Understanding Strategic Management

STRATEGIC MANAGEMENT

Understanding Strategic Management

Yale Consultancy Sdn Bhd [email protected]+60 3 2021 0577www.yaleconsultant.com 1Yale Consultancy Sdn Bhd

What is Strategic ManagementStrategic Management entails three ongoing processes:Analysis: - Analysis of strategic goals and the external and internal environmentsDecisions: - What industries to compete? - How should we compete?Actions:- Actions to implement decisions2Yale Consultancy Sdn Bhd

Strategic ManagementStrategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.3Yale Consultancy Sdn Bhd

Four Key Attributes of Strategic Management Directs the organization toward overall goals and objectives Includes multiple stakeholders in decision makingNeeds to incorporate short-term and long-term perspectivesRecognize trade-offs between efficiency and effectiveness4Yale Consultancy Sdn Bhd

Explaining the 4 Attributes Organizations must consider overall organizational perspective rather than a functional one Organizations must satisfy multiple stakeholders Managers must maintain both a vision for the future as well as a focus on its present operating needs Doing the right thing versus doing things right The need for ambidextrous behaviors, i.e. balancing between aligning resources to take advantage of existing product markets and proactively exploring new opportunities5Yale Consultancy Sdn Bhd

Strategic Management Process Intended versus Realized Strategies Intended strategy refers to strategy in which organizational decisions are determined only by analysis Realized strategy refers to strategy in which organizational decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences. Realized strategy is a combination of deliberate and emergent strategies.6Yale Consultancy Sdn Bhd

Thinking Strategically:Three Big Central QuestionsWhats the companys present situation?- industry conditions and competitive pressure- current performance and market standing- resource strength and capabilities and competitive weaknesses2. Where does the company need to go from here?Business(es) to be in and market positions to stake outBuyer needs and groups to serveDirection to head3. How should it get there?A companys answer to how will we get there? is its strategy

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StrategyStrategy consists of competitive moves and business approaches used by managers to run the companyStrategy involves making analysis and choicesThe hows that define a firm's strategyHow to grow the businessHow to please customersHow to outcompete rivalsHow to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on)How to respond to changing market conditionsHow to achieve targeted levels of performance


Choosing a StrategyStrategic choices about how are based on Trial-and-error organizational learning about what has worked and what has not workedManagements appetite for taking risksManagerial analysis and strategic thinking about how best to proceed, given market conditions and the companys circumstancesIn choosing a strategy, management is in effect saying,Among all the many different business approaches and ways of competing we could have chosen, we have decided to employ this particular combination of competitive and operating approaches in moving the company in the intended direction, strengthening its market position, and competitiveness, and boosting performance.


Key Elements of a Successful StrategyDeveloping a successful strategy hinges on making competitive moves aimed atAppealing to buyers in ways to set the enterprise apart from rivals andCarving out its own market positionInvolves developing a distinctive ahaelement to Attract customers and Produce a competitive edgeCopying competitive moves of other successful companies rarely works10Yale Consultancy Sdn Bhd

Sustainable Competitive AdvantageA company has a competitive advantage when sizeable number of buyers prefer its products or services over the offerings of competitors The company achieves sustainable competitive advantage when the basis for this preference is durableWhat separates a powerful strategy from an ordinary strategy is managements ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage!


Four possible strategic approaches to achieve sustainable competitive advantageBeing the industrys low-cost provider (a cost-based competitive advantage)Incorporate differentiating features (a superior product type of competitive advantage keyed to higher quality, better performance, wider selection, value-added services, or some other attribute)Focusing on a narrow market niche (winning a competitive edge by doing a better job than rivals of serving the needs and preferences of buyers comprising the niche)Developing expertise and resource strengths not easily imitated or matched by rivals (a capabilities-based competitive advantage)


Examples of Competitive AdvantageStrive to be the industrys low-cost providerWal-MartSouthwest AirlinesOutcompete rivals on a key differentiating featureJohnson & Johnson Reliability in baby productsHarley-Davidson King-of-the-road stylingRolex Top-of-the-line prestigeMercedes-Benz Engineering design and performanceL.L. Bean Good valueAmazon.com Wide selection and convenience


Examples of Competitive Advantage (contd)Focus on a narrow market nicheeBay Online auctionsJiffy Lube International Quick oil changesMcAfee Virus protection auctionsStarbucks Premium coffees and coffee drinksThe Weather Channel Cable TVDevelop expertise, resource strengths, andcapabilities not easily imitated by rivalsFedEx Next-day delivery of small packagesWalt Disney Theme park management and family entertainmentToyota Sophisticated production systemRitz-Carlton Personalized customer service


STRATEGY EXAMPLE: McDONALDS

Strategic & financial objectivesContinued growthProviding exceptional customer careRemaining an efficient & quality producerOffering high valueEffectively marketing McDonalds brand on a global scale


KEY ELEMENTS OFMcDONALDS STRATEGY

Adding 700-900 restaurants annuallyUsing new menu items, low price specials, Extra Value Meals to promote frequent customer visitsBeing highly selective in granting franchisesChoosing sites convenient to customersFocusing on limited product line & consistent qualityCareful attention to store efficiencyExtensive advertising & use of Mc prefixHiring courteous personnel; paying an equitable wage; & providing good training


Why Do Strategies Evolve?A companys strategy is a work in progressChanges may be necessary to react toShifting market conditionsTechnological breakthroughsFresh moves of competitorsEvolving customer preferencesEmerging market opportunitiesNew ideas to improve strategyCrisis situations


Crafting Strategy Is anExercise in EntrepreneurshipStrategy-making is a market-driven activity involvingStudying market trends and competitors actionsKeen observation of customer needsScrutinizing business possibilities based on new technologiesBuilding firms market position via acquisitions or new product introductionsPursuing ways to strengthen firms competitive capabilitiesProactively searching out opportunities toDo new things orDo existing things in new or better ways


Linking Strategy With EthicsEthical and moral standards go beyondProhibitions of law and the language of thou shalt not to issues ofDuty and right vs. wrongEthical and moral standards addressWhat is the right thing to do?Two criteria of an ethical strategy:Does not entail actions and behaviors that cross the line from should do to should not do and unsavory or shady andAllows management to fulfill its ethical duties to all stakeholders


A Firms EthicalResponsibilities to Its StakeholdersCustomers - Rightfully expect a seller to provide them with a reliable, safe product or serviceEmployees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterpriseOwners/shareholders Rightfully expect some form of return on their investmentSuppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairlyCommunity - Rightfully expect businesses to be good citizens in their community20Yale Consultancy Sdn Bhd

Role of Senior Executives:Linking Strategy with EthicsForbid pursuit of ethically questionable business opportunitiesInsist all aspects of company strategyreflect high ethical standardsMake it clear all employees areexpected to act with integrityInstall organizational checks and balances toMonitor behaviorEnforce ethical codes of conductProvide guidance to employees in gray areasDisplay genuine commitment to conduct business activities ethically21Yale Consultancy Sdn Bhd

Business ModelA companys business model describes the economic logic of how its strategy can deliver value to customers at a price and cost that yields acceptable profitability

Business model deals with whether the revenues and costs flowing from the strategy show business viability

It is about the bottom line

A company should have a business model that promises acceptable profit, regardless of whether there are competitors or not.22Yale Consultancy Sdn Bhd

Relationship Between Strategy and Business ModelStrategy . . . Deals with a companys competitive initiatives and business approaches

Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a business can be amply profitable and viable23Yale Consultancy Sdn Bhd

Strategic Management ProcessThe steps by which management converts a firms vision, mission, and goals/objectives into a workable strategy

Consists of four stages:Formulation of Mission and PoliciesExternal and Internal Analysis (SWOT analysis)Development of strategiesImplementation of strategiesEvaluation/adjustment24Yale Consultancy Sdn Bhd

Strategy-Making HierarchyA companys overall strategy is a collection of strategic initiatives and actions devised by managers and key employees up and down the whole organizational hierarchy

It comprises four distinct levels of strategyCorporate strategyBusiness/competitive strategyFunctional strategyOperating strategy25Yale Consultancy Sdn Bhd

Types of Business-Level StrategiesCostUniquenessDifferentiationCost LeadershipFocused DifferentiationFocused Cost LeadershipIntegrated Cost Leadership/ DifferentiationBroadTargetNarrowTargetCompetitive AdvantageCompetitiveScope26Yale Consultancy Sdn Bhd

26Cost Leadership Strategy: CompetitorsDue to cost leaders advantageous position:Rivals hesitate to compete on basis of price.Lack of price competition leads to greater profits.Threat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute productsRivalry with Existing Competitors27Yale Consultancy Sdn Bhd

27Cost Leadership Strategy: SubstitutesCost leader is well positioned to:Make investments to be first to create substitutes.Buy patents developed by potential substitutes.Lower prices in order to maintain value position.ProductSubstitutesThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products28Yale Consultancy Sdn Bhd

28Cost Leadership Strategy: BuyersCan mitigate buyers power by:Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm.Bargaining Powerof BuyersThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products29Yale Consultancy Sdn Bhd

29Cost Leadership Strategy: SuppliersCan mitigate suppliers power by:Being able to absorb cost increases due to low cost position.Being able to make very large purchases, reducing chance of supplier using power.Bargaining Power of SuppliersThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products30Yale Consultancy Sdn Bhd

30Cost Leadership Strategy: New EntrantsCan frighten off new entrants due to:Their need to enter on a large scale in order to be cost competitive.The time it takes to move down the learning curve.The Threat of Potential EntrantsThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products31Yale Consultancy Sdn Bhd

31Differentiation StrategyAn integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them.Focus is on non-standardized productsAppropriate when customers value differentiated features more than they value low cost.32Yale Consultancy Sdn Bhd

32Differentiation Strategy: CompetitorsDefends against competitors because brand loyalty to differentiated product offsets price competition.Rivalry with CompetitorsThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products33Yale Consultancy Sdn Bhd

33Differentiation Strategy: SubstitutesWell positioned relative to substitutes because:Brand loyalty to a differentiated product tends to reduce customers testing of new products or switching brands.Product SubstitutesThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products34Yale Consultancy Sdn Bhd

34Differentiation Strategy: BuyersCan mitigate buyers power because well differentiated products reduce customer sensitivity to price increases.Bargaining Powerof BuyersThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products35Yale Consultancy Sdn Bhd

35Differentiation Strategy: SuppliersCan mitigate suppliers power by:Absorbing price increases due to higher margins.Passing along higher supplier prices because buyers are loyal to differentiated brand.Bargaining Power of SuppliersThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products36Yale Consultancy Sdn Bhd

36Differentiation Strategy: New EntrantsCan defend against new entrants because:New products must surpass proven products.New products must be at least equal to performance of proven products, but offered at lower prices.The Threat of Potential EntrantsThreat of new entrantsBargaining power of suppliersRivalry among competing firmsBargaining power of buyersThreat of substitute products37Yale Consultancy Sdn Bhd

37Types of Potential Competitive AdvantageAchieving lower overall costs than rivalsPerforming activities differently (reducing process costs)Possessing the capability to differentiate the firms product or service and command a premium pricePerforming different (more highly valued) activities.38Yale Consultancy Sdn Bhd

38Focus StrategiesAn integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment.Particular buyer groupyouths or senior citizensDifferent segment of a product lineprofessional craftsmen versus do-it-yourselfersDifferent geographic marketsEast coast versus West coast39Yale Consultancy Sdn Bhd

39Focus Strategies (contd)Types of focused strategiesFocused cost leadership strategyFocused differentiation strategyTo implement a focus strategy, firms must be able to:Complete various primary and support activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns.40Yale Consultancy Sdn Bhd

40Integrated Cost Leadership/ Differentiation StrategyA firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to:Adapt quickly to environmental changes.Learn new skills and technologies more quickly.Effectively leverage its core competencies while competing against its rivals.41Yale Consultancy Sdn Bhd

41References Ungson G. R. & Wong, Y-Y (2008) Global Strategic Management. M. E. Sharpe, New Yor., 579 p.Meredith R. (2007) The Elephant and The Dragon Rice of India and China and What it Means for All of Us. WW Norton Comp., New Yor., 252 pAngtmael, van A. (2007) The Emerging Markets Century - How a New Breed of World-Class Companies Is Overtaking the World. Free Press, New York. 358 p.Friedman, T. L. (2007) The World Is Flat 3.0 - A Brief History of the Twenty-first Century Picador, 672 p.Hamel, G. (2000) Leading the Revolution. 333 p.DAveni, R. A. (1995) Hypercompetitive Rivalries Competing in Highly Dynamic Environments. The Free Press. 288 p.Ohmae, K. (1991) The Mind of the Strategist. McGraw-Hill, Inc. 304 p.Pitts, R. & Lei, D. (2006) Strategic Management Building and Sustaining Competitive Advantage. South-Western Educational Publishing; 2nd edition 512 p.Tichy N. M (1983) Managing Strategic Change Technical, Political and Cultural Dynamics. John Wiley & Sons, 464 p.Kaplan R.S: & Norton D. P. (2004) Strategy Maps Converting Intangible Assets into Tangible Outcomes. HBS Press. 480 p.42Yale Consultancy Sdn Bhd

42References Simons, R. (2000) Performance Measurement & Control Systems for Implementing Strategy. Pearson Education, New yearsey. 792 p.Images of Strategy (2003) Edited by Cumming S. & Wilson, D. Blackwell Publ. Ltd. 450 p.Collins, J. (2004) Hyvst paras. Gummerus Oy, Jyvskyl. 363 s.Kim W. C. & Mauborgne, R. (2005) Blue Ocean Strategy. HBS Publishing. 240 p. Writing an Effective Business Plan. 4th edition. 2003 Deloitte & Touche LLP, 52 p. 43Yale Consultancy Sdn Bhd

43Thank You

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Understanding Strategic Management