Strategic Management Chapter 1
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Chapter One
StrategicManagement
Process
“Plans are nothing, planning is everything.”
- Dwight D. Eisenhower
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Business Strategy: The Concept and Trends in Its Management
PPT 1-3
“Even if you are on the right track, you’ll get run over if you just sit
there.”- Will Rodgers
“Where absolute superiority is not attainable, you must produce a
relative one at the decisive point by making skillful use of what you
have.”- Karl von Clausewitz,
On War, 1832
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Business Strategy: The Concept and Trends in Its Management PPT 1-5
What is Strategy?
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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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“Four dimensions define a business strategy: the product-market investment strategy, the
customer value proposition, assets and competencies, and functional strategies and
programs. The first specifies where to compete, and the remaining three indicate how to
compete to win.”-David Aaker
“Strategic Market Management”
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Exercise
• Why should fluorescent tubes be long and narrow?
• Why should photographs have to go thru negative stage before it is printed?
• Why should companies stockpile inventories?
• What happens when you have tight controls over sales person’s call time?
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Why do some organizations succeed while others fail?
Strategic Leadership• Task of most effectively managing a
company’s strategy-making process Strategy Formulation
• Task of determining and selecting strategies Strategy Implementation
• Task of putting strategies into action to improve a company’s efficiency and effectiveness
Competitive AdvantageResults when a company’s strategies lead to
superior performance compared to competitors
Strategy is a set of related actions that managers take to increase their company’s performance.
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Superior Performance and Sustainable Competitive Advantage
Superior Performance• One company’s profitability relative to that of other companies in
the same or similar business or industry• Maximizing shareholder value is the ultimate goal of profit making
companies
ROIC (Profitability) = Return On Invested Capital• Net profit Net income after tax
Capital invested Equity + Debt to creditors
Competitive Advantage• When a company’s profitability is greater than the average of all
other companies in the same industry & competing for the same customers
= ROIC =
Sustainable Competitive AdvantageWhen a company’s strategies enable it to maintain above average profitability for a number of years
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Determinants of Shareholder Value
To increase shareholder value, managers must pursue strategies that increase the profitability
of the company and grow the profits.
Figure 1.1
Strategic degrees of freedom
Outside the manufacturer’s control
Assumed to be out of bounds
Within manufacturer’s control
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Business Strategy: The Concept and Trends in Its Management
PPT 1-15
A Business StrategyA Business Strategy
Where to CompeteThe product-market investment decision
How to CompeteValue Assets & Function area
proposition competencies strategies and programs
Figure 1.1
A Business Strategy
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A business model encompasses how the company will:
Company’s Business Model
Management’s model of how strategy will allow the company to gain competitive advantage
and achieve superior profitability
• Select its customers• Define and differentiate
its product offerings• Create value for its
customers• Acquire and keep
customers• Produce goods or
services
• Deliver those goods and services to the market
• Organize activities within the company
• Configure its resources• Achieve and sustain a
high level of profitability• Grow the business over
time
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Differences in Industry and Company Performance
A Company’s Profitability and Profit Growth are determined by two main factors:
The overall performance of its industry relative to other industries
Its relative success in its industry as compared to the competitors
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Return on Invested Capital in Selected Industries, 1997–2003
Data Source: Value Line Investment Survey
Figure 1.2
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Performance in Nonprofit Enterprises
Nonprofit entities such as government agencies, universities, and charities:• Are not in business to make a profit• Should use their resources efficiently
and effectively• Set performance goals unique to the
organization• Set strategies to achieve goals and compete
with other nonprofits for scarce resources
A successful strategy gives potential donors a compelling message as to
why they should contribute.
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Strategic Managers
Corporate Level Managers• Oversee the development of strategies for the
whole organization• The CEO is the principle general manager who
consults with other senior executives General Managers
• Responsible for overall company, business unit, or divisional performance
Functional Managers• Responsible for supervising a particular task
or operation e.g. marketing, operations, accounting, human resources
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Levels of Strategic Management
Figure 1.3
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The Five Steps of the Strategy Making Process
Select the corporate vision, mission, and values and the major corporate goals and objectives.
Analyze the external competitive environment to identify opportunities and threats.
Analyze the organization’s internal environment to identify its strengths and weaknesses.
Select strategies that:• Build on the organization’s strengths and correct its
weaknesses – in order to take advantage of external opportunities and counter external threats
• Are consistent with organization’s vision, mission, and values and major goals and objectives
• Are congruent and constitute a viable business model
Implement the strat strategies.
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Main Components of the Strategy- Making Process
Figure 1.4
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Crafting the Organization’s Mission Statement
Provides a framework or context within which strategies are formulated, including: Mission – The reason for existence – what an organization does Vision – A statement of some desired future state Values – A statement of key values that an organization is
committed to Major Goals – The measurable desired future state that an
organization attempts to realize
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The Mission
What is it that the company does? What is the companies business?
• Who is being satisfied (what customer groups)?
• What is being satisfied (what customer needs)?
• How customer needs are being satisfied (by what skills, knowledge, or distinctive competencies)?
The mission is a statement of a company’s raison d’etre, its reason for existence today.
A company’s mission is best approached from a customer-oriented business definition.
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The Mission Customer-Oriented Examples
The mission of Kodak is to provide “customers with the solutions they need to capture, store, process, output, and communicate images – anywhere, anytime.”
Ford Motor Company describes itself as a company that is “passionately committed to providing personal mobility for people around the world….We anticipate consumer need and deliver outstanding produces and services that improve people’s lives.”
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Abell’s Framework for Defining the Business
Figure 1.5
Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.
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The vision of Ford is “to become the world’s leading consumer company for automotive products and services.”
The Vision
What would the company like to achieve?A good vision is meant to stretch a company by
articulating an ambitious but attainable future state.
Nokia is the world’s largest manufacturer of mobile phones and operates with a simple but powerful vision: “If it can go mobile, it will!”
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Values
In high-performance organizations, values respect the interests of key stakeholders.
The values of a company should state: How managers and employees should
conduct themselves How they should do business What kind of organization they need to build
to help achieve the company’s mission Organizational culture
• The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals
• Often seen as an important source of competitive advantage
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Values at Nucor
“Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.”
“Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.”
“Employees have the right to be treated fairly and must believe that they will be.”
“Employees must have an avenue of appeal when they believe they are being treated unfairly.”
At Nucor, values emphasizing pay for performance, job security, and fair treatment for employees help to create an atmosphere that leads to high employee productivity.
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Key characteristics of well-constructed goals:1. Precise and measurable – to provide a
yardstick or standard to judge performance 2. Address crucial issues – with a limited
number of key goals that help to maintain focus3. Challenging but realistic – to provide
employees with incentive for improving4. Specify a time period – to motivate and
inject a sense of urgency into goal attainment
Major Goals
A goal is a precise and measurable desired future state that a company must realize if
it is to attain its vision or mission.
Focus on long-run performance and competitiveness.
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External Analysis requires an assessment of: Industry environment in which company operates
• Competitive structure of industry• Competitive position of the company• Competitiveness and position of major rivals
The country or national environments in which company competes
The wider socioeconomic or macroenvironment that may affect the company and its industry• Social• Government
Purpose is to identify the strategic opportunities and threats in the organization’s operating environment
that will affect how it pursues its mission.
• Legal• International
• Technological
External Analysis
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Internal analysis includes an assessment of: Quantity and quality of a
company’s resources and capabilities
Ways of building unique skills and company-specific or distinctive competencies
Purpose is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior
performance and weaknesses to inferior performance.
Internal Analysis
Building & sustaining a competitive advantage requires a company to achieve superior:
• Efficiency• Quality
• Innovations• Responsiveness to customers
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SWOT analyses help to identify strategies that align a company’s resources and capabilities to its environment – in order to create and sustain a competitive advantage.
Functional strategies should be consistent with and support the company’s business level and global strategies.• Functional-level strategy – directed at operational effectiveness• Business-level strategy – businesses’ overall competitive themes• Global strategy – expand, grow and prosper at a global level• Corporate-level strategy – to maximize profitability and profit growth
Selecting Strategies: SWOT Analysis and Business Model
When taken together, the various strategies pursued by a company must lead to a
viable business model.
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Strategy Implementation After choosing a set of congruent strategies to
achieve competitive advantage, managers must put those strategies into action:• Implementation and execution of the strategic plans• Design of the best organization structure• Consistency of strategy with company culture• Control systems to measure and monitor progress• Governance systems for legal and ethical compliance• Consistency with maximizing profit and profit growth
The feedback loop – strategic planning is ongoing• Managers must monitor strategy execution:
» To determine if strategic goals and objectives are being achieved » To evaluate to what extent competitive advantage is being
created and sustained• Managers must monitor and reevaluate for the next round of
strategy formulation and implementation
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Planned, Deliberate, Emergent and Realized Strategies
Figure 1.6
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Intended and Emergent Strategies
Intended or Planned Strategies• Strategies an organization plans to put into action• Typically the result of a formal planning process• Unrealized strategies are the result of unprecedented
changes and unplanned events after the formal planning is completed
Emergent Strategies• Unplanned responses to unforeseen circumstances• Serendipitous discoveries and events may emerge that can
open up new unplanned opportunities• Must assess whether the emergent strategy fits the
company’s needs and capabilities Realized Strategies
• The product of whatever intended strategies are actually put into action and of any emergent strategies that evolve
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Strategic Planning in Practice
Scenario Planning• Recognizes that the future is inherently unpredictable• Develops strategies for possible future scenarios
Decentralized Planning• Involves the functional managers• Avoids the ivory tower approach• Perceives procedural justice in the decision making
Strategic Intent• Avoids the strategic fit model, which focuses too much on the
current state• Sets ambitious vision and goals that stretch a company and
then finds ways to build to attain those goals
Recent studies suggest that formal planning does have a positive impact on company performance – and should
include the current and future competitive environments.
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Strategic Decision Making In spite of systematic planning, companies may adopt poor
strategies if groupthink or individual cognitive biases are allowed to intrude into the decision-making process:
Cognitive biases: Rules of thumb or heuristics resulting in systematic errors• Prior hypothesis bias • Escalating commitment• Reasoning by analogy• Representativeness• Illusion of control
Groupthink: Decisionmakers embark on a course of action without questioning the underlying assumptions
• Group coalesces around a person or policy• Decisions based on an emotional rather than an objective assessment
of the correct course of action
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Processes for Improving Decision Making
Reveals problems withdefinitions, assumptions, & recommended courses of action
To bring out all the reasons that might make the proposal unacceptable
Figure 1.7
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Strategic Leadership
Vision, eloquence, and consistency Commitment Being well informed Willingness to delegate and empower The astute use of power Emotional intelligence
• Self-awareness• Self-regulation• Motivation• Empathy• Social skills
Good leaders of the strategy-making process have a number of key attributes:
Business Strategy: The Concept and Trends in Its Management
PPT 1-42
End of Chapter
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