Introduction to Strategy

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Presentation transcript:

Introduction to Strategy

Sources Strategic Management: Concepts and Cases by A. Thompson and A. Strickland Chapter 2: Establishing Company Direction Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy Chapter 3: Industry and Competitive Analysis

The Mission Statement Customer needs, or what is being satisfied Customer groups, or who is being satisfied The company’s activities, technologies and competencies, or how the company goes about creating and delivering value to customers and satisfying their needs Good mission statements are personalized – unique to the company

Strategic Vision What changes are occurring in the market where we operate, and what implications do these changes have for us? What new or different customer needs should we be moving to satisfy? What new or different buyer segments should we be focusing on? What new geographic or product markets should we be pursuing? What should the company’s business look up in five years? What type of company should we be trying to become?

Objectives Converts vision into specific performance targets Objectives should be measurable and contain deadline for achievement Strategic objectives need to be competitor-focused, often aiming at unseating a competitor Financial objectives: revenues, earnings, profit margins, return on capital, credit rating, cash flow, diversified revenue base, stable earnings Strategic objectives: market share, time to market, product quality, quality, on time delivery, geographic coverage, customer satisfaction

Business Strategy It includes moves to produce successful performance in one specific line of business: Forming responses to changes under way in the industry, economy, regulatory and political arena, and other relevant areas Crafting moves that can lead to sustainable competitive advantage Building valuable competences Uniting the strategies of functional departments Addressing specific issues facing the company Crafting a strategy that creates competitive advantage, includes: Deciding what product/service attributes to offer Develop resources that set the company apart from rivals Trying to insulate the company from actions of rivals

Industry and Competitive Analysis What are the industry’s economic features? What is the competition like? What is causing the industry’s structure to change? Which companies are in the strongest/weakest positions? What strategic moves are rivals likely to make next? What are the key factors for competitive success? Is the industry attractive and profitable?

The Five Forces of Competition Michal E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors 1980 The rivalry among competing sellers in the industry The potential entry of new competitors The market attempts of companies in other industries to win customer over to their own substitute products The competitive pressures stemming from supplier-seller collaboration and bargaining The competitive pressures stemming from seller-buyer collaboration and bargaining

1. Rivalry Among Sellers Rivalry intensifies as the number of competitors increases and as competitors become equal in size and capability Rivalry is usually stronger when demand is growing slowly Rivalry is more intense when price cuts are used to increase volume Rivalry is stronger when customer’s costs to switch brands are low Rivalry is stronger when a competitor is dissatisfied with its position Rivalry increases in proportion to the size of the payoff Rivalry tends to be more vigorous when it is costly to get out of a business Rivalry becomes more volatile the more diverse competitors are Rivalry increases when strong outside companies acquire weak insiders

1. Rivalry Among Sellers number of competitors Demand growing slowly price cuts are used to increase volume customer’s costs to switch are low competitor is dissatisfied with its position in proportion to the payoff costly to get out of a business diverse competitors strong outside companies acquire weak insiders

2. The Potential Entry of New Competitors Entry Barriers, related to Economies of scale Cost disadvantage of current industry Learning effects Specialized technology and know-how Brand preferences and customer loyalty Capital requirements Access to distribution channels Regulation Tariffs

3. Attempts to win customers to substitute products Threats from substitute products is related to Whether attractively priced substitutes are available Whether buyers view the substitutes as being satisfactory in terms of quality performance, and other relevant attributes. Whether buyers can switch to substitutes easily

4. The competitive pressures stemming from supplier-seller collaboration and bargaining Whether suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favor The extent of supplier-seller collaboration in the industry

5. Seller-Buyer Collaboration and Bargaining Bargaining leverage of buyers If they buy a lot Offer the seller market exposure or prestige If buyers’ costs of switching to competing brands or substitutes are low If the number of buyers is small or if a customer is important If buyers are well informed about sellers’ prices and costs If buyers can do it themselves (‘backward integration’) If buyers have discretion in whether and when they purchase the product

Porter’s Competitive Forces McFarlan’s Technology Questions The rivalry among competing sellers in the industry The potential entry of new competitors The market attempts of companies in other industries to win customer over to their own substitute products The competitive pressures stemming from supplier-seller collaboration and bargaining The competitive pressures stemming from seller-buyer collaboration and bargaining Can IT change the basis of competition? Can IT build of reduce barriers to entry? Can IT add value to existing products and services or create new ones? Can IT change the nature of relationships and the balance of power among buyers and suppliers? Can IT increase or decrease switching costs?