Chapter 6 Strategic Management.

Chapter 6 Strategic Management

Learning Objectives After studying this chapter, you should be able to: Define strategy Explain the role of environmental analysis in strategy formulation Explain the strategic planning process Utilize strategic planning tools, such as the product life cycle model, portfolio matrix, and SWOT analysis. These learning objectives are expressed in the chapter and you may prefer to move directly to slide 4, if you are comfortable that students agree with the objectives. It should be noted at this point, that all slides that have been prepared for this and the other chapters, have been animated to assist in the presentation. The most important animations are not the bulleted text items (which are animated) but rather the animation of models and exhibits. Models and exhibits contain “sequenced” animations and attempt to portray in visual terms, what the text attempts to portray in words. Many of the models contained in the textbook are taken out of their “static” context and shown here as the “dynamic” constructs they are. A dynamic construct is one that shows how one variable or event is affected by another, and this implies change. Such concepts should be presented dynamically, which means the animation should reflect the change implied by the construct or model. It is a good idea to “play” through the slides before presenting the materials to be sure you understand how they work. Although these slides can be printed and displayed as “transparencies”, the dynamic nature of the concepts will be less obvious. The slides are best shown in the classroom with your computer connected to the overhead projector. To view the animated presentation, select “View Show” from the Slide Show pull-down menu, or press the F5 key at the top of the keyboard, or select “Slide Show” from the View pull-down menu. . The slides were prepared using Office 2000 to facilitate the likely lowest common denominator for software. However, they will also play under Office XP and newer software. ©2005 Prentice Hall

Learning Objectives After studying this chapter, you should be able to: Describe strategy implementation tools such as the Seven S Model. Describe the differences between intended and emergent strategies. ©2005 Prentice Hall

Competitive Advantage
The ability of a firm to win consistently over the long term in a competitive situation. Competitive advantage is created through the achievement of five qualities Non-substitutability Appropriability Superiority Inimitability Durability The discussion of competitive advantage begins in the textbook on page 194. The next five slides provide additional detail on the five qualities of superiority, inimitability, durability, non-substitutability and appropriability. ©2005 Prentice Hall

Five Qualities that Lead to Competitive Advantage
Superiority Superiority Are you significantly better than your competitors? At what things are you better? This is the first of five slides detailing the five qualities leading to competitive advantage. If presented in the “View Show” mode, the five slides will be seamless, each blending with the previous. Students can be solicited to cite examples from current business readings of various competitors and their advantages in each of these qualities. ©2005 Prentice Hall

Superiority Inimitability Managers must create barriers that make it hard for others to copy their superiority advantages Culture Product design Marketing strategy And others Inimitability ©2005 Prentice Hall

Superiority Non-substitutability Can the customer’s need that you fulfill can be met by alternative means? Encyclopedias vs. information availability on the Internet Movie theater entertainment vs. concert band entertainment Inimitability Durability Non-substitutability ©2005 Prentice Hall

Superiority Appropriability Can you actually capture the profits that can be made in the business? Supernormal returns Profits that are above the average for a comparable set of firms Primarily a function of greater‑than‑average cost‑price margins Inimitability Durability Non-substitutability Appropriability ©2005 Prentice Hall

Strategic Management Process: Setting Direction
Strategic management process is a planning process in which managers Set the organization's general direction and objectives Formulate a specific strategy Plan and carry out the strategy’s implementation Monitor results and make necessary adjustments This slide begins a substantive discussion of “setting direction” as part of the strategic management process. This discussion begins on page 197 of the textbook. As the slides progress, the title of each slide will maintain consistency, but distinction of subtopics will appear as the subtopics change. Exhibit slides are treated differently. The emphasis on this first slide is the “planning” component of the strategic management process, and that connection should be made clear to students. Also the sequential nature of the four steps should be pointed out, as the numbers indicate that these are not activities to be done in random order. ©2005 Prentice Hall

Strategic Management Process
Determine strategic intent Strategic Management Process Define organizational mission Analyze environment Set objectives Determine requirements Assess resources This exhibit contains many activities and is difficult to put on a slide, however it should be viewable in most classroom settings. The exhibit is animated to permit point-by-point discussion of each component. If you present using the “View Show” mode, then you should review the slide in your office before presenting in the classroom to be sure you understand the mouse actions. The feedback and strategic planning loops require only one mouse click to activate the five loops. Develop action plans Implement plans Strategic Planning Monitor outcomes Feedback ©2005 Prentice Hall Adapted from Exhibit 6.1: Strategic Management Process

Strategic Intent Strategic intent: what the organization ultimately wants to be and do General identity, direction, and level of aspirations of the organization A key objective is to inspire Should paint a general picture of aspiration and engender a strong emotional response in just a few words Strategic intent is a subtopic of “Strategic Management Process: Setting Direction” and is the first example of how subtopics are identified in the slides. Strategic intent is an interesting’ topic, since often times “intent” is lost in the translation to “action.” But without intent, action would have no initial guidance, so organizations spend a lot of energy working at this stage in the process. ©2005 Prentice Hall

Mission Mission statement articulates the fundamental purpose of the organization Company philosophy Company identity, or self-concept Principal products or services Customers and markets Geographic focus Obligations to shareholders Commitment to employees One thing that some instructors do to illustrate an organization’s mission, is to go on the internet and pull down various mission statements from organizations. Alternatively, the next slide contains the mission statement found on page 199 of the textbook. ©2005 Prentice Hall

Mission Statement for the Internal Revenue Service
The IRS mission is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” ©2005 Prentice Hall Adapted from Exhibit 6.2 Mission Statement for the Internal Revenue Service

Strategic Objectives Strategic objectives translate the strategic intent and mission of the firm into concrete and measurable goals Facilitates a firm's ability to Allocate resources appropriately Reach a shared understanding of priorities Delegate responsibilities Hold people accountable for results Points that can be made here can be drawn from discussions of important aspects of goals such as measurability, specificity and so on. Alternatively, you may decide to concentrate of how goals benefit the organization and give it a strategic advantage. Eight issues addressed by strategic objectives are shown in the following slide, and discussed on page 197 in the textbook. ©2005 Prentice Hall

Strategic Objectives Strategic objectives address many issues, such as Revenue growth Profitability Customer satisfaction Market share Financial returns (e.g., return on equity, return on assets) Technological leadership Cash flow Operating efficiency (e.g., costs per unit, expense per employee) ©2005 Prentice Hall

Strategic Management Process: Formulating a Strategy
Competitive strategy: determining how the company is going to compete and achieve its strategic objectives, mission, and ultimate strategic intent Generic strategies Techniques and tools Discussion of the strategic management process now advances to the second step, formulating a strategy (see slide 10 for the four steps). It is a good idea to remind students where the discussion has progressed and remind them of the four steps described in that slide. This step is dominated by consideration of the “actions” that will help achieve the “objectives and missions” that were established in the first step. The discussion of strategies and techniques will continue through slide 30. Again, the titles of each slide will retains some consistency so that students will know you are still in this discussion. Exhibits carry their own titles. ©2005 Prentice Hall

Generic strategies Cost leadership Differentiation Scope These three generic strategies are also discussed in Exhibit 6.3: Generic Strategies and Scope, found on page 203 in the textbook. That exhibit is found on the next slide, so you might limit your discussion of these strategies until the next slide. ©2005 Prentice Hall

Generic Strategies and Scope
General player whose product or service features command industry average prices but whose costs are significantly below the industry average. Example: Wal-mart Niche player with average prices and below-average costs that focuses on a segment of customers or a specific geography. Example: Columbia Sports Differentiation Cost Leadership Strategy General player whose product or service features command premium prices and whose costs are at the industry average. Example: Sony Niche player with average costs but commanding premium prices that focuses on the high end and customers in a general or specific geography. Example: Morgan Motors Exhibit 6.3 has been animated to allow point-by-point discussion. The two axes are revealed first (mouse click 1) to permit you to discuss the dimensions of “strategy”’ and “scope”. Then cost leadership-general (mouse click 2), differentiation-general (mouse click 3), cost leadership-focused (mouse click 4), and finally differentiation-focused (mouse click 5). Examples of firms in each quadrant will help in this discussion. These examples can be elicited from students. General Focused Scope ©2005 Prentice Hall Adapted from Exhibit 6.3: Generic Strategies and Scope

Internal and external analysis Tools and concepts Environmental analysis Value proposition Organizational analysis Value chain Five primary activities Four support activities This slide lists the tools and concepts used in analyzing the firm’s strategies and how they can best utilize their strengths and weaknesses and exploit the environment for competitive advantage. It is followed by several slides that will add detail to the tools and concepts. ©2005 Prentice Hall

Value Proposition for Three Car Companies
High Low Company C Equal value line Company B Company A Reliability Best Value Exhibit 6.4, found on page 204 of the text, has been animated to provide point-by-point discussion. This includes discussion of the axes, the equal value line, each company’s performance on the reliability-prices relationship (companies A, B, C) and the identification of the ‘best value.” If you present in the “View Show” mode, be sure to view the presentation in your office before going to class. Low High Price ©2005 Prentice Hall Adapted from Exhibit 6.4: Value Proposition for Three Companies

The Value Chain Primary Activities
Firm infrastructure (e.g., Finance, Planning) Human resource management Support Activities Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales After-sale service Exhibit 6.5, the value chain, has also been animated to permit point-by-point discussion. The value chain is one of the organizational analysis tools, and the text discussion begins on page 205. The exhibit is found on the top of page 206. As always, review the slide in your office, if you plan to present the topic in the “View Show” mode. It will help to provide examples of what each activity is about. For example, in a restaurant, inbound logistics includes consideration of raw vegetables, various meats and beverages, napkins and other consumables, the method of trucking and storing those items and tracking their inventory. It also is useful to describe the general difference between primary and support activities. How firms leverage the value chain is listed on the following slide, and that discussion can be delayed until then. Primary Activities ©2005 Prentice Hall Adapted from Exhibit 6.5: The Value Chain

Leveraging the value chain Determine where in your value chain you have the potential to add the greatest value Segment business activities, see the important linkages and make adjustments Resource-based approach Recognize and exploit internal strengths of the company ©2005 Prentice Hall

Core competencies Are interrelated sets of activities that deliver competitive advantages in the short-term and long-term Provide access to a wide variety of markets Significantly contribute to perceived customer benefits of the end products or services Are difficult for competitors to imitate Core competencies focus on an interrelated set of activities that can deliver competitive advantage not just in the short-term but into the future. The following statement, found on page 209 of the text, were not included in the slides, but may help in the class discussion. Factors considered core would “(1) provide access to a wide variety of markets, (2) significantly contribute to perceived customer benefits of the end products or services, and (3) be difficult for competitors to imitate.” With this in mind, you can elicit from students, examples of what kinds of activities might be core to various types of firms. ©2005 Prentice Hall

Integrating Internal and External Analyses
Product Life Cycle Birth Growth Maturity Decline High Low Product life cycle is one of three analysis techniques describe in this and the next five slides. The titles of the slides will maintain consistency, but the particular techniques is identified in each case. Each exhibit is animated to permit point-by-point discussion of each important element of the technique, when presented in the “View Show” mode. Axes, keys, and graph lines are each activated by mouse clicks and animated a proper manner. In this exhibit, found on page 209 of the text, the graph lines are animated along the dimension of “time.” Time ©2005 Prentice Hall Adapted from Exhibit 6.6: Product Life Cycle

Product Life Cycle High Low Sales Exhibit 6.7, found on page 211 of the text, shows international product life cycles. The discussion on pages 210 and 211 will help clarify the exhibit. Examples of products and extending their life cycles by taking the product international will assist the students in understanding the discussion. The exhibit is animated to permit point-by-point discussion. Time ©2005 Prentice Hall Adapted from Exhibit 6.7: International Product Life Cycles

Portfolio Analysis High Low Relative Market Share Market Attractiveness BCG Matrix Portfolio analysis is the second technique discussed. Exhibit 6.8, the BCG Matrix is found on page 213 of the text. This commonly referred to technique is easy to explain, once the two dimensions or axes have been understood. The exhibit has been animated to permit point-by-point discussion. Once this slide has been disposed of, it will dissolve into a second slide discussion the attractiveness of international markets, an application of the BCG Matrix. The transition is seamless, appearing as one slide. ©2005 Prentice Hall Adapted from Exhibit 6.8: BCG Matrix

Portfolio Analysis High Low Relative Market Share Market Attractiveness BCG Matrix This exhibit is found on page 214 of the text. Notice that the horizontal axis has been renamed from the BCG matrix, but this is a distinct application of the portfolio analysis approach. As usual, the exhibit is animated to permit point-by-point discussion. Our Ability To Compete ©2005 Prentice Hall Adapted from Exhibit 6.9: International Matrix

SWOT Analysis Internal environment Strengths Weaknesses Tools Core competencies framework Resource analysis framework Value chain framework Internal Environment SW A simple organizational “chart” has been illustrated here to assist in the visual understanding of the SWOT analysis technique. Analysis of the internal environment focuses on the firm’s strengths and weaknesses (core competencies has been previously discussed, but can certainly be entered into the discussion here). The tools previously reviewed also enlighten this discussion. External environment considerations are discussed on the next slide, which will appear seamlessly on the final mouse click here. ©2005 Prentice Hall

SWOT Analysis External environment Opportunities Threats Tools Product life cycle analysis Portfolio analysis Five forces framework SW OT This slide permits the integration of tools previously discussed, as means of analyzing the external environment, which is viewed as an analysis of opportunities and threats. External Environment ©2005 Prentice Hall

Strategic Management Process: Strategy Implementation
Seven S’s Structure Strategy Plan or course of action Allocation of firm’s resources to reach goals Structure Basic grouping of reporting relationships and activities Linking of separate organizational entities This is the first of four slides that discuss step 3 of the strategic management process (see slide 10). This discussion focuses on the Seven S’s. Each subsequent slide is seamless, covering a total of seven points, but permitting students to see the words on the slide in a classroom setting. Exhibit has been integrated into the slides, not as the main feature, but as a supporting feature for the discussion. The exhibit is animated, consistently with the discussion, permitting point-by-point discussion. The topic is discussed in the text from pages 216 through 218. ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model

Seven S’s Structure Shared Values Significant meanings or guiding concepts Shared values Systems Systems Formal processes and procedures Management control systems Performance measurement and reward systems Planning and budgeting systems The ways people relate to them ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model

Seven S’s Skills Structure Skills Organizational competencies Other capabilities residing in the organization Shared values Systems Style Style Leadership style of management Operating style of the organization Reflection of the norms people act upon ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model

Seven S’s Skills Structure Staff Recruitment Selection Development Socialization Advancement of people in the organization Shared values Staff Systems Style This is the last slide in the presentation. ©2005 Prentice Hall Adapted from Exhibit 6.10: Seven S Model

Chapter 6 Strategic Management.

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