1. Developing a strategic vision

2. Setting objectives

3. Crafting strategy to achieve objectives

4. Implementing and executing the chosen strategy efficiently and effectively

5. Evaluating performance and initiating corrective adjustments

Describes the route a company intends to take in developing and strengthening its business.

Lays out strategic course in preparing for future.

Graphic

Directional

Focused

Flexible

Feasible

Desirable

Easy to communicate

Vision = Future (where are we going?)

Mission = Present (who we are, what we do, why we're here?)

The managerial purpose of setting objectives is to convert the strategic vision into specific performance targets.

Objectives are an organization's performance targets.

Financial Performance - relate to financial performance targets management has established to achieve.

Strategic Objectives - relate to target outcomes that indicate a company is strengthening.

Need for Balanced Scorecard:

(Phase 2 - Setting Objectives)

Strategic Intent

(Phase 2 - Setting Objectives)

3. Crafting a Strategy

(4 levels of strategy)

(Involves managers at all levels)

A company's overall strategy involves a collection of strategic actions.

1. Corporate Strategy - figure out how to capture cross-business synergies and turn them into competitive advantage.

2. Business Strategy - concerns actions and approaches crafted to produce successful performance in one specific line of business.

3. Functional-area Strategies - concern practices employed in managing particular business processes within a business.

4. Operating Strategies - concern relatively narrow strategic initiatives and approaches for managing key operating units.

Make-Things-Happen activity aimes at performing core business activities in a strategy-supportive manner.

Diligent pursuit of operating excellence.

Leading the Strategic Management Process

(6 actions for senior executives)

1. Stay on top of how well things are going.

2. Making sure company has good strategic plan.

3. Putting constructive pressure on organizational units to achieve good results.

4. Pushing corrective actions to improve both the company's strategy.

5. Leading development of stronger core/competitive capabilities.

6. Displaying ethical integrity, leading social responsibility.

1. Buyers

2. Rival Firms

3. New Entrants

4. Substitute Products

5. Suppliers

Why is Strategy important?

-  Market size & Growth rate

-  Scope of competitive rivalry

-  Number of rivals

-  Buyer needs

-  Production capacity

-  Pace of technological change

-  Vertical integration

-  Product innovation

-  Degree of product differentiation

-  Economies of scale

Learning curve effects

-  "The newer you are, the more expensive."

Exists when a company's unit costs decline as its cumulative production volume increases because of

-  Accumulating production know how

-  Growing mastery of technology

* The bigger the learning curve effect, the bigger the cost advantage of the form with the largest cumulative production volume. 

Objectives are to identify:

-  Main sources of competitive forces

-  Strength of these forces

Key analytical tool:

Five Forces Model of Competition

How to analyze 5 Competitive Forces

(3 steps)

1.  Identify the specific competitive pressures assiciated with each of the five forces.

2.  Evaluate the strength of each competitive force - moderate, normal, weak

3. Determine whether the collective strength of the five forces is conductive to earning attractive profits.

(1) Buyers

Buyers and Seller-Buyer Collaboration

Seller-Buyer weak or strong depends on:

-  Whether buyers have sufficient bargaining leverage to influence terms of sale in their favor

-  Extent and competitive importance of seller-buyer strategic partnerships in the industry

- Buyer switching costs to competing brands or subs are low

- Buyers are large & can demand concessions

- Large-volume purchases by buyers are important to sellers

- Buyer demand is weak/declining

- Only few buyers exists

- ID of buyer adds prestige to sellers consumers

- Quantity/Quality of info available to buyers improves

- Buyers have ability to postpone purchases till later

- Buyers threaten to integrate backward

- Buyers purchase item in small quantities

- Buyer switching costs to competing brands are high

- Surge in buyer demand creates a "sellers market"

- Seller's brand reputation is important to buyer

- Specific seller's product delivers quality/performance that is very important to buyer

- Buyer collaboration with selected sellers provides attractive win-win opportunities

(2) Rival Firms

Strongest of five forces

Key Factor in determining strength of rivalry

-  Offensive actions

-  Defensive countermoves

- Competitors engage in frequent/aggressive launches of new offensives to gain sales & market share

- Slow market growth

- Number of rivals increase and rivals are of equal size

- Buyer cost to switch brands are low

- Industry conditions tempt rivals to use price cuts to boost volume

- Successful strategic move carries big payoff

- Diversity of rivals increases in terms of vision/objectives

- Strong rivals outside the industry acquire weak firms in the industry and use their resources to transform new firms into major market contenders

- Industry rivals move only infrequently or in a non-aggressive manner to draw sales from rivals

- Rapid market growth

- Products or rivals are strongly differentiated

- Customer loyalty is high

- Buyer costs to switch brands are high

- There are fewer than 5 rivals or there are numerous rivals so one firms actions has minimal impact on rival's business.

(3) New Entrants

Seriousness of threat depends on:

-  Size of pool of entry candidates and available resources

-  Barriers to entry

-  Reactions of existing firms

- How formidable entry barriers are for each type of potential entrant

- Attractiveness of growth and profit prospects

- Sizable economies of scale

- Cost and resource disadvantages independent of size

- Brand preference/customer loyalty

- Capital/specialized requirements

- Access to distribution channels

- Regulatory policies

- Tariffs and international trade restrictions

- Sizable pool of entry candidates

- Entry barriers are low

- Industry growth is rapid & profit potential is high

- Incumbents are unable to contest a newcomer's entry efforts

- When existing industry members have a strong incentive to expand into new geographic areas where they currently do not have market presence.

- There's only a small pool of entry candidates

- Entry barriers are high

- Existing competitors are struggling to earn good profits

- Industry's outlook is risky

- Industry growth is slow

(4) Substitute Products

Concept:

Eyeglasses/contacts VS Laser surgery

Sugar VS artificial sweeteners

Newspaper VS tv VS Internet

- Whethre substitutes are readily available and attractively priced

- Whether buyers view substitutes as being comparable or better

- How much it costs end users to switch substitutes

- There are many good substitutes that are readily available

- The lower the price of substitutes

- The higher the quality/performance of substitutes

- The lower the user's switching costs

(5) Suppliers

Whether supplier-seller relationships represent a weak or strong competitive force depends on:

- Whether suppliers can exervise sufficient bargaining leverage to influence terms of supply in their favor

- Nature and extent of supplier-seller collaboration in the industry

- Industry memers incur high costs in switching their purchases to alernative suppliers

- Needed inputs are in short supply

- There are only a few suppliers of a specific input

- Some suppliers threaten to integrate forward

- Supplier provides a differentiated input that enhances the quality/performance of sellers' products or is valuable part of sellers' production process

- Item being supplied is a commodity

- Seller switching costs to alternate suppliers are low

- Good substitute exist or new ones emerge

- Surge in availability of suppliers occurs

- Industry members account for a big fraction of suppliers' total sales

- Members threaten to integrate backward

- Seller collaboration with selected suppliers provides attractive win-win opportunities

Strategic Implications

Competitive environment is unattractive from the standpoint of earning good profits when:

- Rivalry is vigorous

- Entry barriers are low and entry is likely

- Competition from substitutes is strong

- Suppliers and customers have considerable bargaining power

Strategic Implications

Competitive environment is ideal from a profit-making standpoint when:

- Rivalry is moderate

- Entry barriers are high and no firm is likely to enter

- Good substitutes do not exist

- Suppliers and customers are in a weak bargaining position

- Industries change because forces are driving industry participants to alter their actions.

- Driving forces are the major underlying causes of changing industry and competitive conditions.

1. Identify forces likely to exert greatest influence over next 1-3 years (usually no more than 3-4 factors)

2. Assess Impact

- Are the driving forces causing demand for product to increase or decrease?

- Are the forces acting to make competition more or less intense?

- Will the driving forces lead to higher or lower industry profitability?

- Internet & e-commerce opportunities

- Increasing globalization of industry

- Changes in long-term industry growth rate

- Changes in who buys the product and how they use it

- Product innovation

- Technological change

- Entry or exit in major firms

- Diffusion of technical knowledge

- Changes is degree of uncertainty and risk

Factors affecting every industry member's ability to prosper.

- Specific strategy elements

- Product attributes

- Resources

- Competencies

- Competitive capabilities

- Profit and loss

- Competitive success or failure

1. Technology-related

2. Manufacturing-related

3. Distribution-related

4. Marketing-related

5. Skills and Capability-related

For a company's strategy to be well-conceived, it must be

- Matched to its resource strengths and weaknesses

- Aimes at capturing its best markey opportunities and erecting defenses against external threats

Strength

(SWOT)

Something a firm does well or an attribute that enhances its competitiveness

Valuable:

Human assets

Physical assets

Organizational assets

Intangible assets

Competencies, know-how

Weakness

(SWOT)

Something a firm lacks or a condition placing it at a disadvantage

Resource Weaknesses relate to:

- Unproven skills/intellectual capital

- Lack of important assets

- Missing capabilities in key areas

Opportunities

(SWOT)

Opportunities most relevant to a company are those offering:

- Good match with its financial and organizational resource capabilities

- Best prospects for profitable long-term growth

- Potential for competitive advantage

Threats

Identifying them:

(SWOT)

- Emergence of cheaper/better technologies

- Introduction of better products by rivals

- Entry of lower-cost foreign competitors

- Rise in interest rates

- Potential of a hostile takeover

- Unfavorable demographic shifts

SWOT analysis in crafting a better Strategy

(not important to just develop 4 lists)

-  Use the 4 lists to draw conclusions about a company's overall situation

- Translaten these conclusions into strategic actions

Strategic cost analysis

(2 analytical tools)

Value Chain alalysis

Benchmarking

Value Chain

definition

Value Chain

Primary Activities and Costs

Supply Chain Management

Operations

Distribution

Sales & Marketing

Service

Profit Margin

Value Chain

Support Activities & Costs

Product R&D, Technology, Systems Development

HR Management

General Administration

1. Company's own activity segments

2. Suppliers' part of the industry value chain

3. Forward channel portion of the industry chain

What options are available to reduce cost disadvantage in the 3 areas of the Value Chain?

(1)

(Internal Cost Disadvantage)

Implement the use of best practices throughout the company, particularly for high-cost activities.

See if certain internally performed activities can be outsources from vendors/contractors cheaply.

What options are available to reduce cost disadvantage in the 3 areas of the Value Chain?

(2)

(Supplier-related Cost Disadvantage)

Can be attacked by pressuring suppliers for lower prices, switching to lower priced substitute inputs, and collaborating closely with suppliers to identify mutual cost-saving opportunities.

What options are available to reduce cost disadvantage in the 3 areas of the Value Chain?

(3)

(Activities performed by forward channel allies cost disadvantage)

- Pressure dealer-distributors to reduce costs

- Work closely with forward channel allies to identify win-win opportunities to reduce cost

- Change to a more economical distribution strategy

1. Low-cost Provider

2. Broad Differentiation

3. Best-cost Provider

4. Market niche based on low costs

5. Market niche based on differentiation

1. Perform value chain activities more cost-effectively than rivals.

2. Revamp the firm's overall value chain to eliminate or bypass some cost-producing activities altogether.

1. Ending up with lower, rather than higher, profitability from price cutting.

2. Not emphasizing avenues of cost advantage that relegate rivals to play catch-up.

3. Becoming too fixated on cost reduction.

1. When competitors are able to quickly copy most or all of the appealing attributes a company comes up with.

2. Strategy produces a ho-hum market reception because buyers see little value in product.

3. Overspending on efforts to differentiate.

4.  Trying to charge too high price premium.

Price premium of a differentiation strategy reflects:

- Value actually delivered to the buyer

- Value perceived by the buyer

Buyers seldom pay for value that is not perceived.

- Nature of differentiation is hard to quantify

- Buyers are making first-time purchases

- Repurchase is infrequent

- Buyers are unsophisticated

Arise when:

-  Pioneering helps build firm’s image and reputation

- Loyalty of fist-time buyers is high

- Moving first can be a preemtive strike

-  Early commitments to new technologies,
new-style components, and distribution
channels can produce cost advantage

When:

- Loyalty of first-time buyers is weak

- Innovator's products are not living up to buyer expectations

- Rapid technological change allows followers to leapfrog pioneers