Presentation on theme: "S-5000 – Strategic Management"— Presentation transcript:
0 Strategic Management MGMT S-5000 (32759), Summer, 2011 Tuesday/Thursday, 3:15-6:15 PM, Sever 203Sharon A. Mertz
1 S-5000 – Strategic Management Topics:WelcomeCourse Outline & OverviewEvaluation (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 effortExpectationsIntroducing Strategic ManagementGroup Work
3 OBJECTIVESUnderstand what a strategy is and identify the difference between business-level and corporate-level strategy1Understand the relationship between strategy formulation and implementation23Describe the determinants of competitive advantage4Recognize the difference between a fundamental and a dynamic competitive advantage5Understand why we study strategic management
4 UNDER ARMOUR AT A GLANCE 19962006Revenues$17,000$430,000,00057,300,000Net Income1,800,000,000Equity ValueBrands and TrademarksUnder Armour, HeatGear, ColdGear, AllSeasonGear, LooseGear, Click ClackKevin Plank’s VisionTo become the world’s #1 performance athletic brand
5 STRATEGY Strategos: “the general’s view” Holistic “big picture” STRATEGYStrategos: “the general’s view”Holistic “big picture”GeneralLower officer (e.g., supply logistics infantry, heavy armored vehicles)Tactical details
6 THE MILITARY ROOTS OF STRATEGY “The individualist without strategy who takes opponents lightly will inevitably become the captive of others.”– Master Sun
7 THREE OVERARCHING THEMES Implementing a good strategy is at least as important as creating one, yet many managers give too little thought to implementationTo succeed,the formulation of a good strategy and its implementa-tion should be inextricably connectedStrategic leadership is responsible formaking substantive resource allocation decisions anddeveloping key-stakeholder support of the strategyFirms and industries are dynamic in natureStrategic leader- ship is essential if a firm is able to both formulate and imple-ment strategies that create valueWe need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie
8 BUSINESS STRATEGY AS AN ACADEMIC DISCIPLINE Added, December 2010BUSINESS STRATEGY AS AN ACADEMIC DISCIPLINERelatively recent – gained significant traction since the 1960’sMany perspectives – Whittington provides one example:Internally focusedExternally focusedSource: Whittington, What is Strategy - and does it matter? (2005)
9 THE STRATEGIC MANAGEMENT PROCESS Strategic analysesInternalExternalStrategyVision and missionArenasVehiclesDifferentiatorsStagingEconomic logicImplementation leversandStrategic leadershipFundamental organizational purposeOrganizational valuesThe central, integrated, externally oriented concept of how a firm will achieve its objectives
10 QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY Unit of measure?Corporate-level strategy should askIn 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?Business-level strategy should ask?How do we compete in this market today?How will we compete in this market in the future?
11 ADDITIONAL CHALLENGES AND OPPORTUNITIES CONFRONT DIVERSIFIED BUSINESSES Added December, 2010In 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?
12 STRATEGY AND IMPLEMENTATION ITERATE WAL-MART EXAMPLECompete as discount retailer in rural marketsLeverage inventory and sourcing systems to be low-cost leaderStrategy:The process of deciding what to doImplementation:The process of performing all the activities necessary to do what has been plannedInvest heavily in organizational structure, systems, and processes
13 UNPLANNED ACTIONS CAN DRIVE STRATEGY Intel’s original focus (1970s & 1980s)Focus on micro-processor segmentBy 1984, 95% of Intel revenue came from the microprocessor segmentDesign and manufacture of Dynamic, Random-Access Memory Chips (DRAM)Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker
14 BUSINESS STRATEGY DIAMOND Where will we be active? ( and with how much emphasis?)Which product categories?Which channels?Which market segments?Which geographic areas?Which core technologiesWhich value-creation strategies?ArenasArenasWhat will be our speed and sequence of moves?Speed of expansion?Sequence of initiativesStagingEconomic logicHow will we get there?Internal development?Joint ventures?Licensing/franchising?Experimentation?Acquisitions?VehiclesStagingVehiclesHow will returns be obtained?Lowest costs through scale advantages?Lowest costs through scope and replication advantagesPremium prices due to unmatchable service?Premium prices due to proprietary product features?Economic logicDifferentiatorsHow will we win?Image?Customization?Price?Styling?Product reliability?Speed to market?Differentiators
15 JET BLUE STRATEGY Low fare commercial air carrier Arenas Underserved but over-priced US citiesVehiclesStart from scratch and achieve all growth internally (i.e., do not purchase a regional airline)ObjectiveTo “bring humanity back to air travel”DifferentiatorsHigh level of service compared to low fare competitors (e.g., leather seating, satellite TV)Grow from one route between two cities to serving 20 cities in just 3 yearsStagingEconomic logicSecure cost advantage by being willing and able to perform key tasks differentlyOne type of planJFK home baseSecondary location
16 GOALS OF STRATEGY IMPLEMENTATION To make sure strategy formulation is comprehensive and well informed1To translate good ideas into actions that can be executed (and sometimes to use execution to generate or identify good ideas)2
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
18 FRAMEWORK FOR STRATEGY IMPLEMENTATION Key Factors of Strategy ImplementationImplementation leversOrganizational structureSystems and processesPeople and rewardsRealizedandEmergentStrategiesIntendedStrategyStrategic leadershipLever- and resource-allocation decisionsDecision support among stakeholders
19 COMPETITIVE ADVANTAGE COMPETITIVE ADVANTAGECompetitive Advantage: a Firm’s ability to create value in a way that its rivals cannotKey question: how do Firms create sustained above-average returns?
20 THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE InternalExternalDynamicOften 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 performanceAlso 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 attractiveSuggests 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
21 INTERNAL AND EXTERNAL DIMENSIONS OF THE DYNAMIC PERSPECTIVE Competitive advantage can shift quickly in unstable marketsExternal 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
22 Chapter 2 Leading Strategically Through Effective Vision and Mission
23 OBJECTIVES1Explain how strategic leadership is essential to strategy formulation and implementation2Understand the relationships among vision, mission, values and strategy3Understand the roles of vision and mission in deter-mining strategic purpose and strategic coherence4Identify a firm’s stakeholders and explain why such identification is critical to effective strategy formula-tion and implementation5Explain how ethics and biases may affect strategic decision-making
24 PULLING A USD 15 BILLION COW OUT OF A DITCH Xerox reaches profitabilityThe fall from the nifty 50Mulcahy takesoverShe leads a turnaroundXerox introduces the Xerox 914 copier in This copier transformed the work placeXerox was charter member of the “nifty 50”-50 stocks most favored by institutional investorsSince 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 positionShe lacks product development and financial expertiseShe gets it because the board has confidence in her “strategic mind”.Refines Xerox vision and reminds people of core valuesAligns operation with the refined mission and valuesSells Xerox’s China and Hong Kong operations and half of a stake in a joint venture with FujiCloses down inkjet businessAnnual expenses cut by USD 1.7 billionSold USD 2.3 billion worth of non-core assetsReduced long-term debt to USD 9.2 billion from USD 15.6 billionXerox 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
25 STRATEGIC LEADERSHIP – THE BASIC RESPONSIBILITY OF THE CEO Modified title, December, 2010STRATEGIC LEADERSHIP – THE BASIC RESPONSIBILITY OF THE CEOLeadership:Strategic leadership:The task of exerting influence on other people’s pursuit of goals in an organizational contextManaging an overall enterprise and influencing key organizational out- comes, such as company wide performance, competitive superiority, innovation, strategic change, and survival
26 SOME BUSINESS LEADERS BECOME CELEBRITIES " "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
27 EXECUTIVE ROLES Interpersonal roles Figure head Leader Liaison Informational rolesMonitorDisseminatorSpokespersonFormal authority and statusDecision rolesEntrepreneurDisturbance handlerResource allocatorNegotiator
28 LEVEL 5 LEADERS Capabilities Build greatness through combination of will and humilityLevel 5 leadersCan lead a group to superior levels of performanceLevel 4 leadersOrganize people resources to accomplish predetermined objectivesLevel 3 leadersWork effectively with others as a member of a team to achieve group objectivesLevel 2 leadersMake individual contributions through talent and work ethicLevel 1 leaders
29 TWO ATTRIBUTES OF LEVEL 5 LEADERS The ability to translate strategic intent into the resolve needed to pursue a strategyand usually to make hard choices over a period of timeBeing someonewho prefers to share credit rather than hog itwho tends to shun public attention,act with calm determination, andexercise ambitions on the company’s behalf rather than one’s ownProfessional willProfessional modesty“You can accomplish anything in life, provided that you do not mind who gets the credit.”- Harry S. Truman
30 WHAT DOES IT TAKE TO BE A CEO? An Ivy league MBA?Charisma?There is little consensus on whether personality or background matters moreInternational management experience?Integrity
31 CRITERIA OF AN EFFECTIVE TOP-MANAGEMENT TEAM 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.
32 “Social” is Not a New Phenomenon Added slide, December, 2010“SOCIAL” IS NOT A NEW PHENOMENON“Social” is Not a New PhenomenonResearch began in the late 1800’s: Durkheim and TönniesTönnies : 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 20th century: Simmel, explores the structural patterns of social interactions1930’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 TiesFreeman: Visualizing Social Networks (importance of imagery in network research)Wellman: Computer Networks as Social Networks; Internet Effect on Social Capital
33 VISION, MISSION AND STRATEGY Text, exhibit 2.6.VISION, MISSION AND STRATEGYStrategyThe central, integrated, externally-oriented concept of how the firm will achieve its objectives. Consists of 5 elements: arenas, vehicles, differentiators, staging, and economic logicVision and MissionStrategic Goals and objectivesFundamental purposeValuesView of futureSpecific targetsMeasurable outcomes
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.”Vision statementsgenerally express long-term action horizons,are ambitious and force the firm to stretch.their ambiguity allows flexibility for changing strategy or implementation tacticsCitiBank’s vision in 1915:“the most powerful, the most serviceable, the most far reaching world financial institution the world has ever seen.”
35 EXAMPLE – AN EXCERPT FROM THE SAP MISSION STATEMENT 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
36 VISION ANCHORED IN GOALS AND OBJECTIVES ExamplesWal-MartGrow sales and profits by 70% per yearGoals and objectivesRyanairBe Europe’s largest airline in 7 yearsMatsushitaTo become a “super manufacturing company”
37 STRATEGY COHERENCE Strategic coherence is StagingDifferentiatorsEconomic logicVehiclesArenasThe symmetrical co-alignment of the five elements of a firm’s strategyThe congruence of policies in functions (e.g., finance, production, marketing) with these elementsThe overarching fit of various businesses under the corporate umbrellaStrategic coherence isCongruence
38 BENEFITS OF USING STAKEHOLDER ANALYSIS Can use the opinions of the most powerful stakeholders to shape your strategy and tactics at an early stage.Gain support from powerful stakeholders to help win more resources.Can ensure that stakeholders fully understand what you are doing and understand the benefits of your project.Can anticipate what people’s reactions to your project may be and build actions into the plan that will win people’s support.
39 STAKEHOLDER ANALYSIS 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?Steps in identifying stakeholdersDetermine influences on strategy formulation decisionsDetermine stake-holders power and influence over strategy execution decisionsDetermine the effects of strategic decisionsStakeholders: 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
40 MAPPING STAKEHOLDER INFLUENCE AND IMPORTANCE Importance of StakeholderInfluence of stakeholderLittle/No importanceModerate importanceSignificant importanceUnknownUnknownLittle/No importanceModerate importanceSignificant importance
42 Governance Sets the Boundaries Governance sets the tone at the top and establishes the culture of the organization, including attitude toward risk management and compliance. The intention of SOX was to instill good governance, but the approach to its implementation did not deliver on that promise. A governance framework has the benefit of:Setting business goals for the enterprise and validates enterprise strategy. It ensures growth or mission enhancement with an appropriate amount of risk. It provides focus to strategic initiatives.Setting the strategy to support business goals and implementation plan for the strategy. It provides clarity and direction as to how the business goals will be met, and coordinates across the enterprise.Aligns spending with business goals. It ensures that spending for the implementation of enterprise initiatives is consistent with its priority level.Corporate Governance – the role of owners, directors, andManagers in making corporate decisionsGovernance frameworks focus on internal control:The reliability and integrity of (financial) informationCompliance with policies, plans, procedures, laws and regulationsThe safeguarding of assetsThe economical and efficient use of resourcesThe accomplishment of established objectives and goals for operations or programs
43 ETHICS AND BIASESHave any potential biases clouded our decision-making process?Is the decision ethical?New strategy – A new means to accomplish goalsImplementation – Executing new strategy to realize goalsAuthority structuresIncentive systemsRole of corporate governanceCommon illusions about ourselves (e.g., favorability optimism , control)Escalating commitmentsSelf-serving fairness biasOverconfidence biasEthnocentrism and stereotypingRisk assessment
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