Strategic Management slides

7/27/2019 Strategic Management slides

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Strategic Management

Fall 2013


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I Like Strategy

And by the way, HOPE is not a strategy!


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STAKEHOLDERS & THE STRATEGIC

MANAGEMENT PROCESS

The Strategic Management Process

Organizational and Environmental Analysis

Strategic Direction

Strategy Formulation

Strategy Implementation and Control Strategic Restructuring


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Concept and Definition

A companys strategy consists of the competitive

moves and business approaches devised bymanagement to produce successful performance.

Strategy is managements game plan for running

the business, strengthening the companys

competitive position, satisfying customers, andachieving performance targets.


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No well-defined business path to follow

No roadmap to manage by

No cohesive, reasoned action plan toproduce successful performance

Without a strategy, managers have:


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Company mission &social responsibility

Long-term objectives Generic & grand strategies

Short-termobjectives; reward

systemFunctional tactics Policies that empower action

Restructuring, reengineering & refocusing the organization

Strategic control & continuous improvement

External Environment Internal analysis

Strategic analysis & choice

Legend

Major impact

Minor impact

Feedbac

kF

eedback

Possible?

Desired?


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The Three Big Strategic Questions

1. Where are we now?

This involves thinking about the companys

external market environment and internal

situation and capabilities

2. Where do we want to go?

This involves thinking about what topmanagement wants the company to be likein 5 to 10 years


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Continued

3. How will we get there?

This involves thinking about what

STRATEGYthe company shouldpursue to perform successfully and getfrom where it is to where it wants to go.

This third step is where companies often:


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SCREW IT UP !!!


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THE FIVE TASKS OF STRATEGIC

MANAGEMENT

1. Defining the business, stating a mission, andforming a strategic vision

2. Setting measurable objectives and performance

targets

3. Crafting a strategy to achieve the objectives

4. Implementing and executing the strategy

5. Evaluating performance, reviewing newdevelopments, and initiating corrective adjustmentsin long-term direction, objectives, strategy, orimplementation approaches


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Definition of Strategic Management

STRATEGIC MANAGEMENT is the process throughwhich organizations:

Analyze and learn from the stakeholders inside and

outside the organization, Establish strategic direction,

Create strategies that are intended to help achieveestablished goals,

Execute strategies,

All in an effort to satisfy KEY STAKEHOLDERS.


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Stakeholder Approach

Stakeholders

are groups or individuals who cansignificantly affect or are significantly affectedby an organizations activities such ascustomers, employees, stockholders,communities, suppliers, etc.

have, orbelieve they have, a legitimate claimon some aspects of the organization or itsactivities


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THE ORGANIZATION AND

ENVIRONMENT

Organizational Environment

Groups, individuals, and forces outside of thetraditional boundaries of the organization that

are significantly influenced by or have a majorimpact on the organization.

This includes both the operating and broadenvironments:


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Continued

OPERATING ENVIRONMENT employees,competitors, customers, suppliers, lenders,

unions, govt agencies, local communities,etc.

BROAD ENVIRONMENT global economicforces, sociocultural forces, technologicalchange, and global political and legal forces.


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How do we deal with the

environment?


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Continued

ADAPTATION The process of respondingto the environment.

ENACTMENT The process of influencingthe environment to make it less hostile and

more conducive to organizational success.


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Strategic Direction

MISSION STATEMENT

Statement describing the organizations

overall purpose, broad goals, and the scope

of its operations.

VISION STATEMENT

Statement expressing managements view ofwhat the organization can or should becomein the future


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Strategy Formulation

1. Corporate-Level Strategy Concerned with the selection of business areas in

which the organization will compete

Referred to as domain definition

2. Business-Level Strategy Concerned with how businesses compete in the

areas they have selected

Referred to as domain direction and navigation

3. Functional-Level Strategy Provides details of how functional areas work

together to achieve business-level strategy


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Strategic Implementation and

Control

Strategy Implementation

Creating the functional strategies, systems,

structures, and processes needed by theorganization to achieve strategic ends

Strategic Control

The processes that lead to adjustments in

strategic direction, strategies, or theimplementation plan, when necessary


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Strategic Restructuring

Restructuring Involves renewed emphasis on the things an

organization does well, combined with a variety oftactics to revitalize the organization and strengthen its

competitive position

*****None of the tasks of strategic management are a

one-time only exercise. Times change. Conditions

change. Events unfold. Better ways to do thingsbecome evident. Things happen that require new

initiatives and actions. New leadership emerges


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Alternative Perspectives on Strategy

Development

ENVIRONMENTAL DETERMINISM

The environment is the primary determinant of

strategy. The most successful organizationwill be the one that bestADAPTS to existingforces.


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STRATEGIC CHOICE

Organizations do not have to submit to forcesin the environment, they can create theirenvironments through relationships withstakeholders and other activities.


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STAKEHOLDER VIEW

Compromise between determinism and choice.Through stakeholder analysis and managementprocesses, organizations can better understand andinfluence their environments.


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DELIBERATE VS EMERGENT

STRATEGY

Deliberate Strategy an intended strategiccourseplannedandpursuedby managers.

Emergent Strategy an unplanned strategy

that emerges from a stream of managerialdecisions.

**** In reality, both processes must be presentfor an organization to truly excel.


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RESOURCE-BASED VIEW OF THE

FIRM

An organization is a bundle of financial, human,physical, and organizational resources. Resourcesthat create value for customers but are difficult forcompetitors to imitate provide the basis for a

sustainable competitive advantage.

What are these resources?


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STAKEHOLDER ANALYSIS AND

MANAGEMENT

STAKEHOLDER ANALYSIS Involves identifying and prioritizing key stakeholders,

assessing their needs, collecting ideas from them, andintegrating this knowledge into strategic management

processes.

STAKEHOLDER MANAGEMENT Includes communicating, negotiating, contracting,

and managing relationships with stakeholders andmotivating them to behave in ways that arebeneficial to the organization and its otherstakeholders.


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The Broad Environment


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Fig. 3-1: The External EnvironmentRemote Environment (Global and Domestic)

Industry Environment (Global and Domestic)

Operating Environment (Global and Domestic)

Economic

Social

Political

Technological

Entry barriers

Supplier power

Buyer power

Substitute availability Competitive rivalry

Competitors

Creditors

Customers

Labor Suppliers

THE FIRM


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The Broad Environment

Sociocultural forces

Global economic forces

Global political forces

Technological forces


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Socio-cultural Trends

Analysis of societal trends is important from atleast four perspectives:

1. The values and beliefs of key stakeholdersare derived from broader societal influences,which can create opportunities and threats

for the firm.


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Major Sociocultural Issues in the U.S.

Declining education Role of government (health & child care) Legality of abortion Crime Pollution

Increase in environmentalism Drug addiction Migration to the Sunbelt Immigration Aids and other health concerns Graying of America

Levels of foreign investment Role of the military Social costs of restructuring

In addition, company strategy must be adapted to each geographic region, not justby country!


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2. Awareness of and compliance with the attitudes ofsociety can help an organization avoid problemsassociated with being a bad corporate citizen.

Reputation is important as it cant be imitated! Therefore,

corp orate image can becom e a competit ive advantage.


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3. Correct assessment of social trends can helpbusinesses avoid restrictive legislation.


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4. Changes in society can create opportunitiesand threats to an organizations revenue

growth and profit prospects.

These changes can often help to p redict future

demand.



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Global Economic Forces

1. Economic growth


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2. Interest rates


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3. Inflation


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4. Exchange rates


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5. Trade deficits


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Technological Forces

Technological change creates new products,processes, and services, and, in some cases,entire new industries. It can also change the

way society behaves and what societyexpects.


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Technology refers to human knowledgeabout products and services and the way

they are made and delivered. Invention a new idea or technology proven

to work in the laboratory.

Innovation An invention that can bereplicated reliably on a meaningful scale.


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Radical innovations usuallyoriginate outside of theindustry boundaries!

What are the implications of this?

P li i l/L l F


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Political/Legal Forces

According to some, political/legal forces areoften the most significant determinants oforganizational success.

Do you agree? Why or why not?

P li i l/L l F


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For example, did you know that lenders areheld liable when their customers are guilty ofpolluting the environment?

P li i l/L l F


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Even in the U.S., which is considered a free

market economy, no organization is allowed

the privilege of total autonomy fromgovernment regulations.


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The Operating Environment


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Includes stakeholders such as:

Customers

Suppliers Competitors

Government Agencies

Local Communities

Activist groups

Unions


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Which of these

stakeholders are

primary forces that drive

competition in anindustry?


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Primary Stakeholders

Customers

Suppliers

Competitors


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Stakeholder Analysis

Analysis of these stakeholders can

result in the identification of

opportunities and threats that can

help managers establish, develop

and implement organizational

strategies.

A ll t k h ld f l l


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Are all stakeholders of equal value

to the firm?


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No !!!

One key factor in determining the

priority of a particular stakeholder isthe influence on the environmentaluncertaintyfacing the firm.


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An Important Point

Although environmental uncertainty often

originates in the broad environment,

firms feel most of its influence throughexternal stakeholders in the operating

environment.


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Environmental Uncertainty

Although Political/Legal Influencecontributes greatly to environmental

uncertainty, Economic poweris oftenthe most important influence inunderstanding the nature and level of

environmental uncertainty.


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Porters Five-Forces Model

Customers

Suppliers

Industry Competitors

a) existing competitors

b) potential competitors

c) substitutes

Fig 3 4: Forces Driving Industry


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Fig. 3-4: Forces Driving Industry

CompetitionPotential

entrants

Threat of new

entrants

Suppliers

Bargaining power

of suppliers

Buyers

Bargaining power

of buyers

Substitutes

Threat of substitute

products or services

Industrycompetitors

Rivalry Among

Existing Firms


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Customers are a force when

There are a small number of them

They make high volume purchases

The purchases they make represent a largepercentage of their total costs

The sellers products are plentiful and/or

undifferentiated They earn low profits


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Customers are a force when

They can easily integrate backward andbecome their own suppliers

Sellers products dont have much influenceon the quality of their customers products

Information on sellers costs and demand is

readily available to buyers


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In combination, these forces determine the

bargaining power of customers

Obviously, the greater their power,

the higher the priority customersshould be given in the strategic

management process.


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Suppliers are a force when

There are only a few suppliers

There are few or no substitutes

Suppliers do not sell a large percentage oftheir products to the buying industry

The buying industry must have the product

that suppliers provide in order to manufactureits own product


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Suppliers are a force when

Suppliers have differentiated their products ormade it costly to switch suppliers

Suppliers can easily integrate forward andcompete directly with former buyers

I bi i h f d i h


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In combination, these forces determine the

bargaining power of suppliers

Obviously, the greater their power,

the higher the priority suppliersshould be given in the strategic

management process.


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Competitors

Rivalry among existing competitors WILL inciteretaliation or counter moves. These movestypically include things like:

Advertising programs

Sales force and/or capacity expansions

New product introductions

Long-term contracts with customers

Major Forces That Lead To High


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Major Forces That Lead To High

Levels Of Competition

Slow industry growth

High fixed costs

Lack of product differentiationA large number of competitors

High exit barriers


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Hypercompetition

A condition of rapidly escalating competition.

What would be an industry today that faces

hypercompetition?

Fi ft k t k f th ti iti d


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Firms often keep track of the activities and

capabilities of their competitors through

Competitive benchmarking a tool in whichmanagement uses the best practices ofcompetitors in setting objectives toencourage improvement in performance.

What is the fallacy of benchmarking and how

could it actually harm your strategy?


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Indirect Competitors

If organizations provide goods that are readilysubstitutable for the goods provided by an

industry, these organizations become indirectcompetitors. This leads to

A ceiling on the price for the good

Can create new expectations


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What do we do with this model?

Use it to understand how the firm shouldposition itself relative to these forces(reactive)

Use it to influence the forces by actions suchas erecting high entry barriers througheconomies of scale or differentiation(proactive)

Use it to decide whether or not to enter orleave a particular industry


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Internal Analysis


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From a resource-based perspective -

Strengths are firm resources and capabilitiesthat can lead to a competitive advantage.

Weaknesses are resources and capabilitiesthat the firm does not possess but that arenecessary, resulting in a competitivedisadvantage.


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Opportunities are conditions in the broad andoperating environments that allow a firm to takeadvantage of organizational strengths, overcome

organizational weaknesses, and/or neutralizeenvironmental threats.


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Threats are conditions in the broad and operatingenvironments that may stand in the way oforganizational competitiveness or the achievement of

stakeholder satisfaction.


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Numerous environmentalopportunities

Major environmental

threats

Substantialinternal

strengths

Criticalinternal

weaknesses

Cell 3: Supports

a turnaround-oriented strategy

Cell 1: Supports

an aggressivestrategy

Cell 4: Supportsa defensive

strategy

Cell 2: Supportsa diversification

strategy

Fig. 6-6: SWOT Analysis Diagram


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Primary Activities

Support

Activities

Research, technology, andsystems development

Human resource management

General administration

Procurement

Inbound

Logistics

Operat

ions

Outbound

logistic

s

Marketing

andsa

les

S

ervice

Fig. 6-7: The Value Chain


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Value can be created -

In any primary or support activity

In the way they are combined

In the way internal activities are linked to the

external environment


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Value Chain Analysis

Value chain analysis may be combined with stakeholderanalysis to identify strengths and weaknesses and touncover opportunities for savings or ways to add

value for customers.


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Plus

The combination of stakeholder analysis with valuechain analysis holds great potential for developingstrategies that are both efficientand effective.

i i i


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Strategic Direction

h h h k i ?


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Where the heck are we going?

T f h i hi


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To often the answer is this

S i Di i


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Strategic Direction

Strategic direction requires managers to provide

long-term direction while balancing thecompeting interests of key stakeholders.

S i Di i


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Strategic Direction

Strategic direction is established and communicatedthrough tools such as visions, missions, businessdefinitions, enterprise strategies, and long-term

goals.

Fi ll


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Finally

This is where the rubber meets the road!

U l


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Unless

Of course, you are Firestone. ;-)

St t l I ti


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Structural Inertia

forces within the organization that work to maintain

the status quo.

B i D fi iti


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Business Definition

What is our business?

Should be addressed from four perspectives:

1. Who is being satisfied?

2. What is being satisfied?

3. How are customer needs satisfied?

4. What are our products and/or services?

Plus

Wh t d t d f ?


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What do we stand for?

I t t i t


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Important point

This is the critical link between ethics and strategy andis referred to as enterprise strategy.

Th ti l M d l


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Theoretical Models

Economic foundations

Legal foundations

Religious foundations Utilitarian foundations

A i ti i i


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An organizations mission

Reflects managements vision of what the

organization seeks to do and to become

Provides a clear view of what theorganization is trying to accomplish

Indicates an intent to stake out a particularposition

Specific questions that help form


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p q p

strategic vision -

What business are we in now?

What business do we want to be in?

What will our customers want in the future? What are the expectations of our

stakeholders?

Q estions cont


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Questions, cont.

Who will be our future competitors?Suppliers? Partners?

What should our competitive scope be? How will technology impact our industry?

What environmental scenarios are possible?

Examples


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Examples

AVIS

Our business is renting cars. Our mission is

total customer satisfaction.

Eastman Kodak

To be the worlds best in chemicals and

electronic imaging.

Examples


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Examples

SATURN

To market vehicles developed and

manufactured in the United States that are

world leaders in quality, cost, and customersatisfaction through the integration of people,

technology, and business systems and to

transfer knowledge, technology, and

experience throughout General Motors.

Formula


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Formula

Key Market: To offer the fast foodcustomer

Contr ibut ion: food prepared in the samehigh-quality manner world-wide, tasty andreasonably priced,

Dist inct ion: delivered in a consistent, low-key dcor and friendly atmosphere.

Goals in most companies


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Goals in most companies

Maximize long-term shareholder wealth

Optimize employee potential

Customer orientation Build competencies

Global

Citizenship

Technology Productivity

Corporate Level Strategy


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Corporate-Level Strategy

Corporate Level Strategy


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Corporate-Level Strategy

Selection of business areas in which theorganization will compete.

Concentration

Vertical Integration

Diversification

Concentration


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Concentration

the organization produces a single or a small group ofproducts or services.

Concentration Positives


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Concentration Positives

Allows the firm to master the business

Better positioned to develop sustainable

competitive advantages Places organizational resources under less

strain

Clear strategic direction

Easier for external stakeholders tounderstand the firms mission

Concentration Negatives


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Concentration Negatives

Is risky when environments are unstable

Makes the firm vulnerable to product

obsolescence and industry maturity Can lead to cash problems, both negative

and positive

May not provide stimulation for management



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The extent to which a firm is involved in several stagesof the industry supply chain.

Market Failure


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Market Failure

occurs when transaction costs are highenough to encourage an organization to

produce a good or service in-house instead ofbuying from the open market.

Taper Integration


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Taper Integration

- Occurs when an organization produces part of itsrequirements in-house and buys the rest of what itneeds on the open market.

Diversification


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Diversification

Related Diversificationfirms involvement inother businesses related to its core business.

Unrelated Diversificationfirms involvementin businesses not related to its core business.

Business-Level Strategy


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Business-Level Strategy

Generic Business Strategies


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Generic Business Strategies

1. Cost Leadership

2. Differentiation3. Best Cost

4. Cost Focus

5. Differentiation Focus

Creating Low-Cost Positions


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Capacity utilization

Economies of scaleCost-saving technologies

Learning/experience curve effects

Creating Low Cost Positions


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*** A cost leader does no t

have to be a price leader !


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Best Cost Strategy


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Best Cost Strategy

*** The essence of a best cost

strategy is to find a level ofdifferentiation that will bring a

premium price while doing so at

a reasonable cost.

Focus Strategies


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g

*** The key to a focus strategy is catering

to a particular segment in the market.

Low-cost focus

Differentiation focus

The Issue of Tradeoffs


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The Issue of Tradeoffs

A sustainable strategic position requires tradeoffs. If acompany moves upscale, it repositions itself awayfrom its current customer base.

Tradeoffs arise for three reasons


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Tradeoffs arise for three reasons

Inconsistency of image or reputation - a firm cantgo in different directions without confusing thecustomers.

Need for different types of resources - differentpositions require different equipment, employeebehaviors, skills, product configurations, andmanagement systems.

Overall costs - internal coordination and control canbe very expensive.

Five Fatal Strategy Flaws


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Five Fatal Strategy Flaws

Misreading Industry Attractiveness Possessing No True Competitive

Advantage

Pursuing A Competitive Advantage That IsNot Sustainable

Compromising A Strategy In Order To GrowFaster

Not Making Your Strategy Explicit And NotCommunicating It To Your Employees

Growth Strategies


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Growth Strategies

Internal Market penetration

Market/applications development

Product/service development

External

Mergers/integration Joint ventures/strategic alliances


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Industry Life Cycle


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Industry Life Cycle

Introduction

GrowthMaturity

Decline (commodity)

Functional-Level Strategies


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Functional Level Strategies

Functional Strategies


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Functional Strategies

Collective patterns of decisions made and actionstaken by employees that implement the growth andcompetitive strategies of the organization.

Do you see any potential conflict in this statement?

Marketing Strategy


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e g S egy

a plan to promote, price, and distribute the productsand services of an organization, as well as how toidentify and service customer groups.

Operations Strategy


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p gy

- a plan to design and manage the processes needed tocreate the products and services of the organization.

Research and Development Strategy


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p gy

a plan that guides basic research of the organizationas well as its development of more effective andefficient applications, products, and processes.

Information Systems Strategy


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y gy

a plan to provide the organization with the informationtechnology necessary for the operation, planning,and control of business activities.

Human Resources Strategy


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gy

a plan that guides the recruiting, hiring, training, andcompensating of employees as well as organizationalchange efforts.

Financial Strategy


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gy

a plan to provide the organization with the capitalstructure and funds appropriate for implementinggrowth and competitive strategies.

Functional Strategies MUST


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g

be consistent in three important areas:

1. Within function2. Between function

3. With the generic-level strategy

Example


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p

MISSION/VISION

FCS will be the lender and employer of

choice in our marketplace.

GOAL

Optimizing employee potential

Example, cont.


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p ,

OBJECTIVE

Increase employee morale through continuoustraining and increased incentive opportunities.

STRATEGIES Implement a quarterly pay-for-performance plan for

every position in the organization.

Implement training and educational development

standards and opportunities for every position in theorganization.

Example, cont.


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p ,

POLICIES/TACTICS

Finance designate $3.8 million foremployee training for year 2008.

Marketing offer a quarterly rotation ofeffective sales training programs for all salespersonnel.

Strategic Control


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g

STRATEGIC CONTROL


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Strategic Control System organizationalsystem by which top management canevaluate the progress of the organization inaccomplishing its goals, as well as point outareas in need of attention.


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STRATEGIC CONTROL


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Control systems should be comprehensive anddesigned to include input from internal andexternal stakeholders and from organizationalprocesses.

STRATEGIC CONTROL


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Financial ROI

Cash flow

Stock price Earnings stability


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STRATEGIC CONTROL


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Internal Business Cost controls

Skill levels

Product line breadth

Safety

On-time delivery

Quality

STRATEGIC CONTROL


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Innovation and Learning Workforce morale

Innovation

Investments in R & D Continuous improvement

CRITICAL RESULT AREAS


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Organizational areas that are key to ensuringthat the organization accomplishes its goalsand its vision.

Examples:

Improvement in worker skill levels

Product redesign

Creation of new process controls

Continued


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Once identified, the critical result areas

become the objectives and targets that

pace strategy implementation.

GOAL SETTING


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Bottom-Up Approach goal settingbegins in functional areas, which

translates into business-level goals ofthe various divisions that are combinedto form the corporate-level goals.

Continued


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Top-Down Approach the corporatelevel essentially determines and thendictates what lower-level goals should

be.

FEEDBACK CONTROL

SYSTEMS


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SYSTEMS

Budgets feedback controls that providerevenue and expense targets.

Financial Ratios feedback controls used to

control organizational processes andbehavior (Current ratio, quick ratio, etc.).

Audits a type of feedback control systemused to provide information to support

financial, customer, or internal perspectives.Firm conduct and outcomes are measuredagainst established guidelines.

FEEDBACK CONTROL

SYSTEMS


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SYSTEMS

Customer Surveys a type of feedbackcontrol system used to measure how wellestablished standards for customer

satisfaction are being met.

See any problems with these?

FEEDBACK CONTROL

SYSTEMS


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SYSTEMS

Concurrent Controls very similar tofeedback controls, except that the timehorizon is shortened to real time.

Process Control controls associated withproduction and service processes and withquality standards (i.e., making sure things

meet specifications).

ORGANIZATIONAL CRISES


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A better definition:

When the feces hits the fast-moving, rotarybladed instrument. In other words, when the@$%&*# hits the fan!

CRISIS-PRONE

ORGANIZATIONS


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ORGANIZATIONS

If they prepare at all, they prepare for too fewcontingencies. Further, preparation isfragmented.

They focus on only one aspect of a crisis, andonly after it has occurred.

They only consider technical factors in thecause or prevention of crises.

They dont explicitly consider theramifications to ke stakeholders

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