1. Chapter 2 Leading Strategically Through Effective Vision and Mission

2. Key points in Chapter 2 The roles that leaders play Skill sets of effective strategic leaders (Level 5 hierarchy)

3. Managerial Discretion and Decision Biases Discretion – latitude for action or decision making Hubris – excessive pride, leading to a feeling of invincibility Heuristics – rules of thumb used in decision making

4. Decision-Making Biases Reliance on previously formed beliefs Focus on limited objectives Exposure to limited decision alternatives Illusion of control Reliance on a limited set of heuristics

5. Hubris Excessive pride that leads to a feeling of invincibility Magnifies the effects of decision- making biases

6. Implications for IBP Be sure you don’t fall prey to decision making biases Be sure you understand the effects of hubris Play the role of Devil’s Advocate Question decisions constructively

7. Strategic Vision vs. Mission A strategic vision concerns “where we are going” or ”what do we want to be.” Markets to be pursued Future product/ market/ customer/ technology focus Kind of company management is trying to create The mission statement focuses on its “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

8. Mission Statements Boundaries of the current business Fundamental purpose that sets it apart from other firms of its type Conveys Who we are, What we do, and Why we are here

9. Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term

10. Control Systems Financial Controls focus on short-term financial outcomes produce risk-averse managerial decisions Strategic Controls focus on the content of strategic actions encourage decisions that incorporate moderate and acceptable levels of risk

11. Current financial results are “lagging indicators” reflecting results of past decisions and actions— good profitability now does not translate into stronger capability for delivering better financial results later However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance Leading versus Lagging Indicators

12. Controls in Balanced Scorecard Framework

13. Chapter 4 Exploring the External Environment: Macro and Industry Dynamics

14. Competitive strategy must grow out a sophisticated understanding of the rules of competition that determine industry attractiveness. Michael Porter When an industry with a reputation for bad economics meets a manager with a reputation for excellence, it’s usually the industry that leaves with its reputation intact. Warren Buffett Skate to where the puck is going, not to where the puck has been. Wayne Gretsky

15. Components of External Analysis Scanning – Identifying early signals Monitoring – Following signals or change identifies in scanning to identify patterns Forecasting – Projections of what might happen Assessing – Determining the timing and significance of forecasted change

16. General or Macro Environment 1) Demographic 2) Economic 3) Political 4) Sociocultural 5) Technological 6) Environmental

17. 1) Demographic Segment Characteristics of the population e.g., age, race, gender, sexual orientation and social classes Ethnic structure Income distribution Geographic distribution

18. 2) Economic Segment General health/wellbeing of the local, regional, national or global economy. e.g., Interest rates, unemployment rates, consumer spending, confidence and savings, energy costs, personal disposable income, inflation rates, housing costs

19. 3) Political/Legal Segments Tax laws, minimum wages, environmental laws, labor laws, consumer protection, product liability, etc.

20. 4) Sociocultural Segment Attitudes of society towards work, careers, products, services and consumer activism. e.g., concern for quality of life, birth rates, woman in the work force, low-carb dieting, health consciousness, respect for intellectual property, desire for “green retailing”, savings rates, etc.

21. 5) Technological Segment Changes in technology that affect the workplace, and the products and services consumers expect e.g., Information technologies, entertainment technologies, product technologies.

22. 6) Environmental Environmental and ecological issues (on supple and waste side), including pressure from NGOs and activists.

23. General Environment Firms can not influence them, but they can have a significant influence on the firm, its industry, its strategy, and its performance Cast a wide net and to identify the emerging trends Then determine which factors are relevant, and how these changes will have an effect upon the firm.

24. ROIC Across Industries 1995-2004

25. Porter’s Five Forces Competitive Rivalry Power of Buyers Power of Suppliers Potential Entrants Substitute Products Each of these forces affect costs/prices, therefore, profitability

26. Substitute Products (of firms in other industries) Rivalry Among Competing Sellers Potential New Entrants Suppliers of Key Inputs Buyers

27. Price Costs Profits { What factors increase/decrease margins within an industry, thus affecting profitability. Porter’s 5-forces is all about margins

28. Prices can be kept high Costs can be kept low Profits can soar { When industry structural variables are weak…...

29. Prices will be pushed down Costs will rise Profits shrink { When industry structural variables are strong

30. Potential New Entrants Firms enter when industries are attractive, unless they find themselves at an immediate disadvantage relative to incumbents. Firms can create “barriers to enter” Barriers of entry are desirable for entrenched firms

31. Barriers to Entry Economies of scale Product differentiation & loyalty Capital & resource requirement Switching costs Distribution Cost disadvantage independent of size Regulatory policies Access to technology & know-how Learning, costs, experience curves Threat of retaliation

32. Suppliers Who are you key suppliers? Suppliers are a strong competitive force when: Only a few suppliers exist and is more concentrated than industry to which it is selling Few substitutes available to the industry firm Industry not important buyers to supplier group Supplier group provides a product crucial to production process, and/or significantly affects buyers’ product quality It is costly for buyers to switch suppliers Forward integration by suppliers is a credible threat Suppliers can supply at a lower cost

33. Buyers Who are your key buyers? - who provides our revenues? Can they force: lower prices, higher quality and service – affect the terms and conditions of the exchange? When do you, as a consumer, have power? Two issues Price sensitivity Can you actually bargain

34. Buyers What affect buyers’ power? Volume/Frequency of purchase When buyers represent a large portion of sellers revenues When buyers can easily switch to another product When the product the buyers are buying is undifferentiated When buyers can self-source or backwards integration Criticality Buyers’ knowledge Buyers’ profitability

35. Substitutes Product/service which fulfills similar need Price cap 3 Questions Are they available? Can we switch? Price-performance relationship?

36. Substitutes and Business Definition How we define our business defines our substitutes and our rivals Carbonated Soft Drink Soft DrinksBeverages Many Substitutes Few RivalsMany Rivals Few Substitutes

37. Rivalry and Profitability Industry profitability is a collective good. Collective good is served by coordination Are there industries were pricing is coordinated? Incentive to violate

38. Rivalry – What drives it? Numerous or equally balanced competitors Slow growth, excess capacity High fixed costs High storage costs High obsolescence costs Lack of differentiation Low switching costs Perceptions of high payoff from competitive actions High exit barriers

39. Industries and Segments What is a segment? Different segments….. posses different combinations of 5-forces therefore: reward different strategies possess different levels of profitability

40. Segments in the Automotive Industry Economy Luxury Which segment is more attractive? Why?

41. Segments in the Automotive Industry Economy Luxury More Rivalry More Substitutes More Entrants More Buyer Power

42. Porter’s..in conclusion Attractiveness of industry/segment current industry adjacent segments industries you might consider entering Which forces possess the greatest influence? Can we influence them?

43. Static model & Hypercompetition If the pace of transformation is rapid, if entry rapidly undermines the market power of dominant firms, if innovation speedily transforms industry structure by changing process technology, creating new substitutes, and by shifting the basis on which firms compete, then there is little merit in using industry structure as a basis for analyzing competition and profit.

44. Analysis of Direct Competitors Key Terms Strategic Group – set of firms emphasizing similar strategic dimensions to use a similar strategy Strategic Dimensions – areas that firms in a strategic group treat similarly

45. Implications from Strategic Group Dynamics Intra-strategic group rivalry is more intense than inter-strategic group rivalry Membership in a strategic group partially defines the essential characteristics of firms' strategies The more similar strategies are seen across strategic groups, the greater the level of expected rivalry The strengths of industries' five forces differ across strategic groups

46. Competitor Analysis Components

47. Identification of Key Success Factors? KSFs are product attributes, competencies, competitive capabilities, and market achievements with the greatest direct bearing on profitability opportunities for competitive advantage