Strategic Management


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Strategic Management

  1. 1. What is Strategy? Strategic The long term action plan The game plan Management Company or organization direction What we’re doing Strategic Planning Strategy Implementation The plan to achieve competitive Strategic Control advantage Competitive advantage Distinctive Capabilities Low-cost provider Sophisticated distribution systems – Wal- Mart Differentiating feature(s) Product innovation capabilities – 3M Narrow market niche Defect-free manufacturing – Toyota and • Serving unique needs better Honda Expertise, resource strengths, and Superior e-commerce capabilities – Dell computer capabilities not easily imitated Personalized customer service – Ritz And so on Carlton Hotels Others? Strategy is the answer to: 1. What do we want to do? “I skate to where the puck is going to be, 2. What do we bring to the table? 3. Where should we put our efforts, not where it has been.” and why? 4. What do we need to do to compete, –Wayne Gretzky survive, and meet our goals? 1
  2. 2. “Hows” of strategy How to please customers Strategic Management How to respond to changing market conditions How to outcompete rivals vs Tactical Management How to grow the business How to manage each functional piece of vs Operations Management the business and develop needed organizational capabilities How to achieve strategic and financial objectives How to balance short term and long term Strategic Planning Why is vision important? Identify stakeholders • Who is involved, concerned A clear vision will attract the right Develop vision, mission, & objectives strategy. • What do we want to be? (the vision) • What do we want to do? (the mission) No strategy will save an organization • Clarify values • Setting strategic & financial objectives that doesn’t have a clear vision of External analysis where they are going. Internal analysis Crafting the best strategy Vision and Mission Statements “If you want to build a ship, should have three elements: don’t drum up the men to gather wood, divide the work Overall vision and mission and give orders. Management’s key philosophical values Instead, teach them to yearn for the vast and endless sea.” Key objectives to be accomplished –Antoine de Saint-Exupéry 2
  3. 3. Three questions to improve focus Objectives Financial objectives Which consumer or customer groups • Specific measures of financial are being satisfied? performance What needs are being satisfied? Strategic objectives • Activities that affect competitive position How are customer needs being satisfied? Long-term and Short-term objectives External Analysis 1. Macro environment? 2. Dominant economic traits? External Analysis 3. Competitive forces? 4. Factors driving change? 5. Strongest & weakest positions? 6. Next strategic moves? 7. Key success factors? 8. Attractiveness & profitability? The Macro Environment Dominant Economic Traits Macroeconomic environment Market size Technological environment Scope of competitive rivalry Market growth rate & position in the Social environment growth cycle Demographic environment Number of rivals and their relative sizes Political and legal environment Number of buyers and their relative sizes Prevalence of backward and forward integration Ease of entry and exit 3
  4. 4. Dominant Economic Traits (cont.) Porter’s Five Competitive Forces Pace of technological change 1. Risk of entry by potential Level of differentiation of the rival competitors products or services Presence of economies of scale 2. Rivalry among established farms Capacity utilization levels 3. Bargaining power of buyers Impact of learning and experience 4. Bargaining power of suppliers Capital requirements 5. Substitute products Industry profitability Forces Driving Change in Industry Structure and Business Environment Forces Driving Change (cont.) 1. Changes in the industry growth rate 8. Increasing globalization of the industry 9. Changes in cost and efficiency 2. Changes in who buys the product and 10. Emerging buyer preferences for differentiated how they use it products instead of a commodity product 3. Product innovation (or for a more standardized product instead of strongly differentiated products) 4. Technological change 11. Regulatory influences and government policy 5. Marketing innovation changes 12. Changing societal concerns, attitudes, and 6. Entry or exit of major firms & countries lifestyles 7. Diffusion of technical knowledge 13. Changes in uncertainty and business risk Strong and Weak Competitive Positions The Next Strategic Moves What competitive characteristics Based on their competitive positions, what differentiate farms? moves are competitors likely to make? What are the characteristics of the Which companies, regions, or countries strongest? may change? The weakest? What are the makers of substitute Consider these points at least: size, products doing or what might they be location, production methods, age of changing? equipment and/or workforce, specialization, Will their potential changes make a large diversification, and vertical integration. impact? 4
  5. 5. Key Success Factors KSFs can be grouped in several ways: Key success factors must be kept at Technology-related performance levels required by the industry. Manufacturing-related If the KSFs are not met, the farm will not Distribution-related perform adequately and its viability is Marketing-related threatened. Skills-related A KSF can be identified as the word or phrase that would complete this sentence Organizational capability for a farmer: “If we ________, we will be Other factors: reputation, location, successful.” access to capital, etc. In review, External Analysis Attractiveness and Profitability consists of answering 8 questions: This is an overall assessment of the 1. Macro environment? industry's attractiveness or 2. Dominant economic traits? unattractiveness, special issues and 3. Competitive forces? problems, and its profit outlook. 4. Factors driving change? 5. Strongest & weakest positions? 6. Next strategic moves? 7. Key success factors? 8. Attractiveness & profitability? A full Internal Analysis Includes consideration of 1. shared values and culture Internal Analysis 2. personal ambitions, philosophies, and ethical principles of the managers 3. the farm’s strengths, weaknesses, and competitive capabilities (five key questions) 5
  6. 6. Five questions for Internal Analysis Is the present strategy working? How well is the present strategy working? Is the farm achieving it’s financial and strategic objectives? What are the Strengths, Weaknesses, Opportunities, and Threats? (SWOT) Is it progressing towards it’s vision? Are costs competitive? What is the current financial condition and performance? How strong is the competitive position? How well have profit objectives been balanced with other financial and What strategic issues need to be strategic objectives? addressed? SWOT analysis Are Costs Competitive? Are the costs of production and delivery lower than for other farms? INTERNAL EXTERNAL Compare the specific farm’s estimated costs to other farms using Good Strengths Opportunities • USDA costs of production surveys • Farm record association reports • Other private information sources such Bad Weaknesses Threats as bank comparisons Cost Comparisons Strength of the Competitive Position Horizontally across farms Strengths and core competencies Historically over time need to be strong in relation to trends Vertically Value chain analysis Is the farm making the correct moves Benchmarking to position itself to take advantage of the trends. 6
  7. 7. Signs of Competitive Strengths Signs of Competitive Weaknesses important core competencies distinctive strategies competitive disadvantages cost advantages losing ground compared to other farms good match of the farm’s strategic product groups below average growth with the industry’s growth areas short on financial resources above average profit margins poor strategic product groups compared to taking advantage of cost economies industry growth above average technological and innovational weak where best growth potential is capability high cost producer creative, entrepreneurially alert management not able to take advantage of cost economies capitalizing on opportunities poor quality of and/or missing skills in key areas possessing skills in key areas In review, five questions for Strategic Issues to be Addressed Internal Analysis Putting the external and internal How well is the present strategy working? analyses together What are the Strengths, Weaknesses, Assessing how well the farm is Opportunities, and Threats? (SWOT) placed in the industry Are costs competitive? Identifying the strategic issues need How strong is the competitive position? to be studied, improved, & changed What strategic issues need to be addressed? This is the beginning of crafting strategy, the next topic. Generic strategies Low cost leadership Growth Prospector Crafting Strategy Protector Reactor Differentiation Focus or niche Best-cost provider Retrenchment 7
  8. 8. Patterns of Actions Patterns, cont. that Define Strategy 1. Actions to out compete rivals 7. Actions to form alliances & partnerships 2. Responses to external changes 8. Efforts to pursue opportunities or defend 3. Broadening or narrowing product line, against threats changing quality, & modifying service 9. Actions and approaches that define how 4. Actions to alter geographic coverage functional activities are managed 5. Actions to merge with or acquire rivals 10. Actions to strengthen resources and 6. Efforts to integrate backward or forward capabilities or to outsource current internal activities 11. Actions to diversify External factors shaping strategy: Internal factors shaping strategy: Societal, political, regulatory, & Strengths, weaknesses, & community considerations competitive capabilities Industry attractiveness Ambitions, philosophies, & ethics Changing conditions Shared values & culture Specific opportunities & threats Strategy Evaluation Tests Scoring example (subset of Table 2.1) Vision Consistency Proposed Building Other TOTAL Goodness of Fit Strategy Vision Fit future tests SCORE Building for the Future Low cost 2 3 2 … 23 Performance Importance New 4 3 3 … 23 Feasibility Markets Resource Merger 3 4 5 … 27 Confidence Organic 4 3 4 … 27 8
  9. 9. Improving Strategic Planning Using Scenarios 1. Planning under uncertainty 1. Bet on most probable scenario 2. Ivory tower planning 2. Bet on the “best” scenario & 3. Planning for the present strategy 4. Managers’ biases 3. Hedge on what will happen 5. Devil’s advocacy 4. Preserve flexibility 6. Dialectic inquiry 5. Influence the outcome 7. Advisory board 6. Combine methods Factors affecting strategy choice Robustness First mover advantage Initial competitive position Strategy Implementation Cost or resources required Risk Competitor's expected choices Strategy Implementation Implementation activities Develop a capable organization “The most difficult part of strategic Allocate resources management” Establish policies & procedures Designing the organizational structure Motivate & reward people Aligning functional strategies Create culture and work climate Obtaining & directing resources Install internal support systems Adapting to changes Institute continuous improvement Exert internal leadership, keep the vision in mind (adapted from Thompson and Strickland, 2003) 9
  10. 10. Implementation involves developing: The correct organization Functional strategies Strategic Control Strategic project plans Strategic programs Strategic Control Molz divides control into 2 parts: Choose key indicators for objectives Strategic product Establish standards • Actual outcomes compared to targets Create measurement systems • Take corrective actions as needed Compare performance to standards Strategic process • Reevaluate assumptions and inputs Evaluate results used to develop the strategic plan Take corrective actions as needed • Decide whether plan needs to be adapted to new conditions Hill and Jones: Concluding Comments 1. Financial controls Strategic management is a continuous process. 2. Output controls • It is not a one time event. 3. Behavior controls 4. Values and norms After the first strategic plan is developed, a farmer still needs to 5. Reward systems continuously • Scan the external environment • Evaluate new conditions and events • Take corrective actions as needed 10