Transcript sm ch 1

STRATEGIC MANAGEMENT –
an INTRODUCTION
“ Without a Strategy the
organization is like a ship without
a rudder.”
– PETER DRUCKER
Definition
• A company’s strategy is management’s
action plan for running the business and
conducting operations.
• Strategic management is a process for
developing and enacting plans to reach a
long-term goal that takes into account
internal
variables
and
external factors.
Strategic Management
• Strategic management encompasses an
integrated, future-oriented managerial
perspective
that is
outwardly focused
forward-thinking
performance-based
Definition of strategy by
Michael Porter in 1996
Michael Porter (1996),
strategy is about achieving competitive
advantage through
• being different – delivering a unique
value added to the customer,
• having a clear and enactable view of how
to position yourself uniquely in your
industry
Strategic management
characterizes by Brinkerhoff
He characterized Strategic Management
as
“Looking out, looking in, and
looking ahead. “
Strategic management
characterizes by Brinkerhoff
“Looking out” means exploring beyond the
boundaries of your organization to set
feasible
objectives,
identify
key
stakeholders, and build constituencies for
change.
Strategic management
characterizes by Brinkerhoff
“Looking in” implies critically assessing and
strengthening
your
systems
and
structures for managing personnel,
finances, and other essential resources.
Strategic management
characterizes by Brinkerhoff
• “Looking ahead” entails melding your
strategy with structures and resources to
reach your policy goals, while monitoring
your progress and adjusting your
approach as needed.
STRATEGY IS 5P
PATTERN
(how things have
been done)
PLOY
(a tactic to
outwit a
competitor)
PLAN
(what the
organization
will do)
STRATEGY
PERSPECTIVE
(a way of
doing things)
POSITION
(the creation of a
unique
position)
Strategic Managers
• identify long-range targets
• scan their operating environments
• evaluate their organization’s structures
and resources
• match these to the challenges they face
• identify stakeholders and build alliances
• prioritize and plan actions
• make adjustments to fulfill
performance objectives over time.
Strategy
is HOW
to . . .
 How to grow the business
 How to please customers
 How to out compete rivals
 How to manage each functional
piece of the business (R&D, production,
marketing, HR, finance, and so on)
 How to respond to changing market
conditions
 How to achieve targeted levels of performance
Strategic Decisions are
based on..
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
STRATEGY
&
COMPETITIVE ADVANTAGE
Strategy and Competitive
Advantage
The heart and soul of any strategy are
the actions and moves in the
marketplace that a company makes to
strengthen its competitive position and
gain a competitive advantage over rivals
A creative distinctive strategy that sets a
company apart from rivals and yields a
competitive advantage is a company’s
most reliable ticket to above average
profitability
Competitive Advantage
• Any business with a competitive advantage is able to
attract more customers than its competitors by having
some special factor that no one else possesses.
• The key to capturing competitive advantage is knowing
what your customers want and finding a way to give it to
them.
• Very few sources of competitive advantage last very long
however, so businesses are engaged in a never ending
search to find new angles to beat their competitors.
• It’s all about finding some way of differentiating products
and services from other offerings.
• The whole purpose of business strategy is to find new
sources
of
competitive
advantage.
Popular Source of CA
•
•
•
•
•
•
Cost
Quality
Service
Brand
Convenience
Innovation
Competitive Advantage
• Customers must see a consistent difference
between your product/service and those of your
competitor's. This difference needs to be
obvious to your customers and it must influence
their purchasing decision.
• Your competitive advantage must be difficult to
imitate. Avoid falling into the incompetence trap.
• The above two items combined must be
activities that can be constantly improved,
nurtured, and work at to maintain that edge over
your competition.
•
Sustainable Competitive
Advantage
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!
Four “Best” strategic
Approaches to Building
Sustainable Competitive
Advantage
• Being the industry’s low-cost provider
(a cost-based competitive advantage)
• Incorporate differentiating features (a
“superior product” type of competitive
advantage keyed to higher quality,
better performance, wider selection,
value-added services, or some other
attribute)
Four “Best” strategic
Approaches to
Building Sustainable
Competitive Advantage
• Focusing on a narrow market niche (winning
a competitive edge by doing a better job
than rivals buyers comprising the niche)
• Developing
expertise
and
resource
strengths not easily imitated or matched by
rivals (a capabilities-based competitive
advantage)
Examples of Competitive
advantage
•
•
•
•
•
•
•
•
Strong research and Innovation : Apple
Brand Popularity : Coca-cola, Virgin
Corporate reputation : Tata
Strategic assets : GE
High Volume Production: ITC
Speed & Time: FedEx and Domino Pizza
Low pricing :Wal-Mart
Superior database management and
data processing capabilities : Google,
Facebook
Strategic Management Process
Strategic Management
Process
• It is full set of commitments, decisions
and action required for a firm to achieve
strategic competitiveness and above and
average return.
The Strategic
Management Process
Figure 1.1
Stakeholders
Stakeholders
• Individuals and groups who can affect,
and are affected by, the strategic
outcomes achieved and who have
enforceable
claims
on
a
firm’s
performance
• Claims are enforced by the stakeholder’s
ability to withhold essential participation
The Three
Stakeholder
Groups
Capital Market
Stakeholders
• Shareholders and lenders expect the firm
to preserve and enhance the wealth they
have entrusted to it
• Returns should be commensurate with
the degree of risk to the shareholder
Product Market
Stakeholders
• Customers
– Demand reliable products at low prices
• Suppliers
– Seek loyal customers willing to pay highest
sustainable prices for goods and services
• Host communities
– Want companies willing to be long-term employers
and providers of tax revenues while minimizing
demands on public support services
• Union officials
– Want secure jobs and desirable working conditions
Organizational
Stakeholders
• Employees
– Expect a dynamic, stimulating and rewarding
work environment
– Are satisfied by a company that is growing
and actively developing their skills
Stakeholder Involvement
• Two issues affect the extent of
stakeholder involvement in the firm
 How to divide returns
to keep stakeholders
involved?
 How to increase
returns so everyone
has more to share?
Organizational
Product
Market
Capital
Market
MODELS
TO
ACHIEVE
ABOVE AVERAGE RETURN
Industrial
Organizati
onal (I/O)
Model of
AboveAverage
Returns
(AAR)
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
• Basic Premise – to explain the dominant
influence of the external environment on a
firm's strategic actions and performance
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
•
Underlying Assumptions
– External environment imposes pressures and constraints that
determine the strategies resulting in AAR
– Most firms compete within a particular industry/segment
• Control similar strategically relevant resources
• Pursue similar strategies in light of those resources
– Resources for implementing strategies are highly mobile across
firms
• Therefore any resource differences between firms will be short-lived
– Organizational decision makers are rational and committed to
acting in the firm's best interests, as shown by their profitmaximizing behaviors
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
•
Five-Forces Model (Michael Porter)
–
The 5 Forces includes
•
–
–
–
Suppliers, buyers, competitive rivalry, product substitutes and
potential entrants
Reinforces the importance of economic theory
Analytical tool previously lacking in the field of strategy
Determines the nature/level of competition and profit
potential in an industry
•
Suggests an industry’s profitability is an interaction between these
5 forces
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR) (cont’d)
•
Limitations
–
Only two strategies are suggested:
•
Cost Leadership
–
•
Differentiation
–
–
THE low-cost leader
Customer willing to pay the premium price for ‘being different’
Internal resources & capabilities not considered
The
Resource
-Based
Model of
AAR
The Resource-Based Model of AAR
•
(cont’d)
Basic Premise - a firm's unique [internal]
resources & capabilities, in combination, is the
basis for firm strategy and AAR
–
–
–
Each firm’s performance difference across time emerges
(vs industry’s structural characteristics)
Combined uniqueness should define the firms’ strategic
actions
Resources are tangible and intangible
The Resource-Based Model of AAR
(cont’d)
• Resources
– Inputs into a firm's production process
• Includes capital equipment, employee skills, patents, high-quality
managers, financial condition, etc.
– Basis for competitive advantage: When resources are
valuable, rare, costly to imitate and nonsubsitutable
– Internal/firm-specific resources (N=3)
• Physical
– Things you can touch/feel = tangible
• Human
– People / employees
• Organizational capital
– Relative to the firm itself
The Resource-Based Model of AAR
(cont’d)
• Capability
– Capacity for a set of resources to perform a task or activity in
an integrative manner
• Core Competency
– A firm’s resources and capabilities that serve as sources of
competitive advantage over its rival
• Summary
– A firm has superior performance because of
• Unique resources and capabilities, and the combination makes
them different, and better, than their competition – driving the
competitive advantage
Vision
&
Mission
Vision & Mission
* After Environmental Analysis, firm has
information it needs to form a Vision and
Mission.
* Stakeholders learn a great deal about a
firm by studying its Mission and Vision.
* Key purpose of Mission and Vision is to
inform stakeholders of what the firm is,
what it seeks to accomplish and who it
seeks to serve.
Vision
* Picture of what the firm wants to be
* What the firm ultimately wants to achieve
* It is a big picture thinking with passion that helps
people feel what they are supposed to be doing
in the organization.
* It reflects firm’s value and aspirations
* It is generally short and concise.
* An effective vision statement is the responsibility
of the leader who should work with others to form
it
* Foundation for the mission
* Captures the emotions of employees and steers
them in a common direction
Vision
“Our vision is to be the world’s best quick
service restaurant.”
McDonald’s
Vision should be
•
•
•
•
•
•
•
Graphical
Directional
Focused
Flexible
Feasible
Desirable
Easy to communicate
Role of a Strategic Vision
• A well-conceived and well-communicated vision
functions as a valuable managerial tool to
– Give the organization a sense of direction, mold
organizational identity, and create a committed
enterprise
– Inform company personnel and other
stakeholders what management wants its
business to look like and “where we are going”
– Spur company personnel to action
A strategic vision exists only as words and has no organizational impact unless
and until it wins the commitment of company personnel and energizes them to
act in ways that move the company along the intended strategic path!
Mission
* Specifics business(es) in which firm intends to
compete and customers it intends to serve
* More specific and concrete than the vision.
Characteristics of a
Mission Statement
• Identifies the boundaries of the current
business and highlights
– Present products and services
– Types of customers served
– Geographic coverage
A well-conceived mission statement distinguishes a company’s
business makeup from that of other profit-seeking enterprises in
language specific enough to give the company its own identify!
Mission
Be the best employer for our people in each
community around the world and deliver
operational excellence to our customers in
each of our restaurant.
McDonald’s
A company’s mission is not to make a profit! Its true
mission is its answer to “What will we do to make a profit?”
Making is profit is an objective or intended outcome!
Overcoming Resistance to
a New Strategic Vision
• Mobilizing support for a new vision
entails
– Reiterating basis for the new direction
– Addressing employee concerns head-on
– Calming fears
– Lifting spirits
– Providing updates and progress
reports as events unfold
Vision vs. Mission
• A strategic vision
concerns a firm’s
future business path
- “where
we are going”
– Markets to be pursued
– Future
product/market/
customer/technology
focus
– Kind of company
management is
trying to create
• The mission
statement of a firm
focuses on its present
business purpose “who we are and what
we do”
– Current product and
service offerings
– Customer needs being
served
– Technological
and business
capabilities
Business model
&
Strategy
Business Model - Meaning
• A business model describes the
rationale of how an organization creates,
delivers, and captures value (economic,
social, or other forms of value).
• The process of business model
construction is part of business strategy
Business Model - Meaning
• business model is used for a broad range
of informal and formal descriptions to
represent core aspects of a business,
including
purpose, offerings, strategies, infrastructure,
organizational structures, trading practices,
and operational processes and policies.
• Hence, it gives a complete picture of an
organization
from
a
high-level
perspective.
Business Model - Meaning
• The essence of a business model is that
it defines the manner by which the
business enterprise delivers value to
customers, entices customers to pay for
value, and converts those payments to
profit
Examples of Business Model
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Brick & Click Business Model
Cutting out middleman Model
Free in, Free out model
Direct Sales Model
Franchise
Subscription Business Model