Transcript BA 469 Chap001.ppt

BA 469
Strategic Management
& Business Policy
Manolete V. Gonzalez, Phd
BA 469
Course Introductions;
Ch 1: What Is Strategy
and Why Is
It Important?
Introductions
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Name
Major
What do you expect/hope(?) to be doing 5
years from now? where?
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Focus: General Management
of an organization
An organization is “a system of
consciously coordinated activities or
forces of two or more persons.”
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General management perspective
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Strategic decisions: strategy comes from
“strategos,” used in ancient times to refer to
administrator of conquered regions, therefore
the whole “enterprise”
Beyond functional areas: for example, a
company’s policy on what type of customers
to go after affects marketing, production,
finance, etc.
Long-term implications, affect different
functional areas
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Learning Outcomes
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develop skills in using strategic assessment tools
to identify company wide problems,
develop skills in determining company wide
strategy
develop an awareness of the impact of external
factors on business strategy
understand the strategic challenges a business
organization must address
understand the difficulties/realities associated with
formulating and implementing appropriate
responses to these challenges
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Text and Course Information
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Crafting and Executing Strategy: The Quest
for Competitive Advantage, by Thompson,
Strickland, Gamble. 15th edition, Mc-Graw
Hill/Irwin (2007)
Information about the course, including the
course description, requirements, and
schedules, are in the BA 469 page of the
COB website
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Requirements
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Case Briefs and Reports
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7 Case Briefs – 2 pages
1 Group Case Report – 8 pages
See Report Instructions file for details
Quizzes – 4 throughout term
 Multiple choice and possibly essay
 Based on concepts covered in chapters assigned after
last quiz.
 4 chapters for first quiz, 3 chapters for other three
quizzes
Participation – 10% of final grade
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Requirements:
case briefs and reports
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Case briefs and reports are due beginning of
class case is assigned (see Schedule)
READ instructions for Case briefs and reports
on Report Instructions file carefully.
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There are specific instructions for particular cases
Typed and write for an audience consisting of
business professionals
Submit these on time, penalties otherwise
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Requirements – restating the
obvious
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Come to class prepared
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Read Chapters assigned for the day
Case assignments, whether briefs or reports, are
also intended to get students prepared for
discussion
Participation grades are based on judgment as to
active and meaningful contribution to class.
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In class writing.
Speak up (clarification, disagreement, etc.)
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House Rules
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Keep distractions to a minimum, respect your peers
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Shut off cell phones or place them in silent mode (note an
unattended vibrating cell phone is distracting)
Using laptops are ok for note taking or reference to notes.
Avoid side discussions with your neighbor.
Come to class on time; if you do arrive late, enter quietly
and unobtrusively, e.g. do not walk in front of the instructor.
If you have to leave early, let the instructor know and sit
where you can leave without disturbing too many students.
“Multi-tasking” during class is not appreciated, for
example reading the newspaper, working on a paper
for another class, sleeping, etc.
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House Rules
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Respect each other: tolerate differences of opinion
and manner of participating.
If you have strong opinions, voice it and be heard,
listen to responses, engage in an exchange of
opinions, and then allow the class to move on.
Humor, informal, ok. But do remember why we are
in class.
Other suggestions?
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“Without a strategy the
organization is like a ship
without a rudder.”
Joel Ross and Michael Kami
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Chapter 1 Roadmap
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What Do We Mean By Strategy?
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Strategy and the Quest for Competitive Advantage
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Identifying a Company’s Strategy
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Why a Company’s Strategy Evolves Over Time
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A Company’s Strategy Is Partly Proactive and Partly
Reactive
Strategy and Ethics: Passing the Test of Moral
Scrutiny
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Chapter Roadmap
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The Relationship Between a Company’s Strategy
and Its Business Model
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What Makes a Strategy a Winner?
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Why Are Crafting and Executing Strategy Important?
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Thinking Strategically: The
Three Big Strategic Questions
1. What’s the company’s present situation?
2. Where does the company need to go from here?
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What business(es) to be in?
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What market positions to stake out?
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What buyer needs and groups to serve?
3. How should it get there?
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A company’s answer to “how will we get there?” is its
strategy
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What Do We Mean By
“Strategy”?
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Consists of competitive moves and business approaches used
by managers to run the company
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A Firm's Strategy Answers
the questions . . .
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How to grow the business
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How to please customers
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How to outcompete rivals
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How to manage each functional
piece of the business (R&D, production,
marketing, HR, finance, and so on)
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Strategy
is HOW
to . . .
A Firm's Strategy Answers
the questions . . .
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And as the industry environment evolves .
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How to respond to changing market
conditions
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How to achieve targeted levels of
performance
Strategy
is HOW
o...
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Choosing the “Hows” of
Strategy
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Strategic choices about “how” are based on
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Trial-and-error organizational learning about what has
worked and what has not worked
Management’s appetite for taking risks
Managerial analysis and strategic thinking about how best
to proceed, given market conditions and the company’s
circumstances
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Key Elements of a
Successful Strategy
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Developing a successful strategy hinges on making competitive
moves aimed at
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Appealing to buyers in ways to set the enterprise apart from
rivals and
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Carving out its own market position
Involves developing a distinctive “aha”
element to
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Attract customers and
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Produce a competitive edge
Copying competitive moves of other
successful companies rarely works!
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A Powerful Strategy Leads to
Sustainable Competitive Advantage
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A company achieves sustainable competitive
advantage when an attractive number or buyers prefer
its products/services over those of rivals and when the
basis for this preference can be maintained over time
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Its nice when a strategy produces a temporary
competitive edge but a durable edge over rivals
greatly enhances a company’s prospects for winning
in the marketplace and realizing above-average profits
What separates a powerful strategy from an ordinary
strategy is management’s ability to forge a series of
moves, both in the marketplace and internally, that
produces sustainable competitive advantage!
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Three Strategic Approaches to Building
Sustainable Competitive Advantage
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Be the industry’s low-cost provider
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Incorporate differentiating features
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a cost-based competitive advantage)
a “superior product” type of competitive advantage keyed
to higher quality, better performance, wider selection,
value-added services, or some other attribute
Focus on a narrow market niche
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win a competitive edge by doing a better job than rivals
of serving the needs and preferences of
buyers comprising a niche)
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A Fourth Strategic Approach to Building
Sustainable Competitive Advantage
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Developing expertise and resource
strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)
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Competitive Advantage
Examples
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The text gives the following as striving to be
the industry’s low-cost provider
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Wal-Mart
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Southwest Airlines
Discussion
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Wal-Mart – perceptions of low price
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Southwest – low ticket prices, low cost provider
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Competitive Advantage
Examples
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Outcompete rivals on a key differentiating
feature
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Johnson & Johnson – Reliability in baby
products
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Harley-Davidson – King-of-the-road styling
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Rolex – Top-of-the-line prestige
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Mercedes-Benz – Engineering design and
performance
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L.L. Bean – Good value
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Amazon.com – Wide selection and convenience
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Competitive Advantage
Examples (cont)
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The text suggests the following as focusing on a
narrow market niche
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eBay – Online auctions
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Jiffy Lube International – Quick oil changes
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McAfee – Virus protection auctions
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Starbucks – Premium coffees and coffee drinks
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The Weather Channel – Cable TV
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Ritz-Carlton – Personalized customer service
Discussion: depends on how one defines industry
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Competitive Advantage
Examples (cont)
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Develop expertise, resource strengths, and
capabilities not easily imitated by rivals
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FedEx – Next-day delivery of small packages
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Walt Disney – Theme park management and family
entertainment
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Toyota – Sophisticated production system
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Ritz-Carlton – Personalized customer service
Discussion: technically Toyota may be described as
outcompeting rivals based on differentiating features
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Day 2
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Questions on course requirements?
Peer Evaluation of Case Brief: Whole Foods
and Monsanto case briefs for ungraded peer
review and option to revise/resubmit
Finish Ch 1
Ch 2
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Fig. 1.1: Identifying a Company’s Strategy
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Why Do Strategies Evolve?
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Changes may be necessary to react to
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Shifting market conditions
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Technological breakthroughs
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Fresh moves of competitors
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Evolving customer preferences
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Emerging market opportunities
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New ideas to improve strategy
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Crisis situations
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Fig. 1.2: A Company’s Strategy Is
Partly Proactive and Partly Reactive
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Linking Strategy With Ethics
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Ethical and moral standards go beyond
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to issues of
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Prohibitions of law and the language of “thou shalt
not”
Duty and “right” vs. “wrong”
Ethical and moral standards address
“What is the right thing to do?”
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Linking Strategy With Ethics
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Two criteria of an ethical strategy:
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Does not entail actions and behaviors that cross
the line from “should do” to “should not do” and
“unsavory” or “shady” and
Allows management to fulfill its ethical duties to all
stakeholders
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A Firm’s Ethical Responsibilities to
Its Stakeholders
Owners/shareholders – Rightfully expect some form of
return on their investment
Employees - Rightfully expect to be treated with dignity
and respect for devoting their energies to the enterprise
Customers - Rightfully expect a seller to provide them
with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitable
relationship with firms they supply and be treated fairly
Community - Rightfully expect businesses to be good
citizens in their community
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Role of Senior Executives:
Linking Strategy with Ethics
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Forbid pursuit of ethically questionable business
opportunities
Insist all aspects of company strategy
reflect high ethical standards
Make it clear all employees are
expected to act with integrity
Install organizational checks and balances to
 Monitor behavior
 Enforce ethical codes of conduct
 Provide guidance to employees in gray areas
Display genuine commitment to conduct business
activities ethically
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What Is a Business Model?
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A business model addresses “How do we
make money in this business?”
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Is the strategy capable of delivering
good bottom-line results?
Do the revenue-cost-profit economics
of the strategy make good business sense?
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expected revenue streams
associated cost structure and potential profit
margins
Do resulting earnings streams and ROI indicate the
strategy makes sense?
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Relationship Between
Strategy and Business Model
Strategy . . .
Business Model . . .
Deals with a company’s
competitive initiatives and
business approaches
Concerns whether
revenues and costs
flowing from the strategy
demonstrate a business
can be amply profitable
and viable
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For Discussion: Write your
opinion and discuss
Who has the better business model –
Microsoft or Red Hat?
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Microsoft’s Business Model
Employ a cadre of highly skilled programmers to develop proprietary
code; keep source code hidden from users
Sell resulting OS and software packages to PC makers and users at
relatively attractive prices to achieve a 90% or more market share
Most costs in developing software are fixed; variable costs are small;
once break-even volume is reached, revenues from additional sales
are almost pure profit
Provide modest level of technical support to users at no cost
Rejuvenate revenues by periodically introducing next-generation
software with features inducing PC users to upgrade their operating
systems
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Red Hat’s Business Model
Rely on collaborative efforts of volunteer programmers to create the
software
Collect and test enhancements and new applications submitted by
volunteer programmers for evaluation and inclusion in new releases
of Linux
Market upgraded and tested family of Red Hat products to large
companies, charging a subscription fee that includes 24/7 support
within 1 hour in 7 languages
Make source code open and available to all users
Capitalize on specialized expertise required to use Linux by
providing fee-based training, consulting, software customization, and
client-directed engineering to Linus users
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Tests of a Winning Strategy
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GOODNESS OF FIT TEST
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COMPETITIVE ADVANTAGE TEST
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How well does strategy fit
the firm’s situation?
Does strategy lead to sustainable
competitive advantage?
PERFORMANCE TEST
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Does strategy boost firm performance?
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Other Criteria for Judging
the Merits of a Strategy
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Internal consistency and unity among all pieces
of the strategy
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Degree of risk the strategy poses as compared
to alternative strategies
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Degree to which the strategy is flexible and
adaptable to changing circumstances
While these criteria are relevant, they seldom override
the importance of the three tests of a winning strategy!
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Why Is Strategy Important?
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A compelling need exists for managers
to proactively shape how a firm’s
business will be conducted
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A strategy-focused firm is more likely
to be a strong bottom-line performer
than one that views strategy as
secondary
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Good Strategy + Good Strategy
Execution
= Good Management
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Crafting and executing strategy are core
management functions
Among all things managers do, nothing affects a
company’s ultimate success or failure more
fundamentally than how well its management
team
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Charts a company’s direction,
Develops competitively effective strategic moves and
business approaches, and
Pursues what needs to be done internally to produce
good day-in/day-out strategy execution
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Good Strategy + Good Strategy
Execution
= Good Management
Excellent execution of an excellent strategy is the
best test of managerial excellence – and the
most reliable recipe for winning in the marketplace!
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