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    • Strategic Management
    • What is Strategy?
      • A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company
      • Strategy is management’s “game plan” to
        • Attract and please customers
        • Stake out a market position
        • Conduct operations
        • Compete successfully
        • Achieve organizational objectives
    • What is a Business Model?
      • A company’s business model addresses “How do we make money in this business?”
        • Is the strategy that management is pursuing capable of delivering good bottom-line results?
      • Do the revenue-cost-profit economics of the company’s strategy make good business sense?
        • Look at the revenue streams the strategy is expected to produce
        • Look at the associated cost structure and potential profit margins
        • Do the resulting earnings streams and ROI indicate the strategy makes sense and that the company has a viable business model?
    • Strategy vs. Business Model : What is the Difference?
      • Strategy -- Deals with a company’s competitive initiatives and business approaches
      • Business Model -- Concerns whether the revenues and costs flowing from the strategy demonstrate that the business can be amply profitable and viable
      Strategy Business Model
    • Redhat Linux’s Business Model Use volunteer programmers to create the software; make source code open and available to all users Give Linux operating system away free of charge to those who download it (charge a small fee to users who want a copy on CD) Make money by employing a cadre of technical support personnel who provide technical support to users for a fee
    • Microsoft’s Business Model Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users Sell resulting operating system and software packages to PC makers and users at relatively attractive prices and achieve large unit sales Most costs arise in developing the software; variable costs are small—once breakeven volume is reached, revenues from additional sales are almost pure profit. Provide technical support to users at no cost
    • What is the Difference between Operational Effectiveness(OE) and Strategic Positioning ?
      • Operational Effectiveness is performing similar activities better than rivals
        • Affects the relative cost position and levels of differentiation
        • Japanese activities addressed OE(imitate rather than innovate)
        • Deals with issues such as eliminating waste, employing advanced technology, motivating employees.
    • Operational Effectiveness - The Productivity Frontier
      • The sum of all existing best practices at a given time
      • The frontier of OE can be individual activities or group activities(order processing, manufacturing, purchasing linked by IT).
      • Move a company towards the frontier(improving OE) by capital investment, org. development, systems design, management.
      • Move the frontier as a result of research - laptop computers, personal organizers, email, TQM, benchmarkeing.
    • Problem with competing on the basis of OE
      • Advantages are easy to copy-there are no secrets
      • As everyone gets closer to the frontier, it becomes harder to maintain a lead
      • Moving the frontier raises the bar for everyone but gives nobody an advantage
      • Competitive convergence - everyone gets to the same place.
        • The airlines have the same technology, the same costs and have no real way to get ahead
    • Strategic Positioning is about deliberately choosing a different set of activities than rivals that delivers a unique mix of values, resulting in a competitive advantage that can’t be easily copied.
    • Airlines
      • Full Service Airlines
        • Any point A to any point B
        • First Class, Business Class, Coach, promotional
        • Seat Assignments in advance
        • Baggage handling and transfer
        • Hub and Spoke system to promote connecting flights
        • Coordinate schedules
        • Meals
        • Drinks
      • Southwest Airlines
        • Mid sized cities and secondary airports
        • Frequent reliabile departures
        • Very low ticket prices
        • Quick turnarouds
        • Standardized aircraft
        • no seat assignments
        • no meals
    • Furniture Retailing
      • Typical Furniture Stores
        • Areas displaying samples
        • books of fabric, colors etc.
        • Different types of woods
        • Sales people assisting customers with choices.
        • Decorating services
        • Third party manufacturing
        • Delivery in 6-8 weeks
        • Maximum customization and service at a high cost
      • Ikea
        • Clear in store displays
        • No sales people
        • low cost
        • ready to assemble
        • Ikea designed products
        • Customer picks up product in boxes from warehouse, brings it home and assembles
        • In store child care
        • Extended hours
    • Operational Effectiveness vs. Strategy (Summary)
      • Operational Effectiveness
        • Performing similar activities better than rivals
        • Efficiency
        • Practices that allow firm to better utilize inputs
      • Strategic Positioning
        • Performing different activities than rivals or
        • Performing similar activities in different ways
    • Operational Effectiveness vs Strategic Positioning (Summary)
      • Competition based on operational effectiveness alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition.
      • Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value
    • The Five Tasks of Strategic Management Craft a Strategy to Achieve Objectives Set Objectives Develop a Strategic Vision and Mission Implement and Execute Strategy Improve/ Change Revise as Needed Revise as Needed Improve/ Change Recycle as Needed Task 1 Task 2 Task 3 Task 4 Task 5 Monitor, Evaluate, and Take Corrective Action
    • Missions vs. Strategic Visions
      • A mission statement focuses on current business activities -- “who we are and what we do”
        • Current product and service offerings
        • Customer needs being served
        • Technological and business capabilities
      • A strategic vision concerns a firm’s future business path -- “where we are going”
        • Markets to be pursued
        • Future technology-product-customer focus
        • Kind of company that management is trying to create
      • Defines current business activities, highlighting boundaries of current business
        • Present products and services
        • Types of customers served
      • Conveys
        • Who we are,
        • What we do, and
        • Why we are here
      Characteristics of a Mission Statement 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 !
    • Key Elements of a Mission Statement
      • Three factors to consider
        • Customer needs – What is being satisfied
        • Customer groups – Who is being satisfied
        • Technologies/resources/business approaches used and activities performed – How customer needs are satisfied
    • Trader Joe’s Mission Statement To give our customers the best food and beverage values that they can find anywhere and to provide them with the information required for informed buying decisions. We provide these with a dedication to the highest quality of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit. (a unique grocery store chain)
    • Strategic Vision
      • A picture in your mind’s eye of what the company will look like in the future.
    •  
    •  
    • Examples of Strategic Visions Red Hat Linux To extend our position as the most trusted Linux and open source provider to the enterprise. We intend to grow the market for Linux through a complete range of enterprise Red Hat Linux software, a powerful Internet management platform, and associated support and services. Wells Fargo We want to satisfy all of our customers’ financial needs, help them success financially, be the premier provider of financial services in every one of our markets, and be known as one of America’s great companies .
    • Examples of Strategic Visions
      • Wyeth
      • Our vision is to lead the way to a healthier world. By carrying out this vision at every level of our organization, we will be recognized by our employees, customers, and shareholders as the best pharmaceutical company in the world, resulting in value for all. We will achieve this by:
      • Leading the world in innovation by linking pharmaceutical, biotech, and vaccines technologies
      • Making quality, integrity, and excellence hallmarks of the way we do business
      • Attracting, developing, and motivating the best people
      • Continually growing improving our business
    • Setting Objectives
      • Converts strategic vision and mission into specific performance targets
      • Creates yardsticks to track performance
      • Pushes firm to be inventive and focused on results
      • Helps prevent complacency and coasting
      Second Task of Strategic Management
    • Characteristics of a Goal
      • Specific
      • Measurable
      • Time Constrained
      • Achievable
      • Outcomes focused on improving financial performance
      • Outcomes focused on improving long-term competitive business position
      Types of Objectives Required Financial Objectives Strategic Objectives $
      • X % increase in annual revenues
      • X % increase annually in after-tax profits
      • X % increase annually in earnings per share
      • Annual dividend increases of X %
      • Profit margins of X %
      • X % return on capital employed (ROCE)
      • Increased shareholder value
      • Strong bond and credit ratings
      • Sufficient internal cash flows to fund 100% of new capital investment
      • Stable earnings during periods of recession
      Examples: Financial Objectives
      • Winning an X % market share
      • Achieving lower overall costs than rivals
      • Overtaking key competitors on product performance or quality or customer service
      • Deriving X % of revenues from sale of new products introduced in past 5 years
      • Achieving technological leadership
      • Having better product selection than rivals
      • Strengthening company’s brand name appeal
      • Having stronger national or global sales and distribution capabilities than rivals
      • Consistently getting new or improved products to market ahead of rivals
      Examples: Strategic Objectives
    • Strategic Performance Fosters Better Financial Performance
      • A company’s achievement of satisfactory financial performance, by itself, is not enough
        • Financial performance measures are “lagging indicators” reflecting results of past decisions and actions
      • Of equal or greater importance is a company’s performance on measures of its strategic well-being — its competitiveness and market position
        • Strategic performance measures are “leading indicators” of a company’s future financial performance and business prospects
        • Achievement of strategic performance targets
          • Signals growing competitiveness
          • Signals growing strength in the marketplace
    • Which type of goal is more important –Strategic or Financial?
    • Balanced Scorecard Approach – Strategic and Financial Objectives
      • Balanced scorecard approach for measuring company performance requires both –
        • Financial objectives
        • Strategic objectives
      • Emphasis on financial performance may assume priority over strategic performance when company’s
        • Financial performance is dismal and
        • Survival is threatened
      • Otherwise, management is advised to put more emphasis on achieving strategic objectives
      The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a company’s business position and give it a growing competitive advantage over rivals!
      • 1. First, establish organization-wide objectives and performance targets
      • 2. Next, set business and product line objectives
      • 3. Then, establish functional and departmental objectives
      • 4. Individual objectives are established last
      Objectives Are Needed at All Levels
    • Importance of Top-Down Objectives
      • Guide objective-setting and strategy-making at lower levels
      • Ensures financial and strategic performance targets for all business units, divisions, and departments are directly connected to achieving company-wide objectives
      • Integration of objectives has two advantages
        • Helps produce cohesion among objectives and strategies of different parts of organization
        • Helps unify internal efforts to move a company along the chosen strategic path
    • Concept of Strategic Intent
      • A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective!
    • Characteristics of Strategic Intent
      • Indicates firm’s intent to stake out a particular position over the long-term
      • Involves establishing a BHAG - ”big, hairy, audacious goal”
      • Signals relentless commitment to winning
    • Crafting a Strategy
      • Strategy involves determining whether to
        • Concentrate on a single business or several businesses (diversification)
        • Cater to a broad range of customers or focus on a particular niche
        • Develop a wide or narrow product line
        • Pursue a competitive advantage based on
          • Low cost or
          • Product superiority or
          • Unique organizational capabilities
      Third Task of Strategic Management
    • Types of Strategy
      • Grand Strategy
        • Growth, Consolidation, Divest
      • Generic Strategy
        • Low Cost
        • Differentiation
      • International Strategy
        • Domestic - Make it here/sell it here
        • Export – Make it here/sell it there
        • Multicountry- Make it there/sell it there
        • Global – Make it anywhere/sell it anywhere
      • Diversification
        • Related
        • Unrelated
    • Figure 1-2: A Company’s Strategy is Partly Planned and Partly Reactive New initiatives plus ongoing strategy features continued from prior periods Adaptive reactions to changing circumstances Abandoned strategy features Actual Company Strategy Company Experiences, Know-how, Resource Strengths and Weaknesses, and Competitive Capabilities Planned Strategy Reactive Strategy
    • Crafting Strategy is an Exercise in Entrepreneurship
      • Strategy-making is a market-driven and customer-driven activity that involves
        • Keen eye for spotting emerging market opportunities
        • Keen observation of customer needs
        • Innovation and creativity
        • Prudent risk-taking
        • Strong sense of how to grow and strengthen business
    • What is a Strategic Plan? Where firm is headed -- Strategic vision and business mission Action approaches to achieve targeted results -- A comprehensive strategy Short and long term performance targets -- Strategic and financial objectives
    • What Does Strategy Implementation and Execution Include?
      • Building a capable organization
      • Allocating resources to strategy-critical activities
      • Establishing strategy-supportive policies
      • Motivating people to pursue the target objectives
      • Tying rewards to achievement of results
      • Creating a strategy-supportive corporate culture
      • Installing needed information, communication, and operating systems
      • Instituting best practices and programs for continuous improvement
      • Exerting the leadership necessary to drive the process forward and keep improving
    • Monitoring, Evaluating, and Taking Corrective Actions as Needed
      • The tasks of crafting, implementing, and executing a strategy are not a one-time exercise
        • Customer needs and competitive conditions change
        • New opportunities appear; technology advances; any number of other outside developments occur
        • One or more aspects of executing the strategy may not be going well
        • New managers with different ideas take over
        • Organizational learning occurs
      • All these trigger the need for corrective actions and adjustments
      Fifth Task of Strategic Management
    • Levels of Strategy-Making in a Single-Business Company Business Strategy Functional Strategies Operating Strategies Executive-Level Managers Operating Managers Functional Managers Two-Way Influence Two-Way Influence
    • Figure 2.2: Corporate Strategy for a Diversified Company Corporate Strategy Approach to capital allocation Narrow or broad-based diversification Scope of geographic operations Moves to add new new businesses Moves to build positions in new industries Efforts to capture cross-business strategic fits Moves to divest weak business units Is diversification related, unrelated or a mix?
    • Objectives Are Needed at All Levels
      • Objective-setting process is top-down, not bottom-up!
      • 1. First, establish organization-wide objectives and performance targets
      • 2. Next, set business and product line objectives
      • 3. Then, establish functional and departmental objectives
      • 4. Individual objectives are established last
    • Strategic Management Principle
      • Objective-setting needs to be more of a top-down than a bottom-up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives.
    • Goal Alignment
    • Functional Strategies
      • Game plan for a strategically-relevant function, activity, or business process
      • Details how key activities will be managed
      • Provide support for business strategy
      • Specify how functional objectives are to be achieved
    • Operating Strategies
      • Concern narrower strategies for managing grassroots activities and strategically-relevant operating units
      • Add detail to business and functional strategies
    • Example: Operating Strategy
      • Manufacturer of plumbing equipment emphasizes quick delivery and accurate order-filling as keystones of its customer service approach. Warehouse manager took following approaches:
        • Inventory stocking strategy allowing 99% of all orders to be completely filled without backordering any item
        • Staffing strategy of maintaining workforce capability to ship any order within 24 hours
      Improving Delivery & Order-Filling
      • To boost productivity by 10%, managers of firm with low-price, high-volume strategy take following actions:
        • Recruitment manager develops selection process designed to weed out all but best-qualified candidates
        • Information systems manager devises way to use technology to boost productivity of office workers
        • Compensation manager devises improved incentive compensation plan
        • Purchasing manager obtains new efficiency-increasing tools and equipment
      Example: Operating Strategy Boosting Worker Productivity
    • Uniting the Company’s Strategy-Making Effort
      • A company’s strategy is a collection of strategies and initiatives being acted on by managers at various organizational levels
      • Separate levels of strategy must be unified into a cohesive , company-wide action plan
      • Pieces of strategy should fit together like the pieces of a puzzle
    • Figure 2.4: Networking of Missions, Objectives, and Strategies Corporate Level Objectives Corporate-wide Strategic Vision Corporate Level Strategy Business Level Objectives Business Level Strategic Vision Business Level Strategies Functional Objectives Functional Missions Functional Strategies Operating Objectives Operating Missions Operating Strategies Level 1 Corporate-Level Managers Level 2 Business-Level Managers Level 3 Functional Managers Level 4 Plant Managers, Lower-Level Supervisors Two-Way Influence Two-Way Influence Two-Way Influence Two-Way Influence Two-Way Influence Two-Way Influence Two-Way Influence Two-Way Influence Two-Way Influence
    •