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2 ROLE OF THE CEO Strategist Mentor Visionary Guru Futurist Champion Leader

3 Individuals (I T ) Pre-Course - Bio & Picture Intro to Strategic Audit MINI CASE(s) As Assigned (S, S √, S √√ ) MIDI CASE - MID Term Exam (Letter Grade) Template FeedbackTeam Member Rating Constructive Comments [Peer Eval] - Maxi Case Optional:Strategic Plan -- Career Plan AGENDA OF RESPONSIBILITIES

4 AGENDA OF RESPONSIBILITIES (Cont’d) PARTICIPATION TEAM (I T ) Form Teams – Roles Weekly - Chapter Questions With key issues/answers to Lead Discussion (Per Schedule) Maxi Case – Choice of company (approval) Prepare Report – Strategic Plan Template Present Strategic Plan MISC – Team Assignment – Micro Cases

5 (B)MIDI Case: One (1), five (5) page (approximately), individually written case analysis (business plan) that must include: 1.Your mission for the future of the organization. 2.Your future objectives for the organization. 3.Your analysis and quantitative forecast of industry and company. 4.Your strategic decisions, i.e., actions, with results, to accomplish objectives. 5.A three (3) year pro forma income statement. 6.Your participation in class discussion and case debrief.

6 TEAM STRATEGIC PLAN MAXI: A STRATEGIC PLAN that incorporates two efforts: Effort 1:A 25 Page Written Report (Approximately) Effort 2:Team Discussion/Presentation

7 Effort 1: A 25 Page Written Report The following must be included in the strategic plan report: Future mission and objectives decided by you. Analysis and forecast of social, technical, economic, and political forces with attention to global aspects. Analysis of industry history and quantitative industry forecast on a global and domestic basis. Illustration and source of a share analysis. Evaluation of alternative strategies. Decision on strategic course showing basis and actions, with results, required to achieve indicated performance goals on each major strategic action Organizational process changes with schedules and budgets Pro-forma financial statements, I.e., cash flows balance sheets, and income statements to show impact of decision in the short-term, intermediate-term and long-term for a minimum of 5 years. Sufficient research, quantitative analysis, style, and organization to meet business planning standards. Typed, doubled spaced, table of contents, number pages, exhibits, and indicate sources.

8 Effort 2: Team Discussion/Presentation Each team must run a one (1) hour maximum discussion or presentation of the case. The presenting team also indicates its role and audience role, both f which must be internal to the organization. For intelligent participation in the team case discussions and to help in the selection of the third individual case, each team must provide one copy of each of the following materials to every class member and the instructor:

9 Strategic Audit and Decision Making: A Structure Context - Environmental/Industry SLEPT (Social, Legal, Economic, Political, Technological) Forecast(s) –Company –Industry –History - Now/Future Mission - All Stakeholders –Internal, Transactional, Influencers, Vision, Core Values, etc. Objectives (Qualitative, Quantitative) –Drucker Model (8) (E) - Below

10 STRUCTURE, CONT’D PERFORMANCE - Design/Audit System View (A)ADAPTIVE - 3 Questions What is Business? What will business be? [as is] What should business be? (E) EFFECTIVENESS (Drucker 8) MarketHuman Resources InnovationFinancial Resources ProfitMaterial Resources SocietalProductivity (e) Efficiency Cost (versus)Scope/Quantity Quality Time

11 SYSTEM VIEW (CONT’D) Global Dimensions (MACROECONOMICS - Global; Clusters/Culture; Comparative Advantages, etc) SWOT Internal S - Strengths W - Weakness [Core Competence] External O - Opportunity T - Threat

12 PORTER’S ANALYSIS (Link to O.T.) National / Global Barriers to Entry Government Action Rivalry Among Competitors Barriers to Exit Power of Suppliers Power of Buyers Availability of Substitutes CONCLUSION: Attractive?

13 STRATEGY FORMULATION 13 Strategic Options - Clusters Strategy Implementation and Control MIS System Corporate Leadership/Culture RE: Ongoing Process 1.Market Penetration 2.Market Development 3.Product Development 4.Backward Integration 5.Forward Integration 6.Horizontal Integration 7.Horizontal Diversification 8.Vertical Diversification 9. Concentric Diversification 10. Conglomerate 11. Cooperative (Joint Venture) Strategic Alliance 12. Defensive - Retrenchment - Divestiture - Liquidation 13. Do Nothing


15 DELPHI FORCASTING Q1.Estimate rate of inflation in the United States during next 12 months. ________% Q2.Estimate rate of unemployment in the United States during next 12 months. ________% Q3.Estimate prime rate for corporations in the United States during next 12 months. ________% Q4.Consumer confidence index in the United States during next 12 months. Use scale 1 to 10, with 10 highest ________%

16 Strategic Management Information Knowledge vs. System Organization Level Strategic Tactical Operational Tech Perf. Control Internal Information Planning External Information 90% 10% I t = I k + I s 40% 60% 10% 90%

17 Strategic Management Organ. Vs Information/Skills Organ. Level Strategic Tactical Operational Tech Perf. I t = I k + I s Skills Conceptual Behavioral Technical

18 Strategic Management Forecasting Types of Forecasting Models :  Judgmental Models  Qualitative Methods, eg Analogy  Time Series Models  Quantitative Methods, eg Straight Line  Causal Models - Cause & Effect  Regression - Correlation, etc

19 Forecasting Models Judgmental Models (Expert Opinion)  Survey(s), sales force, customers  Historical analogy, eg. multiple outlets  Market Research  Surveys, tests, observations  Simple, sophisticated  Delphi methods - panels of ‘experts’ Time Series Models  Trends vs. Turning Points Causal Models  Linear, multiple regression  Sophisticated - data needed

20 Global Models Corporate Governance Firm Executive Management Issues: Plan – Control Authority Responsibility(s) Information Flow Board of Directors: Keiretsu Euro-Interlocking Directors Government – Mercantilism Socialist – State Capitalism Stakeholders: Shareholders Financial Institutions: Banks, Insurance Co., etc. Government Community Unions – Employees Customers Suppliers etc.

21 Joe Smith and Outsourcing Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA). After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) and continued his search for a good paying AMERICAN JOB. At the end of yet another discouraging and fruitless day, Joe decided to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can’t find a good paying job in……AMERICA…..

22 Management Strategy Responsibilities The Pyramid of Corporate Social Responsibility Philanthropic Be a good Corporate citizen Contribute resources to the Community; improve quality of life Ethical Be ethical Obligation to do what is right, just and fair avoid harm Legal Obey the Law Law is society’s codification of right and wrong Play by the rules of the game. Economic Be profitable The foundation upon which all others rest

23 Triad Drexel CQ (Conceptual Quotient) TQ (Technical Quotient) EQ (Emotional Quotient) Peer Relations (Team-building) Politics (Power-management) Personal Insight (Self-awareness) EQ TQCQ Connectivity (IT/Internet use) Security Opportunity (company- and/ Industry-specific) Puzzle PerformancePersona

24 Porter’s Five Competitive Forces Supplier Power - Supplier concentration - Importance of volume to supplier - Differentiation of inputs - Impact of inputs on cost or differentiation - Switching costs of firms in the industry - Presence of substitute inputs - Threat of forward integration - Cost relative to total purchases in industry Barriers to Entry Absolute cost advantage - Proprietary learning curve - Access to inputs - Government policy - Economies of scale - Capital requirements - Brand identity - Switching costs - Access to distribution - Expected retaliation - Proprietary products Threat of Substitutes - Switching costs - Buyer propensity to substitute - Relative price performance of substitutes Buyer Power - Bargaining leverage - Buyer volume - Buyer information - Brand identity - Price sensitivity - Threat of backward integration - Product differentiation - Buyer concentration vs industry - Substitutes available - Buyers’ incentives Rivalry Degree of Rivalry -Exit barriers - Industry concentration ratio - Fixed costs/Value added - Industry growth - Intermittent overcapacity - Product differences - Switching costs - Brand identity - Diversity of rivals - Corporate stakes

25 MGMT 450 Strategy and Business Policy Internal Assessment of Firms Four Characteristics: Resources – Capabilities Important in Sustaining Competitive Advantage DURABILITY – Rate at which firms underlying resources and capabilities depreciate or become obsolete TRANSPARENCY – Speed with which other firms can understand the relationship of resources and capabilities supporting a successful firm’s strategy. Capability that requires a complex pattern of various resources and is more difficult to comprehend than a capability based on a single key resource. TRANSFERABILITY – Ability of competitors to gather the resources necessary to support a competitive challenge. (e.g. Duplicating the primary source of Rocky Mountain spring water may be difficult. Also brand names may be impossible to transfer with out purchase or a license.) REPLICABILITY – Ability of competitors to use resources and capabilities to duplicate a firm’s success. (e.g. brand manager from P&G competitor may fail to identify least visible coordination mechanisms or fail to note behaviors of another company’s brand manager may conflict with company’s culture.)

26 Alternative Strategies Defined and Exemplified STRATEGYDEFINITIONEXAMPLE Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Gaining ownership or increased control over distributors or retailers Seeking ownership or increased control of a firm’s suppliers. Seeking ownership or increased control over competitors Seeking increased market share for present products or services in present markets through greater marketing efforts Introducing present product or services into new geographic area Tandy Corporation opens new Radio Shack stores. K-Mart requires suppliers to sell its goods on consignment. Merck, the world largest drug company, acquires Medco Containment Services, the nation’s largest marketer of discount prescription drugs Walt Disney pays Nancy Kerrigan $1 million for appearances. Corning Inc. becomes one of Russia’s first major suppliers of optical fiber.

27 STRATEGYDEFINITIONEXAMPLE Product Development Concentric Diversification Conglomerate Diversification Horizontal Diversification Seeking increased sales by improving present products or services or developing new ones. Adding new, but related, products or services Adding new, unrelated products or services. Adding new, unrelated products or services for present customers. Rayovac develops an alkaline battery recharger. Sonoco Products Company, a maker of industrial packages, acquires Engraph Inc., a maker of consumer packages. Seagram acquires 13.1 percent of Time Warner. Stratus Computer, a maker of fault tolerant computers, acquires Shared Financial Systems, a software maker. Alternative Strategies Defined and Exemplified

28 STRATEGYDEFINITIONEXAMPLE Joint Venture Retrenchment Divestiture Liquidation Two or more sponsoring firms forming a separate organization for cooperative purposes. Regrouping through cost and asset reduction to reverse declining sales and profits. Selling a division or part of an organization Selling all of a company’s assets, in parts, for their tangible worth. Home Shopping Network and Sumitomo offer television shopping in Japan. U.S. Surgical declares bankruptcy. Ryder System, a truck-leasing company divests its aviation business. The Bank of Credit and Commerce International (BCCI) liquidates.

29 Location Analysis COST FACTORS 1.Power 2.Labor 3.Material 4.Taxes 5.Water 6.Insurance 7.Transportation Total Composite Site Cost QUANTITATIVE FACTORS IN LOCATION ANALYSIS 1.Labor Supply 2.Union Activity 3.Labor Skills Available 4.Community Attitudes Towards Company Activities 5.Local Transportation Facilities 6.Recreation 7.Community Growth Potential 8.Universities, Colleges and Research Centers 9.Community Tax Status

30 Point Rating Scale of Noncost Factors (Sample) Research Climate (Sufficient Educational Facilities and Research organizations to attract Personnel) Points No schools or laboratories exist0 A few low-quality facilities exist50 Good industrial laboratories exist, but no educational facilities100 Good educational laboratories exist, but no industrial facilities150 Good educational and industrial facilities exist200 Excellent facilities and future possibilities250 Production Labor Pool (Availability of Semi-Skilled Production Workers) Unavailable0 Available in limited numbers at premium wages20 Available in sufficient numbers for the present but not for the future40 Available in sufficient numbers for the present and the future60 An abundance of extremely skilled labor80 Community Attitudes (Desire for and acceptance of the company’s actitivities) Violently opposed to company’s activities0 Will accept grudgingly25 Cooperative50 Cooperative and helpful to a high degree75

31 Developing Enterprise Strategy Industry Structure and Environmental Opportunities* Industry StructureOpportunities Fragmented IndustryConsolidation: -Discovery of new economies of scale -Altering ownership structure Emerging IndustryFirst Mover Advantages: -Technological leadership -Preemption of strategically valuable assets -Creation of customer-switching costs Mature IndustryProduct Refinement: Investment in service quality Process Innovation Declining IndustryLeadership Strategy Niche Strategy Divestment Strategy

32 Industry StructureOpportunities International Industry Multinational Opportunities Global Opportunities Transnational opportunities Network IndustryFirst-mover advantages “Winner-takes-all” Strategies Hyper competitive Industry Flexibility Proactive disruption Empty core industryCollusion Government regulation Significant product differentiation Demand management Developing Enterprise Strategy Industry Structure and Environmental Opportunities* * Gaining and Sustaining Competitive Advantage by Jay B Barney

33 Executive Management Triangle Strategy – Technology - Organization STRATEGY FORMULATION/IMPLEMENTATION Investment Portfolio Strategic Alternative Risk vs. Return Resource Allocation PERFORMANCE EVALUATION TECHNOLOGY CHANGE PROCESS – Inbound Logistics Operations PRODUCT – Admin. Operations R&D Outbound Logistics Marketing, Sales Distribution Service ORGANIZATION ALTERNATIVE STRUCTURES Business Unit/Product Geography/Place Customer Function Span 21 CENTURY DYNAMICS Global/Multi-Govt’al Societal Core Competence Staffing-Culture Value Chain ALTERNATIVES Outsource Joint Venture Strategic Alliances Licensing Etc.

34 Organization Design Strategic Alternatives Executive Strategic Level Product Place Tactical Level Technical Performance Level Primary Business Unit Customer Secondary Tertiary Function (Matrix) Span of Management

35 Management – Union Relations Phases/Processes PHASE I – LEGISLATIVE (THE LAW OF THE LAND) COLLECTIVE BARGAINING PHASE III – JUDICIAL (PROTEST & APPEAL) Dispute Resolution Warfare Cooling – Off Fact Finding Conciliation Mediation Arbitration PHASE II – EXECUTIVE (ADMINISTRATIVE INITIATIVE) Dispute Resolution Grievance Procedure Arbitration Warfare MANAGEMENT UNION CONTRACT 5 Major Sections

36 Strategic Alliance Model Technology Licensing Marketing Licensing Qualified Licensing Cross-Licensing Joint-Sourcing Lower R & D Cost Lower Distribution Cost Access to Distribution Channels Higher Barriers to Entry Low Cost Access to Technology Lower Cost of supply Operating Efficiency -Lower Cost of Operations -Higher Quality Products -Lower Prices -Economies of Scale -Broader Markets Low Cost Distinct Competencies Figure 1a. The Impact of Strategic Alliance on the Creation of Low Cost Distinct Competencies.

37 Strategic Alliance Model - 2 Technology Joint Venture Marketing Joint Venture Patent Pool Access to New Technology Access to Marketing Expertise Higher Barriers to Entry Increased Knowledge Control Entries to the Markets Access to R & D -Quality Product -Brand Name Recognition -Broader Markets Differentiation Distinct Competencies Figure 1b. The Impact of Strategic Alliance on the Creation of Differentiation Distinct Competencies.

38 Table 1: The Proposed Strategic Alliances - Alternatives StrategyDefinition Technology/Product Licensing Agreement to use technology and/r products Marketing LicensingAgreement to use marketing Qualified LicensingLicense to use a particular product and/r technology in a particular market Cross-ContractingEstablishing a new entity by two or more parent firms in order to achieve a special objective, such as development campaigns for new products Technology Joint Venture Establishing a new entity by two or more parent firms in order to achieve a special objective, such as development campaigns for new products Marketing Joint Ventures Establishing a new entity by two or more parent firms in order to achieve a special objective, such as development of new technologies Patent PoolSharing key patents for technology and/or products Joint SourcingOrdering the necessary supply material collectively

39 E Information Hub Model Financial Institutions Distributors Consumer Manufacturers Subcontract Manufacturers Retailers Logistics Providers Suppliers Information Hub

40 Supply Chain Integration Dimensions DimensionElementsBenefits Information Integration Information Sharing & Transparency Direct & Real Time Accessibility Reduced Bullwhip Effect Early Problem Detection Faster Response Trust Building Synchronized Planning Collaborative Planning, Forecasting & Replenishment Joint Design Reduced Bullwhip Effect Lower Cost Optimized Capacity Utilization Improved Service Workflow Coordination Coordinated Production, Planning & Operations, Procurement, Order Processing, Engineering Change & Design. Integrated, Automated Business Processes Efficiency & Accuracy Gains Fast Response Improved Service Earlier Time to Market Expanded Network New Business Models Virtual Resources Logistics Restructuring Mass Customization New Services Click-and-Mortar Models Better Asset Utilization Higher Efficiency Penetrative New Market Create New Products

41 Information Distortion and The Bullwhip Effect Increasing Order Variability Up the Supply Chain ?Customers Retailers WholesalersManufacturersSuppliers

42 Business Life Cycle - Starbucks Start-upGrowth Maturity Decline Time Sales

43 Corporate Culture Cool GreenHot RedTrue BlueDull Gray Respects autonomy & integrity of others and requires the same from others Strong and ambitiousMutually supportive, friendly interpersonal relationships Concerned with procedures Lack of controlsDictatorshipInterpersonal ProcessBureaucratic Employees can be trusted to do what they should without oversight 2 Standards: what they achieve; how well orders are followed Decisions should be made by groups, not individuals Just follow the book and you won’t be fired People like to do their own thing without depending on others Employee’s task is to listen to the boss an obey thoroughly Concerned with group’s assessment re: quality of interpersonal process Organization run on the basis of rules Characterized by creative activity Assertive and Directive People OrientedPrecision and Continuity Determine personal goals and action plans Boss sets the goalsPromotions based on ‘getting along’ and understanding ‘our way’ of doing things Seniority, compliance with procedures, budget management EntrepreneurialMarket drivenSecure MarketplaceEstablished, Traditional IndependenceOpportunityConsiderationSecure

44 Country Clusters U.S.Far East 1) IndividualismHighLow 2) Power DistanceNear LowNear High 3) Uncertainty AvoidanceNear LowLow 4) MasculinityNear HighHigh 5) Long Term OrientationLowHigh 1)Americans focus on working as individuals where as the Far East cultures place a high importance on collectivism and stress teamwork. 2)The U.S. is not as willing as the Far East to accept hierarchical or uneven distribution of power. Americans expect closer relationships between superiors and subordinates than the Eastern cultures. 3)Both Clusters have little emphasis on structure and security. The cultures’ tendency to let time ‘have its way’ is a willingness to accept risk. 4)The high Masculinity dimension reflects a stress on independence and masculine traits and less on interdependence and gender equality. 5)Americans live more for today (short-term), and find less respect for age and place more emphasis on formal written contracts. The Far East emphasizes long-term values; persistence and respect for age & tradition.


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