional Strategies

Two-Way Influence

Operating Managers

Operating Strategies

Level 1
CorporateLevel Managers

Networking of Vision, Missions, Goals/Objectives, and Strategies

Corporate-wide Vision & Mission Corporate Level Goals/Objs Corporate Level Strategy
Two-Way Influence Two-Way Influence 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, Lower-Level Supervisors

Operating Goals

Operating Objectives

Operating Strategies

Factors Shaping the Choice of Company Strategy

Social, political, regulatory and community factors Competitive conditions and industry attractiveness Company opportunities and threats to companys well-being

External Factors

Companys Strategic Situation

Determine relevance of internal and external factors

Identify and evaluate alternatives

Craft the strategy

Resource strengths, capabilities, and weaknesses

Influences of key executives

Shared values and company culture

Internal Factors

SWOT Analysis - 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 . . . 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

The Basic Strategy Framework: The Basic Strategy Framework: Link between the Firm and its Link between the Firm and its Environment Environment
THE FIRM
Goals & Values Resources & Capabilities Structure & Systems STRATEGY STRATEGY

THE INDUSTRY ENVIRONMENT

Competitors Customers Suppliers

Market-Focus (External) Market-Focus (External) vs. vs. Resourced-Based (Internal) Resourced-Based (Internal) Market-Focus what industry do we want to be in, the position we want to take, and then how can we assemble the resources to compete? Resource-Based what capabilities do we want to build and what market opportunities would exploit them best?

MARKET-FOCUS VIEW OF STRATEGY (EXTERNAL ANALYSIS)

The Components of a Companys 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

What Are the Key Factors for Competitive Success?

Competitive factors most affecting every industry members ability to prosper

Specific strategy elements Product attributes Resources Competencies Competitive capabilities Profit and loss Competitive success or failure

KSFs spell the difference between

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 induce beer drinkers to buy a particular brand

Example: KSFs for Apparel Manufacturing Industry

Appealing designs and color combinations -- to create buyer appeal Low-cost manufacturing efficiency -- 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 firms strategy gives it an edge in

Attracting customers and Defending against competitive forces

Key to Gaining a Competitive Advantage

Convince customers firms 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 companys competitiveness and profitability Often, a core competence results from collaboration among different parts of a company Typically, core competencies reside in a companys people, not in assets on the balance sheet A core competence gives a company a potentially valuable competitive

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

Example: Hondas Core Competence

Expertise in gasoline engine technology and small engine design

Example: Intels Core Competence

Design of complex chips for personal computers

Example: Procter & Gambles Core Competencies

Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils, skin chemistry, surfactants, emulsifiers

Example: Sonys Core Competence

Expertise in electronic technology and ability to translate the expertise into innovative productsminiaturized radios and video cameras, TVs and VCRs with unique features, attractively designed PCs

Distinctive Competence -- 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

#1

Presents attractive potential for

being a cornerstone of strategy Can provide a competitive edge in the marketplacebecause it represents a competitively superior resource strength

Examples: Distinctive Competencies

Sharp Corporation

Toyota, Honda, Nissan

Expertise in flat-panel display technology Low-cost, 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

Intel

Starbucks

The Concept of a Company Value Chain

A companys business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service The value chain contains two types of activities

Primary activities -- where most of the value for customers is created Support activities -- facilitate

Representative Company Value Chain

Representative Value Chain for an Entire Industry

The Value Chain System for an Entire Industry

Assessing a companys cost competitiveness involves comparing costs all along the industrys value chain Suppliers value chains are relevant because

Costs, quality, and performance of inputs provided by suppliers influence a firms own costs and product performance

Forward channel allies value chains are relevant because

Forward channel allies costs and margins are part of price paid by ultimate end-user

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 Retailing
Albertsons

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 arent 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 activity Successful strategy execution depends on

Business vision Perceptive analysis of the situation Attracting and pleasing customers Outcompeting rivals Forging a

Good organizationbuilding 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

Who Are the Strategy Implementers?

Implementing and executing strategy involves a companys whole management team and all of its employees

Just as every part of a watch plays a role in making the watch function properly, it takes all pieces of an organization working cohesively for a strategy to be well-executed

Top-level managers must lead the process and orchestrate major initiatives

But they must rely on the cooperation of middle and lower-level managers to see that things

The 8 Actions of Implementing and Executing Strategy

Numerous Roles of Strategic Leaders

Visionary Chief Entrepreneur & Strategist Resource Acquirer & Allocator Crisis Solver Motivator Policy Enforcer Culture Builder Taskmaster Process Integrator Mentor

Negotiator Capabilities Builder

Coach

Head Cheerleader Arbitrator Chief Administrator & Strategy Implementer

Spokesperson Consensus Builder Policymaker

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