1. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall 4-1

2. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-2 Chapter 4

3. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Developing a strategy for success!  Don’t just respond to the chaos in the environment, create the disruptions that revolutionize the industry, and, in the process, create a competitive edge  Apple Computer and the iPod 4-3

4. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  The world economy is shifting from financial to intellectual capital  Knowledge is no longer just a factor of production, it is the critical factor of production 4-4

5. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. Knowledge management: the practice of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position 4-5

6. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. Intellectual capital: comprised of 1.Human capital 2.Structural capital 3.Customer capital 4-6

7. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. Strategic management: a process that involves developing a game plan to guide the company as it strives to accomplish its vision, mission, goals, and objectives and to keep it from straying off its desired course 4-7

8. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. Competitive advantage: the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market  The key to business success is to build a unique competitive advantage that creates value for customers, is sustainable, and is difficult to duplicate 4-8

9. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  To define competitive advantage, entrepreneurs should consider:  The products they sell  The services they provide  The pricing they offer  The way they sell  The values to which they are committed 4-9

10. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. Core competencies: unique set of skills, knowledge, or abilities that a company develops in key areas such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors 4-10

11. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-11 Building a Sustainable Competitive Advantage

12. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Use core competencies to define a compelling value proposition: the value that the combination of goods and services that a business delivers to customers to create a sustainable competitive edge  Product or service leadership  Customer intimacy  Operation excellence 4-12

13. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats 4.Identify key success factors 5.Analyze competition 6.Create goals and objectives 7.Formulate strategies 8.Translate plans into actions 9.Establish accurate controls 4-13

14. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 1: Develop a Clear Vision and Translate It into a Meaningful Mission Statement  Vision  An expression of what an entrepreneur stands for and believes in and the values on which they build their business  Answers the question: “What kind of business do we want to be” 4-14

15. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  A clearly defined vision:  Provides direction  Determines decisions  Motivates people  Allows a company to persevere in the face of adversity 4-15

16. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Mission  Answers the question "What business am I in?”  Makes clear to everyone “why we are here” and “where we are going” 4-16

17. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Elements of a mission statement  The purpose of the company  The business we are in  The values of the company 4-17

18. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement  Assess strengths and weaknesses 4-18

19. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 2: Assess the Company’s Strengths and Weaknesses  Strengths: positive internal factors that contribute to accomplishing the mission, goals, and objectives  Weaknesses: negative internal factors that inhibit the company’s ability to accomplish its mission, goals, and objectives 4-19

20. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-20 Identifying Company’s Strengths and Weaknesses

21. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses  Scan environment for opportunities and threats 4-21

22. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 3: Scan the Environment for Opportunities and Threats Facing the Business  Opportunities: positive external options the company can exploit to accomplish its mission, goals, and objectives  Threats: negative external forces that inhibit the company’s ability to accomplish its mission, goals, and objectives 4-22

23. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-23 Identifying Opportunities and Threats

24. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-24 Identifying and Managing Major Threats

25. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats  Identify key success factors 4-25

26. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 4: Identify the Key Factors for Success in the Business  Key success factors: factors that influence a company’s ability to compete successfully in an industry  Determine a company’s ability to compete in the marketplace 4-26

27. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-27 Identifying Key Success Factors

28. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats 4.Identify key success factors  Analyze competition 4-28

29. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 5: Analyze the Competition  Tracking competition helps companies:  Avoid surprises from existing competitors’ new strategies and tactics  Identify potential new competitors  Anticipate rivals’ next strategic moves  Improve reaction time to competitors’ actions  Improve their ability to differentiate their companies’ products and services from those of competitors  Refine their companies’ competitive edge 4-29

30. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-30 Small Business Success Index

31. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Competitor Analysis  Direct competitors  Offer the same products and services  Customers often compare prices, features, and deals among these competitors when they shop  Significant competitors  Offer some of the same or similar products or services  Product or service lines overlap but not completely  Indirect competitors  Offer same or similar products in only a small number of areas 4-31

32. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. Competitive profile matrix: allows entrepreneurs to evaluate their companies against major competitors on the key success factors for their market segments 4-32

33. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-33 Sample Competitive Profile Matrix

34. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats 4.Identify key success factors 5.Analyze competition  Create goals and objectives 4-34

35. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 6: Create Company Goals and Objectives  Goals: broad, long-range attributes to be accomplished; general and abstract  “BHAGS”  Objectives: are specific targets of performance  Specific  Measurable  Assignable  Realistic (yet challenging)  Timely  Written down 4-35

36. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-36 What Makes an Effective BHAG?

37. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats 4.Identify key success factors 5.Analyze competition 6.Create goals and objectives  Formulate strategies 4-37

38. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 7: Formulate Strategic Options and Select the Appropriate Strategies  Strategy: a “road map” that guides a company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives  Mission, goals, and objectives = ends  Strategy = means 4-38

39. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Three strategic options: 4-39 Strategy? Cost leadership Differentiation Focus

40. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Cost leadership strategy: to be the low-cost producer in the industry or market segment  Advantages:  Reaching buyers who buy on the basis of price  Power to set the industry’s price floor  Works well when:  Buyers are sensitive to price changes  Competing firms sell the same commodity products  A company can benefit from economies of scale  Disadvantages:  Purchase decisions are driven by price not loyalty  Can underestimate costs 4-40

41. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Differentiation strategy: company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion  Idea is to be better than the competition at something customers value  Key to success:  Build basis for differentiation on a distinctive competence, something that a small company is uniquely good at doing in comparison to its competitors  Create perceived value for the customer 4-41

42. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Focus strategy: company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them  Strategy builds on differences among market segments  Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market 4-42

43. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats 4.Identify key success factors 5.Analyze competition 6.Create goals and objectives 7.Formulate strategies  Translate plans into actions 4-43

44. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 8: Implement the strategy  Create projects by defining:  Purpose  Scope  Contribution  Resource requirements  Timing 4-44

45. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Strategic management is a continuous process 1.Develop a vision and translate it into a mission statement 2.Assess strengths and weaknesses 3.Scan environment for opportunities and threats 4.Identify key success factors 5.Analyze competition 6.Create goals and objectives 7.Formulate strategies 8.Translate plans into actions  Establish accurate controls 4-45

46. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Step 9: Establish Accurate Controls  Controlling the strategy  Entrepreneur must:  Identify and track key performance indicators  Take corrective action if necessary  Balanced scorecard: a set of measurements unique to a company that includes both financial and operational measures  Gives managers a quick yet comprehensive picture of a company’s overall performance 4-46

47. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-47 The Balanced Scorecard

48. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Five Perspectives: 1.Customer: How do customers see us? 2.Internal Business: At what must we excel? 3.Innovation and Learning: Can we continue to improve and create value? 4.Financial: How do we look to shareholders? 5.Corporate Citizenship: What must we do to meet our social responsibility to society as a whole, the environment, the community, and other stakeholders? 4-48

49. Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4-49