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Fall, 2007St. Norbert College Seminar in Policy and Strategy 1 Seminar in Business Policy and Strategy Day One Lecture Outline Class Roster & Familiarity.

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Presentation on theme: "Fall, 2007St. Norbert College Seminar in Policy and Strategy 1 Seminar in Business Policy and Strategy Day One Lecture Outline Class Roster & Familiarity."— Presentation transcript:

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2 Fall, 2007St. Norbert College Seminar in Policy and Strategy 1 Seminar in Business Policy and Strategy Day One Lecture Outline Class Roster & Familiarity Probe Instructor Introduction WSJ and other Periodical Subscriptions Introduce Books –WinningFortune MagazineWinningFortune Magazine –The World is FlatWall Street JournalThe World is FlatWall Street Journal Class Web Page and SyllabusWeb Page Introduce Capstone Simulation

3 Fall, 2007St. Norbert College Seminar in Policy and Strategy 2 Definitions Strategy – an integrated set of commitments and actions designed to exploit core competencies and gain a competitive advantage Strategic Management - the process of intentionally organizing a full set of commitments, decisions and actions to achieve competitive advantage and superior returns I/O Model of Strategic Management Resource Based Model of Strategic Management NEXT

4 Fall, 2007St. Norbert College Seminar in Policy and Strategy 3 I/O Model of Above-Average Returns I/O = Industry/Organizational The industry in which a firm competes has a stronger influence on the firms performance than do the choices managers make inside their organizations –Industry properties include economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry

5 Fall, 2007St. Norbert College Seminar in Policy and Strategy 4 I/O Model of Strategic Management Study External Environment Identify an Attractive Industry Formulate Appropriate Strategies Acquire necessary Assets and Skills to Implement Strategies Implement Strategies Above Average Returns

6 Fall, 2007St. Norbert College Seminar in Policy and Strategy 5 Resource-Based Model of Above- Average Returns Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and that is the primary source of its returns Capabilities evolve and must be managed dynamically

7 Fall, 2007St. Norbert College Seminar in Policy and Strategy 6 Resource Based Model of Strategic Management Identify Assets and Skills Determine Capabilities Shape Competitive Advantages Identify an Attractive Industry Formulate and Implement Appropriate Strategies Above Average Returns

8 Fall, 2007St. Norbert College Seminar in Policy and Strategy 7 Definitions Continued Strategic Competitiveness –When a firm successfully formulates and implements a value-creating strategy Sustainable Competitive Advantage –When competitors are unable to duplicate a companys value-creating strategy Strategic Management Process –The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns

9 Fall, 2007St. Norbert College Seminar in Policy and Strategy 8 Definitions (contd) Risk –An investors uncertainty about the economic gains or losses that will result from a particular investment Average Returns –Returns equal to those an investor expects to earn from other investments with a similar amount of risk Above-average Returns –Returns in excess of what an investor expects to earn from other investments with a similar amount of risk

10 Fall, 2007St. Norbert College Seminar in Policy and Strategy 9 Definitions Continued Strategic Mission and Vision –See Chapter One, WINNING –Externally focused –Mission describes a firms unique purpose and the scope of its operations in product and market terms Establishes a firms individuality and is inspiring and relevant to all stakeholders Provides general descriptions of the firms intended products and its markets –Vision describes some milestone that the firm will reach in the future - an aspiration

11 Fall, 2007St. Norbert College Seminar in Policy and Strategy 10 Definitions Continued Strategic Intent –Internally focused –The leveraging of a firms resources, capabilities and core competencies to accomplish the firms goals –Exists when all employees and levels of a firm are committed to the pursuit of a specific, significant performance criterion

12 Fall, 2007St. Norbert College Seminar in Policy and Strategy 11 Definitions Continued Resources – inputs to the firms production process (i.e. – capital, individual skills, patents, managers, etc.) –Tangible and Intangible Capability – capacity for a set of resources to perform a task or activity Stakeholders – people who are affected by a firms performance and who have a claim on the firms performance

13 Fall, 2007St. Norbert College Seminar in Policy and Strategy 12 The Three Stakeholder Groups

14 Fall, 2007St. Norbert College Seminar in Policy and Strategy 13 Capital Market Stakeholders Shareholders and lenders expect the firm to preserve and enhance the wealth they have entrusted to it Returns should be commensurate with the degree of risk to the shareholder

15 Fall, 2007St. Norbert College Seminar in Policy and Strategy 14 Product Market Stakeholders Customers –Demand reliable products at low prices Suppliers –Seek loyal customers willing to pay highest sustainable prices for goods and services Host communities –Want companies willing to be long-term employers and providers of tax revenues while minimizing demands on public support services Union officials –Want secure jobs and desirable working conditions

16 Fall, 2007St. Norbert College Seminar in Policy and Strategy 15 Organizational Stakeholders Employees –Expect a dynamic, stimulating and rewarding work environment –Are satisfied by a company that is growing and actively developing their skills

17 Fall, 2007St. Norbert College Seminar in Policy and Strategy 16 Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Capital Market Product Market Organizational How to increase returns so everyone has more to share? How to increase returns so everyone has more to share? How to divide returns among stakeholders? How to divide returns among stakeholders?

18 Fall, 2007St. Norbert College Seminar in Policy and Strategy 17 SWOT Analysis Strengths, Weaknesses (internal) Opportunities and Threats (External Assessing the internal Strengths and Weaknesses and matching them with external Opportunities and Threat

19 Fall, 2007St. Norbert College Seminar in Policy and Strategy 18 The Context of Internal Analysis Effective analysis of a firms internal resources and capabilities (learning what the firm can do) requires: –Fostering an organizational setting in which experimentation and learning are expected and promoted –Using a global mind-set –Thinking of the firm as a bundle of heterogeneous resources and capabilities that can be used to create an exclusive market position

20 Fall, 2007St. Norbert College Seminar in Policy and Strategy 19 Resources and Capabilities Resources –Inputs into a firms production process Capital equipment (T) Skills of individual employees (I) Patents (T) Finances (T) Talented managers (I) Capabilities –Capacity of a set of resources to perform in an integrative manner –A capability should not be So simple that it is highly imitable So complex that it defies internal steering and control

21 Fall, 2007St. Norbert College Seminar in Policy and Strategy 20 Resources –Are the source of a firms capabilities –Are broad in scope –Cover a spectrum of individual, social and organizational phenomena –Alone, do not yield a competitive advantage Resources –Are a firms assets, including people and the value of its brand name –Represent inputs into a firms production process, such as: Capital equipment Skills of employees Brand names Financial resources Talented managers Resources –Tangible resources Financial resources Physical resources Technological resources Organizational resources –Intangible resources Human resources innovation resources Reputation resources Resources, Capabilities and Core Competencies

22 Fall, 2007St. Norbert College Seminar in Policy and Strategy 21 Tangible Resources Financial Resources The firms borrowing capacityThe firms ability to generate internal funds Organizational Resources The firms formal reporting structure and its formal planning, controlling, and coordinating systems Physical Resources Sophistication and location of a firms plant and equipmentAccess to raw materials Technological Resources Stock of technology, such as patents, trade-marks, copyrights, and trade secrets

23 Fall, 2007St. Norbert College Seminar in Policy and Strategy 22 Intangible Resources Human Resources Knowledge Trust Managerial capabilities Organizational routines Innovation Resources Ideas Scientific capabilities Capacity to innovate Reputational Resources Reputation with customers Brand name Perceptions of product quality, durability, and reliability Reputation with suppliers For efficient, effective, supportive, and mutually beneficial interactions and relationships

24 Fall, 2007St. Norbert College Seminar in Policy and Strategy 23 Capabilities –Are the firms capacity to deploy resources that have been purposely integrated to achieve a desired end state –Emerge over time through complex interactions among tangible and intangible resources –Often are based on developing, carrying and exchanging information and knowledge through the firms human capital Capabilities –The foundation of many capabilities lies in: The unique skills and knowledge of a firms employees The functional expertise of those employees –Capabilities are often developed in specific functional areas or as part of a functional area Resources, Capabilities and Core Competencies

25 Fall, 2007St. Norbert College Seminar in Policy and Strategy 24 Core Competencies –Resources and capabilities that serve as a source of a firms competitive advantage: Distinguish a company competitively and reflect its personality Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities Core Competencies –Activities that a firm performs especially well compared to competitors –Activities through which the firm adds unique value to its goods or services over a long period of time Resources, Capabilities and Core Competencies

26 Fall, 2007St. Norbert College Seminar in Policy and Strategy 25 Core Competencies There are four key criteria of resources and capabilities that, when met, become core competencies Managerial competencies are especially important Core competencies serve as a source of competitive advantage (VRCN)

27 Fall, 2007St. Norbert College Seminar in Policy and Strategy 26 Four Key Criteria of Resources and Capabilities (VRCN) Valuable –Resources and capabilities are valuable when they allow a firm to take advantage of opportunities or neutralize threats in external environment Rare –Resources and capabilities are rare when possessed by few, if any, current and potential competitors

28 Fall, 2007St. Norbert College Seminar in Policy and Strategy 27 Four Key Criteria of Resources and Capabilities (VRCN) Costly to Imitate –Resources and capabilities are costly to imitate when other firms either cannot obtain them or are at a cost disadvantage in obtaining them Nonsubstitutable –Resources and capabilities are nonsubstitutable when they have no structural equivalents

29 Fall, 2007St. Norbert College Seminar in Policy and Strategy 28 Building Sustainable Competitive Advantage Four Criteria of Sustainable Competitive Advantage –Valuable –Rare –Costly to imitate –Nonsubstituable

30 Fall, 2007St. Norbert College Seminar in Policy and Strategy 29 Resources and Capabilities, Core Competencies, and Outcomes Core Competencies Competitive Advantage Value Creation Above Average Returns Valuable Rare Costly to Imitate Nonsubstitutable

31 Fall, 2007St. Norbert College Seminar in Policy and Strategy 30 Competitive Advantage Firms achieve strategic competitiveness and earn above-average returns when their core competencies are effectively –Acquired –Bundled –Leveraged Over time, the benefits of any value- creating strategy can be duplicated by competitors

32 Fall, 2007St. Norbert College Seminar in Policy and Strategy 31 Competitive Advantage (contd) Sustainability of a competitive advantage is a function of –The rate of core competence obsolescence due to environmental changes –The availability of substitutes for the core competence –The difficulty competitors have in duplicating or imitating the core competence

33 Fall, 2007St. Norbert College Seminar in Policy and Strategy 32 Creating Competitive Advantage Core competencies, in combination with product-market positions, are the firms most important sources of competitive advantage Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies

34 Fall, 2007St. Norbert College Seminar in Policy and Strategy 33 Creating Value By exploiting their core competencies or competitive advantages, firms create value Value is measured by –A products performance characteristics –The products attributes for which customers are willing to pay Defined as What the customer wants, When the customer wants it, Where the customer wants it, at a Price the customer is willing to pay

35 Fall, 2007St. Norbert College Seminar in Policy and Strategy 34 The Challenge of Internal Analysis Strategic decisions in terms of the firms resources, capabilities, and core competencies –Are non-routine –Have ethical implications –Significantly influence the firms ability to earn above-average returns

36 Fall, 2007St. Norbert College Seminar in Policy and Strategy 35 The Challenge of Internal Analysis (contd) To develop and use core competencies, managers must have –Courage –Self-confidence –Integrity –The capacity to deal with uncertainty and complexity –A willingness to hold people (and themselves) accountable for their work

37 Fall, 2007St. Norbert College Seminar in Policy and Strategy 36 The Context of External Analysis Effective analysis of a firms External Environment (learning what the firm might be able to do) requires assessing the Characteristics of the External Environmental Components –General Environment –Industry Environment –Competitor Environment

38 Fall, 2007St. Norbert College Seminar in Policy and Strategy 37 The External Environment

39 Fall, 2007St. Norbert College Seminar in Policy and Strategy 38 General Environment Dimensions in the broader society that influence and industry and the firms within it –Economic –Sociocultural –Global –Technological –Political/legal –Demographic

40 Fall, 2007St. Norbert College Seminar in Policy and Strategy 39 Opportunities and Threats Opportunity –A condition in the general environment that if exploited, helps a company achieve strategic competitiveness Threat –A condition in the general environment that may hinder a companys efforts to achieve strategic competitiveness

41 Fall, 2007St. Norbert College Seminar in Policy and Strategy 40 Industry Environment Industry Defined –A group of firms producing products that are close substitutes Firms that influence one another Includes a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns

42 Fall, 2007St. Norbert College Seminar in Policy and Strategy 41 Industry Environment Porters Five-Forces Model

43 Fall, 2007St. Norbert College Seminar in Policy and Strategy 42 The Five Forces of Competition Model

44 Fall, 2007St. Norbert College Seminar in Policy and Strategy 43 Five Forces Model of Competition An industrys profitability results from interaction among –Suppliers –Buyers –Competitive rivalry among firms currently in the industry –Product substitutes –Potential entrants to the industry

45 Fall, 2007St. Norbert College Seminar in Policy and Strategy 44 Low entry barriers Interpreting Industry Analyses Unattractive Industry Suppliers and buyers have strong positions Strong threats from substitute products Intense rivalry among competitors Low profit potential

46 Fall, 2007St. Norbert College Seminar in Policy and Strategy 45 Attractive Industry High entry barriers Interpreting Industry Analyses Suppliers and buyers have weak positions Few threats from substitute products Moderate rivalry among competitors High profit potential

47 Fall, 2007St. Norbert College Seminar in Policy and Strategy 46 Competitor Environment All of the companies that the firm competes against.

48 Fall, 2007St. Norbert College Seminar in Policy and Strategy 47 Competitor Analysis Components

49 Fall, 2007St. Norbert College Seminar in Policy and Strategy 48 Outsourcing The purchase of a value-creating activity from an external supplier –Few organizations possess the resources and capabilities required to achieve competitive superiority in all primary and support activities By forming and emphasizing fewer capabilities –A firm can concentrate on those areas in which it can create value –Specialty suppliers can perform outsourced capabilities more efficiently

50 Fall, 2007St. Norbert College Seminar in Policy and Strategy 49 Strategic Rationales for Outsourcing Improve business focus –Lets a company focus on broader business issues by having outside experts handle various operational details Provide access to world-class capabilities –The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

51 Fall, 2007St. Norbert College Seminar in Policy and Strategy 50 Strategic Rationales for Outsourcing Accelerate business re-engineering benefits –Achieves re-engineering benefits more quickly by having outsiderswho have already achieved world-class standardstake over process Sharing risks –Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities Frees resources for other purposes –Redirects efforts from non-core activities toward those that serve customers more effectively

52 Fall, 2007St. Norbert College Seminar in Policy and Strategy 51 Outsourcing vs. Offshoring Outsourcing - the process of contracting with another organization to accomplish a non-critical responsibility more efficiently for a firm, either domestically or overseas –Payroll, Distribution, Fabrication Offshoring - the process of outsourcing to firms in foreign countries –Generally involves the competitive advantage of exploiting cheaper labor In the U. S., 90% of jobs outsourced go to other domestic organizations, only 10% are sent off shore

53 Fall, 2007St. Norbert College Seminar in Policy and Strategy 52 Strategic Management Process Review the QuickMBA Discussion Review the QuickMBA Discussion Study the external and internal environments Identify marketplace opportunities and threats Identify organizational resources and capabilities Develop core competencies from the resources and capabilities Use strategic intent to leverage resources, capabilities and core competencies into competitive advantages Integrate formulation and implementation of strategies Seek feedback to improve strategies


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