Presentation on theme: "STRATEGIC MANAGEMENT Strategy is the great work of the organization. In situation of life or death, it is the Tao of survival or extinction. Its study."— Presentation transcript:
STRATEGIC MANAGEMENT Strategy is the great work of the organization. In situation of life or death, it is the Tao of survival or extinction. Its study cannot be neglected Sun Tzu, The Art of War
Contents What is strategy? (by Michael E Porter) The importance of strategic management to a small business Why and how a small business must create a competitive advantage in the market The 9 steps in the strategic planning process The 3 basic strategies The importance of control: the balance scorecard
Who are they?
Vitality, intelligence, and tremendous energy …. but lacks outstanding talents as a vocalist, musician, actress, or any other principal vocations within popular entertainment …. dedication, opportunism, periodic re- invention of image and product offerings, and a well-coordinated multimarket presence
Who are they? The military, human, and economic resources of the Vietnamese Communists were dwarfed by those of the U.S and South Vietnam. Yet, in 1975, the world most powerful nation was humiliated by one of the world’s poorest …. sound strategy pursued with total commitment over a long period can succeed against vastly superior resources …. protracted war of limited engagement, constrained by domestic and international opinion from using their full military might sap the willingness to fight
Who are they? Williams had children to fulfill a specific goal …. an astute observer of the world of professional tennis in terms of recognizing both the physical and mental qualities of world ranked players Richard Williams has taken careful account of their different physical characteristics as well as their separate vulnerabilities and psychological needs
What is strategy?
8 Operational effectiveness is not strategy Strategy rests on unique activities – The essence of strategy is choosing to perform activities differently than rivals do. A sustainable strategic position requires trade-offs Fit Drives Both Competitive Advantage and Sustainability: – Simple consistency – Re-inforcing – Optimization of efforts Rediscovering strategy – At general management’s core is strategy: defining a company’s position, making trade-offs, and forging fit among activities.
9 Ikea’s activity system map
The importance of strategic management to a small business
12 Strategic Management Small companies that are prepared can create the disruptions that revolutionize their industries, and, in the process, create a competitive edge – Apple Computer and the iPod Knowledge has become the critical factor of production Intellectual capital counts!
13 A Major Shift from financial capital to intellectual capital – Human – Structural – Customer
14 Strategic Management 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
Why and how a small business must create a competitive advantage in the market
16 Strategic Management and Competitive Edge Developing a strategic plan is crucial to gaining 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: Honest Tea
17 Key: Core Competencies Unique set of skills, knowledge, or abilities that 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
18 Key: Core Competencies – Core competencies are what a company does best Durable, forming the building blocks for everything a company does Difficult for competitors to duplicate Must provide customers with a valuable perceived benefit – Best to rely on a natural advantage (often linked to a company’s “smallness”)
The 9 steps in the strategic planning process
20 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
22 Step 1: Develop a Vision and Create a Mission Statement Vision – an expression of what an entrepreneur stands for and believes in; the “sixth sense that tells us why we make a difference in the world” Vision is based on an entrepreneur’s values - 3 to 6 core values A clearly defined vision: – Provides direction – Determines decisions – Motivates people
23 Step 1: Develop a Vision and Create a Mission Statement Mission - addresses question:"What business are we in?” 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
24 Step 1: Develop a Vision and Create a Mission Statement Elements: – Purpose – Business we are in – Values Example: Fetzer Vineyards – We are an environmentally and socially conscious grower, producer, and marketer of wines of the highest quality and value – Working in harmony with respect for the human spirit, we are committed to sharing information about the enjoyment of food and wine in a lifestyle of moderation and responsibility – We are dedicated to continuous growth and development of our people and our business
25 Step 1: Develop a Vision and Create a Mission Statement GM’S VISION STATEMENT GM’s vision is to be the world leader in transportation products and related services. We will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people. FACEBOOK’S MISSION STATEMENT Facebook's mission is to give people the power to share and make the world more open and connected. SOUTHWEST AIRLINE’S VISION STATEMENT Our vision is to expand our locations both domestic and overseas by being the largest and most profitable airline company to achieve both short and long-haul carriers efficiently and with low cost. Also to be an airline carrier that has the most productive workforce to guarantee the best flight possible for each and every passenger.
27 Step 3: Scan for Opportunities and Threats Opportunities – Positive external options the company can exploit to accomplish its mission, goals, and objectives Threats – Negative external forces that inhibit the company’s ability to accomplish its mission, goals, and objectives
28 65 Million Years Ago… Today…movie theater owners – threats?
External Market Forces Competitive Economic Political and Regulatory Technological Social and Demographic
30 Step 4: Identify Key Success Factors Key success factors: factors that influence a company’s ability to compete successfully in an industry The keys to unlocking the secrets of succeeding in a particular market segment
31 Step 5: Analyze Competitors Study: Top execs say that their industries are becoming more competitive Factors: – Smarter rivals – More price competition – Increased customer awareness
32 Competitor Analysis Direct competitors – Offer the same products and services – Customers often compare prices, features and deals among these competitors when they shop Significant competitors – Offer some of the same or similar products or services – Product or service lines overlap but not completely Indirect competitors – Offer same or similar products in only a small number of areas
33 Competitor Analysis Analyzing key competitors allows entrepreneurs 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 – Improve ability to differentiate your company from competitors
34 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 Competitor Analysis
35 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 Competitor Analysis
36 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 Competitor Analysis
39 Step 6: Create Company Goals and Objectives Goals – broad, long-range attributes to be accomplished; general and abstract – “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. – Specific – Measurable – Assignable – Realistic (yet challenging) – Timely
40 Step 7: Formulate Strategies 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 Strategy = Means
The 3 basic strategies
42 Three Strategic Options Three basic strategies: Strategy? Cost leadership Differentiation Focus
Three Strategic Options Source of Competitive Advantage TargetMarket Industry Niche Uniqueness Perceived by the Customer by the Customer Low-CostPosition Differentiation Low Cost Differentiation Focus Differentiation Focus Cost Focus Cost Focus
44 Cost Leadership Goal: to be the low-cost producer in the industry or market segment Advantages: – Reaching buyers who buy on the basis of price – Power to set the industry’s price floor Works well when: – Buyers are sensitive to price changes – Competing firms sell the same commodity products – A company can benefit from economies of scale
45 Differentiation Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion Idea is to be better than the competition at something customers value Key: Build basis for differentiation on a distinctive competence, something that a small company is uniquely good at doing in comparison to its competitors Example: Pharmaca
46 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 Strategy builds on differences among market segments
47 Focus Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market Examples: – Amazing Butterflies – 1570 Cinema Services – Freed of London
49 Step 9: Establish Accurate Controls The plan establishes the standards against which actual performance is measured Entrepreneur must: – Identify and track key performance indicators – Take corrective action
50 Balanced Scorecard 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
51 Balanced Scorecard Five Perspectives: 1.Customer: How do customers see us? 2.Internal Business: At what must we excel? 3.Innovation and Learning: Can we continue to improve and create value? 4.Financial: How do we look to shareholders? 5.Corporate Citizenship: What must we do to meet our social responsibility to society as a whole, the environment, the community, and other stakeholders?