chapter 3 tools of the trade copyright ©2011 taylor & francis group, an informa business
TRANSCRIPT
Copyright ©2011 Taylor & Francis Group, an informa business
Chapter 3
TOOLS OF THE TRADE
The Strategic Management ProcessStrategy is all about performance; so there is the
need to be especially practical.SM is a framework of thoughts and actions by which
firms pursue a competitive advantage and superior performance.
Even good strategies and intentions are worth little until some action is taken on their behalf.
Managing strategy requires understanding the link to action, as well as the reciprocal link from action back to strategy.
Strategic Management ProcessOrganizational
Mission, Values, & Intentions
Organizational Abilities, Skills,
& Resources
Environmental Conditions & Characteristics
Goals, Objectives, &
Strategies
Functional Strategies for
Implementation
Learning, Adaptation, and Change
Organizational Mission, Values, and IntentionsMission/Vision:
Known by various names, like vision, statement of purpose, core value statement, etc. Mission = present statement; “what we do” Vision = forward-looking statement; “what do we want
to be”
An organization’s mission is the reason it exists; it is the foundation of principles by which the firm is guided.
Every firm has a mission and set of core values. The question is whether this foundation is intentional and explicit or merely accidental and haphazard.
Organizational Mission, Values and Intentions
Mission of Nike:“To bring inspiration and innovation to
every athlete in the world.”
Mission of Duke Energy:“Our purpose is to create superior value for
our customers, employees, communities and investors through the production, conversion, delivery and sale of energy and energy services.”
Organizational Mission, Values, and Intentions
What makes a mission an effective tool?
It is more than just the quality of the values the mission depicts but the closeness with which those values are linked to real and practical actions.
If and how does this apply to Nike?
The SWOT Framework
SWOT analysis is a simple but powerful tool that is often underutilized.
Strengths and Weaknesses (internal) deal with the organizational skills, abilities, and resources of the firm.
Opportunities and Threats (external) deal with characteristics of the environment and the nature of environmental change.
The SWOT Framework
SWOT Matrix
Positive Negative
Internal Characteristics
StrengthsThe characteristics
(e.g., resources, capabilities, etc.) that give it an advantage
over competitors
WeaknessesThe characteristics (or lack thereof) that put a
firm at a disadvantage to competitors
External Factors
OpportunitiesElements or factors in the environment that a firm could exploit to its
advantage
ThreatsElements or factors in the environment that
could present problems for the firm or one or more of its businesses
The SWOT Framework
SWOT-TOWSMatrix
Internal Environment
Strengths Weaknesses
External Environme
nt
Opportunities
S-O Strategies
Taking advantage of opportunities using a
firm’s strengths
W-O Strategies
Working to overcome weaknesses to take
advantage of opportunities
Threats
S-T Strategies
Using existing strengths to minimize
effects of potential threats
W-T Strategies
Working to overcome weaknesses that
expose the firm to potential threats
Organizational Abilities, Skills, and Resources The “analysis” in SWOT analysis requires discerning the
key success factors of a particular market and then assessing the firm’s position relative to them.
Where firms have much of what is needed, they are in a position of strength; where they have little or none of what is needed, they are in a position of weakness.
Resource-based view (Barney, 1991): competitive advantage is a function of a firm’s resources C.A. Resources should be: valuable, rare, inimitable, and non-
substitutable Resources you create or bundle are often more valuable than
those that are purchased
Environmental Conditions and Characteristics
The other side of SWOT analysis, the assessment of environmental opportunities and threats, is just as important as the assessment of strengths and weaknesses.
To begin, the environment must be clearly identified.
Environmental Conditions and Characteristics
The Competitive or Industrial Environment Includes:
-Competitors-Customers-Suppliers-Regulators-Financiers
The General or Macro Environment Includes:
-Demographics-Social Forces-Economic Forces-Technology-Political Context
The Firm
Environmental Conditions and Characteristics
Environmental analysis should focus on the context in which competition takes place.
Opportunities are instances where firms can gain new competitive advantage.
Threats are hazards to competitive advantage.
Goals, Objectives, and StrategiesFirms choose their goals, based
upon their mission along with their assessments of SWOT. What do we do?What do we want to be?What do we have to work with?What are we up against?
Strategies and resource deployments then are a reflection of those goals.
Goals, Objectives, and StrategiesPrinciples for goals setting:
Goals and strategies should be consistent with the firm’s mission and flow from the conclusions of the SWOT analysis.
Strategies must fit the environment for which they were fashioned.
Goals, objectives, and strategies should be specific in the short term but general in the long term.
Goals, Objectives, and Strategies
SMART goals-Specific-goals is explicit, not vague
Measurable-achievement is quantifiable
Aggressive-achievement is challenging
Realistic-achievement is possible
Time-bound-achievement has a deadline
Functional Strategies and ImplementationFunctional strategies and implementation relate
directly to customer value.
Implementation can be complicated though because just about everything affects just about everything else.
Implementation is more than just hardware and software, more than just warehouses and trucks. It is also the human component and the know-how of making things work together.
It includes the right people, directed by the right communication system, motivated by the right compensation, supported by the right training and resources.
Functional Strategies and ImplementationAny breakdown in this complex system, any
missed step in the linkage between the concept and the customer, and the implementation will fail and the competitive advantage will suffer.
Learning, Adaptation, and Change
Business is ongoing—a contest that never really ends.
It begins with never being satisfied and never becoming complacent.
The challenge is avoiding the paradox of success.
Remember the lesson of the mythical figure Icarus.
Learning, Adaptation, and ChangeSuccess can blind a firm to the realities of a changing
external environment
Six principles to avoid the paradox of success:
Minimal consensus-disagreement can be healthy Minimal contentment-avoid getting too “comfortable” Minimal affluence-avoid “hoarding” cash
Excessive slack resources are unproductive Obscure information that would otherwise lead to change
Minimal faith-never be to sure of a plan; “be prepared” Minimal consistency-don’t avoid change
Allowing small, evolutionary changes (good) helps avoid large, revolutionary change (bad)
Minimal rationality-allow yourself to “think outside of the box”
Additional Thoughts & CaveatsStarting from Scratch is the Exception
Typically, there will be processes, investments, and people in place. In these instances, creating new strategy means initiating and managing change.
Important to remember the difficulty of changing the mindset of individuals within a firm
Even in instances where strategy making is initiated from scratch, there remain constraints:
The skills, talents, and biases of the entrepreneur The availability of resources The realities of the marketplace and the limits on the capital the firm
can raise
Additional Thoughts & Caveats
Whose Job is Strategic Management?One school of thought—The CEO and the top
management team.
However, the CEO and other top managers are often isolated by the organization and bureaucracy that surrounds them, cut off from direct and regular interaction with customers, the environment, and from day to day operations. So, they may be unaware of many of things very near the heart of their own competitive advantage.
Additional Thoughts & Caveats
Whose Job is Strategic Management?
A second school of thought—An egalitarian process, open and inclusive, but also slow, involving conflict and often too little direction and consistency.
A better approach lies between the two extremes.
The challenge for top management is to create a process that seeks and gets this diverse input but that does so without stifling momentum and the real work that must go on to deliver value to customers.
Additional Thoughts & Caveats
Intended versus Realized
Strategy may not always emerge as expected. Events intervene, conditions change, people adapt, learn, and grow and all of this variation affects the way strategy works.
Strategy can emerge differently than intended and still be considered successful.
The Honda’s growth strategy in US
Additional Thoughts & Caveats
Intended versus Realized OutcomesThe strategy process should be adaptive.
To keep the organization fit to its environment Plans should be revisited often, as conditions and
competencies change and as feedback is received New insights should be sought and standing
assumptions should be challenged General and consistent in the long term, specific
and flexible in the short term Like hitting a moving target, over and over again,
the strategic process should be continuously learning, adapting, and changing
Additional Thoughts & Caveats
A Messy ProcessThe process of strategy is not nearly so neat
and linear as often presented. Every step can affect every other step Missions and statements of purpose are influenced
by an awareness of what is possible and popular Strengths and weaknesses, opportunities and
threats are inextricably linked to the industry and environment
Implementation is often far removed from the deliberate stages of the process and so can appear more ad hoc and reactive
Additional Thoughts & Caveats
A Messy Process
It is a very human process and so is subject to all manner of human limitations and biases
Politics, self-interest, misunderstanding, and serendipity all play a role and all influence strategy as it emerges
So, it can be difficult to connect and explain all of the various analyses, strategies, and functional efforts that produce a particular set of outcomes
Additional Thoughts & Caveats
A Messy Process Recognizing that strategy can be a little
messy is key to realizing its value. Order and cleanliness, like consistency, can
be a hobgoblin in the mind of the strategist.Reality will never look as sterile as the
model. The process will never be as orderly as a textbook table of contents.
Yet, the use of these tools and learnings help manage the inherent complexity.