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Strategic Management MGMT S-5000 (32759), Summer, 2011 Tuesday/Thursday, 3:15-6:15 PM, Sever 203 Sharon A. Mertz.

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Presentation on theme: "Strategic Management MGMT S-5000 (32759), Summer, 2011 Tuesday/Thursday, 3:15-6:15 PM, Sever 203 Sharon A. Mertz."— Presentation transcript:

1 Strategic Management MGMT S-5000 (32759), Summer, 2011 Tuesday/Thursday, 3:15-6:15 PM, Sever 203 Sharon A. Mertz

2 S-5000 – Strategic Management Topics: Welcome Course Outline & Overview Evaluation (refer to syllabus for guidance): Class Participation – 20% Case Analyses (2 x 15%) – 30%. Work with a partner or individually. Group Research Projects/Presentations – 20%. Final Case - 30% - individual effort Expectations Introducing Strategic Management Group Work 1

3 Chapter 1 Introducing Strategic Management

4 3 OBJECTIVES Understand why we study strategic management Recognize the difference between a fundamental and a dynamic competitive advantage Describe the determinants of competitive advantage Understand the relationship between strategy formulation and implementation Understand what a strategy is and identify the difference between business-level and corporate- level strategy

5 4 UNDER ARMOUR AT A GLANCE Revenues$17,000$430,000,000 Net Income 0 57,300,000 Equity Value 0 1,800,000,000 Brands and Trademarks Under Armour, HeatGear, ColdGear, AllSeasonGear, LooseGear, Click Clack Kevin Plank’s VisionTo become the world’s #1 performance athletic brand

6 5 STRATEGY General Lower officer (e.g., supply logistics infantry, heavy armored vehicles) Strategos: “the general’s view” Holistic “big picture” Tactical details

7 6 THE MILITARY ROOTS OF STRATEGY “The individualist without strategy who takes opponents lightly will inevitably become the captive of others.” – Master Sun

8 7 THREE OVERARCHING THEMES Implementing a good strategy is at least as important as creating one, yet many managers give too little thought to implementation Strategic leadership is responsible for  making substantive resource allocation decisions and  developing key- stakeholder support of the strategy We need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie Firms and industries are dynamic in nature To succeed, the formulation of a good strategy and its implementa- tion should be inextricably connected Strategic leader- ship is essential if a firm is able to both formulate and imple- ment strategies that create value   

9 BUSINESS STRATEGY AS AN ACADEMIC DISCIPLINE 8 Relatively recent – gained significant traction since the 1960’s Many perspectives – Whittington provides one example: Source: Whittington, What is Strategy - and does it matter? (2005) Internally focused Externally focused

10 9 THE STRATEGIC MANAGEMENT PROCESS Strategic analyses Internal External Vision and mission Fundamental organizational purpose Organizational values Strategy Arenas Vehicles Differentiators Staging Economic logic The central, integrated, externally oriented concept of how a firm will achieve its objectives Implementation levers and Strategic leadership

11 10 QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY Unit of measure ? ? Corporate-level strategy should ask In which markets do we compete today? In which markets do we want to compete tomorrow? How does our ownership of a business ensure its competitiveness today and in the future? How do we compete in this market today? How will we compete in this market in the future? Business-level strategy should ask

12 ADDITIONAL CHALLENGES AND OPPORTUNITIES CONFRONT DIVERSIFIED BUSINESSES 11 In which businesses will we compete? How can the corporate parent added value to the various lines of business? How will diversification or entry into a new industry enable us to compete in our other industries?

13 12 STRATEGY AND IMPLEMENTATION ITERATE WAL-MART EXAMPLE Strategy: The process of deciding what to do Implementation: The process of performing all the activities necessary to do what has been planned Compete as discount retailer in rural markets Leverage inventory and sourcing systems to be low-cost leader Invest heavily in organizational structure, systems, and processes

14 13 UNPLANNED ACTIONS CAN DRIVE STRATEGY Intel’s original focus (1970s & 1980s) Design and manufacture of Dynamic, Random- Access Memory Chips (DRAM) Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker Focus on micro- processor segment By 1984, 95% of Intel revenue came from the microprocessor segment

15 14 BUSINESS STRATEGY DIAMOND Staging Differentiators Economic logic Vehicles Arenas What will be our speed and sequence of moves? –Speed of expansion? –Sequence of initiatives Staging How will returns be obtained? –Lowest costs through scale advantages? –Lowest costs through scope and replication advantages –Premium prices due to unmatchable service? –Premium prices due to proprietary product features? Economic logic How will we get there? –Internal development? –Joint ventures? –Licensing/franchising? –Experimentation? –Acquisitions? Vehicles How will we win? –Image? –Customization? –Price? –Styling? –Product reliability? –Speed to market? Differentiators Where will we be active? ( and with how much emphasis?) –Which product categories? –Which channels? –Which market segments? –Which geographic areas? –Which core technologies –Which value-creation strategies? Arenas

16 15 JET BLUE STRATEGY Objective To “bring humanity back to air travel” Arenas Low fare commercial air carrier Underserved but over-priced US cities Vehicles Start from scratch and achieve all growth internally (i.e., do not purchase a regional airline) Differentiators High level of service compared to low fare competitors (e.g., leather seating, satellite TV) Staging Grow from one route between two cities to serving 20 cities in just 3 years Economic logic Secure cost advantage by being willing and able to perform key tasks differently –One type of plan –JFK home base –Secondary location

17 16 GOALS OF STRATEGY IMPLEMENTATION To make sure strategy formulation is comprehensive and well informed 1 To translate good ideas into actions that can be executed (and sometimes to use execution to generate or identify good ideas) 2

18 17 IMPORTANCE OF EXECUTION “The important decisions, the decisions that really matter, are strategic... [But] more important and more difficult is to make effective the course of action decided upon.” – Peter Drucker

19 18 FRAMEWORK FOR STRATEGY IMPLEMENTATION Intended Strategy Realized and Emergent Strategies Key Factors of Strategy Implementation Implementation levers Organizational structure Systems and processes People and rewards Strategic leadership Lever- and resource-allocation decisions Decision support among stakeholders

20 19 COMPETITIVE ADVANTAGE Competitive Advantage: a Firm’s ability to create value in a way that its rivals cannot Key question: how do Firms create sustained above-average returns?

21 20 THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE Dynamic Suggests that in dynamic, rapidly changing markets, a firm’s current market position is not an accurate prediction of future performance. Instead, we look at the past for clues about how the firm arrived at its current position and to future trends – both internal and external – in an effort to predict the future landscape Internal Often called the “resource view”, contends that firms are heterogeneous bundles of resources and capabilities and firms with superior resources and capabilities enjoy competitive advantage over other firms. This advantage makes it relatively easier to achieve consistently higher levels of performance External Also called the “positional view”, contends that variations in a firm’s competitive advantage and performance are primarily a function of industry attractiveness. Companies should therefore either (1) position themselves to compete in attractive industries or (2) adopt strategies that will make their current industries more attractive

22 INTERNAL AND EXTERNAL DIMENSIONS OF THE DYNAMIC PERSPECTIVE 21 Competitive advantage can shift quickly in unstable markets External dimension: Useful for “high velocity” markets, or examining industries characterized by multi-market competition. Internal dimension: Identify which firm resources and capabilities enable core competency of embracing continuous or disruptive change

23 Chapter 2 Leading Strategically Through Effective Vision and Mission

24 23 OBJECTIVES Explain how ethics and biases may affect strategic decision-making Identify a firm’s stakeholders and explain why such identification is critical to effective strategy formula- tion and implementation Understand the roles of vision and mission in deter- mining strategic purpose and strategic coherence Understand the relationships among vision, mission, values and strategy Explain how strategic leadership is essential to strategy formulation and implementation

25 24 PULLING A USD 15 BILLION COW OUT OF A DITCH Xerox introduces the Xerox 914 copier in This copier transformed the work place Xerox was charter member of the “nifty 50”-50 stocks most favored by institutional investors Since 1970s, however, Xerox has been crippled by competition (mostly Japanese) October 2001, Xerox reports first quarterly loss in16 years. Mulcahy is not obvious choice for top position She lacks product development and financial expertise She gets it because the board has confidence in her “strategic mind”. Refines Xerox vision and reminds people of core values Aligns operation with the refined mission and values Sells Xerox’s China and Hong Kong operations and half of a stake in a joint venture with Fuji Closes down inkjet business Annual expenses cut by USD 1.7 billion Sold USD 2.3 billion worth of non-core assets Reduced long-term debt to USD 9.2 billion from USD 15.6 billion Xerox returns to profitability in 2002, generating USD 1.9 billion in operating cash flow and USD 91 million in net income on USD 15.8 billion in sales The fall from the nifty 50 Mulcahy takes over She leads a turnaround Xerox reaches profitability

26 25 STRATEGIC LEADERSHIP – THE BASIC RESPONSIBILITY OF THE CEO The task of exerting influence on other people’s pursuit of goals in an organizational context Leadership: Managing an overall enterprise and influencing key organizational out- comes, such as company wide performance, competitive superiority, innovation, strategic change, and survival Strategic leadership:

27 " "I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?" "Larry Ellison's Brilliant Anti-Cloud Computing Rant" The Wall Street Journal, 25 September 2008 SOME BUSINESS LEADERS BECOME CELEBRITIES

28 27 EXECUTIVE ROLES Formal authority and status Interpersonal roles Figure head Leader Liaison Informational roles Monitor Disseminator Spokesperson Decision roles Entrepreneur Disturbance handler Resource allocator Negotiator

29 28 LEVEL 5 LEADERS Level 5 leaders Build greatness through combination of will and humility Level 4 leaders Can lead a group to superior levels of performance Level 3 leaders Organize people resources to accomplish predetermined objectives Level 2 leaders Work effectively with others as a member of a team to achieve group objectives Level 1 leaders Make individual contributions through talent and work ethic Capabilities

30 29 Professional modesty TWO ATTRIBUTES OF LEVEL 5 LEADERS Professional will The ability to translate strategic intent into the resolve needed to pursue a strategy and usually to make hard choices over a period of time Being someone who prefers to share credit rather than hog it who tends to shun public attention, act with calm determination, and exercise ambitions on the company’s behalf rather than one’s own “You can accomplish anything in life, provided that you do not mind who gets the credit.” - Harry S. Truman

31 30 WHAT DOES IT TAKE TO BE A CEO? Charisma? There is little consensus on whether personality or background matters more An Ivy league MBA? Integrity International management experience?

32 31 CRITERIA OF AN EFFECTIVE TOP-MANAGEMENT TEAM 1. The team responds to a complex and changing environment. 2. The team can manage the needs of interdependent but often diverse units, arenas, or functional areas. 3. The team has a valuable and effective social network. 4. The team is able to develop a coherent plan for executive succession.

33 “Social” is Not a New Phenomenon Research began in the late 1800’s: Durkheim and Tönnies Tönnies : social groups exist as personal or direct social ties, either linking individuals who share beliefs (Gemeinschaft) or impersonal, formal and instrumental social links (Gesellschaft) Early 20 th century: Simmel, explores the structural patterns of social interactions 1930’s onward: interest grows at institutions such as Harvard, University of Chicago, University of Toronto, and others. The area is researched by many; a few major contributors and example research topics: Granovetter: The Strength of Weak Ties Freeman: Visualizing Social Networks (importance of imagery in network research) Wellman: Computer Networks as Social Networks; Internet Effect on Social Capital “SOCIAL” IS NOT A NEW PHENOMENON

34 33 VISION, MISSION AND STRATEGY Vision and Mission Fundamental purpose Values View of future Strategic Goals and objectives Specific targets Measurable outcomes Strategy The central, integrated, externally-oriented concept of how the firm will achieve its objectives. Consists of 5 elements: arenas, vehicles, differentiators, staging, and economic logic

35 34 VISION – USES OF AMBITION AND AMBIGUITY Sony’s vision in early 1950’s: “becoming the company that most changes the worldwide image of Japanese products as being of poor quality.” CitiBank’s vision in 1915: “the most powerful, the most serviceable, the most far reaching world financial institution the world has ever seen.” Vision statements generally express long-term action horizons, are ambitious and force the firm to stretch. their ambiguity allows flexibility for changing strategy or implementation tactics

36 EXAMPLE – AN EXCERPT FROM THE SAP MISSION STATEMENT 35 Our mission is to help the world run better in order to create enduring prosperity for people everywhere. We help customers around the globe perform at a significantly higher level of effectiveness and efficiency by enabling closed-loop performance optimization to achieve profitable, sustainable growth. To succeed, we strive to build from our established leading position in the business software market and accelerate business and IT innovation for firms and industries. In reaching for this goal, we are also contributing to global economic development on a grand scale. Sap 20F, March, 2009

37 36 VISION ANCHORED IN GOALS AND OBJECTIVES Vision Goals and objectives Examples Wal-MartGrow sales and profits by 70% per year RyanairBe Europe’s largest airline in 7 years MatsushitaTo become a “super manufacturing company”

38 37 STRATEGY COHERENCE The symmetrical co-alignment of the five elements of a firm’s strategy The congruence of policies in functions (e.g., finance, production, marketing) with these elements The overarching fit of various businesses under the corporate umbrella Strategic coherence is Staging Differentiators Economic logic Vehicles Arenas Congruence

39 38 BENEFITS OF USING STAKEHOLDER ANALYSIS 1. Can use the opinions of the most powerful stakeholders to shape your strategy and tactics at an early stage. 2. Gain support from powerful stakeholders to help win more resources. 3. Can ensure that stakeholders fully understand what you are doing and understand the benefits of your project. 4. Can anticipate what people’s reactions to your project may be and build actions into the plan that will win people’s support.

40 39 STAKEHOLDER ANALYSIS Stakeholders: Individuals or groups who have an interest in an organization’s ability to deliver intended results and maintain the viability of its products and services Steps in identifying stakeholders 1.Determine influences on strategy formulation decisions 2.Determine stake- holders power and influence over strategy execution decisions 3.Determine the effects of strategic decisions After identifying stakeholders ask Have I identified any vulnerable points in either the strategy or its potential implementation? Which groups are mobilized and active in promoting their interests? Have I identified supporters and opponents of the strategy? Which groups will benefit from successful execution of the strategy and which may be adversely affected? Where are various groups located? Who belong to them, and who represents them?

41 40 MAPPING STAKEHOLDER INFLUENCE AND IMPORTANCE Unknown Little/No importance Moderate importance Significant importance Influence of stakeholder Unknown Little/No importance Moderate importance Significant importance Importance of Stakeholder


43 Corporate Governance – the role of owners, directors, and Managers in making corporate decisions Governance Sets the Boundaries Governance frameworks focus on internal control: The reliability and integrity of (financial) information Compliance with policies, plans, procedures, laws and regulations The safeguarding of assets The economical and efficient use of resources The accomplishment of established objectives and goals for operations or programs

44 43 Implementation – Executing new strategy to realize goals ETHICS AND BIASES Is the decision ethical? Have any potential biases clouded our decision-making process? Common illusions about ourselves (e.g., favorability optimism, control) Escalating commitments Self-serving fairness bias Overconfidence bias Ethnocentrism and stereotyping Risk assessment New strategy – A new means to accomplish goals Authority structures Incentive systems Role of corporate governance

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