introducing strategic management. what we need for effective strategy: a mission a plan elephants...
TRANSCRIPT
Introducing Strategic Management
What we need for effective strategy:
A mission A plan Elephants That’s the strategic process
Strategy defines….
Who are you?Where are you going?
How are you going to get there?
Alice: Which way should I go?Cat: That depends on where you are
going.Alice: I don’t know where I am going.Cat: Then it doesn’t matter which way you
go. Lewis Carroll, Though the Looking-Glass
Organizations should make two types of decisions
1) Strategic decisions
2) Strategically driven decisions
Organizations should make two types of decisions
1) Strategic decisions
2) Strategically driven decisions
Company A Company B Company C
What are we doing here?
All firms have strategy. The only decision is whether you manage it, or simply back into it…
Strategic Management Defined
decisions and actions required for the firm to create value and earn returns higher than those of competitors
formulation and implementation of plans designed to achieve objectives
unifying theme that gives coherence and direction to organizational/individual decisions
game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance
integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage
What is a competitive advantage?
Competitive Advantage
When a firm implements a strategy that rivals can’t duplicate, or find it too expensive to do try to imitate
Competitive advantages become sustainable competitive advantages when rivals stop trying to replicate
The Strategic Management ProcessStrategic analyses
• Internal
• External
Vision and mission
• Fundamental organizational purpose
• Organizational values
Strategy
• Arenas• Vehicles• Differentiators• Staging• Economic logic
The central, integrated, externally oriented concept of
how a firm will achieve its objectives
Implementation levers
and
Strategic leadership
Two levels of Strategy
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Corporate-level strategy
• In which markets do we compete today?
• In which markets do we want to compete tomorrow?
• How does our ownership of a business ensure its
• competitiveness today and
in the future? • How do we compete in this market today?
• How will we compete in this market in the future?
Business-level strategy
What is Strategy?
Strategy is not doing similar activities better than your rivals – that’s operational effectiveness continual improvement not a sustainable
advantage industry-wide cost reductions do not lead to
increased profitability examples: PCs, automobiles, airlines
What is Strategy?
1) Strategy is performing different activities or performing similar activities in a different way
Strategy is about positioning
a) Variety-based positioning offering a unique choice of goods/services - Chic-fil-a,
GameStop
b) Needs-based positioning serving most/all of a particular group of customers’ needs -
Babies R Us
c) Access-based positioning serving a set of customers that require unique access –
Kinkos, Movie Gallery, Superette
What is Strategy?
2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate
Tradeoffs arise from inconsistent image/reputation different activities, products, equipment,
employees, skills, systems, machines priorities, internal coordination, and control
What is Strategy?
3) Strategy is about combining activities as advantages come from fit and reinforcing
Operational effectiveness is about excellence in individual activities
Fit/integration increases sustainability by reducing imitability
What is Strategy?
4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages
Four Perspectives on Competitive Advantage
Industrial/Organization (I/O) Economic Model – External Perspective
Resource-Based View – Internal Perspective
Dynamic Perspective – Combination of the two
Stakeholder Approach
The Industrial/Organization (I/O) Model of Above-Average Returns
Basic Premise of the I/O Model – to explain the dominant influence of the external environment on a firm's strategic actions and performance
The Industrial/Organization (I/O) Model of Above-Average Returns
Underlying Assumptions That the external environment imposes
pressures and constraints that determine the strategies resulting in above-average returns
That most firms competing within a particular industry or industry segment control similar strategically relevant resources and pursue similar strategies in light of those resources
The Industrial/Organization (I/O) Model of Above-Average Returns
Underlying Assumptions (cont.) That resources for implementing strategies
are highly mobile across firms, and that due to this mobility any resource differences between firms will be short lived
The Industrial/ Organization (I/O) Model of Above-Average Returns
The Industrial/Organization (I/O) Model of Above-Average Returns
Michael Porter’s Five-Forces Model Reinforces the importance of economic
theory Offers an analytical approach that was
previously lacking in the field of strategy Describes the forces that determine the
nature/level of competition and profit potential in an industry
Suggests how an organization can use the analysis to establish a competitive advantage
The Resource-Based Model of Above-Average Returns
Basic Premise of the Resource-Based Model – to propose that a firm's unique resources and capabilities should define its strategic actions and be used effectively to exploit opportunities in the external environment to ensure successful performance
The Resource-Based Model of Above-Average Returns
Underlying Assumptions That the internal environment imposes
pressures and constraints that determine the strategies resulting in above-average returns
That most firms competing within a particular industry or industry segment control unique strategically relevant resources and pursue dissimilar strategies in light of those resources
The Resource-Based Model of Above-Average Returns
Underlying Assumptions (cont.) That resources for implementing strategies
are not highly mobile across firms, and that due to this immobility any resource differences between firms can be sustainable
The Resource-Based Model of Above-Average Returns
Dynamic Perspective
Market dynamism renders advantages temporary
Future advantages based on the ability of the firms resources and capabilities to develop a continuous flow of advantages
The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Basic Premise of the Stakeholder Model – to propose that a firm can effectively manage stakeholder relationships to create a competitive advantage and outperform its competitors
The Three Stakeholder Groups
Secondary Stakeholders
Government entities and administrators
Activists and advocacy groups Religious organizations Other nongovernmental
organizations
The Stakeholder Model of Responsible Firm Behavior and Firm Performance
Ways Stakeholder Relationships Contribute to Competitive Advantage
A trustworthy reputation draws valuable customers, suppliers, and business partners to acquire or develop competitive resources
A trustworthy reputation attracts investors to offer financial resources
Firms that have fair and respectful treatment of employee relationships attract high-quality human resources
Ways Stakeholder Relationships Contribute to Competitive Advantage
Transactions costs associated with making and enforcing agreements can be reduced
Implementation of strategies can be enhanced by improving commitment from stakeholders who are involved with strategic decisions
Responsible behavior can protect a firm from the expense and risk associated with negative actions (such as adverse regulations, legal suits and penalties, consumer dissatisfaction, employee work outages, or bad press)
Charting a Good Strategy
The Strategy Diamond Arenas Vehicles Differentiators Staging & Pacing Economic Logic
Strategy Diamond
Arenas
Staging
Differentiators
VehiclesEconomic Logic
Strategy is anintegrated setof choices….
Arenas
Where are we going to be
active? Product categories Channels Market Segments Geographic Segments Core Technologies Value-creating strategies
Arenas
Staging
Differentiators
VehiclesEconomic Logic
Vehicles How are we going to get there? Means of participating in
chosen markets Internal Development Joint Venture Licensing/Franchising Alliances Acquisition
Arenas
Staging
Differentiators
VehiclesEconomic Logic
Differentiators Product/service attributes that
beat competitors, for example… Image Customization Price Styling Product reliability Speed to market Safety
Arenas
Staging
Differentiators
VehiclesEconomic Logic
Staging• Timing, pace and sequencing
of strategic moves• When to launch moves
• Function of resources,
urgency and market
signals
Arenas
Staging
Differentiators
VehiclesEconomic Logic
Economic Logic
• How will returns be obtained?• Low cost through scale,
scope design, or process advantages
• Premium prices through
superior products or
service
Arenas
Staging
Differentiators
VehiclesEconomic Logic
JetBlu’s StrategyLow-fare commercial airliner in underserved/overprices US markets, focusing on JFK
Focused initial growth in NE corridor, with westward expansion
Low price, mixed with exceptional service, e.g. leather seating and in-seat satellite TV
Completely internalized growth
Low-costs through uniform, fuel-efficient fleet, saving on maintenance, and training. Favorable gate fees at JFK. Secondary airports
Arenas
Staging
Differentiators
VehiclesEconomic Logic
Framework for Strategy Implementation
IntendedStrategy
Realizedand
EmergentStrategies
Key Factors of Strategy Implementation
Implementation levers• Organizational structure• Systems and processes• People and rewards
Strategic leadership• Lever- and resource-allocation decisions• Decision support among stakeholders