1. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 1 Strategic Management and the Entrepreneur

2. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 2 A Major Shift...... From financial capital to intellectual capital.  Human  Structural  Customer

3. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 3 Strategic Management Is crucial to building a successful business. Is crucial to building a successful business. Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course. Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course.

4. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 4 Is Strategic Planning Really That Important? Study of 500 small companies: Study of 500 small companies:  One of the most significant factors in distinguishing growing companies from those in decline: use of a written business plan. Another study: Another study:  Only 12% of small companies had a long- range plan in writing.

5. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 5 Strategic Management and Competitive Edge Developing a strategic plan is crucial to creating a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market. Developing a strategic plan is crucial to creating a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market. Example: In-N-Out Burger Example: In-N-Out Burger

6. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 6 Key: Core Competencies Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team- building, flexibility, responsiveness, and others that allow it to vault past competitors. Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team- building, flexibility, responsiveness, and others that allow it to vault past competitors.  They are what a company does best.  Best to rely on a natural advantage

7. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 7 Strategic Management Process Step 1: Develop a vision and translate it into a mission statement. Step 2: Assess strengths and weaknesses. Step 3: Scan environment for opportunities and threats. Step 4: Identify key success factors.

8. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 8 Strategic Management Process... Step 5: Analyze competition. Step 5: Analyze competition. Step 6: Create goals & objectives. Step 6: Create goals & objectives. Step 7: Formulate strategies. Step 7: Formulate strategies. Step 8: Translate plans into actions. Step 8: Translate plans into actions. Step 9: Establish accurate controls. Step 9: Establish accurate controls. (continued)

9. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 9 Sun Tzu and the Art of Business Principle 1. Capture your market without destroying it. Principle 1. Capture your market without destroying it. Principle 2. Avoid your competitors’ strengths and attack their weaknesses. Principle 2. Avoid your competitors’ strengths and attack their weaknesses. Principle 3. Use foreknowledge and deception to maximize the power of business intelligence. Principle 3. Use foreknowledge and deception to maximize the power of business intelligence.

10. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 10 Sun Tzu and the Art of Business Principle 4. Use speed and preparation to swiftly overcome the competition. Principle 4. Use speed and preparation to swiftly overcome the competition. Principle 5. Use alliances and strategic control points in the industry to “shape” your opponents and make them conform to your will. Principle 5. Use alliances and strategic control points in the industry to “shape” your opponents and make them conform to your will. Principle 6. Develop your character as a leader to maximize the potential of your employees. Principle 6. Develop your character as a leader to maximize the potential of your employees.

11. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 11 Step 1: Develop a Vision and Create a Mission Statement Vision – an expression of what an entrepreneur stands for and believes in. Vision – an expression of what an entrepreneur stands for and believes in. Vision is based on an entrepreneur’s values. Vision is based on an entrepreneur’s values. A clearly defined vision: A clearly defined vision:  Provides direction  Determines decisions  Motivates people

12. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 12 Step 1: Develop a Vision and Create a Mission Statement Mission - addresses question:"What business are we in?” Mission - addresses question:"What business are we in?” A written expression of how the company will reflect the owner’s values, beliefs, and vision. A written expression of how the company will reflect the owner’s values, beliefs, and vision. Sets the tone for the entire company and guides the decisions people make. Sets the tone for the entire company and guides the decisions people make. Example: Fetzer Vineyards http://www.fetzer.com/fetzer/wineries/phil osophy.aspx Example: Fetzer Vineyards http://www.fetzer.com/fetzer/wineries/phil osophy.aspx http://www.fetzer.com/fetzer/wineries/phil osophy.aspx http://www.fetzer.com/fetzer/wineries/phil osophy.aspx

13. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 13 Step 2: Assess Company Strengths and Weaknesses Strengths Strengths  Positive internal factors that contribute to accomplishing the mission, goals, and objectives. Weaknesses Weaknesses  Negative internal factors that inhibit the accomplishment of the mission, goals, and objectives.

14. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 14 Step 3: Scan for Opportunities and Threats Opportunities Opportunities  Positive external options the company can employ to accomplish its mission, goals, and objectives. Threats Threats  Negative external forces that inhibit the firm's ability to accomplish its mission, goals, and objectives.

15. External Market Forces Competitive Economic Political and Regulatory Technological Social and Demographic

16. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 16 Step 4: Identify Key Success Factors Key success factors: relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market. Key success factors: relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market. The keys to unlocking the secrets of competing successfully in a particular market segment. The keys to unlocking the secrets of competing successfully in a particular market segment.

17. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 17 Step 5: Analyze Competitors Analyzing key competitors allows an entrepreneur to:  Avoid surprises from existing competitors’ new strategies and tactics.  Identify potential new competitors and the threats they pose.  Improve reaction time to competitors’ actions.  Anticipate rivals’ next strategic moves.

18. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 18 Step 5: Analyze Competitors Techniques do not require unethical behavior:  Monitor industry and trade publications.  Talk to customers and suppliers.  Listen to employees, especially sales representatives and purchasing agents.  Attend trade shows and conferences

19. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 19 Step 5: Analyze Competitors Techniques do not require unethical behavior:  Monitor competitors’ employment ads.  Conduct searches for patents filed by competitors.  Check EPA reports about manufacturing.  Search databases for types of materials and equipment competitors are importing.

20. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 20 Step 5: Analyze Competitors Techniques do not require unethical behavior:  Study competitors' literature and "benchmark" their products and services.  Get competitors' credit reports and SEC filings.  Check out the local library.  Use the World Wide Web to learn more about competitors.  Visit competing businesses to observe their operations.

22. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 22 Knowledge Management The practice of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position. The practice of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position. Knowledge management involves: Knowledge management involves:  Taking inventory of the special knowledge the people in the company possess.  Organizing that knowledge and disseminating it to those who need it.

23. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 23 Step 6: Create Company Goals and Objectives Goals - broad, long-range attributes to be accomplished. Goals - broad, long-range attributes to be accomplished.  “BHAGS” – one factor that sets apart successful companies from unsuccessful ones. Objectives - more detailed, specific targets of performance that are S.M.A.R.T. Objectives - more detailed, specific targets of performance that are S.M.A.R.T.  Specific  Measurable  Assignable  Realistic (yet challenging)  Timely

24. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 24 Step 7: Formulate Strategies Strategy Strategy  A “road map” that guides a company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives.  Focused on the key success factors identified in Step 4. Mission, goals, and objectives = Ends Mission, goals, and objectives = Ends Strategy = Means Strategy = Means

25. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 25 Step 7: Formulate Strategies Three basic strategies: Strategy? Cost leadership Differentiation Focus

26. Three Strategic Options Source of Competitive Advantage TargetMarket Industry Niche Uniqueness Perceived by the Customer by the Customer Low Cost Position Differentiation Low Cost Differentiation Focus Differentiation Focus Cost Focus Cost Focus

27. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 27 Cost Leadership Goal: to be the low-cost producer in the industry or market segment. Goal: to be the low-cost producer in the industry or market segment. Advantages: Advantages:  Reaching buyers who buy on the basis of price.  Power to set the industry’s price floor. Works well when: Works well when:  Buyers are sensitive to price changes.  Competing firms sell the same commodity products.

28. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 28 Differentiation Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. Idea is to be unique at something customers value. Idea is to be unique at something customers value. Key: Build basis for differentiation on a core competencies, those things that the small company is uniquely good at doing in comparison to its competitors. Key: Build basis for differentiation on a core competencies, those things that the small company is uniquely good at doing in comparison to its competitors.

29. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 29 Focus Company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them. Company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them. Strategy builds on differences among market segments. Strategy builds on differences among market segments.

30. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 30 Step 8: Strategies into Action Plans Create projects by defining: Create projects by defining:  Purpose (what to accomplish)  Scope (what areas in company involved)  Contribution (relation to other projects)  Resource requirements (human & financial)  Timing

31. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 31 Step 9: Establish Accurate Controls The plan establishes the standards against which actual performance is measured. The plan establishes the standards against which actual performance is measured. Entrepreneur must: Entrepreneur must:  identify and track key performance indicators.  Take corrective action.

32. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 32 Balanced Scorecard A set of measurements unique to a company that includes both financial and operational measures A set of measurements unique to a company that includes both financial and operational measures Gives managers a quick, yet comprehensive, picture of a company’s overall performance. Gives managers a quick, yet comprehensive, picture of a company’s overall performance.

33. Chapter 2 Strategic Mgt Copyright 2006 Prentice Hall Publishing Company 33 Balanced Scorecards Four Perspectives: Four Perspectives:  Customer: How do customers see us?  Internal Business: At what must we excel?  Innovation and Learning: Can we continue to improve and create value?  Financial: How do we look to shareholders?

34. The Balanced Scorecard Links Performance Measures. Financial Perspective GoalsMeasures Customer Perspective GoalsMeasures Internal Business Perspective GoalsMeasures Innovation and Learning Perspective Innovation and Learning Perspective GoalsMeasures How do customers see us? How do we look to shareholders? At what must we excel? Can we continue to improve and create value?