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INTRODUCTION TO STRATEGIC MANAGEMENT & BUSINESS POLICY • • Strategic Management and Business Policy How Strategic Management Evolves – – – – • Financial planning Forecast-based planning Strategic Planning: Externally-oriented planning Strategic management: Seeks Competitive Advantage and Consider Implementation & Control) Benefits of Strategic Management – Long term orientation and fit between environment, strategy, structure and processes may lead to competitive advantage • Challenges: Globalization & E-Commerce Theories of Organization Adaptation – – – – Theory of Population Ecology Institutional theory Strategic Choice Perspective Organization Learning Theory • • Learning Organizations Strategic Flexibility Basic Model of Strategic Management. Basic Model of Strategic Management. Four Basic Elements 1. Environmental Scanning 2. Strategy Formulation • Mission Statement – – Setting Objectives & Goals A statement of purpose (strategic intent) committing the organization to ambitious overarching (stretch) objectives. • • Provides a sense of direction and purpose. Drives strategic decision making and resource allocations. • – – – Forces the seeking of significant performance improvements to attain objectives Customer Orientation and Business Definition Abell’s Framework for Defining the business Consumer-oriented versus Product-oriented business definition 2. Strategy Formulation • Selecting Strategy – – – • Corporate strategy (Stability, Growth, Retrenchment) Business strategy (Competitive, Cooperative) Functional strategy (Technological Leadership, Technological Followership) Defining Policies – Guidelines for decision making that links formulation to implementation 3. Strategy Implementation 4. Evaluation & Control - Continuous process Strategic Decision Making Model Strategic Decision Making Next ppt Focus: General Management of an organization An organization is “a system of consciously coordinated activities or forces of two or more persons Learning Outcomes • • • Knowledge of strategic management tools and concepts Diagnose strategic situations (as described in cases) using these tools and concepts Contribute to class and small group discussions of these tools, concepts, and the strategic situations To Measure Achievement of Learning Outcomes • Quizzes 40% of total grade – – • • Usually when chapters are assigned Total of 8: 2 required, 5 of other 6 counted Case reports (2) and case briefs (4) - 50% of total grade Participation in class discussions – 10% of total grade Requirements • • • Read Chapters and Cases (when no report is due) before coming to class Read assigned articles (will be posted in public folder) BECOME AN ACTIVE MEMBER OF THE CLASS The Strategic Management Process • • • • • Corporate mission and goal Analyze external environment - - identify opportunities and threats Analyze internal environment - - identify strengths and weaknesses Formulate strategy Implement strategy Why do some organizations succeed while others fail? • Depends of strategy or set of – • Actions managers take to achieve one or more of an organization’s goals Strategic management process – The process by which managers choose a set of strategies that will allow a company to achieve superior performance Superior Performance and Competitive Advantage • Profitability – A measure of a company’s return on its invested capital • Superior performance – One company’s profitability relative to that of other companies in the same or similar business or industry. Firm-Specific Performance and Profitability • Competitive advantage – • A firm’s profitability is greater than the average profitability for all firms in its industry Sustained competitive advantage – A firm maintains competitive advantage for a number of years • Business model – Management’s model of how strategy will allow the company to gain competitive advantage and achieve superior profitability Performance in Nonprofit Enterprises • Government agencies, universities, charities – – – – Are not in business “to make a profit” Should use their resources efficiently and effectively Set performance goals unique to the organization Set strategies to achieve goals and compete with other nonprofits for scarce resources Strategic Managers • General managers – • Responsible for overall company performance or divisional performance Functional managers – – Responsible for supervising a particular task or operation Example – head of accounting or marketing, chief financial officer, Levels of Strategic Management Key Question for Each Level • • • Corporate Strategy – what business(es) should the organization be in? Business Strategy – how should the organization compete? Functional Strategy – how should the organization’s resources be best employed to support business strategy? Next ppt TOWS MATRIX,GOALS & GENERIC STRATEGIES Why use TOWS analysis? . The TOWS technique objective analysis : – – – is easy to use combines quantitative and qualitative analysis encourages interdepartmental collaboration Utility inreases if we in clude these before and after steps in analysis process: -Set an objective for the analysis -Set aside adequate time for research and information-gathering -Evaluate the results of your analysis against your original objective This competitive analysis tool helps to set a strategic plan or present new ideas to your team. Examples of each strategy type Strength-Opportunity Strategies Expand globally Increase sales staff Strength-Threat Strategies Diversify Acquire competitor Increase advertising Develop new products Liquidate Expand locally Diversify Weakness-Opportunity Strategies Joint venture Acquire competitor Re-engineer Weakness-Threat Strategies Divest Increase promotion Retrench Restructure Downsize Expand nationally Backward integration Forward integration Who are my competitors?How do I analyze them? MODELS FOR ANALYSIS SWOT Porter’s Five Forces SWOT analysis A SWOT analysis helps you match your company’s resources and capabilities to threats and opportunities in the competitive environment. Competitive Analysis Strategic Group Maps PEST and SWOT matrix Strengths Weaknesses SWOT analysis can be very subjective, but adding weighting and criteria to each factor increases the validity of the analysis. Also completing the SWOT matrix can help you pick the best strategy to implement. Opportuni StrengthWeaknessties Opportunity Opportunity strategies strategies Threats StrengthThreat strategies WeaknessThreat strategies Integrating Shareholder Value and Organizational Activities Across Organizational Levels Order Size Customer Mix Sales/Account Customer Churn Rate Deficit Rates Cost Per Delivery Maintenance Cost New Product Dev. Time Indirect/Direct Labor Customer Complaints Downtime Accounts Payable Time Accounts Receivable Time Sales Targets Sales Margin COGS/ Sales Dev. Cost/ Sales ROCE Inv. Turnover Capital Turnover Cap. Utilization Cash Turnover Shareholder value creation Economic Profit CEO Corporate/Divisional Functional Depts. And Teams LINKING VALUE DRIVERS TO PERFORMANCE TARGETS PORTER’S GENERIC STRATEGIES Five Competitive Strategies • • • • Low-Cost Provider Strategies Differentiation Strategies-Broad & Focused Best-Cost Provider Strategies Focused (or Market Niche) Strategies The Five Generic Competitive Strategies Low-Cost Provider Strategies Keys to Success • Make achievement of meaningful lower costs than rivals the theme of firm’s strategy • Include features and services in product offering that buyers consider essential • Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match Low-cost leadership means low overall costs, not just low manufacturing or production costs! Approaches to Securing a Cost Advantage Approach 1 Do a better job than rivals of performing value chain activities efficiently and cost effectively Approach 2 Revamp value chain to bypass costproducing activities that add little value from the buyer’s perspective CAUTION Becoming too fixated on reducing costsand ignoring buyer interest in additional features,Declining buyer sensitivity to price,Changes in how the product is used Control costs! By-pass costs! Differentiation Strategies Objective • Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals Keys to Success • Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals • Not spending more to achieve differentiation than the price premium that can be charged Sustaining Differentiation: Keys to Competitive Advantage • Most appealing approaches to differentiation – – • Those hardest for rivals to match or imitate Those buyers will find most appealing Best choices to gain a longer-lasting, more profitable competitive edge – – – – – New product innovation Technical superiority Product quality and reliability Comprehensive customer service Unique competitive capabilities Where to Find Differentiation Opportunities in the Value Chain • Purchasing and procurement activities • Product R&D and product design activities • Production process / technology-related activities • Manufacturing / production activities • Distribution-related activities • Marketing, sales, and customer service activities Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners Activities, Costs, & Margins of Suppliers Internally Performed Activities, Costs, & Margins Buyer/User Value Chains Best-Cost Provider Strategies Best-Cost Provider Strategies How to Achieve a Differentiation-Based Advantage Approach 1 Incorporate product features/attributes that lower buyer’s overall costs of using product Approach 2 Incorporate features/attributes that raise the performance a buyer gets out of the product Approach 3 Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways Approach 4 Compete on the basis of superior capabilities Best-Cost Provider Strategies • Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation – – – • Make an upscale product at a lower cost Give customers more value for the money Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands Competitive Strength of a Best-Cost Provider Strategy • • • A best-cost provider’s competitive advantage comes from matching close rivals on key product attributes and beating them on price Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals A best-cost producer can often out-compete both a low-cost provider and a differentiator when – – Standardized features/attributes won’t meet diverse needs of buyers Many buyers are price and value sensitive Risk of a Best-Cost Provider Strategy • A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies – – Low-cost leaders may be able to siphon customers away with a lower price High-end differentiators may be able to steal customers away with better product attributes Focus / Niche Strategies • Involve concentrated attention on a narrow piece of the total market Objectives: Serve niche buyers better than rivals Keys to sucess • • Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment Approaches to Defining a Market Niche • • • Geographic uniqueness Specialized requirements in using product/service Special product attributes appealing only to niche buyers What Makes a Niche Attractive for Focusing? • • • • Big enough to be profitable and offers good growth potential Not crucial to success of industry leaders Costly or difficult for multi-segment competitors to meet specialized needs of niche members Focuser has resources and capabilities to effectively serve an attractive niche • • Few other rivals are specializing in same niche Focuser can defend against challengers via superior ability to serve niche members Risks of a Focus Strategy • • Competitors find effective ways to match a focuser’s capabilities in serving niche Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall market Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered • Deciding Which Generic Competitive Strategy to Use • • • • • Each positions a company differently in its market and competitive environment Each establishes a central theme for how a company will endeavor to outcompete rivals Each creates some boundaries for maneuvering as market circumstances unfold Each points to different ways of experimenting with the basics of the strategy Each entails differences in product line, production emphasis, marketing emphasis, and means to sustainthe strategy The big risk – Selecting a “stuck in the middle” strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position.