To look at an organization from the CEO’s perspective and to understand the necessity of leadership and entrepreneurship in an organization. The organizations strengths, weaknesses, opportunities and threats must be analyzed in order to formulate a strategic plan of action, goals, and controls to meet those goals.
Develop the student’s capacity to think strategically about a company, its business position, and how it can gain sustainable competitive advantage.
Build skills in conducting strategic analysis in a variety of industries, especially to provide the student with a stronger understanding of competitive challenges.
Give students hands on experience in crafting business strategy, reasoning carefully about strategic options, using what-if analysis to evaluate alternatives, and making strategic decisions.
Improve student’s ability to manage the organizational process by which strategies get formed and executed.
Integrate the knowledge gained in earlier core courses in the business school curriculum.
Develop powers of managerial judgment and improve ability to create results oriented action plans.
Elevate importance of ethical principles, personal and company values.
What is Strategic Management?
“ If you don’t know where you’re going, you’re liable to wind up someplace else!” -- Yogi Berra
“ Plans are nothing; planning is everything!” -- Dwight D. Eisenhower
What do we mean by strategy?
Strategy is grounded in the array of competitive moves and business approaches management depends on to produce successful performance.
Strategy is management’s game plan for strengthening the organization’s position, pleasing customers, and achieving performance targets.
Without a strategy, managers have: No thought-out course to follow No roadmap to manage by No action program to produce the intended result
Good strategy and good strategy execution are the most trustworthy signs of good management.
Three Fundamental Strategic Questions
Where are we currently?
Where do we want to be in the future?
How will we get there?
Strategic planning is a “disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is , what it does , and why it does it .”
Benefits of Strategic Planning
Improved understanding and better learning
Better decision making
Enhanced organizational capabilities
Improved communications and public relations
Increased political support
What does a company’s strategy consist of?
How to satisfy customers
Broad or narrow product line?
Amount of customer service provided?
How to grow the business
Concentrate on a single business strategy?
Diversify into related or unrelated industries?
Company strategies concern:
How to respond to changing industry and market conditions
How best to capitalize on new opportunities
How to manage each functional piece of the business
How to achieve strategic and financial objectives
Sustained Competitive Advantage Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Strategic Competitiveness Achieved when a firm successfully formulates and implements a value-creating strategy
which are required for firms to achieve: Above-Average Returns Strategic Competitiveness Sustained Competitive Advantage The Strategic Management Process Involves the full set of: Actions Commitments Decisions
Components of Strategic Management Process
Recognizing and evaluating external and internal environment.
Development of strategic mission.
Evaluation of performance
21st Century Competitive Landscape
Rapid technological changes
Rapid technology diffusions
Dramatic changes in information and communication technologies
Increasing importance of knowledge
Fundamental nature of competition is changing The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as...
21st Century Competitive Landscape The global economy is changing
People, goods, services and ideas move freely across geographic boundaries
New opportunities emerge in multiple global markets
Markets and industries become more internationalized
Traditional sources of competitive advantage no longer guarantee success New keys to success include:
Stakeholders: Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders Organizational Employees Managers Non-Managers Firm Capital Market Stock market/Investors Debt suppliers/Banks Product Market Primary Customers Suppliers
Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm How do you divide the returns to keep stakeholders involved? 1 Capital Market Product Market Organizational
Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm How do you increase the returns so everyone has more to share? 2 Capital Market Product Market Organizational
Components of the General Environment Political/Legal Economic Technological Global Demographic Sociocultural Competitive Environment Industry Environment
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
Labor training laws
Educational philosophies and policies
Women in the workplace
Attitudes about quality of worklife
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
Applications of knowledge
Focus of private and government-supported R&D expenditures
New communication technologies
Important political events
Critical global markets
Newly industrialize countries
Different cultural and institutional attributes
External Environmental Analysis
A continuous process which includes
Scanning : Identifying early signals of environmental changes and trends
Monitoring : Detecting meaning through ongoing observations of environmental changes and trends
Forecasting : Developing projections of anticipated outcomes based on monitored changes and trends
Assessing : Determining the timing and importance of environmental changes and trends for firms’ strategies and their management
A set of factors that directly influences a company and its competitive actions and responses.
Interaction among these factors determine an industry’s profit potential.
Threat of new entrants
Power of suppliers
Power of buyers
Intensity of rivalry
Threat of Substitute Products Threat of New Entrants Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry
Rivalry Among Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Making new product introductions Increasing consumer warranties or service Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors
Cutthroat competition is more likely to occur when: Rivalry Among Existing Competitors Numerous or equally balanced competitors Slow growth industry High fixed costs Lack of differentiation or switching costs High storage costs Capacity added in large increments High strategic stakes High exit barriers Diverse competitors
Competitor Analysis The follow-up to Industry Analysis is effective analysis of a firm’s Competitors Competitive Environment Industry Environment
Competitor Analysis Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?
Chapter 2 External Environment What the Firm Might Do Chapter 3 Internal Environment What the Firm Can Do Sustainable Competitive Advantage
Challenge of Internal Analysis
How do we effectively manage current core competencies while simultaneously developing new ones?
How do we assemble bundles of resources, capabilities and core competencies to create value for customers?
How do we learn to change rapidly?
Tangible Resources What a firm Has ... What a firm has to work with: its assets, including its people and the value of its brand name Resources represent inputs into a firm’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers Intangible Resources “ Some genius invented the Oreo. We’re just living off the inheritance.” F. Ross Johnson , Former President & CEO, RJR Nabisco Resources Financial * Physical * Human Resources * Organizational * Technological * Innovation * Reputation *
What a firm Does ... Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees. Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage . Capabilities
For a strategic capability to be a Core Competency, it must be: Core Competencies What a firm Does ... that is Strategically Valuable Valuable Rare Costly to Imitate Nonsubstitutable
Core Competencies must be: Nonsubstitutable Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships What a firm Does ... that is Strategically Valuable Core Competencies Valuable Rare Costly to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity Capabilities that are possessed by few, if any, current or potential competitors Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment