Overview of Strategy Lecture

8/9/2019 Overview of Strategy Lecture

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VISIONSTATEMENT ABOUT A COMPANYS

LONG-TERM DIRECTION


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Why is a Strategic VisionImportant?

A managerial imperative exists to look beyond today and thi nk s trat eg ica lly about

Impact of new technologies How customer needs and expectations are changing

What it will take to outrun competitors

Which promising market opportunities ought to be

aggressively pursued External and internal factors driving what a company

needs to do to prepare for the future


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MISSION

DEFINES COMPANYS BUSINESS

1. PRODUCT / MARKET

2. TERRITORY / GEOGRAPHY


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VISION vs. MISSIONVISION vs. MISSION

A strategic visionconcerns a firms futurebusiness path -- where

we are going Markets to be pursued

Future technology-product-customer focus

Kind of company thatmanagement istrying to create

A m ission statementfocuses on current business activities -- who

we are and what we do Current product andservice offerings

Customer needs beingserved

Technological and businesscapabilities


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"To enable peopleand businessesthroughout theworld to realize

their full potential"

MICROSOFTSVISION/MISSION


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GE is committed to achieving worldwideleadership in each of its businesses. To

achieve that leadership, GE's ongoingbusiness strategy centers on four keygrowth initiatives:

- Technology

- Services- Customer Centricity- Globalization

GESVISION/MISSION


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Example of Vision & Mission

Our vision : Getting to a billion connected computersworldwide, millions of servers, and trillions of dollars of e-commerce. Intels core m ission is being the building

block supplier to the Internet economy and spurringefforts to make the Internet more useful. Being

connected is now at the center of peoples computingexperience. We are helping to expand the capabilities

of the PC platform and the Internet.

Intel


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W it Capital (an Internet startup co m pany)

Our m ission is to be the premier Internetinvestment banking firm focused on the offering

and selling of securities to a community of onlineindividual investors.

We are in the picture business.

East m an Kodak

Simple Mission Statements


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More Mission Statements

O tis Elevator

Our m ission is to provide any customer a means of moving people and things up, down, and sideways

over short distances with higher reliability thanany similar enterprise in the world.

Our business is renting cars. Our m ission is totalcustomer satisfaction.

Avis Rent-a-Car


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Setting Goals & Objectives

Converts strategic visionand mission into specific

performance targetsCreates yardsticks to track

performance

Pushes firm to be inventiveand focused on results

Helps prevent complacencyand coasting

Second Task of Strategic Management


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GOALS BROAD TARGETS

OBJECTIVES

QUANTIFIED & TIME-BASED


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Financial Objectives

Grow earnings per share 15% annually

Boost annual return on investment (or EVA) from 15% to 20% within three years

Increase annual dividends per share

to stockholders by 5% each year


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Strategic GoalsIncrease firms market shareOvertake key rivals on quality or customer service or product performance

Attain lower overall costs than rivalsBoost firms reputation with customersAttain stronger foothold in internationalmarketsAchieve technological superiorityBecome leader in new product introductionsCapture attractive growth opportunities


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What is Strategy?A companys strategy consists of the set of competitive moves and business approaches thatmanagement is employing to run the company

Strategy is managements g am e pl an to

Attract and please customers

Stake out a market position

Conduct operations Compete successfully

Achieve organizational objectives


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Relationship Between Strategyand Business Model

S trat egy - Deals with acompanys competitive

initiatives and businessapproaches

Bus i ness Model -Concerns whether

revenues and costsflowing from thestrat egy demonstrate

the business can beamply profitable andviable


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CorporateStrategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level Managers

Division Managers

OperatingMgrs

Functional Mgrs

Levels of Strategy-Making ina Diversified Company


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Levels of Strategy-Making ina Single-Business Company

BusinessStrategy

Two-Way Influence

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level Managers

OperatingManagers

Functional Managers


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N etworking of Missions,Goals/Objectives, and Strategies

Level 1

Level 2Business-LevelManagers

Level 3FunctionalManagers

Level 4Plant Managers,Lower-LevelSupervisors

CorporateLevel

Goals/Objs

Corporate-wideStrategic

Vision

CorporateLevel

Strategy

Business

LevelGoals/Objs

Business

LevelMission

Business

LevelStrategies

FunctionalGoals/Objs

FunctionalMissions

FunctionalStrategies

OperatingGoals/Objs

OperatingMissions

OperatingStrategies

Two-Way Influence Two-Way Influence Two-Way Influence



Corporate-LevelManagers


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SWOT Analysis -What to Look For

Potential ResourceStrengths

Potential ResourceWeaknesses

Potential CompanyOpportunities

Potential ExternalThreats

Powerful strategy

Strong financialconditionStrong brand nameimage/reputationWidely recognizedmarket leader ProprietarytechnologyCost advantagesStrong advertisingProduct innovationskillsGood customer serviceBetter productqualityAlliances or JVs

No clear strategicdirectionObsolete facilitiesWeak balancesheet; excess debtHigher overallcosts than rivalsMissing some keyskills/ competenciesSubpar profitsInternal operatingproblems . . .

Falling behind inR&DToo narrowproduct lineWeak marketingskills

Serving additionalcustomer groupsExpanding to newgeographic areasExpanding productlineTransferring skillsto new productsVertical integrationTake market sharefrom rivals

Acquisition of

rivalsAlliances or JVs toexpand coverageOpenings to exploitnew technologiesOpenings to extendbrand name/image

Entry of potent newcompetitorsLoss of sales tosubstitutesSlowing marketgrowthAdverse shifts inexchange rates &trade policiesCostly newregulationsVulnerability tobusiness cycleGrowing leverageof customers or suppliersReduced buyer needs for productDemographicchanges


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The Three Stepsof SWOT Analysis


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Core Competencies -- A

Valuable Company ResourceA com pe t en ce becomes a cor e com pe t en ce whenthe well-performed activity is cen tra l to acompanys competitiveness and profitability

Often, a core competence results fromcoll abo rati on among different parts of a companyT ypica lly, cor e com pe t en ci es reside in a companys

people , not in assets on the balance sheetA cor e com pe t en ce gives a company a

potentially valuable com pe titiv e ca pabi l it yand represents a definite com pe titiv e asse t


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Examples: Core Competencies

Expertise in integrating multiple technologies tocreate families of new productsKnow-how in creating operating systems for costefficient supply chain managementSpeeding new/next-generation products to marketBetter after-sale service capabilitySkills in manufacturing a high quality productSystem to fill customer orders accurately andswiftly


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Distinctive Competence -- ACompetitively S upe ri or Resource

# 1

A d i sti nctive com pe t en ce is a competitively significantactivity that a company pe rf orm s be tt er tha n it scom pe tit or s

A distinctive competenceR epresents a co m petitively valuable capability rivals do not haveP resents attractive potential for being a cornerstone of strategy Can provide a co m petitive edge in themarketplacebecause it represents acompetitively superior resource strength


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Examples: Distinctive Competencies

Sharp Corporation Expertise in flat-panel display technologyToyota, Honda, Nissan Low-cost, high-quality manufacturing

capability and short design-to-market cyclesIntel Ability to design and manufacture

ever more powerful microprocessors for PCsStarbucks Store ambience and innovative coffee

drinks


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Determining the Competitive

Value of a Company ResourceTo qualify as the basis for sus tai n able com pe titiv ead van ta ge, a r esou rc e is measured by 4 tests

1. Is the resource h ard to copy ?2 . Does the resource have s taying power -- is it

durable ?

3 .Is the resource really competitively

superior ?

4 . Can the resource be trumped by the differentcapabilities of rivals ?


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Are the Companys

Prices and Costs Competitive?Assessing whether a firms costs arecompetitive with those of rivals is a crucial partof company analysis

Key analytical tools

Value chain analysis

Benchmarking


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The Concept of a

Company Value ChainA companys business consists of all activitiesundertaken in designing, producing, marketing,delivering, and supporting its product or service

A companys value chain consists of a linked set of value-creating activities performed internallyThe value chain contains two types of activities Primary activities -- where most of the value

for customers is created Support activities -- facilitate performance of the

primary activities


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Characteristics of

Value Chain AnalysisCombined costs of all activities in a companysvalue chain define the companys internal cost

structureCompares a firms costs activity

by activity against costs of key rivals From raw materials purchase to

Price paid by ultimate customer Pinpoints which internal activities are a source of cost advantage or disadvantage


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RepresentativeCompany Value Chain


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Representative Value Chain for anEntire Industry


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The Value Chain System

for an Entire IndustryAssessing a companys cos t com pe titiv enessinvolves comparing costs all along the industrysvalue chainS uppl i er s value chains are relevant because Costs, quality, and performance of inputs provided by

suppliers influence a firms own costs and product performance

F orwar d cha nnel a ll i es value chains are relevant because Forward channel allies costs and margins are part of

price paid by ultimate end-user Activities performed affect end-user satisfaction


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Example: Key Value Chain Activities

Timber farmingLogging

Pulp mills

Papermaking

Pulp & Paper Industry


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Parts and components manufacture

AssemblyWholesale distribution

Retail sales

Home Appliance Industry



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Processing of basic ingredients

Syrup manufactureBottling and can filling

Wholesale distribution

AdvertisingRetailing

Albertsons

Soft-Drink Industry



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Programming

Disk loading

Marketing

Distribution

Computer Software Industry



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Activity-Based Costing: A Key

Tool in Analyzing CostsDetermining whether a companys costs are inline with those of rivals requires

Measuring how a companys costs compare with thoseof rivals activity-by-activity

Requires having accounting data that measuresthe cost of each value chain activity

Activity-based accounting systems provide data for determining costsfor each relevant value chain activity


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Benchmarking Costs of

Key Value Chain ActivitiesFocuses on cr oss- com pany com pari sons of h owcertain activities are performed and the costsassociated with these activities

Purchase of materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of payrolls


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Objectives of BenchmarkingDetermine whether a company is performing particularvalue chain activities efficiently by studying practicesand procedures used by other companies

Understand the best practices in performingan activity -- learn what is the best wayto do a particular activity from thosedemonstrating they are best-in-world

Assess if companys costs in performing particularvalue chain activities are in line with competitors

Learn how other firms achieve lower costs

Take action to improve companys cost competitiveness


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I N DUSTRY

AN ALYS I S


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Environmental Components


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Industrys Dominant Economic Traits

Market size and growthratePosition in life cycle

N umber of rivalsBuyer needs andrequirementsProduction capacityPace of technological

changePrevalence of verticalintegration

Product innovation

Degree of productdifferentiation

Scope of competitiverivalry

Economies of scale

Experience and learning-curve effects

I ndustry profitability


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5 Forces Model of Competition


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Entry or exit of major firmsDiffusion of technical knowledge

Changes in cost and efficiencyMarket shift from standardized to differentiated products (or vice versa)Changes in degree of uncertainty and risk Regulatory policies / government legislationChanging societal concerns, attitudes, andlifestyles

Industry Driving ForcesIndustry Driving ForcesIndustry Driving ForcesIndustry Driving Forces


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What Are the Key Factors for

Competitive Success?Competitive factors most affecting ever yi ndus tr y member s ability to prosper Specific strategy elements Product attributes Resources Competencies Competitive capabilitiesKSF s spell the difference between Profit and loss Competitive success or failure


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Example: KSFs for Apparel

Manufacturing IndustryAppealing designs andcolor combinations -- to

create buyer appeal

Low-cost manufacturingefficiency -- to keep

selling pricescompetitive


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COMPET I TOR

AN ALYS I S


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What Are the Market Positions of

Industry Rivals?One technique for revealing the differentcompetitive positions of industry rivals isstrat eg ic g r oup ma pp i ng

A strat eg ic g r oupconsists of those

rivals with similar competitive approachesin an industry


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Strategic Group MappingFirms in sam e s trat eg ic g r oup have two or morecom pe titive charact eri stic s in common Have comparable product line breadth

Sell in same price/quality range Emphasize same distribution channels Use same product attributes to appeal to similar types

of buyers

Use identical technological approaches Offer buyers similar services Cover same geographic areas


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Example: Strategic Group Mapof Selected Retail Chains


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Assessing a Companys Competitive

Strength vs. Key Rivals1. List industry key success factors and other

relevant measures of competitive strength2 . Rate firm and key rivals on each factor using

rating scale of 1 to 10 (1 = very weak; 5 =average; 10 = very strong)

3 . Decide whether to use a weighted or unweightedrating system (a weighted system is usuallysuperior because the chosen strength measures

are unlikely to be equally important)4 . Sum individual ratings to get an overall measureof competitive strength for each rival

5. Based on the overall strength ratings, determineoverall competitive position of firm


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Strategy and Competitive AdvantageC om pe titive ad van ta ge exists when a firmsstrategy gives it an edge in Attracting customers and

Defending against competitive forces

Convince customers firms product / serviceoffers supe ri or va lue A good p r odu ct at a low pric e A supe ri or pr odu ct worth paying more for A bes t -va lue p r odu ct

K ey to Gaining a Competitive Advantage


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5 Generic Competitive Strategies


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Menu of Strategy Optionsfor Winning in the Marketplace

Documents

Overview of Strategy Lecture