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Understanding Strategic Management

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1 Understanding Strategic Management
Yale Consultancy Sdn Bhd Yale Consultancy Sdn Bhd

2 What is Strategic Management
Strategic Management entails three ongoing processes: Analysis: - Analysis of strategic goals and the external and internal environments Decisions: - What industries to compete? - How should we compete? Actions: - Actions to implement decisions Yale Consultancy Sdn Bhd

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

4 Four Key Attributes of Strategic Management
Directs the organization toward overall goals and objectives Includes multiple stakeholders in decision making Needs to incorporate short-term and long-term perspectives Recognize trade-offs between efficiency and effectiveness Yale Consultancy Sdn Bhd

5 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 opportunities” Yale Consultancy Sdn Bhd

6 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. Yale Consultancy Sdn Bhd

7 Thinking Strategically: Three Big Central Questions
What’s the company’s present situation? - industry conditions and competitive pressure - current performance and market standing - resource strength and capabilities and competitive weaknesses 2. Where does the company need to go from here? Business(es) to be in and market positions to stake 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 Yale Consultancy Sdn Bhd

8 Yale Consultancy Sdn Bhd
Strategy Strategy consists of competitive moves and business approaches used by managers to run the company Strategy involves making analysis and choices 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 functional piece of the business (R&D, production, marketing, HR, finance, and so on) How to respond to changing market conditions How to achieve targeted levels of performance Yale Consultancy Sdn Bhd

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Choosing a Strategy Strategic choices about “how” are based on Trial-and-error organizational learning about what has worked and what has not worked Management’s appetite for taking risks Managerial analysis and strategic thinking about how best to proceed, given market conditions and the company’s circumstances In 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.” Yale Consultancy Sdn Bhd

10 Key Elements of a Successful Strategy
Developing a successful strategy hinges on making competitive moves aimed at Appealing to buyers in ways to set the enterprise 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 competitive moves of other successful companies rarely works Yale Consultancy Sdn Bhd

11 Sustainable Competitive Advantage
A 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 durable What separates a powerful strategy from an ordinary strategy is management’s ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage! Yale Consultancy Sdn Bhd

12 Yale Consultancy Sdn Bhd
Four possible strategic approaches to achieve sustainable competitive advantage Being the industry’s 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) Yale Consultancy Sdn Bhd

13 Examples of Competitive Advantage
Strive to be the industry’s low-cost provider Wal-Mart Southwest Airlines Outcompete rivals on a key differentiating feature Johnson & Johnson – Reliability in baby products Harley-Davidson – King-of-the-road styling Rolex – Top-of-the-line prestige Mercedes-Benz – Engineering design and performance L.L. Bean – Good value Amazon.com – Wide selection and convenience Yale Consultancy Sdn Bhd

14 Examples of Competitive Advantage (contd)
Focus on a narrow market niche eBay – Online auctions Jiffy Lube International – Quick oil changes McAfee – Virus protection auctions Starbucks – Premium coffees and coffee drinks The Weather Channel – Cable TV Develop expertise, resource strengths, and capabilities not easily imitated by rivals FedEx – Next-day delivery of small packages Walt Disney – Theme park management and family entertainment Toyota – Sophisticated production system Ritz-Carlton – Personalized customer service Yale Consultancy Sdn Bhd

15 STRATEGY EXAMPLE: McDONALD’S
Strategic & financial objectives Continued growth Providing exceptional customer care Remaining an efficient & quality producer Offering high value Effectively marketing McDonald’s brand on a global scale Yale Consultancy Sdn Bhd

16 KEY ELEMENTS OF McDONALD’S STRATEGY
Adding restaurants annually Using new menu items, low price specials, Extra Value Meals to promote frequent customer visits Being highly selective in granting franchises Choosing sites convenient to customers Focusing on limited product line & consistent quality Careful attention to store efficiency Extensive advertising & use of Mc prefix Hiring courteous personnel; paying an equitable wage; & providing good training Yale Consultancy Sdn Bhd

17 Why Do Strategies Evolve?
A company’s strategy is a work in progress Changes may be necessary to react to Shifting market conditions Technological breakthroughs Fresh moves of competitors Evolving customer preferences Emerging market opportunities New ideas to improve strategy Crisis situations Yale Consultancy Sdn Bhd

18 Crafting Strategy Is an Exercise in Entrepreneurship
Strategy-making is a market-driven activity involving Studying market trends and competitors’ actions Keen observation of customer needs Scrutinizing business possibilities based on new technologies Building firm’s market position via acquisitions or new product introductions Pursuing ways to strengthen firm’s competitive capabilities Proactively searching out opportunities to Do new things or Do existing things in new or better ways Yale Consultancy Sdn Bhd

19 Linking Strategy With Ethics
Ethical and moral standards go beyond Prohibitions of law and the language of “thou shalt not” to issues of Duty and “right” vs. “wrong” Ethical and moral standards address “What 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” and Allows management to fulfill its ethical duties to all stakeholders Yale Consultancy Sdn Bhd

20 A Firm’s Ethical Responsibilities to Its Stakeholders
Owners/shareholders – Rightfully expect some form of return on their investment Employees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise Customers - Rightfully expect a seller to provide them with a reliable, safe product or service Suppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairly Community - Rightfully expect businesses to be good citizens in their community Yale Consultancy Sdn Bhd

21 Role of Senior Executives: Linking Strategy with Ethics
Forbid pursuit of ethically questionable business opportunities Insist all aspects of company strategy reflect high ethical standards Make it clear all employees are expected to act with integrity Install organizational checks and balances to Monitor behavior Enforce ethical codes of conduct Provide guidance to employees in gray areas Display genuine commitment to conduct business activities ethically Yale Consultancy Sdn Bhd

22 Yale Consultancy Sdn Bhd
Business Model A company’s 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. Yale Consultancy Sdn Bhd

23 Relationship Between Strategy and Business Model
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 amply profitable and viable Yale Consultancy Sdn Bhd

24 Strategic Management Process
The steps by which management converts a firm’s vision, mission, and goals/objectives into a workable strategy Consists of four stages: Formulation of Mission and Policies External and Internal Analysis (SWOT analysis) Development of strategies Implementation of strategies Evaluation/adjustment Yale Consultancy Sdn Bhd

25 Strategy-Making Hierarchy
A company’s 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 strategy Corporate strategy Business/competitive strategy Functional strategy Operating strategy Yale Consultancy Sdn Bhd

26 Types of Business-Level Strategies
Competitive Advantage Cost Uniqueness Cost Leadership Differentiation Broad Target Integrated Cost Leadership/ Differentiation Competitive Scope Focused Cost Leadership Focused Differentiation Narrow Target Yale Consultancy Sdn Bhd

27 Cost Leadership Strategy: Competitors
Due to cost leader’s advantageous position: Rivals hesitate to compete on basis of price. Lack of price competition leads to greater profits. Rivalry with Existing Competitors Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

28 Cost Leadership Strategy: Substitutes
Product Substitutes Cost 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. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

29 Cost Leadership Strategy: Buyers
Bargaining Power of Buyers Can mitigate buyers’ power by: Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

30 Cost Leadership Strategy: Suppliers
Bargaining Power of Suppliers Can 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. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

31 Cost Leadership Strategy: New Entrants
The Threat of Potential Entrants Can 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. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

32 Differentiation Strategy
An 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 products Appropriate when customers value differentiated features more than they value low cost. Yale Consultancy Sdn Bhd

33 Differentiation Strategy: Competitors
Rivalry with Competitors Defends against competitors because brand loyalty to differentiated product offsets price competition. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

34 Differentiation Strategy: Substitutes
Product Substitutes Well positioned relative to substitutes because: Brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

35 Differentiation Strategy: Buyers
Bargaining Power of Buyers Can mitigate buyers’ power because well differentiated products reduce customer sensitivity to price increases. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

36 Differentiation Strategy: Suppliers
Bargaining Power of Suppliers Can mitigate suppliers’ power by: Absorbing price increases due to higher margins. Passing along higher supplier prices because buyers are loyal to differentiated brand. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

37 Differentiation Strategy: New Entrants
The Threat of Potential Entrants Can 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. Threat of new entrants Bargaining power of suppliers Rivalry among competing firms Bargaining power of buyers Threat of substitute products Yale Consultancy Sdn Bhd

38 Types of Potential Competitive Advantage
Achieving lower overall costs than rivals Performing activities differently (reducing process costs) Possessing the capability to differentiate the firm’s product or service and command a premium price Performing different (more highly valued) activities. Yale Consultancy Sdn Bhd

39 Yale Consultancy Sdn Bhd
Focus Strategies An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment. Particular buyer group—youths or senior citizens Different segment of a product line—professional craftsmen versus do-it-yourselfers Different geographic markets—East coast versus West coast Yale Consultancy Sdn Bhd

40 Focus Strategies (cont’d)
Types of focused strategies Focused cost leadership strategy Focused differentiation strategy To 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. Yale Consultancy Sdn Bhd

41 Integrated Cost Leadership/ Differentiation Strategy
A 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. Yale Consultancy Sdn Bhd

42 Yale Consultancy Sdn Bhd
References 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 p Angtmael, 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 A Brief History of the Twenty-first Century Picador, 672 p. Hamel, G. (2000) Leading the Revolution. 333 p. D’Aveni, 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. Yale Consultancy Sdn Bhd

43 Yale Consultancy Sdn Bhd
References 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) Hyvästä paras. Gummerus Oy, Jyväskylä. 363 s. Kim W. C. & Mauborgne, R. (2005) Blue Ocean Strategy. HBS Publishing p. Writing an Effective Business Plan. 4th edition Deloitte & Touche LLP, 52 p. Yale Consultancy Sdn Bhd

44 Yale Consultancy Sdn Bhd
Thank You Yale Consultancy Sdn Bhd Yale Consultancy Sdn Bhd


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