Strategic management Chap 001

7/29/2019 Strategic management Chap 001

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Chapter 1: Introduction to

Strategic management

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University



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Chapter Roadmap

What Do We Mean by ―Strategy?‖

Strategy and the Quest for Competitive Advantage

Identifying a Company’s Strategy Appreciate the importance of strategic

management as a process



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Thinking Strategically:The Three Big Strategic Questions

1. What’s the company’s present situation? 2. Where does the company need to go from

here?

Business(es) to be in and market positions tostake out

Buyer needs and groups to serve

Direction to head

3. How should it get there?

A company’s answer to “how

will we get there?” is its strategy



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What Do We Mean By ―Strategy?‖

Consists of compet it ive moves and bus iness app roaches used by managers to

run the company

Management’s “action plan” to

Grow the business

Attract and please customers

Compete successfully

Conduct operations

Achieve the targeted levels of

organizational performance



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The Hows That Define a Firm's Strategy

How to grow the business How to please customers

How to outcompete rivals

How to manage each functionalpiece of the business (R&D, production,

marketing, HR, finance, and so on)

How to respond to changing marketconditions

How to achieve targeted levels of

performance

Strategyis HOW to . . .



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Key Elements of a Successful Strategy

Developing a successful strategy hinges onmaking competi t ive moves aimed at

Appealing to buyers in ways to set the company

apart from rivals and

Carving out its own market position

Involves developing a distinctive “aha”

element to

Attract customers and

Produce a competitive edge

Copying com peti t ive moves of other

successfu l companies rarely wo rks!


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Strategy and the Quest for Competitive Advantage

The heart and soul of any strategy are actions acompany makes to

Improve its financial performance,

Strengthen its competitive position, and

Gain a competitive advantage over rivals

A creat ive, dis t inc t ive strategy that sets a

company apart from rivals and yields a competitive

advantage is a company’s most reliable ticket to

above average profitabilityOperating with a competitive advantage is more profitable

than operating without one

Operating with a competitive disadvantage nearly always

results in below-average profitability



A Powerful Strategy Leads toSustainable Competitive Advantage

A company achieves sustainable compet i t ive

advantage when An attractive number of buyers prefer its

products/services over those of rivals and

The basis for this preference is durable

Its nice when a strategy produces A temporary competitive edge but

A sustainable edge over rivals greatly enhances a

company’s prospects for above-average profitability

What separates a pow erfu l s trategy from an ordinarystrategy is management’s ability to forge a series of moves, both in the marketplace and internally, that

produces sus tainable compet i tive advantage!



Strategic Approaches to BuildingSustainable Competitive Advantage

Be the industry’s low-cost prov ider

Achieve a cost-based competitive advantage

Incorporate dif ferent iat ing features

Superior product/service keyed to higher quality,

better performance, wider selection, value-addedservices, or some other attribute

Focus on a narrow market n iche

Win a competitive edge by doing a

better job than rivals of serving theneeds and preferences of buyers in the niche

Develop expert ise and resource s treng ths

not easily imitated or matched by rivals

Achieve a capabilities-based competitive advantage



Figure 1.1: Identifying a Company’s Strategy

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Test Your Knowledge

A company’s strategy and its quest for competitiveadvantage are tightly related because

A. a company’s strategy determines whether it will havelower or higher costs than rivals and thus be at acompetitive advantage or disadvantage.

B. competitive advantage is essential to having aprofitable business model.

C. choosing a competitive advantage to pursue also helpsa company choose which business model is mostappropriate.

D. competitive advantage enables a company to achieveits strategic objectives.

E. a strategy that leads to sustainable competitiveadvantage is a company’s most reliable means of achieving above-average profitability and financialperformance.



For Discussion: Your Opinion

From your perspective as a consumer, doesStarbucks’ strategy (described in Illustration

Capsule 1.1) seem to be well-matched to industry

and competitive conditions?

1. Does the strategy seem to be keyed to a costadvantage, differentiating features, serving the

unique needs of a niche, or developing resource

strengths and competitive capabilities rivals can’t

imitate or trump (or a mixture of these)?2. What is there about Starbucks’ strategy

that can lead to sustainable competitive

advantage?



Test Your Knowledge



What Is a Business Model?

A business model addresses “How do wemake money in this business?”

Is the company’s strategy capable of delivering

good bottom-line results?

Do the revenue-cost-pro f i t econom ics of the strategy make good business sense?

Look at revenue streams the

strategy is expected to produce

Look at associated cost s t ruc ture and potential prof i t marg ins

Do resulting earnings streams and ROI indicate the

strategy has good potential to deliver acceptable

profitability?



Relationship BetweenStrategy and Business Model

Strategy . . . Deals with a company’s

competitive initiatives and

business approaches

Business Model . . . Concerns whether revenues

and costs flowing from the

strategy demonstrate a

business can be profitableand viable

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Microsoft’s Business Model

Employ a cadre of highly skilled programmers to develop proprietarycode; keep source code hidden from users

Sell resulting OS and software packages to PC makers and users atrelatively attractive prices to achieve a 90% or more market share

Most costs in developing software are fixed; variable costs are small;once break-even volume is reached, revenues from additional salesare almost pure profit

Provide modest level of technical support to users at no cost

Rejuvenate revenues by periodically introducing next-generationsoftware with features inducing PC users to upgrade their operating

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Red Hat’s Business Model

Rely on collaborative efforts of volunteer programmers to create thesoftware

Collect and test enhancements and new applications submitted byvolunteer programmers for evaluation and inclusion in new releases

of Linux

Market upgraded and tested family of Red Hat products to largecompanies, charging a subscription fee that includes 24/7 supportwithin 1 hour in 7 languages

Make source code open and available to all users

Capitalize on specialized expertise required to use Linux by providingfee-based training, consulting, software customization, and client-

directed engineering to Linux users1-17



For Discussion: Your Opinion

Who has the best business model –

Microsoft or Red Hat?



Test Your Knowledge

The nitty-gritty issue surrounding a company’s

business model is whether

A. the strategy is capable of producing sustainablecompetitive advantage.

B. it matches the company’s external and internalsituation.

C. the chosen strategy makes good business sensefrom a money-making perspective.

D. the company’s strategy and strategic moves aremostly proactive.

E. the company’s strategy stands a really good

chance of hitting a home-run in the marketplace.

The Nat re and Val e of Strategic



The Nature and Value of StrategicManagement

Strategic management:

The set of decisions and actions that

result in the formulation andimplementation of plans designed to

achieve a company’s objectives

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Critical Tasks of StrategicManagement --

1. Formulate the company’s mission and vision 2. Conduct an internal analysis

1. 3. Assess the external environment – competitive

and general contexts

2. 4. Implement the strategic choices

3. 5. Evaluate the success of the strategic process for

future decision making

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Developing a Strategic Vision

Involves thinking strategically about

Future direction of company

Changes in company’s

product/market/customer technology to improve

Current market position

Future prospects

Phase 1

A strategic vis ion describes the route a companyintends to take in developing and strengtheningits business. It lays out the company’s strategic

course in preparing for the future.



Example of Strategic Vision

Red Hat

To extend our position as the most trusted

Linux and open source provider to theenterprise. We intend to grow the market

for Linux through a complete range of

enterprise Red Hat Linux software, a

powerful Internet management platform,

and associated support and services.

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Characteristics of a Mission Statement

Identifies boundar ies of a company’s current

business and says something about

Present products and services

Types of customers served

Geographic coverage

Conveys

Who we are,

What we do, and

Why we are here

A good mission statement describes a company’s business

makeup and purpose in language speci f ic enoug h to give

the company i ts own ident i ty and dis t inguish i t f rom

other enterpr ises in the same or other industries!



Mission Statement: Trader Joe’s

To give our customers the best food and beveragevalues that they can find anywhere and to provide

them with the information required for informed

buying decisions. We provide these with a dedication

to the highest quality of customer satisfaction

delivered with a sense of warmth, friendliness, fun,

individual pride, and company spirit.

(a unique grocery store chain)

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Strategic Vision vs. Mission

A strategic vis ion concerns a firm’s fu ture

business path - “where

we are going”

Markets to be pursued Future product/market/

customer/technology focus

Kind of company

management is

trying to create

A company’s miss ion statement typically

focuses on its present

business purpose - “who

we are and what we do”

Current product and

service offerings

Customer needs and

customer groups being

served

Geographic

coverage

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Test Your Knowledge

The difference between a company's mission statement and

the concept of a strategic vision is thatA. the mission statement lays out the desire to make a profit,

whereas the strategic vision addresses what strategy thecompany will employ in trying to make a profit.

B. a mission statement deals with ―where we are headed ‖

whereas a strategic vision provides the critical answer to―how will we get there?‖

C. a mission deals with what a company is trying to do and avision concerns what a company ought to do.

D. a mission statement typically concerns an enterprise’s

present business scope and purpose—―who we are, what we

do, and why we are here‖—whereas the focus of a strategicvision is on the direction the company is headed and whatits future product-customer-market-technology focus will be.

E. a mission is about what to accomplish for shareholderswhereas a strategic vision concerns what to accomplish for

customers.

S tti Obj ti



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Setting Objectives

Purpose of sett ing ob ject ives

Converts vision into specific performance targets

Creates yardsticks to track performance

Well-stated ob ject ives are

Quanti f iable

Measurable

Contain a deadl ine for achievement

Spell-out how much of what k ind

of performance by when

Phase 2



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Types of Objectives Required

Financial Objectives Strategic Objectives

Outcomes focused

on improving f inancial

per formance

Outcomes focused on

improving compet i t ive

strength and market standing

$

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Both Short Term and Long Term



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Both Short-Term and Long-TermObjectives Are Needed

Short-term ob ject ives Targets to be achieved soon

Milestones or stair steps for reaching long-range

performance targets

Long -term object ives

Targets to be achieved within

3 to 5 years

Calls for actions now that will

permit reaching targeted

long-range performance later



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Test Your Knowledge

Which of the following represents the bestexample of a well-stated strategic objective (asopposed to a well-stated financial objective)?

A. Achieve revenue growth of 150% annually

B. Achieve a AA bond rating within 3 years and anannual cash flow of $750 million

C. Invest more money in R&D to enable the company tooffer customers the widest selection of products inthe industry

D. Increase market share from 15% to 20% and achievethe lowest overall costs of any producer in theindustry, both within three years

E. Pay more attention to reducing costs over the nexttwo years



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Three Levels of Strategy

1. Corporate level

2. Business level 3. Funct ional level

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Alternative Strategic Management



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Alternative Strategic ManagementStructures

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Corporate Strategy

Moves to divers i fy into di f ferent indus tr ies

Actions to boos t the combined performance of the company’s different businesses

Actions to capture cross -bus iness s ynerg ies

Establishing investment prior i t ies and steering

co rpo rate resources into the

most attractive businesses

Orchestrated by headquarters executivesand involves



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Crafting competitive moves to bui ld

susta inable com pet i tive advantage

Seeing that lower-level strategies within

the business are well-matched to theoverall business strategy

Gaining appro val of bus iness- level strategic

moves by corporate-level officers and directors

Business Strategy

Concerns the act ions and app roaches craf ted

to produce successfu l performance in one

speci f ic l ine of business. Is usually the

responsibility of the manager in charge of the

business and involves



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Crafting functional strategic initiativesthat will support the overall

business strategy

Adding function-relatedstrategic details to the

overall business strategy

Functional Strategies

Concerns the game plan for a func t ion,act iv i ty , or p rocess w ithin a business ; is

usually orchestrated by the functional head

and involves

Implementing and Executing Strategy



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Implementing and Executing Strategy

Operations-oriented activity aimed atperforming core business activities in a

strategy-supportive manner

Tougher and more t ime-consum ing than craf t ing strategy

Key tasks include

Improving the efficiency with whichthe strategy is being executed

Showing measurable progress in achieving

both operating excellence and targeted results

Phase 4

Evaluating Performance and



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Crafting and implementing a strategy is no t aone-t ime exercise

Customer needs and competitive conditions change

New opportunities appear; technology

advances; any number of other outside developments occur

One or more aspects of executing the

strategy may not be going well

New managers with different ideas take over

Organizational learning occurs

All these trigger a need for co rrect ive act ion s

and adjustments on an as-needed basis

Evaluating Performance andMaking Corrective Adjustments

Phase 5

B fi f S i M



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Benefits of Strategic Management

Managers at all levels interact in planningand implementing strategy

Similar to participative decision making

Assessing strategy formulation requires

looking at nonfinancial evaluations as wellas financial ones

Promoting positive behavioral

consequences enables achievement of financial goals

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Ri k f St t i M t



Risks of Strategic Management

- Managers’ time away from other responsibilities

- Unrealistic expectations promised bystrategy formulators

- Possible disappointment of participatingsubordinates if goal is not reached

Documents

Strategic management Chap 001