Transcript Document

Strategic
Management
Bachelor of Construction Management
MGT 415
Military influences in strategy
• “Strategos” referred to a general in
command of an army
• The art of the general
– By 450 B.C. it came to mean managerial skill
– By 330 B.C. it referred to the skill of employing forces
to overcome positions to create a system of global
governance
• Carl von Clausewitz “tactics…(involve) the
use of armed forces in the engagement,
strategy (is) the use of engagements for the
object of war” 1838 On War
Academic influences in strategy
• 1911 Scientific management (Taylor) – Still in place
today (UPS), some consider it micromanaging
• HBS requires a class in Business Policy in 1912
• Adam Smith’s “invisible hand” (the market) gives way to
Alfred Sloan (GM CEO from 1923-1946) concept of the
“visible hand”—middle manager
• Chester Bernard influential book “The Executive” argues
that managers should pay attention to “strategic factors”
• Ronald Coase’s 1937 article “why firms exist” (Nobel
Prize in economics) and Joseph Schumpter’s concept of
“disruptive technologies” written in 1942 bring in
organizational economics
• Max Weber warns against bureaucratic organizations but
sees a shift toward this way of organizing
Recent influences in strategy
• 1960s (Strategy and structure; Corporate
Strategy)
• 1963 Harvard business conference leads to
SWOT analysis
• BCG founded in 1963 “strategy boutique”
– Created the portfolio analysis
» Stars, dogs, cash cows, question marks
• 1980s (Porter’s 5 forces)
• 1990s (Resource based view of the firm)
What is Strategic Management?
• Strategic Management
– The process by which the firm manages the
formulation and implementation of the plan
and the resulting decisions necessary to
accomplish desired objectives
• Roadmap to follow
• Blueprint for success
What is Strategic Management?
The process for moving an organization
from where it is now,
to where it wants to be.
Today
Vision for the Future
Why is strategic management
important?
• Gives everyone specific role for
achievement
• Makes a difference in performance levels
• Provides systematic approach to
uncertainties
• Coordinates and focuses employees in
meeting organization goals
What is a Strategy?
• Strategy
– A strategy is a declaration of intent, defining where
you want to be in the long term.
– Large-scale, future-oriented plan for interacting
with the competitive environment to achieve
objectives
– It is a unique synthesis of features, design,
quality, service, positioning and cost.
– Company’s “game plan”.
– Framework for managerial decisions
Why Strategy?
• To change, an organization needs
–
–
–
–
–
–
Burning Platform
Vision
Leadership
Competitive Advantage
Survival
Strategic Management
What is Competitive Advantage?
• Every firm should have one or more
unique forms of competitive advantage
• A firm’s competitive advantage comes
from its ability to perform activities more
distinctively or more effectively than its
rivals.
• A competitive advantage gives a firm an
edge over its rivals.
Goal: Having A Unique Strategy
If you have the
same strategy as
your competitors…
Your strategy is
a wash
If the strategy is
different but
is easily copied…
It provides only
a temporary
advantage
If the strategy is
different but is
hard to copy
It is strong and
sustainable
In other words, strategy is about:
• Direction; Where is the business trying to get to in
the long-term
• Markets & scope; Which markets should a
business compete in and what kind of activities are
involved in such markets?
• Advantage; How can the business perform better
than the competition in those markets?
In other words, strategy is about:
• Resources; What resources (skills, assets, finance,
relationships, technical competence, facilities) are
required in order to be able to compete?
• Environment; What external, environmental factors
affect the businesses' ability to compete?
• Stakeholders; What are the values and expectations
of those who have power in and around the business?
Strategy at Different Levels of a Business
Strategies exist at several levels in any organisation ranging from the overall business (or group of
businesses) through to individuals working in it.
Corporate Strategy
is concerned with the overall purpose and scope of the
business to meet stakeholder expectations. This is a
crucial level since it is heavily influenced by investors in
the business and acts to guide strategic decision-making
throughout the business. Corporate strategy is often
stated explicitly in a "mission statement".
Business Unit Strategy
is concerned more with how a business competes
successfully in a particular market. It concerns strategic
decisions about choice of products, meeting needs of
customers, gaining advantage over competitors,
exploiting or creating new opportunities etc.
Operational Strategy
is concerned with how each part of the business is
organised to deliver the corporate and business-unit
level strategic direction. Operational strategy therefore
focuses on issues of resources, processes, people etc.
Example:
Single-Business Firms
C o rp o ra te /
b u s in e s s le v e l
P O M /R & D
s t r a te g ie s
F in a n c ia l/
a c c o u n t in g
s t r a te g ie s
M a r k e t in g
s t r a te g ie s
H um an
r e la t io n s
s t r a te g ie s
Example:
Multiple Business Firms
C o r p o r a te
s t r a te g ie s
B u s in e s s 1
T y p e t it le h e re
P O M /R & D
s t r a te g ie s
B u s in e s s 2
T y p e t it le h e re
F in a n c ia l/
a c c o u n t in g
s t r a te g ie s
B u s in e s s 3
T y p e t it le h e re
M a r k e t in g
s t r a te g ie s
H um an
r e la t io n s
s t r a te g ie s
DEVELOPING STRATEGIES
WHAT BASIS?
GENERIC
STRATEGIES:
Cost
Leadership
vs.
Differentiation
WHAT DIRECTION?
ALTERNATIVE
DIRECTIONS:
‘Do Nothing’
Withdrawal
Consolidation
Market Penetration
Product Development
Market Development
Diversification
Related / unrelated
HOW?
ALTERNATIVE
METHODS:
Internal Development
Acquisition
Joint Development
Strategic Management Growth
Strategic Management Process
Analyzing
Current
Situation
Strategic
Analysis
Deciding
on
Strategies
Strategy
Formulation
Putting
Strategies
in Action
Strategy
Implementation
Evaluating &
Changing
Strategies
Strategy
Evaluation
Strategic Analysis
• Starting point in the
strategic management
process
• Precedes effective
formulation and
implementation of
strategies
• Clear goals and
objectives permit
effective allocation of
resources
• Hierarchy of goals
– Vision
– Mission
– Strategic objectives
• Managers
– Scan the environment
– Analyze competitors
• General environment
• Industry environment
Strategic Analysis (cont.)
• Frameworks for analyzing
a firm’s internal
environment
– Strengths
– Weaknesses
• Analyzing strengths can
uncover potential sources
of competitive advantage
• Intellectual assets are
drivers of
– Competitive advantages
– Wealth creation
• Networks and
relationships among
–
–
–
–
Employees
Customers
Suppliers
Alliance partners
Strategic Analysis (cont.)
The process of Strategic Analysis can be assisted by a
number of tools, including:
PEST Analysis - a technique for understanding the
"environment" in which a business operates
Scenario Planning - a technique that builds various plausible
views of possible futures for a business
5 Porter Forces Analysis - a technique for identifying the
forces which affect the level of competition in an industry
Market Segmentation - a technique which seeks to identify
similarities and differences between groups of customers or users
Strategic Analysis (cont.)
Directional Policy Matrix - a technique which summarises
the competitive strength of a businesses operations in specific
markets
Competitor Analysis - a wide range of techniques and
analysis that seeks to summarise a businesses' overall
competitive position
Critical Success Factor Analysis - a technique to identify
those areas in which a business must outperform the competition
in order to succeed
SWOT Analysis - a useful summary technique for
summarising the key issues arising from an assessment of a
businesses "internal" position and "external" environmental
influences.
Strategic Formulation
• Firm’s portfolio or
• Successful firms
group of businesses
develop bases for
– What business(es) should
competitive advantage
– Cost leadership
– Differentiation
– Focusing on narrow or
industry-wide market
segments
• Sustainability
• Industry life cycle
we be in?
– How can we create
synergies among the
businesses?
• Diversification
– Related
– Unrelated
Strategic Formulation (cont.)
• Appropriate entry
• Digital technologies can
strategies
enhance
– Cost leadership
• Sustain competitive
– Differentiation
advantage in global
markets
• Digital technologies
change the way business
is conducted
– Added value
– Impact on performance
Strategic Implementation
• Informational control
– Monitor and scan the
environment
– Respond effectively to
threats and opportunities
• Behavioral control
• Effective corporate
governance
• Organizational structure
and design
• Organizational
boundaries
– Flexible
– Permeable
• Strategic Alliances
• Develop organization
– Interests of managers and
that is committed to
owners of the firm
– Excellence
– Ethical behavior
Strategic Implementation (cont.)
• Learning organization
responsive to
– Rapid and unpredictable
change in today’s
competitive environments
• Corporate
entrepreneurship and
innovation
– New opportunities
– Enhance innovative
capacity
– Autonomous
entrepreneurial behavior
– Product champions
• New ventures and
small businesses
– Major engine of
economic growth
– Recognize viable
opportunities
– Entrepreneurial
leadership skills
Strategic Evaluation
• Audit/Brainstorm
– Internally
– Externally
• Alteration/Modification/Improvement
– Was the strategy effective?
– “Close the loop”
Model of Strategic Management Process
Advantages of Engaging in the
Strategic Management Process
• Provides a Sense of Purpose for a Firm
– A strategic plan includes a mission
statement and a vision statement. The
sentiments represented in these statements
provide a sense of purpose for a firm.
Advantages of Engaging in the
Strategic Management Process
• Aids In Decision Making
– Having a strategic plan enables the
leaders of a firm to ensure that day-to-day
decisions fit with the long-term interests
of the organization.
Advantages of Engaging in the
Strategic Management Process
• Brings Everyone in the Company
Together
– Having a strategic plan encourages
everyone in a company to work
together to achieve common aims.
Advantages of Engaging in the
Strategic Management Process
• Focus On Forward Thinking
– The planning function forces managers to
think ahead and consider resource needs
and potential opportunities or threats that
the organization may face in the future.
3 Wives & 1 Husband
of Strategic Management
Strategic Management
• Why do we exist? (Mission/Vision)
• Where are we? (Situational Analysis)
• Where do we want to be? (Goals/Objectives)
• How are we going to get there? (Who,
Resources, When, Success/Failure)
Company vision
Mission statements
Strategic objectives
Hierarchy of Goals
Coherence in Strategic Direction
Company Vision
• Massively inspiring/Charts a
company’s future strategic
course
• Long-term/Defines the
business makeup for 5 years
(or more)
• Driven by and evokes passion
• Fundamental statement of the
organization’s Values,
Aspiration and Goals
• Challenges and motivates
workforce
Company vision
Hierarchy of Goals
• Arouses strong sense of
. organizational purpose
• Induces employee buy-in
• Galvanizes people to live
. the business
Coherence in Strategic Direction
Mission statements
• Purpose of the company
• Basis of competition and
competitive advantages
• More specific than vision
• Focused on the means by which
the firm will compete
• Company specific, not genericas to give a company’s identity
• A company’s mission is not to
make a profit ! The real mission
is always-“What will we do to
make a profit?”
• More specific than vision
Company vision
Mission statements
Hierarchy of Goals
• Conveys
– Who we are?,
– What we do?, and
– Where we are now?
• Basis of competition and
competitive advantages
Coherence in Strategic Direction
Strategic objectives
• Operationalize the mission
statement
• Provide guidance on how the
organization can fulfill or
move toward the “higher
goals”
• More specific
• Cover a more well-defined
time frame
• Resolve conflicts that arise
• Yardstick for rewards and
incentives
Company vision
Mission statements
Strategic objectives
Hierarchy of Goals
•
•
•
•
•
Timely
Realistic
Challenging
Measurable
Appropriate
Value of a Well-Conceived
Strategic Vision and Mission
• Crystallizes long-term direction
• Reduces risk of rudderless decision-making
• Conveys organizational purpose and identity
• Keeps direction-related actions of lower-level
managers on common path
• Helps organization prepare for the future
The Vocabulary of Strategy
Situational Analysis
There are two considerations analysis of factors that can
affect the future;
– External Environment (Using 5 Porter’s Forces Analysis)
– Internal Environment (Using S.W.O.T Analysis)
Components of the External
Environmental Analysis
Analysis of the
External Environments
• General environment
– Focused on the future
• Industry environment
– Focused on factors and conditions influencing a
firm’s profitability within an industry
• Competitor environment
– Focused on predicting the dynamics of
competitors’ actions, responses and intentions
General Environment
• Dimensions in the broader society that
influence and industry and the firms within it
Industry Environment
• Set of factors directly influencing a firm and
its competitive actions and competitive
responses
Competitor Environment
• All of the companies that the firm competes
against.
Scenario of External Environment
General Environment
• The Economic Segment
– Inflation rates
– Interest rates
– Trade deficits or surpluses
– Budget deficits or surpluses
– Personal savings rate
– Business savings rates
– Gross domestic product
General Environment (cont’d)
• The Sociocultural Segment
– Women in the workplace
– Workforce diversity
– Attitudes about quality of
worklife
– Concerns about environment
– Shifts in work and career
preferences
– Shifts in product and service
preferences
General Environment (cont’d)
• The Global Segment
– Product innovations
– Applications of knowledge
– Focus of private and
government-supported
R&D expenditures
– New communication
technologies
General Environment (cont’d)
• The Technological Segment
– Product innovations
– Applications of knowledge
– Focus of private and
government-supported R&D
expenditures
– New communication
technologies
General Environment (cont’d)
• The Political/Legal
Segment
– Antitrust laws
– Taxation laws
– Deregulation philosophies
– Labor training laws
– Educational philosophies
and policies
General Environment (cont’d)
• The Demographic
Segment
– Population size
– Age structure
– Geographic distribution
– Ethnic mix
– Income distribution
Industry Environment;
Porter’s Five Forces Model
Threat of
new entrants
Bargaining power of
suppliers
Threat of
Substitute products
and services
Bargaining power
of buyers
Industry Environment (cont’d);
Threat of New Entrants: Barriers to Entry
•
•
•
•
•
•
•
•
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected retaliation
Industry Environment (cont’d);
Barriers to Entry
• Economies of Scale
– Marginal improvements in efficiency that a
firm experiences as it incrementally increases
its size
– Advantages and disadvantages of large-scale
and small-scale entry
Industry Environment (cont’d);
Barriers to Entry (cont’d)
• Product
differentiation
• Capital
Requirements
– Unique products
– Physical facilities
– Customer loyalty
– Inventories
– Products at
competitive prices
– Marketing activities
– Availability of
capital
Industry Environment (cont’d);
Barriers to Entry (cont’d)
• Switching Costs
– One-time costs customers incur when they buy
from a different supplier
– New equipment
– Retraining employees
– Psychic costs of ending a relationship
Industry Environment (cont’d);
Barriers to Entry (cont’d)
• Access to Distribution Channels
– Stocking or shelf space
– Price breaks
– Cooperative advertising allowances
Industry Environment (cont’d);
Barriers to Entry (cont’d)
• Cost disadvantages independent of scale
– Proprietary product technology
– Favorable access to raw materials
– Desirable locations
• Government policy
– Licensing and permit requirements
– Deregulation of industries
Industry Environment (cont’d);
Barriers to Entry (cont’d)
• Expected retaliation
– Responses by existing competitors may depend
on a firm’s present stake in the industry
(available business options)
Industry Environment (cont’d);
Bargaining Power of Suppliers
• Supplier power increases when:
– Suppliers are large and few in number
– Suitable substitute products are not
available
– Individual buyers are not large customers
of suppliers and there are many of them
– Suppliers’ goods are critical to buyers’ marketplace
success
– Suppliers’ products create high switching costs.
– Suppliers pose a threat to integrate forward into buyers’
industry
Industry Environment (cont’d);
Bargaining Power of Buyers
• Buyer power increase when:
– Buyers are large and few in
number
– Buyers purchase a large portion
industry’s total output
of an
– Buyers’ purchases are a significant
portion of a supplier’s annual revenues
– Buyers can switch to another product without incurring
high switching costs
– Buyers pose threat to integrate backward into the sellers’
industry
Industry Environment (cont’d);
Threat of Substitute Products
• The threat of substitute products
increases when:
– Buyers face few switching costs
– The substitute product’s price is
lower
– Substitute product’s quality and performance are
equal to or greater than the existing product
• Differentiated industry products that are valued by
customers reduce this threat
Industry Environment (cont’d);
Intensity of Rivalry Among Competitors
• Industry rivalry increases when:
– There are numerous or equally
balanced competitors
– Industry growth slows or
declines
– There are high fixed costs or high
storage costs
– There is a lack of differentiation opportunities or low
switching costs
– When the strategic stakes are high
– When high exit barriers prevent competitors from leaving
the industry
Industry Environment (cont’d);
Interpreting Industry Analyses
Low entry barriers
Suppliers and buyers
have strong positions
Strong threats from
substitute products
Intense rivalry
among competitors
Unattractive
Industry
Low profit potential
Industry Environment (cont’d);
Interpreting Industry Analyses
High entry barriers
Suppliers and buyers
have weak positions
Few threats from
substitute products
Moderate rivalry
among competitors
Attractive
Industry
High profit potential
Competitor Environment;
Competitor Analysis
• Competitor Intelligence
– The ethical gathering of needed information and data
that provides insight into:
• A competitor’s direction (future objectives)
• A competitor’s capabilities and intentions
(current strategy)
• A competitor’s beliefs about the industry
(its assumptions)
• A competitor’s capabilities
Competitor Environment
(cont’d);
Competitor Analysis
Components
Internal Environment
A SWOT analysis is a systematic way of looking at the
internal and external factors affecting your business.
S W O T represents;
S trengths
.
W eaknesses .
O pportunities .
T hreats
.
Factors Internal
to Organization
Strengths Weakness
Factors External
to Organization OpportunitiesThreats
• A core competence is a well-performed internal activity that is
central to a company’s competitiveness and viability
• A distinctive competence is a competitively valuable activity that
a company performs better than its rivals
Strengths
• Strengths are generally “internal” – those things that
you bring to the enterprise that can help it grow and
develop successfully
• Positive tangible and intangible attributes, internal to
an organization. They are within the organization’s
control.
• Examples are:
– Education
– Experience
– Capital
– Access to advisors/support systems
Weaknesses
• Like Strengths, Weaknesses are generally internal.
• Factors that are within an organization’s control that
detract from its ability to attain the core goal. Which
areas might the organization improve?
• Examples of weaknesses are:
– Limited experience or education
– Limited access to needed capital
– Limited availability of labor, support or
professional help
Opportunities
• Opportunities are those things we perceive that will
help our business grow. They are outside of our
control, but we want to make decisions that allow us to
take control of what the opportunity offers.
• Identify them by their “time frames”
• Most opportunities arise from our understanding of the
unmet needs or wants in the marketplace.
• Examples;
– Unmet customer need or want for a new product or
service
– Opportunity to expand customer service
– New market openings through product development
– Changes in market demand that benefit our business
Threats
• External factors, beyond an organization’s control,
which could place the organization mission or
operation at risk. The organization may benefit by
having contingency plans to address them if they
should occur.
• Planning can help to reduce the impact of threats
• Typical threats are:
– Negative changes in market demand
– Changes in economic status
– Changes in customer preferences
– Entry of a new competitor
– Changes in regulations and laws
SWOT ANALYSIS TABLE
STRENGTHS
WEAKNESSES
What do we do well?
What is wrong now?
• What are your advantages?
• What do you do well?
• What relevant resources do you
have?
• What do other people see as your
strengths?
• What could you improve?
• What do you do badly?
• What should you avoid?
THREATS
OPPORTUNITIES
What can go wrong?
What possibilities exist?
• Where are the good opportunities facing
you?
• What are the interesting trends you are
aware of?
• Useful opportunities can come from such
things as:
• Changes in technology
• Changes in government policy
• Changes in organizational structure
• Changes in business priorities?
•
•
•
•
What obstacles do you face?
What are other companies doing?
Is the playing field changing?
Is changing technology, trends, directions
threatening your position?
• Could any of your weaknesses seriously
threaten your business?
Create a Plan of Action
What steps can you take?
 Capitalize on your “Strengths”
 Overcome or minimize your “Weaknesses”
 Take advantage of some new “Opportunities”
 Respond to the “Threats”
Strengths
Opportunities S-O strategies
[pursue opportunities
that are fit to strengths]
Threats
S-T strategies
[use strengths to
reduce vulnerability to
external threats]
Weaknesses
W-O strategies
[overcome weaknesses
to pursue opportunities]
W-T strategies
[establish defensive plan
to prevent weaknesses
susceptible to external
threats]
Factors of Internal Environment
(Strength & Weaknesses)
Company Resources:
•
•
•
•
•
•
Capital (cash and liquid assets)
People (employees, management)
Brand / Image, Reputation
Physical Resources
Competencies
Corporate Culture
Factors of Internal Environment
(Strength & Weaknesses)
Relationships with…
• Suppliers / Distributors
• Customers
• Shareholders
• Competitors
• “Publics”;
Financial Institutions
Government
Media
Interest Groups
Employees (internal)
Factors of External Environment
(Opportunities & Threats)
• Economic Environment
– Biz Cycles, Inflation, Unemployment
• Socio-Cultural Environment
– Cross-cultural aspects, Demography
• Political-Legal Environment
– Government regulations, Agencies
• Competitive Environment
– Direct or Indirect Competitors
• Natural Environment
– Climate, seasonal cycles, etc.
• Technological Environment
Simple Rules for SWOT Analysis
• Be realistic about the strengths and
weaknesses of your organization or group.
• Distinguish between where your organization
is today, and where it could be in the future
• Be specific: Avoid gray areas.
• Always analyze in relation to your core
mission.
• Keep your SWOT short and simple. Avoid
complexity and over analysis
• Empower SWOT with a logical conceptual
framework.
Caution!
• SWOT analysis can be very subjective. Do not
rely on it too much. Two people rarely comeup with the same final version of SWOT.
• Use it as guide and not a prescription.
END OF TOPIC;
Strategic
Management