BUS 189 STRATEGIC MANAGEMENT CHAPTER 1, 8TH EDITION HILL & JONES, STRATEGIC MANAGEMENT DR. MARK FRUIN FALL 2009

INTRO BEFORE CHAPTER 1 REVIEW –VALUE ADDING ACTIVITY SEQUENCE/STREAM –INDUSTRIES & SECTORS –FIRMS & FIRM BOUNDARIES –VALUE CHAINS –STRATEGY STACK –ENVIRONMENTS SHAPE FIRMS, EXCEPT IN SPECIAL CASES, WHICH ARE? –WHAT IS STRATEGY –2.5 MODELS OF STRATEGY

WHY DO SOME FIRMS SUCCEED WHILE OTHERS FAIL? STRATEGIES HAVE MAJOR IMPACTS ON PERFORMANCE (THE HYPOTHESIS) A STRATEGY IS A SET OF RELATED ACTIONS THAT MANAGERS TAKE TO INCREASE THEIR COMPANY’S PERFORMANCE (p. 3) –STRATEGIC LEADERSHIP (p. 3) INCLUDES STRATEGY FORMULATION STRATEGY IMPLEMENTATION STRATEGY ASSESSMENT (not on p. 3) STRATEGY RE-FORMULATION & IMPLEMENTATION (not p.3) IF A FIRM’S STRATEGIES RESULT IN SUPERIOR PERFORMANCE, IT IS SAID TO HAVE A COMPETITIVE ADVANTAGE

TERMS STRATEGIC LEADERSHIP STRATEGY-MAKING PROCESS STRATEGY FORMULATION STRATEGY IMPLEMENTATION STRATEGY MEASURING, MONITORING & MANAGEMENT (not in textbook)

MEASURING PERFORMANCE MAXIMIZING SHAREHOLDER VALUE –FIRST, SHAREHOLDERS PROVIDE RISK CAPITAL; MANAGERS PURSUE STRATEGIES AS THEIR AGENTS –SECOND, SHAREHOLDERS ARE OWNERS, AND OWNERS HAVE PROPERTY RIGHTS MEASURING PROFITABILITY –RETURN ON INVESTED CAPITAL –SHORT-TERM OR LONG-TERM? PROFIT GROWTH –INCREASE IN NET PROFITS OVER TIME PROFITABILITY AND PROFIT GROWTH ARE KEY MEASURES OF STRATEGY PERFORMANCE

PROFITABILITY PROFITABILITY IS THE MOST COMMON MEASURE OF STRATEGIC SUCCESS PROFITABILITY MEASURES RETURNS ON INVESTED CAPITAL PROFIT USUALLY MEANS BEFORE-TAX PROFITS INVESTED CAPITAL = STOCKHOLDERS’ EQUITY + DEBT (LIABILITIES)

MORE TERMS SUSTAINABLE COMPETITIVE ADVANTAGE –A COMPETITIVE ADVANTAGE IN A PARTICULAR LINE OF BUSINESS THAT LASTS & LASTS STRATEGY = HOW ENABLE A BUSINESS MODEL BUSINESS MODEL –HOW DO WE MAKE MONEY SELECT CUSTOMERS PRODUCT OFFERINGS (DEFINE & DIFFERENTIATE) CREATE VALUE ORGANIZE ACTIVITIES CONFIGURE RESOURCES

CHOICE OF INDUSTRY IN ADDITION TO BUSINESS MODEL AND ASSOCIATED STRATEGIES, CHOICE OF INDUSTRY IS HUGE –INDUSTRIES VARY SIGNIFICANTLY IN TERMS OF GROWTH RATES & AVE PROFITS TYPICAL LOW PROFIT INDUSTRY? –WHY ARE PROFITS LOW IN RETAIL? TYPICAL HIGH PROFIT INDUSTRY? –WHY ARE PROFITS HIGH IN COMPUTER SOFTWARE? –A FIRM’S SUCCESS DEPENDS ON IN WHICH INDUSTRY/IES DOES IT COMPETE? WHICH STRATEGIES IT PURSUES IN INDUSTRY

STRATEGY STACK = LEVELS OF STRATEGIC MANAGEMENT FUNCTIONAL LEVEL –BUSINESS FUNCTIONS COMPANYWIDE BUSINESS LEVEL –OR BU/DIVISIONAL MANAGEMENT INCLUDES BOTH PRODUCT-LEVEL AND INDUSTRY-LEVEL STRATEGIES CORPORATE LEVEL –CEO, BOARDS, AND CORPORATE STAFF

STRATEGY-MAKING PROCESS FORMAL PROCESS HAS 5 STEPS –SELECT FIRM MISSION & GOALS –ANALYZE EXTERNAL ENVIRONMENT –ANALYZE INTERNAL ENVRIRONMENT –SELECT STRATEGIES BASED ON ANALYSES –IMPLEMENT STRATEGIES

VISION, MISSION & GOALS VISION IS LONG-TERM MISSION IS MID-TERM GOALS ARE SHORT-TERM RECOGNIZE THAT THESE TARGETS ARE INFLUENCED BY –EXTERNAL ENVIRONMENT (NATIONAL CULTURE & INSTITUTIONS) –CORPORATE GOVERNANCE MODELS –INTERNAL ENVIRONMENT (ORG. CULTURE)

FIGURE 1.5 on p. 12 LAYS OUT THE PLAN FOR THE BOOK AND THE COURSE CHAPTERS 1-3 ARE INTERRELATED; WE GO THROUGH THEM QUICKLY SEE NEW SYLLABUS; TODAY’S HANDOUT CHAPTERS 4-12 ARE THE BEEF OF THE COURSE

GOALS PRECISE & MEASURABLE ADDRESS KEY/CRITICAL ISSUES CHALLENGING BUT REALISTIC SPECIFY TIME PERIODS WITHIN WHICH GOALS ARE REALIZED OR, AT LEAST, MEASURED STRETCH GOALS AS OPPOSED TO GOALS THAT DO NOT REQUIRE MUCH EFFORT

SWOT ANALYSIS STRENGTHS WEAKNESSES OPPORTUNITIES STRENGTHS GIVE DIRECTION TO SELECTION & IMPLEMENTATION OF STRATEGIES BUT IT’S ONLY A START

STRATEGY AS EMERGENT PROCESS STRATEGIC PLANNING & IMPLEMENTATION ARE ONGOING, NEVER ENDING –CONFLICT WITH FORMAL PLANNING PROCESSES? UNCERTAINTY MEANS FLEXIBILITY & ADAPTABILITY ARE KEY LOWER LEVEL ORGANIZATIONAL MEMBERS, MORE NUMEROUS THAN ANY, ARE THE KEY TO STRATEGIC SUCCESS –AUTONOMOUS ACTIONS –UNPLANNED RESPONSES TO UNFORESEEN CIRCUMSTANCES –HONDA & FORTUITOUS CIRCUMSTANCES (LUCK), 22-24

TO COPE WITH UNCERTAINTY STRATEGY AS SCENARIO PLANNING STRATEGY AND DECENTRALIZATION –CHAN KIM & RENEE MAUBORGNE’S PROCEDURAL JUSTICE (DISTRIBUTIVE JUSTICE) STRATEGIC INTENT –PRAHALAD AND HAMEL’S NOTION –AMBITIOUS GOALS HELD BY THE ORGANIZATIONAL MAJORITY

STRATEGIC DECISION MAKING COGNITIVE BIASES –PRIOR HYPOTHESIS BIAS –ESCALATING COMMITMENT –REASONING BY ANALOGY –REPRESENTATIVENESS –ILLUSION OF CONTROL (HUBRIS) GROUPTHINK –DEVIL’S ADVOCACY –DIALECTIC INQUIRY –ANALOGOUS PAST INITIATIVES

STRATEGIC LEADERSHIP VISION, ELOQUENCE & CONSISTENCY ARTICULATION OF BUSINESS MODEL COMMITMENT BEING WELL INFORMED WILLINGNESS TO DELEGATE/EMPOWER ASTUTE USE OF POWER (OVER RESOURCES) EMOTIONAL INTELLIGENCE –SELF-AWARE, SELF-REGULATE, EMPATHY, SOCIAL SKILLS, MOTIVATION BEYOND MONEY

APPENDIX TO CHAPT. 1 ENTERPRISE VALUATION ROIC –ROIC = NOPLAT/IC –NOPLAT = ? –IC = ? GROWTH RATE OF PROFITS –% INCREASE IN NET OPERATING PROFITS OVER A TIME PERIOD, USUALLY YEAR-BY-YEAR