Transcript Chapter 1

EHRMA
Strategic Management
By
Dr. Harold D. Harlow
1
Strategic Management
Defined:
 Set of managerial decisions and
actions that determines the long-run
performance of a firm.
 Set of managerial actions and
decision,separate from operations, that
determines the future
profitability/success of the firm.
2
Managers Two Primary
Responsibilities

Operational Work



Strategic Work



Actions and plans less than one year.
Daily and weekly activities to “get the work of the
business done well”
More than one year future orientation.
Often crowded out by operational work.
The most important work is strategic. Although
not usually urgent in most environments,
essential to the future profit making potential of
the firm.
3
Business Policy
Defined:
General management orientation
that looks inward for properly
integrating the firm’s functional
activities.
4
Four Phases of
Strategic Management




Basic financial planning
Forecast-based planning
Externally-oriented planning
(strategic)
Strategic management(Choose
functional strategies to support firm
and SBU strategies)
5
Strategic Management
Benefits:
• Clearer sense of strategic vision for the firm
• Sharper focus on what is strategically
important
• Improved understanding of a rapidly changing
environment
6
Strategic Management
Not always a formal process can be ad hoc:

Where is the organization now? (Not where do we
hope it is!)

If no changes are made, where will the
organization be in 1 year, 2 years, 5 years, 10
years?

What specific actions should management
undertake? What are the risks and payoffs
involved?
7
Global Stategic Issues

European Union (EU)

Economic integration of 15 member countries

North American Free Trade Agreement (NAFTA)

Improved trade among 3 member countries

Mercosur

Free-trade area among Argentina, Brazil, Uruguay, and
Paraguay

Association of South East Asian Nations (ASEAN)

Attempting to link members into a borderless economic
zone
8
E-Commerce
7 Trends:


Internet forcing companies to transform
themselves
Market access and branding are changing,
causing disintermediation of traditional
distribution channels

Balance of power shifting to the consumer

Competition is changing
9
7 Trends (continued)

Pace of business increasing drastically

Internet purchasing corporations out of
their traditional boundaries

Knowledge becoming a key asset and
source of competitive advantage
10
Adaptation to Changing
Environmental Conditions
Strategic flexibility:


Demands a long-term commitment to the development
and nurturing of critical resources
Demands that the firm become a learning organization
11
Learning Organizations
Defined:
An organization skilled at creating,
acquiring, and transferring knowledge
and at modifying its behavior to reflect
new knowledge and insights.
12
Learning Organizations
Four Main Activities:
 Solving problems systematically
 Experimenting with new approaches
 Learning from their won experiences and
that of others
 Transferring knowledge quickly and
efficiently throughout the organization
13
Strategic Management Model
Environmental
Strategy
Formulation
Scanning
External
Societal
Environment
General Forces
Task
Environment
Industry Analysis
Internal
Structure
Chain of Command
Culture
Beliefs, Expectations,
Values
Strategy
Implementation
Evaluation
and
Control
and Control
Mission
Reason for
existence
Objectives
What results
to
accomplish
by when
Strategies
Plan to
achieve the
mission &
objectives
Policies
Broad
guidelines for
decision
making
Programs
Activities
needed to
accomplish
a plan
Resources
Assets, Skills
Competencies,
Knowledge
Process
to monitor
performance
and take
corrective
action
Budgets
Cost of the
programs
Procedures
Sequence
of steps
needed to
do the job
Performance
Feedback/Learning
14
Basic Model of
Strategic Management
Four Basic Elements
15
Environmental Scanning
Defined:
The monitoring, evaluating, and
disseminating of information from the
external and internal environments to
key people within the firm.
16
Environmental Scanning
17
Environmental Scanning
Identify strategic factors

SWOT Analysis



Strengths, Weaknesses
Opportunities, Threats
Internal Environment
• Strengths & Weaknesses


Within the organization but not subject to short-run control of
management
External Environment
• Opportunities & Threats

External to the organization but not subject to short-run
control of management
18
Strategy Formulation
Defined:
Development of long-range plans for
the effective management of
environmental opportunities and
threats in light of corporate strengths
and weaknesses.
19
Strategy Formulation
Mission Statement




Purpose or reason for the organization’s
existence
Promotes shared expectations among
employees
Communicates public image important to
stakeholders
Who we are, what we do, what we’d like to
become
20
Strategy Formulation
Maytag Corporation
Mission Statement
To improve the quality of home life by
designing, building, marketing, and
servicing the best appliances in the
world.
21
Strategy Formulation
Objectives

The end results of planned activity
• What is to be accomplished
• Time in which to accomplish it
• Quantified when possible
22
Strategy Formulation
Goals vs. Objectives
A goal is an open-ended statement of what
one wants to accomplish with no
quantification of what is to be achieved
and no time criteria for completion.
23
Goals & Objectives
Corporate goals and objectives include:




Profitability (net profits)
Growth (increase in total assets, etc.)
Utilization of resources (ROE or ROI)
Market leadership (market share)
24
Strategies
Defined:
A strategy of a corporation forms a
comprehensive master plan stating
how the corporation will achieve its
mission and objectives. It maximizes
competitive advantage and minimizes
competitive disadvantage.
25
Strategies
3 Types of Strategy

Corporate strategy

Business strategy

Functional strategy
26
Strategies
Corporate Strategy
 Stability
 Growth
 Retrenchment
27
Strategies
Business Strategy


Competitive strategies
Cooperative strategies
28
Strategies
Functional Strategy
 Technological leadership
 Technological followership
29
Hierarchy of Strategy
Corporate Strategy
Business
(Division Level)
Strategy
Functional
Strategy
30
Policies
Defined:
Broad guidelines for decision making
that link the formulation of strategy
with its implementation.
31
Strategy Implementation
Programs
Strategy
Implementation
Budgets
Procedures
32
Initiation of Strategy
•New CEO
•External intervention
Triggering
event
•Threat of change in
ownership
Stimulus
for change
in
strategy
•Performance gap
•Strategic inflection point
33
Strategic Decision Making
Strategic Decisions

Rare

Consequential

Directive
34
Strategic Decision Making
35
Strategic Decision Making
36
37
Strategy
Basic Concepts
38
Who Makes Strategy?
 General

Management Function.
Top level managers develop strategy of the
firm.
 Not
operations activity
 Must be allowed adequate time and
resources to be successful.

Key point: Operational work tends to crowd
out strategic management work.
39
What is Strategy?
 Strategy



has three levels:
Firm level
Business level or Strategic Business Unit
Level
Functional or departmental level.
 Directional
goals to guide future decision
making
 Formal planning sessions may occur
40
Strategy Questions







What is the current strategy, implicit or explicit?
What assumptions have to hold for the current
strategy to be viable?
What is happening in the larger, social and
educational environments?
What are our growth, size, and profitability
goals?
In which markets will we compete?
In which businesses?
In which geographic areas?
41
Strategy
Questions-Continued





To what customers or users?
How will the selling/buying decisions be made?
How will we distribute our products and services?
What technologies will we employ?
What capabilities and capacities will we require?






Which ones are core?
What are our management capabilities and capacities?
Is our “corporate culture” supportive of our strategy?
What will we make, what will we buy, and what will we
acquire through alliance?
What are our options?
On what basis will we compete
42
Why
 Proven
significant gains in performance
from explicit strategy development
 Different functional areas may have
different strategies.

Dysfunctional suboptimal decisions
dependent on functional manager
professional orientation.
 What
is needed is a “guiding strategic
hand” for each business function.
43
Where strategy comes from?
 Formal
planning
 Ad hoc by consensus of firm managers
 External-Reaction to environment
 Internal-Firm Resources available
44
When is ( New) Strategy Needed?
 When
firm performance does not meet
expectations.
 When firm is changed in some significant
way.


New managers
Firm is sold or merged with another firm.
 When
paradigmic changes occur in
business model.
45
Firm Level Strategies
 Growth



Mergers and Acquisitions
Organic (Depends on Industry Life cycle and
competitiveness)
Vertical or Horizontal Integration
• Economies of Scale or Scope
 Disinvestment
/ Retrenchment
46
Mission
 Rationale
for the firm: Its reason for
existance.
 Needed to drive the firm to the
intermediate goals and objectives
 Specific within a certain time period.
 Specific about competition and markets to
be captured.
47
Vision
 An
overriding very long range view of the
firm and where it might be in 10-20 years.
Corporate vision is a short, succinct, and inspiring statement of
what the organization intends to become and to achieve
at some point in the future, often stated in competitive terms.
Vision refers to the category of intentions that are broad, all-inclusive and
forward-thinking. It is the image that a business must have of its goals
before it sets out to reach them.
It describes aspirations for the future, without specifying the means that will
be used to achieve those desired ends.
48
Mission and Vision Answer the
Strategic Questions
 Who
are we?
 What do we do?
 Why are we here?
 What kind of company are we?
 What kind of company do we want to
become?
 What kind of company must we become to
survive and prosper in our community
49
Emergent Strategy

Mintzberg




Strategy is a plan, a "how," a means of getting from
here to there.
Strategy is a pattern in actions over time; for
example, a company that regularly markets very
expensive products is using a "high end" strategy.
Strategy is position; that is, it reflects decisions to
offer particular products or services in particular
markets.
Strategy is perspective, that is, vision and direction.
50
51
EBBC
Introduction to
Strategy
Vodafone Egypt
Ian Gray, Chairman, Vodafone
Egypt
17 November 2007
52
If you do not
know where you
are going –
you will never
53
Have a plan!
Failure to plan
=
Planning to fail !
54

Key Drivers for
Success
Market led
 Customer
focused
 Competitor
aware
55
Strategy issues ref
Vodafone Egypt
Contents
1. Egypt
2. Vodafone
Egypt
3. Strategy
4. Summary
56
Egypt – good macroeconomic
environment
Demographic facts
77.5m (1.8%
Population
US$953
p.a. growth)
GDP per
(US$4,400
capita
adjusted for
Income distribution
PPP)(1)
US$ per month
+ 397 A 5%
238 - 397
B
B
159 - 238
58% of
Literacy
Population population
50% aged 20
distribution or less
GDP
~6% per
growth
annum(2)
Economic facts

Economy steadily
improving since July
2004

Strong growth in
tourism and Suez
Canal revenues
6%
17%
C
84 - 159
28%
D
44%
< 84
E
(1) 2005 estimates, (2) Estimate for 12 months to June 2006
Source: CIA World Fact book, 9th Euromoney Arab Financial Forum
57
Mobile continues to outgrow
fixed
Egyptian telecom market overview
Fixed vs. mobile revenue
(% )

Fast growing mobile
market
21% penetration; 27%
YoY growth(1)
 Slow
growing fixed
 99% population
market
coverage (8% of land
 Only
2.5m
PCs; 6%
 mass)
14%
penetration;
YoY growth
 mostly
prepaid;
120,000
DSL(1) SIM
only with no handset
connections
subsidies
 Regulator influenced
 low blended minute
byrates
politics
and
must
(<5€c)
100

90
80
43
48
70
54
56
46
44
Dec 2004
Dec 2005
60
50
40
30
57
52
20
10
0
Dec 2002
Dec 2003
Fixed revenue
Mobile revenue
Source: Company data and analyst consensus estimates, (1) 3 months to September 2006
58
Two player market with a
recently launched 3rd entrant
Vodafone Egypt



Vodafone
controlled; with
Telecom Egypt
as strategic
partner(1)
Launched
November
Telecom
Vodafone
Egypt
Group
1998
45%
55%
Customers
7.8m(2,3)
Mobinil

Joint Venture
ORASCOM/
Orange

Launched May
1998
(with
Ownership
early lead of
100,000
HVCs)
Free Float
ORASCOM
37%

Customers
Orange
(2,3)
8.1m32%

Twelve
months
(1) Vodafone Egypt remaining free float 0.44%, (2) Active customers, (3) September 2006
Source: Vodafone & Mobinil company data and Egyptian Government data

Twelve months
31%
Etisalat

UAE
controlled;
with local
partners

Launched April
4%
20%
2007

National
Bank of
Egypt
20%
Paid LE16.7bn
CIB
4% (US$2.9bn) for
Etisalat
Egypt Post
66%
10%
2G/3G
licence
(3.4% of Egypt
GDP)
59
Promising outlook with rapid
mobile market growth
Drivers for hitting the “S” Curve
Total mobile market penetration
Reported
customers (m)
 Macro-economic
environment

economy
improving since
2004
Mobile
penetration (%)
25
23
20
16
20
18
12
15
11
8
18
7
4
4
8
13
6
8
5
0
 Mass
market
appeal
10
0
Dec
2002
Dec
2003
Dec
2004
Dec
2005
Dec
2006
Source: Company data

mobile moving to
60
Contents
1. Egypt
2. Vodafone
Egypt
3. Strategy
4. Summary
61
‘Core Purpose’
To connect people and
communities
Accelerating the
advancement
62
Vodafone Egypt is growing
rapidly
Revenue
EBITDA
(LEbn)
(%)
(LEbn)
8.0
EBITDA
4.0
6.0
38% CAGR
3.0
4.0
2.0
2.0
1.0
0.0
EBITDA margin
44% CAGR
75
55
0.0
FY01/02
FY02/03
FY03/04
FY04/05
35
FY05/06
FY01/02
Revenue components H1 FY06/07(1)
Outbound
voice
Inbound voice
Visitors
Data
(including
95
FY02/03
FY03/04
FY04/05
FY05/06
YoY% growth H1 FY06/07
(%)
70%
60
47
44
41
43
Revenue
EBITDA
40
11%
10%
20
0
Minutes
Customers (2)
(1) % of total revenue, (2) Active customers
Source: Company data, Egyptian LE (IFRS)
4%
63
Vodafone Egypt is
outperforming
Customer share (%)(1)
Revenue share (%)
(%)
(%)
60
60
55
55
50
50
45
45
40
40
Sep 2002
35
Sep 2002
Sep 2003
Sep 2004
Sep 2005
Sep 2006
EBITDA share (%)(2)
Sep 2003
Sep 2004
Sep 2005
Sep 2006
EBITDA margins (%)(2)
(%)
(%)
65
65
60
60
55
55
50
50
45
40
45
35
Sep 2002
40
Sep 2002
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Vodafone Egypt
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Mobinil
(1) Active customers, (2) Both operators were released from liability to pay 1800 spectrum fees in Sep 2006 – LE100m impact excl. from Mobinil EBITDA. LE92m impact incl.
in Vodafone Egypt depreciation
Source: Company data
64
Growth in prepaid with reduction
in minute rate
Prepaid vs. contract closing customer split(1)
Customers (m)
Outbound minute rate evolution
(LE)
8.0
2.0
6.0
1.5
4.0
1.0
2.0
0.5
0.0
Sep 2002
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Prepaid
0.0
Sep 2002
Contract
Sep 2003
Sep 2004
Sep 2005
Sep 2006
• Low outbound minute rate: 30pt (<4€c)
Contract
• Customer growth slowing indicating maturity
• Growth accelerating from late 2004
Prepaid
• Tariff options increased and price per minute reduced to
encourage usage
(1) Active customers, estimated prior to October 2003
Source: Company data
65
Driving usage through positive
elasticity
Prepaid vs. contract closing customer split(1)
Customers (m)
Outbound minute rate evolution
(LE)
8.0
2.0
6.0
1.5
4.0
1.0
2.0
0.5
0.0
Sep 2002
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Prepaid
0.0
Sep 2002
Contract
Contract outbound MOU vs. total ARPU
Minutes
ARPU (LE)
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Prepaid outbound MOU vs. total ARPU
Minutes
ARPU (LE)
600
350
60
60
500
300
40
40
400
250
20
20
300
Sep-02
Sep-03
Sep-04
Monthly ARPU
Sep-05
Monthly MOU
200
Sep-06
0
Sep-02
Sep-03
Sep-04
Monthly ARPU
Sep-05
0
Sep-06
Monthly MOU
(1) Active customers, estimated prior to October 2003
Source: Company data
66
Vodafone Egypt outperforms on
customer satisfaction
Vodafone Egypt vs. Mobinil
(%)
100
(%)
100
90
90
94
87
90
79
80
80
70
70
60
60
Network availability
Voice quality
(%)
100
(%)
100
90
90
82
91
90
80
80
70
70
60
60
Call continuity
11%
94
Sending/receiving SMS
Vodafone Egypt
Mobinil
Source: Network Satisfaction Tracker (Logic Consulting Group). October 2006
67
Cost management is critical in
low ARPU environment
Cost principles
Margin breakdown H1 FY06/07
(%)
100
 Break
even or
better on
activations
100
(13)
(10)
(4)
80
(17)
56
60
40
20
0
Total
revenue
Interconnect
costs
Other
direct
costs
Acquisition Operating
& retention expenses
costs
EBITDA
Network utilisation
 No
unprofitable
tariffs
(%)
100
95
90
85
80
75
 Utilise
and build
on Group
May
2005
Jul
2005
Sep
2005
Nov
2005
Jan
2006
Mar
2006
May
2006
Jul
2006
Sep
2006
Source: Company data
68
Being part of Vodafone Group
offers many benefits
Benefits from Vodafone Group …
 Brand
 Buying
power
 Market intelligence (product innovation,
technical support, market trends)
… and in return from Vodafone Egypt
 Resource
 People
Australian
call centre

development
 Professional IT services
 International help desk
69
Vodafone Egypt generates
healthy cash flows
Free cash flow FY05/06
(%)
100
100
(7)
(18)
90
80
(20)
70
(22)
60
50
40
33
(11)
30
22
20
10
0
Revenue(1) Government Direct costs
charges(2)
Operating
expenses
Capex
Operating
free cash
flow
Corporate
tax
Free cash
flow
(1) Revenue excluding sales tax, (2) Various charges including national training fund, telecom fund, NTRA fees (excl. 2G licence fees)
Source: Company data
70
Contents
1. Egypt
2. Vodafone
Egypt
3. Strategy
4. Summary
71
Unrelenting focus and attention
on1six key areas
Consistency
2
5
6
Image and quality
3
Small price premium
4
Managing market competitiveness
Values based culture
Best team
72
Company Vision Strategy &
Values
Profitable Growth Based on Value and
 Grow
market at appropriate cost
Differentiation
Profitable
Growth
Brand
Preference
Cost
Containment
& Synergies
Management
Capabilities
 Focus on value
 Grow adjacent market
Network quality and coverage
First to market with key products
Excellence in customer service
Relevant
brand for the people of
Egypt
Synergies from the Group
73
Market Leadership
Our Objective is Building a Strong
Vodafone Brand
To delight our customers and build our
market leadership without having to
compete on pricing.
Our brand is a global one yet with a
local tone that keeps it close to our
customers hearts.
We have the best marketing talents
74
From Strategy to Operational
Plans
Tasks
Processes
Resourcing
Behaviour
 Market led
 Customer focused
 Competitor aware
 Employee driven
75
Thank You
76