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Strategic Management
Dr. John Humphreys
Fall 2022
I Like Strategy
And by the way, HOPE is not a strategy!
STAKEHOLDERS & THE STRATEGIC
MANAGEMENT PROCESS
The Strategic Management Process
 Organizational and Environmental Analysis
 Strategic Direction
 Strategy Formulation
 Strategy Implementation and Control
 Strategic Restructuring
Concept and Definition
 A company’s strategy consists of the competitive
moves and business approaches devised by
management to produce successful performance.
 Strategy is management’s “game plan” for running
the business, strengthening the company’s
competitive position, satisfying customers, and
achieving performance targets.
 No well-defined business path to follow
 No roadmap to manage by
 No cohesive, reasoned action plan to
produce successful performance
Without a strategy, managers have:
The Three Big Strategic Questions
1. Where are we now?
This involves thinking about the company’s
external market environment and internal
situation and capabilities
2. Where do we want to go?
This involves thinking about what top
management wants the company to be like
in 5 to 10 years
Continued…
3. How will we get there?
This involves thinking about what
STRATEGY the company should
pursue to perform successfully and get
from where it is to where it wants to go.
This third step is where companies often:
SCREW IT UP !!!
THE FIVE TASKS OF STRATEGIC
MANAGEMENT
1. Defining the business, stating a mission, and
forming a strategic vision
2. Setting measurable objectives and performance
targets
3. Crafting a strategy to achieve the objectives
4. Implementing and executing the strategy
5. Evaluating performance, reviewing new
developments, and initiating corrective adjustments
in long-term direction, objectives, strategy, or
implementation approaches
Definition of Strategic Management
STRATEGIC MANAGEMENT is the process through
which organizations:
 Analyze and learn from the stakeholders inside and
outside the organization,
 Establish strategic direction,
 Create strategies that are intended to help achieve
established goals,
 Execute strategies,
 All in an effort to satisfy KEY STAKEHOLDERS.
Stakeholder Approach
Stakeholders …
 are groups or individuals who can
significantly affect or are significantly affected
by an organization’s activities such as
customers, employees, stockholders,
communities, suppliers, etc.
 have, or believe they have, a legitimate claim
on some aspects of the organization or its
activities
THE ORGANIZATION AND
ENVIRONMENT
Organizational Environment –
 Groups, individuals, and forces outside of the
traditional boundaries of the organization that
are significantly influenced by or have a major
impact on the organization.
 This includes both the operating and broad
environments:
Continued…
 OPERATING ENVIRONMENT – employees,
competitors, customers, suppliers, lenders,
unions, gov’t agencies, local communities,
etc.
 BROAD ENVIRONMENT – global economic
forces, sociocultural forces, technological
change, and global political and legal forces.
How do we deal with the
environment?
Continued…
 ADAPTATION – The process of responding
to the environment.
 ENACTMENT – The process of influencing
the environment to make it less hostile and
more conducive to organizational success.
Strategic Direction
MISSION STATEMENT
 Statement describing the organization’s
overall purpose, broad goals, and the scope
of it’s operations.
VISION STATEMENT
 Statement expressing management’s view of
what the organization can or should become
in the future
Strategy Formulation
1. Corporate-Level Strategy
 Concerned with the selection of business areas in
which the organization will compete
 Referred to as domain definition
2. Business-Level Strategy
 Concerned with how businesses compete in the
areas they have selected
 Referred to as domain direction and navigation
3. Functional-Level Strategy
 Provides details of how functional areas work
together to achieve business-level strategy
Strategic Implementation and
Control
 Strategy Implementation –
 Creating the functional strategies, systems,
structures, and processes needed by the
organization to achieve strategic ends
 Strategic Control –
 The processes that lead to adjustments in
strategic direction, strategies, or the
implementation plan, when necessary
Strategic Restructuring
 Restructuring –
 Involves renewed emphasis on the things an
organization does well, combined with a variety of
tactics to revitalize the organization and strengthen its
competitive position
*****None of the tasks of strategic management are a
one-time only exercise. Times change. Conditions
change. Events unfold. Better ways to do things
become evident. Things happen that require new
initiatives and actions. New leadership emerges
Alternative Perspectives on Strategy
Development
ENVIRONMENTAL DETERMINISM
The environment is the primary determinant of
strategy. The most successful organization
will be the one that best ADAPTS to existing
forces.
STRATEGIC CHOICE –
Organizations do not have to submit to forces
in the environment, they can create their
environments through relationships with
stakeholders and other activities.
STAKEHOLDER VIEW –
Compromise between determinism and choice.
Through stakeholder analysis and management
processes, organizations can better understand and
influence their environments.
DELIBERATE VS EMERGENT
STRATEGY
 Deliberate Strategy – an intended strategic
course planned and pursued by managers.
 Emergent Strategy – an unplanned strategy
that emerges from a stream of managerial
decisions.
**** In reality, both processes must be present
for an organization to truly excel.
RESOURCE-BASED VIEW OF THE
FIRM
An organization is a bundle of financial, human,
physical, and organizational resources. Resources
that create value for customers but are difficult for
competitors to imitate provide the basis for a
sustainable competitive advantage.
What are these resources?
STAKEHOLDER ANALYSIS AND
MANAGEMENT
 STAKEHOLDER ANALYSIS –
 Involves identifying and prioritizing key stakeholders,
assessing their needs, collecting ideas from them, and
integrating this knowledge into strategic management
processes.
 STAKEHOLDER MANAGEMENT –
 Includes communicating, negotiating, contracting,
and managing relationships with stakeholders and
motivating them to behave in ways that are
beneficial to the organization and its other
stakeholders.
The Broad Environment
Fig. 3-1: The External Environment
Remote Environment (Global and Domestic)
Industry Environment (Global and Domestic)
Operating Environment (Global and Domestic)
• Economic
• Social
• Political
• Technological
• Entry barriers
• Supplier power
• Buyer power
• Substitute availability
• Competitive rivalry
• Competitors
• Creditors
• Customers
• Labor
• Suppliers
THE FIRM
The Broad Environment
 Sociocultural forces
 Global economic forces
 Global political forces
 Technological forces
Socio-cultural Trends
Analysis of societal trends is important from at
least four perspectives:
1. The values and beliefs of key stakeholders
are derived from broader societal influences,
which can create opportunities and threats
for the firm.
Major Sociocultural Issues in the U.S.
 Declining education
 Role of government (health & child care)
 Legality of abortion
 Crime
 Pollution
 Increase in environmentalism
 Drug addiction
 Migration to the Sunbelt
 Immigration
 Aids and other health concerns
 Graying of America
 Levels of foreign investment
 Role of the military
 Social costs of restructuring
In addition, company strategy must be adapted to each geographic region, not just
by country!
Socio-cultural Trends
2. Awareness of and compliance with the attitudes of
society can help an organization avoid problems
associated with being a “bad corporate citizen.”
Reputation is important as it can’t be imitated! Therefore,
corporate image can become a competitive advantage.
Socio-cultural Trends
3. Correct assessment of social trends can help
businesses avoid restrictive legislation.
4. Changes in society can create opportunities
and threats to an organization’s revenue
growth and profit prospects.
These changes can often help to predict future
demand.
Socio-cultural Trends
Global Economic Forces
1. Economic growth
Global Economic Forces
2. Interest rates
Global Economic Forces
3. Inflation
Global Economic Forces
4. Exchange rates
Global Economic Forces
5. Trade deficits
Technological Forces
Technological change creates new products,
processes, and services, and, in some cases,
entire new industries. It can also change the
way society behaves and what society
expects.
Technological Forces
 Technology – refers to human knowledge
about products and services and the way
they are made and delivered.
 Invention – a new idea or technology proven
to work in the laboratory.
 Innovation – An invention that can be
replicated reliably on a meaningful scale.
Technological Forces
Basic Innovation – An invention that
impacts more than one product category or
industry.
What would be some basic innovations?
Technological Forces
Radical innovations usually
originate outside of the
industry boundaries!
What are the implications of this?
Political/Legal Forces
 According to some, political/legal forces are
often the most significant determinants of
organizational success.
Do you agree? Why or why not?
Political/Legal Forces
 For example, did you know that lenders are
held liable when their customers are guilty of
polluting the environment?
Political/Legal Forces
Even in the U.S., which is considered a “free
market” economy, no organization is allowed
the privilege of total autonomy from
government regulations.
The Operating Environment
The Operating Environment
Includes stakeholders such as:
 Customers
 Suppliers
 Competitors
 Government Agencies
 Local Communities
 Activist groups
 Unions
The Operating Environment
Which of these
stakeholders are
primary forces that drive
competition in an
industry?
Primary Stakeholders
 Customers
 Suppliers
 Competitors
Stakeholder Analysis
Analysis of these stakeholders can
result in the identification of
opportunities and threats that can
help managers establish, develop
and implement organizational
strategies.
Are all stakeholders of equal value
to the firm?
No !!!
One key factor in determining the
priority of a particular stakeholder is
the influence on the environmental
uncertainty facing the firm.
An Important Point
Although environmental uncertainty often
originates in the broad environment,
firms feel most of its influence through
external stakeholders in the operating
environment.
Environmental Uncertainty
Although Political/Legal Influence
contributes greatly to environmental
uncertainty, Economic power is often
the most important influence in
understanding the nature and level of
environmental uncertainty.
Porter’s Five-Forces Model
 Customers
 Suppliers
 Industry Competitors
a) existing competitors
b) potential competitors
c) substitutes
Fig. 3-4: Forces Driving Industry
Competition
Potential
entrants
Threat of new
entrants
Suppliers
Bargaining power
of suppliers
Buyers
Bargaining power
of buyers
Substitutes
Threat of substitute
products or services
Industry
competitors
Rivalry Among
Existing Firms
Customers are a force when …
 There are a small number of them
 They make high volume purchases
 The purchases they make represent a large
percentage of their total costs
 The sellers’ products are plentiful and/or
undifferentiated
 They earn low profits
Customers are a force when …
 They can easily integrate backward and
become their own suppliers
 Sellers’ products don’t have much influence
on the quality of their customer’s products
 Information on sellers’ costs and demand is
readily available to buyers
In combination, these forces determine the
bargaining power of customers
Obviously, the greater their power,
the higher the priority customers
should be given in the strategic
management process.
Suppliers are a force when …
 There are only a few suppliers
 There are few or no substitutes
 Suppliers do not sell a large percentage of
their products to the buying industry
 The buying industry must have the product
that suppliers provide in order to manufacture
its own product
Suppliers are a force when …
 Suppliers have differentiated their products or
made it costly to switch suppliers
 Suppliers can easily integrate forward and
compete directly with former buyers
In combination, these forces determine the
bargaining power of suppliers
Obviously, the greater their power,
the higher the priority suppliers
should be given in the strategic
management process.
Competitors
Rivalry among existing competitors WILL incite
retaliation or counter moves. These moves
typically include things like:
 Advertising programs
 Sales force and/or capacity expansions
 New product introductions
 Long-term contracts with customers
Major Forces That Lead To High
Levels Of Competition
 Slow industry growth
 High fixed costs
 Lack of product differentiation
 A large number of competitors
 High exit barriers
Hypercompetition …
A condition of rapidly escalating competition.
What would be an industry today that faces
hypercompetition?
Firms often keep track of the activities and
capabilities of their competitors through …
Competitive benchmarking – a tool in which
management uses the best practices of
competitors in setting objectives to
encourage improvement in performance.
What is the fallacy of benchmarking and how
could it actually harm your strategy?
Potential Competitors
Entry barriers prevent firms from freely moving into an
industry. They include:
 Economies of scale
 Capital requirements
 Product differentiation
 Switching costs
 Access to distribution channels
 Other cost advantages such as proprietary
technology
 Government policy
Indirect Competitors
If organizations provide goods that are readily
substitutable for the goods provided by an
industry, these organizations become indirect
competitors. This leads to …
 A ceiling on the price for the good
 Can create new expectations
What do we do with this model?
 Use it to understand how the firm should
position itself relative to these forces
(reactive)
 Use it to influence the forces by actions such
as erecting high entry barriers through
economies of scale or differentiation
(proactive)
 Use it to decide whether or not to enter or
leave a particular industry
Basic Postures
Firms use two primary postures when dealing with
external stakeholders:
 Buffering – techniques designed to stabilize and
predict environmental influences (PR, market
research, lobbying, etc.)
 Bridging (also referred to as boundary spanning) –
techniques that build on interdependencies (joint
ventures, strategic alliances, partnering, industry
level lobbying, extranets, etc.)
Internal Analysis
From a resource-based perspective -
Strengths – are firm resources and capabilities
that can lead to a competitive advantage.
Weaknesses – are resources and capabilities
that the firm does not possess but that are
necessary, resulting in a competitive
disadvantage.
From a resource-based perspective -
Opportunities – are conditions in the broad and
operating environments that allow a firm to take
advantage of organizational strengths, overcome
organizational weaknesses, and/or neutralize
environmental threats.
From a resource-based perspective -
Threats – are conditions in the broad and operating
environments that may stand in the way of
organizational competitiveness or the achievement of
stakeholder satisfaction.
Numerous environmental
opportunities
Major environmental
threats
Substantial
internal
strengths
Critical
internal
weaknesses
Cell 3: Supports
a turnaround-
oriented strategy
Cell 1: Supports
an aggressive
strategy
Cell 4: Supports
a defensive
strategy
Cell 2: Supports
a diversification
strategy
Fig. 6-6: SWOT Analysis Diagram
Primary Activities
Support
Activities
Research, technology, and
systems development
Human resource management
General administration
Procurement
Inbound
Logistics
Operations
Outbound
logistics
Marketing
and
sales
Service
Fig. 6-7: The Value Chain
Value can be created -
 In any primary or support activity
 In the way they are combined
 In the way internal activities are linked to the
external environment
Value Chain Analysis
Value chain analysis may be combined with stakeholder
analysis to identify strengths and weaknesses and to
uncover opportunities for savings or ways to add
value for customers.
Plus …
The combination of stakeholder analysis with value
chain analysis holds great potential for developing
strategies that are both efficient and effective.
Strategic Direction
Where the heck are we going?
To often the answer is this …
Strategic Direction
Strategic direction requires managers to provide
long-term direction while balancing the
competing interests of key stakeholders.
Strategic Direction
Strategic direction is established and communicated
through tools such as visions, missions, business
definitions, enterprise strategies, and long-term
goals.
Finally …
This is where the rubber meets the road!
Unless …
Of course, you are Firestone. ;-)
Structural Inertia
… forces within the organization that work to maintain
the status quo.
Business Definition
What is our business? …
Should be addressed from four perspectives:
1. Who is being satisfied?
2. What is being satisfied?
3. How are customer needs satisfied?
4. What are our products and/or services?
Plus …
What do we stand for?
Important point …
This is the critical link between ethics and strategy and
is referred to as enterprise strategy.
Theoretical Models
 Economic foundations
 Legal foundations
 Religious foundations
 Utilitarian foundations
An organization’s mission …
 Reflects management’s vision of what the
organization seeks to do and to become
 Provides a clear view of what the
organization is trying to accomplish
 Indicates an intent to stake out a particular
position
Specific questions that help form
strategic vision -
 What business are we in now?
 What business do we want to be in?
 What will our customers want in the future?
 What are the expectations of our
stakeholders?
Questions, con’t.
 Who will be our future competitors?
Suppliers? Partners?
 What should our competitive scope be?
 How will technology impact our industry?
 What environmental scenarios are possible?
Examples
AVIS
 Our business is renting cars. Our mission is
total customer satisfaction.
Eastman Kodak
 To be the world’s best in chemicals and
electronic imaging.
Examples
SATURN
 To market vehicles developed and
manufactured in the United States that are
world leaders in quality, cost, and customer
satisfaction through the integration of people,
technology, and business systems and to
transfer knowledge, technology, and
experience throughout General Motors.
Formula
 Key Market: To offer the fast food
customer
 Contribution: food prepared in the same
high-quality manner world-wide, tasty and
reasonably priced,
 Distinction: delivered in a consistent, low-
key décor and friendly atmosphere.
Goals in most companies …
 Maximize long-term shareholder wealth
 Optimize employee potential
 Customer orientation
 Build competencies
 Global
 Citizenship
 Technology
 Productivity
Corporate-Level Strategy
Corporate-Level Strategy …
Selection of business areas in which the
organization will compete.
 Concentration
 Vertical Integration
 Diversification
Concentration
– the organization produces a single or a small group of
products or services.
Concentration Positives
 Allows the firm to master the business
 Better positioned to develop sustainable
competitive advantages
 Places organizational resources under less
strain
 Clear strategic direction
 Easier for external stakeholders to
understand the firm’s mission
Concentration Negatives
 Is risky when environments are unstable
 Makes the firm vulnerable to product
obsolescence and industry maturity
 Can lead to cash problems, both negative
and positive
 May not provide stimulation for management
Vertical Integration
The extent to which a firm is involved in several stages
of the industry supply chain.
Market Failure
– occurs when transaction costs are high
enough to encourage an organization to
produce a good or service in-house instead of
buying from the open market.
Taper Integration
- Occurs when an organization produces part of its
requirements in-house and buys the rest of what it
needs on the open market.
Diversification
 Related Diversification – firm’s involvement in
other businesses related to its core business.
 Unrelated Diversification – firm’s involvement
in businesses not related to its core business.
Business-Level Strategy
Generic Business Strategies
1. Cost Leadership
2. Differentiation
3. Best Cost
4. Cost Focus
5. Differentiation Focus
Creating Low-Cost Positions
 Capacity utilization
 Economies of scale
 Cost-saving technologies
 Learning/experience curve effects
Creating Low-Cost Positions
*** A cost leader does not
have to be a price leader !
Differentiation Tactics
Quality
Innovation and research
Speed and flexibility
Organizational reputation and
brand name
Best Cost Strategy
*** The essence of a best cost
strategy is to find a level of
differentiation that will bring a
premium price while doing so at
a reasonable cost.
Focus Strategies
*** The key to a focus strategy is catering
to a particular segment in the market.
Low-cost focus
Differentiation focus
The Issue of Tradeoffs
A sustainable strategic position requires tradeoffs. If a
company moves upscale, it repositions itself away
from its current customer base.
Tradeoffs arise for three reasons …
 Inconsistency of image or reputation - a firm can’t
go in different directions without confusing the
customers.
 Need for different types of resources - different
positions require different equipment, employee
behaviors, skills, product configurations, and
management systems.
 Overall costs - internal coordination and control can
be very expensive.
Five Fatal Strategy Flaws
 Misreading Industry Attractiveness
 Possessing No True Competitive
Advantage
 Pursuing A Competitive Advantage That Is
Not Sustainable
 Compromising A Strategy In Order To Grow
Faster
 Not Making Your Strategy Explicit And Not
Communicating It To Your Employees
Growth Strategies
Internal
 Market penetration
 Market/applications development
 Product/service development
External
 Mergers/integration
 Joint ventures/strategic alliances
Positioning Competitive Strategies
in a Dynamic Environment
Industry Life Cycle
Introduction
Growth
Maturity
Decline (commodity)
Functional-Level Strategies
Functional Strategies
 Collective patterns of decisions made and actions
taken by employees that implement the growth and
competitive strategies of the organization.
 Do you see any potential conflict in this statement?
Marketing Strategy
– a plan to promote, price, and distribute the products
and services of an organization, as well as how to
identify and service customer groups.
Operations Strategy
- a plan to design and manage the processes needed to
create the products and services of the organization.
Research and Development Strategy
– a plan that guides basic research of the organization
as well as its development of more effective and
efficient applications, products, and processes.
Information Systems Strategy
– a plan to provide the organization with the information
technology necessary for the operation, planning,
and control of business activities.
Human Resources Strategy
– a plan that guides the recruiting, hiring, training, and
compensating of employees as well as organizational
change efforts.
Financial Strategy
– a plan to provide the organization with the capital
structure and funds appropriate for implementing
growth and competitive strategies.
Functional Strategies MUST …
be consistent in three important areas:
1. Within function
2. Between function
3. With the generic-level strategy
Example
MISSION/VISION
 FCS will be the lender and employer of
choice in our marketplace.
GOAL
 Optimizing employee potential
Example, con’t.
OBJECTIVE
 Increase employee morale through continuous
training and increased incentive opportunities.
STRATEGIES
 Implement a quarterly pay-for-performance plan for
every position in the organization.
 Implement training and educational development
standards and opportunities for every position in the
organization.
Example, con’t.
POLICIES/TACTICS
 Finance – designate $3.8 million for
employee training for year 2008.
 Marketing – offer a quarterly rotation of
effective sales training programs for all sales
personnel.
Strategic Control
STRATEGIC CONTROL
Strategic Control System – organizational
system by which top management can
evaluate the progress of the organization in
accomplishing its goals, as well as point out
areas in need of attention.
STRATEGIC CONTROL
These are often accounting-based
measures. Why can accounting-based
measures be problematic?
STRATEGIC CONTROL
Control systems should be comprehensive and
designed to include input from internal and
external stakeholders and from organizational
processes.
STRATEGIC CONTROL
Financial
 ROI
 Cash flow
 Stock price
 Earnings stability
STRATEGIC CONTROL
Customer
 Pricing
 Innovation
 Quality
 Value
 Customer service
STRATEGIC CONTROL
Internal Business
 Cost controls
 Skill levels
 Product line breadth
 Safety
 On-time delivery
 Quality
STRATEGIC CONTROL
Innovation and Learning
 Workforce morale
 Innovation
 Investments in R & D
 Continuous improvement
CRITICAL RESULT AREAS
Organizational areas that are key to ensuring
that the organization accomplishes its goals
and its vision.
Examples:
 Improvement in worker skill levels
 Product redesign
 Creation of new process controls
Continued…
Once identified, the critical result areas
become the objectives and targets that
pace strategy implementation.
GOAL SETTING
 Bottom-Up Approach – goal setting
begins in functional areas, which
translates into business-level goals of
the various divisions that are combined
to form the corporate-level goals.
Continued…
 Top-Down Approach – the corporate
level essentially determines and then
dictates what lower-level goals should
be.
FEEDBACK CONTROL
SYSTEMS
 Budgets – feedback controls that provide
revenue and expense targets.
 Financial Ratios – feedback controls used to
control organizational processes and
behavior (Current ratio, quick ratio, etc.).
 Audits – a type of feedback control system
used to provide information to support
financial, customer, or internal perspectives.
Firm conduct and outcomes are measured
against established guidelines.
FEEDBACK CONTROL
SYSTEMS
Customer Surveys – a type of feedback
control system used to measure how well
established standards for customer
satisfaction are being met.
See any problems with these?
FEEDBACK CONTROL
SYSTEMS
 Concurrent Controls – very similar to
feedback controls, except that the time
horizon is shortened to “real time.”
 Process Control – controls associated with
production and service processes and with
quality standards (i.e., making sure things
meet specifications).
ORGANIZATIONAL CRISES
A better definition:
When the feces hits the fast-moving, rotary
bladed instrument. In other words, when the
@$%&*# hits the fan!
CRISIS-PRONE
ORGANIZATIONS
 If they prepare at all, they prepare for too few
contingencies. Further, preparation is
fragmented.
 They focus on only one aspect of a crisis, and
only after it has occurred.
 They only consider technical factors in the
cause or prevention of crises.
 They don’t explicitly consider the
ramifications to key stakeholders.

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Strategic Management Seminar Fall 2022 (1).ppt

  • 1. Strategic Management Dr. John Humphreys Fall 2022
  • 2. I Like Strategy And by the way, HOPE is not a strategy!
  • 3. STAKEHOLDERS & THE STRATEGIC MANAGEMENT PROCESS The Strategic Management Process  Organizational and Environmental Analysis  Strategic Direction  Strategy Formulation  Strategy Implementation and Control  Strategic Restructuring
  • 4. Concept and Definition  A company’s strategy consists of the competitive moves and business approaches devised by management to produce successful performance.  Strategy is management’s “game plan” for running the business, strengthening the company’s competitive position, satisfying customers, and achieving performance targets.
  • 5.  No well-defined business path to follow  No roadmap to manage by  No cohesive, reasoned action plan to produce successful performance Without a strategy, managers have:
  • 6. The Three Big Strategic Questions 1. Where are we now? This involves thinking about the company’s external market environment and internal situation and capabilities 2. Where do we want to go? This involves thinking about what top management wants the company to be like in 5 to 10 years
  • 7. Continued… 3. How will we get there? This involves thinking about what STRATEGY the company should pursue to perform successfully and get from where it is to where it wants to go. This third step is where companies often:
  • 9. THE FIVE TASKS OF STRATEGIC MANAGEMENT 1. Defining the business, stating a mission, and forming a strategic vision 2. Setting measurable objectives and performance targets 3. Crafting a strategy to achieve the objectives 4. Implementing and executing the strategy 5. Evaluating performance, reviewing new developments, and initiating corrective adjustments in long-term direction, objectives, strategy, or implementation approaches
  • 10. Definition of Strategic Management STRATEGIC MANAGEMENT is the process through which organizations:  Analyze and learn from the stakeholders inside and outside the organization,  Establish strategic direction,  Create strategies that are intended to help achieve established goals,  Execute strategies,  All in an effort to satisfy KEY STAKEHOLDERS.
  • 11. Stakeholder Approach Stakeholders …  are groups or individuals who can significantly affect or are significantly affected by an organization’s activities such as customers, employees, stockholders, communities, suppliers, etc.  have, or believe they have, a legitimate claim on some aspects of the organization or its activities
  • 12. THE ORGANIZATION AND ENVIRONMENT Organizational Environment –  Groups, individuals, and forces outside of the traditional boundaries of the organization that are significantly influenced by or have a major impact on the organization.  This includes both the operating and broad environments:
  • 13. Continued…  OPERATING ENVIRONMENT – employees, competitors, customers, suppliers, lenders, unions, gov’t agencies, local communities, etc.  BROAD ENVIRONMENT – global economic forces, sociocultural forces, technological change, and global political and legal forces.
  • 14. How do we deal with the environment?
  • 15. Continued…  ADAPTATION – The process of responding to the environment.  ENACTMENT – The process of influencing the environment to make it less hostile and more conducive to organizational success.
  • 16. Strategic Direction MISSION STATEMENT  Statement describing the organization’s overall purpose, broad goals, and the scope of it’s operations. VISION STATEMENT  Statement expressing management’s view of what the organization can or should become in the future
  • 17. Strategy Formulation 1. Corporate-Level Strategy  Concerned with the selection of business areas in which the organization will compete  Referred to as domain definition 2. Business-Level Strategy  Concerned with how businesses compete in the areas they have selected  Referred to as domain direction and navigation 3. Functional-Level Strategy  Provides details of how functional areas work together to achieve business-level strategy
  • 18. Strategic Implementation and Control  Strategy Implementation –  Creating the functional strategies, systems, structures, and processes needed by the organization to achieve strategic ends  Strategic Control –  The processes that lead to adjustments in strategic direction, strategies, or the implementation plan, when necessary
  • 19. Strategic Restructuring  Restructuring –  Involves renewed emphasis on the things an organization does well, combined with a variety of tactics to revitalize the organization and strengthen its competitive position *****None of the tasks of strategic management are a one-time only exercise. Times change. Conditions change. Events unfold. Better ways to do things become evident. Things happen that require new initiatives and actions. New leadership emerges
  • 20. Alternative Perspectives on Strategy Development ENVIRONMENTAL DETERMINISM The environment is the primary determinant of strategy. The most successful organization will be the one that best ADAPTS to existing forces.
  • 21. STRATEGIC CHOICE – Organizations do not have to submit to forces in the environment, they can create their environments through relationships with stakeholders and other activities.
  • 22. STAKEHOLDER VIEW – Compromise between determinism and choice. Through stakeholder analysis and management processes, organizations can better understand and influence their environments.
  • 23. DELIBERATE VS EMERGENT STRATEGY  Deliberate Strategy – an intended strategic course planned and pursued by managers.  Emergent Strategy – an unplanned strategy that emerges from a stream of managerial decisions. **** In reality, both processes must be present for an organization to truly excel.
  • 24. RESOURCE-BASED VIEW OF THE FIRM An organization is a bundle of financial, human, physical, and organizational resources. Resources that create value for customers but are difficult for competitors to imitate provide the basis for a sustainable competitive advantage. What are these resources?
  • 25. STAKEHOLDER ANALYSIS AND MANAGEMENT  STAKEHOLDER ANALYSIS –  Involves identifying and prioritizing key stakeholders, assessing their needs, collecting ideas from them, and integrating this knowledge into strategic management processes.  STAKEHOLDER MANAGEMENT –  Includes communicating, negotiating, contracting, and managing relationships with stakeholders and motivating them to behave in ways that are beneficial to the organization and its other stakeholders.
  • 27. Fig. 3-1: The External Environment Remote Environment (Global and Domestic) Industry Environment (Global and Domestic) Operating Environment (Global and Domestic) • Economic • Social • Political • Technological • Entry barriers • Supplier power • Buyer power • Substitute availability • Competitive rivalry • Competitors • Creditors • Customers • Labor • Suppliers THE FIRM
  • 28. The Broad Environment  Sociocultural forces  Global economic forces  Global political forces  Technological forces
  • 29. Socio-cultural Trends Analysis of societal trends is important from at least four perspectives: 1. The values and beliefs of key stakeholders are derived from broader societal influences, which can create opportunities and threats for the firm.
  • 30. Major Sociocultural Issues in the U.S.  Declining education  Role of government (health & child care)  Legality of abortion  Crime  Pollution  Increase in environmentalism  Drug addiction  Migration to the Sunbelt  Immigration  Aids and other health concerns  Graying of America  Levels of foreign investment  Role of the military  Social costs of restructuring In addition, company strategy must be adapted to each geographic region, not just by country!
  • 31. Socio-cultural Trends 2. Awareness of and compliance with the attitudes of society can help an organization avoid problems associated with being a “bad corporate citizen.” Reputation is important as it can’t be imitated! Therefore, corporate image can become a competitive advantage.
  • 32. Socio-cultural Trends 3. Correct assessment of social trends can help businesses avoid restrictive legislation.
  • 33. 4. Changes in society can create opportunities and threats to an organization’s revenue growth and profit prospects. These changes can often help to predict future demand. Socio-cultural Trends
  • 34. Global Economic Forces 1. Economic growth
  • 35. Global Economic Forces 2. Interest rates
  • 37. Global Economic Forces 4. Exchange rates
  • 38. Global Economic Forces 5. Trade deficits
  • 39. Technological Forces Technological change creates new products, processes, and services, and, in some cases, entire new industries. It can also change the way society behaves and what society expects.
  • 40. Technological Forces  Technology – refers to human knowledge about products and services and the way they are made and delivered.  Invention – a new idea or technology proven to work in the laboratory.  Innovation – An invention that can be replicated reliably on a meaningful scale.
  • 41. Technological Forces Basic Innovation – An invention that impacts more than one product category or industry. What would be some basic innovations?
  • 42. Technological Forces Radical innovations usually originate outside of the industry boundaries! What are the implications of this?
  • 43. Political/Legal Forces  According to some, political/legal forces are often the most significant determinants of organizational success. Do you agree? Why or why not?
  • 44. Political/Legal Forces  For example, did you know that lenders are held liable when their customers are guilty of polluting the environment?
  • 45. Political/Legal Forces Even in the U.S., which is considered a “free market” economy, no organization is allowed the privilege of total autonomy from government regulations.
  • 47. The Operating Environment Includes stakeholders such as:  Customers  Suppliers  Competitors  Government Agencies  Local Communities  Activist groups  Unions
  • 48. The Operating Environment Which of these stakeholders are primary forces that drive competition in an industry?
  • 49. Primary Stakeholders  Customers  Suppliers  Competitors
  • 50. Stakeholder Analysis Analysis of these stakeholders can result in the identification of opportunities and threats that can help managers establish, develop and implement organizational strategies.
  • 51. Are all stakeholders of equal value to the firm?
  • 52. No !!! One key factor in determining the priority of a particular stakeholder is the influence on the environmental uncertainty facing the firm.
  • 53. An Important Point Although environmental uncertainty often originates in the broad environment, firms feel most of its influence through external stakeholders in the operating environment.
  • 54. Environmental Uncertainty Although Political/Legal Influence contributes greatly to environmental uncertainty, Economic power is often the most important influence in understanding the nature and level of environmental uncertainty.
  • 55. Porter’s Five-Forces Model  Customers  Suppliers  Industry Competitors a) existing competitors b) potential competitors c) substitutes
  • 56. Fig. 3-4: Forces Driving Industry Competition Potential entrants Threat of new entrants Suppliers Bargaining power of suppliers Buyers Bargaining power of buyers Substitutes Threat of substitute products or services Industry competitors Rivalry Among Existing Firms
  • 57. Customers are a force when …  There are a small number of them  They make high volume purchases  The purchases they make represent a large percentage of their total costs  The sellers’ products are plentiful and/or undifferentiated  They earn low profits
  • 58. Customers are a force when …  They can easily integrate backward and become their own suppliers  Sellers’ products don’t have much influence on the quality of their customer’s products  Information on sellers’ costs and demand is readily available to buyers
  • 59. In combination, these forces determine the bargaining power of customers Obviously, the greater their power, the higher the priority customers should be given in the strategic management process.
  • 60. Suppliers are a force when …  There are only a few suppliers  There are few or no substitutes  Suppliers do not sell a large percentage of their products to the buying industry  The buying industry must have the product that suppliers provide in order to manufacture its own product
  • 61. Suppliers are a force when …  Suppliers have differentiated their products or made it costly to switch suppliers  Suppliers can easily integrate forward and compete directly with former buyers
  • 62. In combination, these forces determine the bargaining power of suppliers Obviously, the greater their power, the higher the priority suppliers should be given in the strategic management process.
  • 63. Competitors Rivalry among existing competitors WILL incite retaliation or counter moves. These moves typically include things like:  Advertising programs  Sales force and/or capacity expansions  New product introductions  Long-term contracts with customers
  • 64. Major Forces That Lead To High Levels Of Competition  Slow industry growth  High fixed costs  Lack of product differentiation  A large number of competitors  High exit barriers
  • 65. Hypercompetition … A condition of rapidly escalating competition. What would be an industry today that faces hypercompetition?
  • 66. Firms often keep track of the activities and capabilities of their competitors through … Competitive benchmarking – a tool in which management uses the best practices of competitors in setting objectives to encourage improvement in performance. What is the fallacy of benchmarking and how could it actually harm your strategy?
  • 67. Potential Competitors Entry barriers prevent firms from freely moving into an industry. They include:  Economies of scale  Capital requirements  Product differentiation  Switching costs  Access to distribution channels  Other cost advantages such as proprietary technology  Government policy
  • 68. Indirect Competitors If organizations provide goods that are readily substitutable for the goods provided by an industry, these organizations become indirect competitors. This leads to …  A ceiling on the price for the good  Can create new expectations
  • 69. What do we do with this model?  Use it to understand how the firm should position itself relative to these forces (reactive)  Use it to influence the forces by actions such as erecting high entry barriers through economies of scale or differentiation (proactive)  Use it to decide whether or not to enter or leave a particular industry
  • 70. Basic Postures Firms use two primary postures when dealing with external stakeholders:  Buffering – techniques designed to stabilize and predict environmental influences (PR, market research, lobbying, etc.)  Bridging (also referred to as boundary spanning) – techniques that build on interdependencies (joint ventures, strategic alliances, partnering, industry level lobbying, extranets, etc.)
  • 72. From a resource-based perspective - Strengths – are firm resources and capabilities that can lead to a competitive advantage. Weaknesses – are resources and capabilities that the firm does not possess but that are necessary, resulting in a competitive disadvantage.
  • 73. From a resource-based perspective - Opportunities – are conditions in the broad and operating environments that allow a firm to take advantage of organizational strengths, overcome organizational weaknesses, and/or neutralize environmental threats.
  • 74. From a resource-based perspective - Threats – are conditions in the broad and operating environments that may stand in the way of organizational competitiveness or the achievement of stakeholder satisfaction.
  • 75. Numerous environmental opportunities Major environmental threats Substantial internal strengths Critical internal weaknesses Cell 3: Supports a turnaround- oriented strategy Cell 1: Supports an aggressive strategy Cell 4: Supports a defensive strategy Cell 2: Supports a diversification strategy Fig. 6-6: SWOT Analysis Diagram
  • 76. Primary Activities Support Activities Research, technology, and systems development Human resource management General administration Procurement Inbound Logistics Operations Outbound logistics Marketing and sales Service Fig. 6-7: The Value Chain
  • 77. Value can be created -  In any primary or support activity  In the way they are combined  In the way internal activities are linked to the external environment
  • 78. Value Chain Analysis Value chain analysis may be combined with stakeholder analysis to identify strengths and weaknesses and to uncover opportunities for savings or ways to add value for customers.
  • 79. Plus … The combination of stakeholder analysis with value chain analysis holds great potential for developing strategies that are both efficient and effective.
  • 81. Where the heck are we going?
  • 82. To often the answer is this …
  • 83. Strategic Direction Strategic direction requires managers to provide long-term direction while balancing the competing interests of key stakeholders.
  • 84. Strategic Direction Strategic direction is established and communicated through tools such as visions, missions, business definitions, enterprise strategies, and long-term goals.
  • 85. Finally … This is where the rubber meets the road!
  • 86. Unless … Of course, you are Firestone. ;-)
  • 87. Structural Inertia … forces within the organization that work to maintain the status quo.
  • 88. Business Definition What is our business? … Should be addressed from four perspectives: 1. Who is being satisfied? 2. What is being satisfied? 3. How are customer needs satisfied? 4. What are our products and/or services? Plus …
  • 89. What do we stand for?
  • 90. Important point … This is the critical link between ethics and strategy and is referred to as enterprise strategy.
  • 91. Theoretical Models  Economic foundations  Legal foundations  Religious foundations  Utilitarian foundations
  • 92. An organization’s mission …  Reflects management’s vision of what the organization seeks to do and to become  Provides a clear view of what the organization is trying to accomplish  Indicates an intent to stake out a particular position
  • 93. Specific questions that help form strategic vision -  What business are we in now?  What business do we want to be in?  What will our customers want in the future?  What are the expectations of our stakeholders?
  • 94. Questions, con’t.  Who will be our future competitors? Suppliers? Partners?  What should our competitive scope be?  How will technology impact our industry?  What environmental scenarios are possible?
  • 95. Examples AVIS  Our business is renting cars. Our mission is total customer satisfaction. Eastman Kodak  To be the world’s best in chemicals and electronic imaging.
  • 96. Examples SATURN  To market vehicles developed and manufactured in the United States that are world leaders in quality, cost, and customer satisfaction through the integration of people, technology, and business systems and to transfer knowledge, technology, and experience throughout General Motors.
  • 97. Formula  Key Market: To offer the fast food customer  Contribution: food prepared in the same high-quality manner world-wide, tasty and reasonably priced,  Distinction: delivered in a consistent, low- key décor and friendly atmosphere.
  • 98. Goals in most companies …  Maximize long-term shareholder wealth  Optimize employee potential  Customer orientation  Build competencies  Global  Citizenship  Technology  Productivity
  • 100. Corporate-Level Strategy … Selection of business areas in which the organization will compete.  Concentration  Vertical Integration  Diversification
  • 101. Concentration – the organization produces a single or a small group of products or services.
  • 102. Concentration Positives  Allows the firm to master the business  Better positioned to develop sustainable competitive advantages  Places organizational resources under less strain  Clear strategic direction  Easier for external stakeholders to understand the firm’s mission
  • 103. Concentration Negatives  Is risky when environments are unstable  Makes the firm vulnerable to product obsolescence and industry maturity  Can lead to cash problems, both negative and positive  May not provide stimulation for management
  • 104. Vertical Integration The extent to which a firm is involved in several stages of the industry supply chain.
  • 105. Market Failure – occurs when transaction costs are high enough to encourage an organization to produce a good or service in-house instead of buying from the open market.
  • 106. Taper Integration - Occurs when an organization produces part of its requirements in-house and buys the rest of what it needs on the open market.
  • 107. Diversification  Related Diversification – firm’s involvement in other businesses related to its core business.  Unrelated Diversification – firm’s involvement in businesses not related to its core business.
  • 109. Generic Business Strategies 1. Cost Leadership 2. Differentiation 3. Best Cost 4. Cost Focus 5. Differentiation Focus
  • 110. Creating Low-Cost Positions  Capacity utilization  Economies of scale  Cost-saving technologies  Learning/experience curve effects
  • 111. Creating Low-Cost Positions *** A cost leader does not have to be a price leader !
  • 112. Differentiation Tactics Quality Innovation and research Speed and flexibility Organizational reputation and brand name
  • 113. Best Cost Strategy *** The essence of a best cost strategy is to find a level of differentiation that will bring a premium price while doing so at a reasonable cost.
  • 114. Focus Strategies *** The key to a focus strategy is catering to a particular segment in the market. Low-cost focus Differentiation focus
  • 115. The Issue of Tradeoffs A sustainable strategic position requires tradeoffs. If a company moves upscale, it repositions itself away from its current customer base.
  • 116. Tradeoffs arise for three reasons …  Inconsistency of image or reputation - a firm can’t go in different directions without confusing the customers.  Need for different types of resources - different positions require different equipment, employee behaviors, skills, product configurations, and management systems.  Overall costs - internal coordination and control can be very expensive.
  • 117. Five Fatal Strategy Flaws  Misreading Industry Attractiveness  Possessing No True Competitive Advantage  Pursuing A Competitive Advantage That Is Not Sustainable  Compromising A Strategy In Order To Grow Faster  Not Making Your Strategy Explicit And Not Communicating It To Your Employees
  • 118. Growth Strategies Internal  Market penetration  Market/applications development  Product/service development External  Mergers/integration  Joint ventures/strategic alliances
  • 119. Positioning Competitive Strategies in a Dynamic Environment
  • 122. Functional Strategies  Collective patterns of decisions made and actions taken by employees that implement the growth and competitive strategies of the organization.  Do you see any potential conflict in this statement?
  • 123. Marketing Strategy – a plan to promote, price, and distribute the products and services of an organization, as well as how to identify and service customer groups.
  • 124. Operations Strategy - a plan to design and manage the processes needed to create the products and services of the organization.
  • 125. Research and Development Strategy – a plan that guides basic research of the organization as well as its development of more effective and efficient applications, products, and processes.
  • 126. Information Systems Strategy – a plan to provide the organization with the information technology necessary for the operation, planning, and control of business activities.
  • 127. Human Resources Strategy – a plan that guides the recruiting, hiring, training, and compensating of employees as well as organizational change efforts.
  • 128. Financial Strategy – a plan to provide the organization with the capital structure and funds appropriate for implementing growth and competitive strategies.
  • 129. Functional Strategies MUST … be consistent in three important areas: 1. Within function 2. Between function 3. With the generic-level strategy
  • 130. Example MISSION/VISION  FCS will be the lender and employer of choice in our marketplace. GOAL  Optimizing employee potential
  • 131. Example, con’t. OBJECTIVE  Increase employee morale through continuous training and increased incentive opportunities. STRATEGIES  Implement a quarterly pay-for-performance plan for every position in the organization.  Implement training and educational development standards and opportunities for every position in the organization.
  • 132. Example, con’t. POLICIES/TACTICS  Finance – designate $3.8 million for employee training for year 2008.  Marketing – offer a quarterly rotation of effective sales training programs for all sales personnel.
  • 134. STRATEGIC CONTROL Strategic Control System – organizational system by which top management can evaluate the progress of the organization in accomplishing its goals, as well as point out areas in need of attention.
  • 135. STRATEGIC CONTROL These are often accounting-based measures. Why can accounting-based measures be problematic?
  • 136. STRATEGIC CONTROL Control systems should be comprehensive and designed to include input from internal and external stakeholders and from organizational processes.
  • 137. STRATEGIC CONTROL Financial  ROI  Cash flow  Stock price  Earnings stability
  • 138. STRATEGIC CONTROL Customer  Pricing  Innovation  Quality  Value  Customer service
  • 139. STRATEGIC CONTROL Internal Business  Cost controls  Skill levels  Product line breadth  Safety  On-time delivery  Quality
  • 140. STRATEGIC CONTROL Innovation and Learning  Workforce morale  Innovation  Investments in R & D  Continuous improvement
  • 141. CRITICAL RESULT AREAS Organizational areas that are key to ensuring that the organization accomplishes its goals and its vision. Examples:  Improvement in worker skill levels  Product redesign  Creation of new process controls
  • 142. Continued… Once identified, the critical result areas become the objectives and targets that pace strategy implementation.
  • 143. GOAL SETTING  Bottom-Up Approach – goal setting begins in functional areas, which translates into business-level goals of the various divisions that are combined to form the corporate-level goals.
  • 144. Continued…  Top-Down Approach – the corporate level essentially determines and then dictates what lower-level goals should be.
  • 145. FEEDBACK CONTROL SYSTEMS  Budgets – feedback controls that provide revenue and expense targets.  Financial Ratios – feedback controls used to control organizational processes and behavior (Current ratio, quick ratio, etc.).  Audits – a type of feedback control system used to provide information to support financial, customer, or internal perspectives. Firm conduct and outcomes are measured against established guidelines.
  • 146. FEEDBACK CONTROL SYSTEMS Customer Surveys – a type of feedback control system used to measure how well established standards for customer satisfaction are being met. See any problems with these?
  • 147. FEEDBACK CONTROL SYSTEMS  Concurrent Controls – very similar to feedback controls, except that the time horizon is shortened to “real time.”  Process Control – controls associated with production and service processes and with quality standards (i.e., making sure things meet specifications).
  • 148. ORGANIZATIONAL CRISES A better definition: When the feces hits the fast-moving, rotary bladed instrument. In other words, when the @$%&*# hits the fan!
  • 149. CRISIS-PRONE ORGANIZATIONS  If they prepare at all, they prepare for too few contingencies. Further, preparation is fragmented.  They focus on only one aspect of a crisis, and only after it has occurred.  They only consider technical factors in the cause or prevention of crises.  They don’t explicitly consider the ramifications to key stakeholders.