Presentation on theme: "Lesson 1 WHAT IS STRATEGY AND WHY IS IT IMPORTANT?"— Presentation transcript:
1Lesson 1 WHAT IS STRATEGY AND WHY IS IT IMPORTANT?
2Outline What Is Strategy? What Does the Strategy-Making, Strategy-Executing Process Entail?Phase 1: Developing a Strategic VisionPhase 2: Setting ObjectivesPhase 3: Crafting a StrategyPhase 4: Implementing and Executing the StrategyPhase 5: Evaluating Performance and Initiating Corrective AdjustmentsCorporate Governance: Role of Board of Directors in the Strategy-Making, Strategy-Executing ProcessWhy Crafting and Executing Strategy Are Important Tasks
3Thinking Strategically: The Three Big Strategic Questions 1. Where are we now?2. Where do we want to go?Businesses to be in and market positions to stake outBuyer needs and groups to serveOutcomes to achieve3. How will we get there?
4What Is Strategy? Achieve target objectives Consists of the combination of competitive moves and business approaches used by managers to run the companyManagement’s “game plan” toStake out a market positionAttract and please customersCompete successfullyConduct operationsAchieve target objectives
5An Example of Strategy: Comcast Roll out a new video-on-demand service to allow customers to watch TV programs at any timePartner with Sony, MGM, and others to expand Comcast’s library of movie offeringsContinue to roll out high-speed Internet or broadband service to customers via cable modemsUse “voice-over-Internet-protocol” (VOIP) technology to offer subscribers Internet-based phone at a fraction of the cost charged by other providersUse the video-on-demand and VOIP service offerings toDifferentiate Comcast’s service offering andCombat competition from direct-to-home satellite TV providersEmploy a sales force to sell advertising to businesses that were shifting some of their advertising dollars from sponsoring network programs to sponsoring cable programsSignificantly improve Comcast’s customer service
6Striving for Competitive Advantage Central thrust of a company’s strategy involves moves to strengthen a company’sLong-term competitive position andFinancial performanceAchieving a sustainable competitive advantage greatly enhances a company’s prospects forWinning in the marketplace andEarning above-average profitsWhat separates a powerful strategy from an ordinary one is management’s ability to forge a series of moves, both in the marketplace and internally, that produce sustainable competitive advantage!
7Strategic Approaches to Building Competitive Advantage Strive to be the industry’s low-cost providerDifferentiate the company’s product offering from rival brands in ways that customers find more appealingFocus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyersDevelop expertise, resource strengths, and capabilities not easily imitated by rivals
8Examples of Companies Pursuing Competitive Advantage Based on Distinctive Capabilities Sophisticated distribution systems – Wal-MartProduct innovation capabilities – 3M CorporationComplex technological process – MichelinDefect-free manufacturing – Toyota and HondaSpecialized marketing and merchandising know-how – Coca-ColaGlobal sales and distribution capability – Black & DeckerSuperior e-commerce capabilities – Dell ComputerPersonalized customer service – Ritz Carlton Hotels
10Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive
11Why Do Strategies Evolve? Changes in a company’s strategy are typically necessary in order to respond and react toShifting market conditionsEvolving customer preferencesFresh moves of competitorsTechnological breakthroughsStrategy changes also make senseWhen a strategy is performing poorly and needs to be “fixed”When management comes up with ideas for improving the strategyThus, a company’s strategy is always a work in progress!
12What Does the Term “Business Model” Mean? A company’s business model is the storyline for how and why the company’s strategy will generate a revenue stream and entail a cost structure that produces attractive earnings and return on investmentIn other words, do the revenue-cost-profit economics of the strategy make good business sense?Without the ability to deliver good profitsThe strategy is not viableThe survival of the business is in doubtThe company’s business model is sorely lacking and both the strategy and the business model have to be overhauled
13Relationship Between Strategy and Business Model Strategy - Deals with a company’s competitive initiatives and business approachesBusiness Model -Concerns whether the revenues and costs flowing from the strategy are likely to generate attractive profits and return on investment, thus signifying whether the strategy and business model are viable
14Microsoft’s Business Model Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from usersSell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit salesMost costs in developing software are fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profitProvide technical support to users at no cost
15What Makes a Strategy a Winner? How well does the strategy fit the company’s internal and external situation?Is the strategy helping the company achieve a sustainable competitive advantage?Is the strategy resulting in better company performance?
16Fig. 1.3: The Strategy-Making, Strategy-Executing Process
17Developing a Strategic Vision Phase 1 of the Strategy-Making ProcessInvolves thinking strategically aboutFuture of companyWhere are we going?Developing a strategic vision entailsCreating a roadmap of where the company is headed and whyDeciding what position the company needs to stake out in the marketplaceProviding long-term directionGiving company a strong identity
19Characteristics of a Strategic Vision Well-stated vision statementsAre distinctive and specific to a particular organizationAvoid generic languageExcite strong emotionsAre challenging, uncomfortable, nail biting
22Mission vs. Strategic Vision A mission statement focuses on current business activities -- “who we are and what we do”Current product and service offeringsCustomer needs being servedTechnological and business capabilitiesA strategic vision concerns a firm’s future business path -- “where we are going”Markets to be pursuedFuture technology-product-customer focusKind of company management is trying to create
23Characteristics of a Mission Statement Defines current business activities, highlighting boundaries of current businessPresent products and servicesTypes of customers servedConveysWhat we do,Why we are here, andWhere we are nowA company’s mission is not to make a profit! Its true mission is its answer to “What will we do to make a profit?” Making a profit is an objective or intended outcome!
24Trader Joe’s Mission Statement (a unique grocery store chain)Our mission: To give our customers the best food and beverage values that they can find anywhere and to provide them with the information required for informed buying decisions. We provide these with a dedication to the highest quality of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit.
25Communicating the Strategic Vision An exciting, inspirational visionContains memorable languageClearly maps company’s future directionChallenges and motivates workforceProvokes emotion and enthusiasmWinning support for the vision involvesPutting “where we are going and why” in writingDistributing the statement organization-wideHaving executives explain the vision to the workforce
26Examples: Vision Slogans Levi Strauss & Company“We will clothe the world by marketing the most appealing and widely worn casual clothing in the world.”Microsoft Corporation“Empower people through great software— any time, any place, and on any device.”Mayo Clinic“The best care to every patient every day.”
27Linking the Vision With Company Values A statement of values is often provided to guide a company’s pursuit of its visionValues -- Beliefs, business principles, and ways of doing things incorporated intoCompany’s operationsBehavior of workforceValues statementsContain between four and eight valuesAre ideally tightly connected to and reinforce a company’s vision, strategy, and operating practices
28Example: Company Values Home DepotEntrepreneurial spiritCreating shareholder valueExcellent customer serviceBuilding strong relationshipsGiving back to the communityTaking care of peopleRespect for all peopleDoing the right thing
29Phase 2 of the Strategy-Making Process Setting ObjectivesPhase 2 of the Strategy-Making ProcessPurpose of setting objectivesConverts vision into specific performance targetsCreates yardsticks to track performancePushes firm to be inventive, intentional, and focused in its actionsSetting challenging, achievable objectives guards againstComplacencyInternal confusionStatus quo performance
30Types of Objectives Required Financial ObjectivesStrategic ObjectivesOutcomes focused on improving financial performanceOutcomes focused on improving long-term, competitive business position
31Strategic Performance Fosters Better Financial Performance A company’s achievement of satisfactory financial performance, by itself, is not enoughFinancial performance measures are “lagging indicators” reflecting results of past decisions and actionsOf equal or greater importance is a company’s performance on measures of its strategic well-being — its competitiveness and market positionStrategic performance measures are “leading indicators” of a company’s future financial performanceAchievement of strategic performance targetsSignals growing competitivenessSignals growing strength in the marketplace
32Balanced Scorecard Approach – Strategic and Financial Objectives Balanced scorecard approach for measuring company performance requires having and pursuing bothFinancial objectivesStrategic objectivesEmphasis on achieving financial objectives should generally assume priority over achieving strategic objectives when a company’sFinancial performance is dismal and/orThe company’s survival is threatenedOtherwise, management is advised to put more emphasis on achieving strategic objectives that strengthen a company’s business position and give it a growing competitive advantage over rivals—Why?Because an ever stronger market position is a company’s surest path to improving its profitability!
33Nissan’s Strategic and Financial Objectives Increase sales to 4.2 million cars and trucks by 2008 (up from 3 million in 2003)Cut purchasing costs 20% and halve the number of suppliersHave zero net debtMaintain a return on invested capital of 20%Maintain a 10% or better operating margin
34Concept of Strategic Intent A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective!
35Characteristics of Strategic Intent Indicates a firm’s intent toStake out a particular business position over the long-termBe a winner in marketplaceInvolves establishing a grandiose performance targetOut of proportion to its immediate capabilities and market posiItion andDevoting the company’s full resources and energies to achieving the target over timeSignals relentless commitment to achieving a particular market position and competitive standing
36Phase 3 of the Strategy-Making Process Crafting a StrategyPhase 3 of the Strategy-Making ProcessStrategy-making involves entrepreneurship – searching for opportunitiesTo do new things orTo do existing things in new or better waysStrategizing involvesPicking up on happenings in the external environment andSteering company activities in new directions dictated by shifting market conditions
37The Hows That Define a Firm's Strategy How to grow the businessHow to please customersHow to outcompete rivalsHow to respond to changing market conditionsHow to manage each functional piece of the business and develop needed organizational capabilitiesHow to achieve strategic and financial objectives
38Activities Involved in Crafting a Strategy Studying market trends and actions of competitorsListening to customers, anticipating their changing needsScrutinizing business possibilities based on new technologyBuilding a firm’s market position via acquisitions or new productsPursuing ways to strengthen firm’s competitive capabilities
40Levels of Strategy-Making in a Diversified Company Corporate-Level ManagersCorporateStrategyTwo-Way InfluenceBusiness-Level ManagersBusiness StrategiesTwo-Way InfluenceFunctional ManagersFunctional StrategiesTwo-Way InfluenceOperatingManagersOperating Strategies
41Levels of Strategy-Making in a Single-Business Company Business-Level ManagersBusinessStrategyTwo-Way InfluenceFunctional ManagersFunctional StrategiesTwo-Way InfluenceOperatingManagersOperating Strategies
42Tasks of Corporate Strategy Moves to achieve diversificationActions to boost performance of individual businessesCapturing valuable cross-business synergies to provide = 3 effects!Establishing investment priorities and steering corporate resources into the most attractive businesses
43Tasks of Business Strategy Initiating approaches to produce successful performance in a specific businessCrafting competitive moves to build sustainable competitive advantageDeveloping competitively valuable competencies and capabilitiesUniting strategic activities of functional areasGaining approval of business strategies by corporate-level officers and directors
44Tasks of Functional Strategies Game plan for a strategically-relevant function, activity, or business processDetail how key activities will be managedProvide support for business strategySpecify how functional objectives are to be achieved
45What Is a Strategic Plan? Its strategic vision and business missionACompany’sStrategicPlanConsistsofIts strategic and financial objectivesIts strategy
46Implementing and Executing Strategy Phase 4 of the Strategy-Making ProcessAction-oriented, operations-driven activity aimed at shaping performance of core business activities in a strategy-supportive mannerTougher and more time- consuming than crafting strategyKey tasks includeImproving efficiency of the strategy being executedShowing measurable progress in achieving targeted results
47What Does Implementing and Executing the Chosen Strategy Involve? Building a capable organizationCreating a strategy-supportive corporate cultureAllocating resources to strategy-critical activitiesEstablishing strategy-supportive policiesInstituting best practices and programs for continuous improvementInstalling information, communication, and operating systemsMotivating people to pursue the target objectivesTying rewards to achievement of resultsExerting the leadership necessary to drive the process forward and keep improving
48Characteristics of Good Strategy Execution Involves creating strong “fits” between strategy andOrganizational capabilitiesOrganization’s work climate and cultureReward structureInternal operating systemsThe stronger the “fits” theBetter the executionHigher a company’s odds of achieving its performance targets
49Evaluating Performance and Making Corrective Adjustments Phase 5 of the Strategy-Making ProcessTasks of crafting and implementing the strategy are not a one-time exerciseCustomer needs and competitive conditions changeNew opportunities appear; technology advances; any number of other outside developments occurOne or more aspects of executing the strategy may not be going wellNew managers with different ideas take overOrganizational learning occursAll these trigger the need for corrective actions and adjustments on an as-needed basis
50Corporate Governance: Strategic Role of a Board of Directors Exercise strong oversight to ensure the five tasks of strategic management are executed to benefitShareholders orStakeholdersMake sure executive actions are not only proper but also aligned with interests of stakeholders
51Obligations of a Board of Directors Be inquiring critics and overseersEvaluate caliber of senior executives’ strategy-making and strategy-executing skillsInstitute a compensation plan for top executives rewarding them for results that serve interests ofStakeholders andShareholdersOversee company’s financial accounting and reporting practices
52Good Corporate Governance Matters The whole fabric of effective corporate governance is undermined when boards of directors shirk their responsibility to maintain ultimate control overCompany’s strategic directionMajor elements of a company’s strategyBusiness approaches management is using to implement and execute the strategyBoard members are obligated to rein in a CEO who oversteps the bounds of sound business principles and ethical behaviorA rubber stamp board abdicates its responsibility to shareholdersBoards of directors have a very important oversight role in the strategy-making, strategy-executing process!
53Why Is Strategy Important? A compelling need exists for managers to proactively shape how a firm’s business will be conductedA strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary
54Good Strategy + Good Strategy Execution = Good Management Crafting and executing strategy are core management functionsNothing affects a company’s ultimate success or failure more fundamentally than how well its management teamCharts the company’s directionDevelops competitively effective strategic moves and business approachesExcellent execution of an excellent strategy is the best test of managerial excellence – and the most reliable recipe for winning in the marketplace!
55Benefits of a “Strategic Approach” to Managing Good strategic thinking and management of the strategy-making, strategy-executing processGuides entire firm regarding “what it is we are trying to do and to achieve”Helps unify numerous strategy-related decisions across the companyCreates a proactive atmospherePromotes development of an evolving business model focused on bottom-line successProvides basis for determining how best to allocate company resources