understanding strategic management yale consultancy sdn bhd [email protected] +60 3 2021 0577 ...

Understanding Strategic Management

Yale Consultancy Sdn Bhd [email protected]

+60 3 2021 0577www.yaleconsultant.com

1Yale Consultancy Sdn Bhd

mailto:[email protected]

http://www.yaleconsltant.com/

What is Strategic Management

Strategic Management entails three ongoing

processes:

1. Analysis: - Analysis of strategic goals and the external and internal environments

2. Decisions: - What industries to compete? - How should we compete?

3. Actions:- Actions to implement decisions


Strategic Management

Strategic management consists of

the analyses, decisions, and

actions an organization

undertakes in order to create and

sustain competitive advantages.


Four Key Attributes of Strategic Management

• Directs the organization toward overall

goals and objectives

• Includes multiple stakeholders in decision

making

•Needs to incorporate short-term and long-

term perspectives

•Recognize trade-offs between efficiency

and effectiveness


Explaining the 4 Attributes• Organizations must consider overall

organizational perspective rather than a functional

one

• Organizations must satisfy multiple stakeholders

• Managers must maintain both a vision for the

future as well as a focus on its present operating

needs

• “Doing the right thing” versus “doing things

right”

• The need for “ambidextrous” behaviors, i.e.

balancing between “aligning resources to take

advantage of existing product markets” and

“proactively exploring new opportunities”5Yale Consultancy Sdn Bhd

Strategic Management Process

• Intended versus Realized Strategies

• Intended strategy refers to strategy in which

organizational decisions are determined only by

analysis

• Realized strategy refers to strategy in which

organizational decisions are determined by both

analysis and unforeseen environmental

developments, unanticipated resource constraints,

and/or changes in managerial preferences.

• Realized strategy is a combination of deliberate

and emergent strategies.


Thinking Strategically:Three Big Central Questions

1. What’s the company’s present situation?

- industry conditions and competitive pressure

- current performance and market standing

- resource strength and capabilities and competitive weaknesses

2. Where does the company need to go from here?

− Business(es) to be in and market positions to stake out

− Buyer needs and groups to serve

− Direction to head

3. How should it get there?

− A company’s answer to “how will we get there?” is its strategy


Strategy• Strategy consists of competitive moves and

business approaches used by managers to run the company

• Strategy involves making analysis and choices• The hows that define a firm's strategy

− How to grow the business

− How to please customers

− How to outcompete rivals

− How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on)

− How to respond to changing market conditions

− How to achieve targeted levels of performance8Yale Consultancy Sdn Bhd

Choosing a Strategy

• Strategic choices about “how” are based on − Trial-and-error organizational learning about what has

worked and what has not worked− Management’s appetite for taking risks− Managerial analysis and strategic thinking about how best to

proceed, given market conditions and the company’s circumstances

• In choosing a strategy, management is in effect saying,“Among all the many different business approaches and ways of competing we could have chosen, we have decided to employ this particular combination of competitive and operating approaches in moving the company in the intended direction, strengthening its market position, and competitiveness, and boosting performance.”


Key Elements of a Successful Strategy

• Developing a successful strategy hinges on making competitive moves aimed at− Appealing to buyers in ways to set the enterprise

apart from rivals and− Carving out its own market position

• Involves developing a distinctive “aha”element to − Attract customers and − Produce a competitive edge

• Copying competitive moves of other successful companies rarely works


Sustainable Competitive Advantage• A company has a competitive advantage when

sizeable number of buyers prefer its products or services over the offerings of competitors −The company achieves sustainable

competitive advantage when the basis for this preference is durable

• What separates a powerful strategy from an ordinary strategy is management’s ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage!


Four possible strategic approaches to achieve sustainable competitive

advantage• Being the industry’s low-cost provider (a cost-based

competitive advantage)• Incorporate differentiating features (a “superior product” type

of competitive advantage keyed to higher quality, better performance, wider selection, value-added services, or some other attribute)

• Focusing on a narrow market niche (winning a competitive edge by doing a better job than rivals of serving the needs and preferences of buyers comprising the niche)

• Developing expertise and resource strengths not easily imitated or matched by rivals (a capabilities-based competitive advantage)


Examples of Competitive Advantage

• Strive to be the industry’s low-cost provider− Wal-Mart− Southwest Airlines

• Outcompete rivals on a key differentiating feature− Johnson & Johnson – Reliability in baby products− Harley-Davidson – King-of-the-road styling− Rolex – Top-of-the-line prestige− Mercedes-Benz – Engineering design and

performance− L.L. Bean – Good value− Amazon.com – Wide selection and convenience


Examples of Competitive Advantage (contd)

• Focus on a narrow market niche− eBay – Online auctions− Jiffy Lube International – Quick oil changes− McAfee – Virus protection auctions− Starbucks – Premium coffees and coffee drinks− The Weather Channel – Cable TV

• Develop expertise, resource strengths, andcapabilities not easily imitated by rivals− FedEx – Next-day delivery of small packages− Walt Disney – Theme park management and family

entertainment− Toyota – Sophisticated production system− Ritz-Carlton – Personalized customer service


STRATEGY EXAMPLE: McDONALD’S

• Strategic & financial objectives−Continued growth−Providing exceptional customer care−Remaining an efficient & quality

producer−Offering high value−Effectively marketing McDonald’s brand

on a global scale


KEY ELEMENTS OFMcDONALD’S STRATEGY

• Adding 700-900 restaurants annually• Using new menu items, low price specials, Extra

Value Meals to promote frequent customer visits• Being highly selective in granting franchises• Choosing sites convenient to customers• Focusing on limited product line & consistent

quality• Careful attention to store efficiency• Extensive advertising & use of Mc prefix• Hiring courteous personnel; paying an equitable

wage; & providing good training16Yale Consultancy Sdn Bhd

Why Do Strategies Evolve?

• A company’s strategy is a work in progress

• Changes may be necessary to react to− Shifting market conditions− Technological breakthroughs− Fresh moves of competitors− Evolving customer preferences− Emerging market opportunities− New ideas to improve strategy− Crisis situations


Crafting Strategy Is anExercise in Entrepreneurship

• Strategy-making is a market-driven activity involving− Studying market trends and competitors’ actions− Keen observation of customer needs− Scrutinizing business possibilities based on new

technologies− Building firm’s market position via acquisitions or new

product introductions− Pursuing ways to strengthen firm’s competitive

capabilities− Proactively searching out opportunities to

• Do new things or• Do existing things in new or better ways


Linking Strategy With Ethics

• Ethical and moral standards go beyond− Prohibitions of law and the language of “thou shalt not”

to issues of− Duty and “right” vs. “wrong”

• Ethical and moral standards address“What is the right thing to do?”

• Two criteria of an ethical strategy:− Does not entail actions and behaviors that cross the

line from “should do” to “should not do” and “unsavory” or “shady” and

− Allows management to fulfill its ethical duties to all stakeholders


A Firm’s EthicalResponsibilities to Its

Stakeholders

Customers - Rightfully expect a seller to provide them with a reliable, safe product or service

Employees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise

Owners/shareholders – Rightfully expect some form of return on their investment

Suppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairly

Community - Rightfully expect businesses to be good citizens in their community


Role of Senior Executives:Linking Strategy with Ethics

• Forbid pursuit of ethically questionable business opportunities

• Insist all aspects of company strategyreflect high ethical standards

• Make it clear all employees areexpected to act with integrity

• Install organizational checks and balances to− Monitor behavior− Enforce ethical codes of conduct− Provide guidance to employees in gray areas

• Display genuine commitment to conduct business activities ethically


Business Model

• A company’s business model describes the economic logic of how its strategy can deliver value to customers at a price and cost that yields acceptable profitability

• Business model deals with whether the revenues and costs flowing from the strategy show business viability

• It is about the “bottom line”

• A company should have a business model that promises acceptable profit, regardless of whether there are competitors or not.


Relationship Between Strategy and Business Model

Strategy . . .

Deals with a company’s competitive initiatives and business approaches

Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a business can be amply profitable and viable


Strategic Management Process

• The steps by which management converts a firm’s vision, mission, and goals/objectives into a workable strategy

• Consists of four stages:• Formulation of Mission and Policies• External and Internal Analysis (SWOT analysis)• Development of strategies• Implementation of strategies• Evaluation/adjustment


Strategy-Making Hierarchy

• A company’s overall strategy is a collection of

strategic initiatives and actions devised by

managers and key employees up and down the

whole organizational hierarchy

• It comprises four distinct levels of strategy• Corporate strategy• Business/competitive strategy• Functional strategy• Operating strategy


Types of Business-Level Strategies

Cost Uniqueness

DifferentiationCost Leadership

Focused Differentiation

Focused Cost Leadership

Integrated Cost Leadership/

Differentiation

BroadTarget

NarrowTarget

Competitive Advantage

CompetitiveScope


Cost Leadership Strategy: Competitors

• Due to cost leader’s

advantageous

position:

−Rivals hesitate to compete on basis of price.

−Lack of price competition leads to greater profits.

Threat of new

entrants

Bargaining power of suppliers

Rivalry among

competing firms

Bargaining power of buyers

Threat of substitute products

Rivalry with Existing Competitors


Cost Leadership Strategy: Substitutes

• Cost leader is well

positioned to:– Make investments to be

first to create substitutes.

– Buy patents developed by potential substitutes.

– Lower prices in order to maintain value position.

ProductSubstitutes

Threat of new

entrants


Rivalry among

competing firms




Cost Leadership Strategy: Buyers

• Can mitigate buyers’

power by:– Driving prices far

below competitors, causing them to exit, thus shifting power with buyers back to the firm.

Bargaining Powerof Buyers

Threat of new

entrants


Rivalry among

competing firms




Cost Leadership Strategy: Suppliers

• Can mitigate

suppliers’ power by:

– Being able to absorb cost increases due to low cost position.

– Being able to make very large purchases, reducing chance of supplier using power.

Bargaining Power of Suppliers

Threat of new

entrants


Rivalry among

competing firms




Cost Leadership Strategy: New Entrants

• Can frighten off new

entrants due to:– Their need to enter on

a large scale in order to be cost competitive.

– The time it takes to move down the learning curve.

The Threat of Potential Entrants

Threat of new

entrants


Rivalry among

competing firms




Differentiation Strategy• An integrated set of actions taken to

produce goods or services (at an

acceptable cost) that customers

perceive as being different in ways that

are important to them.

−Focus is on non-standardized products

−Appropriate when customers value differentiated features more than they value low cost.


Differentiation Strategy: Competitors

• Defends against

competitors because

brand loyalty to

differentiated

product offsets price

competition.

Rivalry with Competitors

Threat of new

entrants


Rivalry among

competing firms




Differentiation Strategy: Substitutes

• Well positioned

relative to

substitutes

because:−Brand loyalty to a

differentiated product tends to reduce customers’ testing of new products or switching brands.

Product Substitutes

Threat of new

entrants


Rivalry among

competing firms




Differentiation Strategy: Buyers

• Can mitigate buyers’

power because well

differentiated

products reduce

customer sensitivity to

price increases.

Bargaining Powerof Buyers

Threat of new

entrants


Rivalry among

competing firms




Differentiation Strategy: Suppliers

• Can mitigate

suppliers’ power by:

− Absorbing price increases due to higher margins.

− Passing along higher supplier prices because buyers are loyal to differentiated brand.

Bargaining Power of Suppliers

Threat of new

entrants


Rivalry among

competing firms




Differentiation Strategy: New Entrants

• Can defend against

new entrants because:

− New products must surpass proven products.

− New products must be at least equal to performance of proven products, but offered at lower prices.

The Threat of Potential Entrants

Threat of new

entrants


Rivalry among

competing firms




Types of Potential Competitive Advantage

• Achieving lower overall costs than rivals

−Performing activities differently (reducing process costs)

• Possessing the capability to differentiate

the firm’s product or service and

command a premium price

−Performing different (more highly valued) activities.


Focus Strategies

• An integrated set of actions taken to

produce goods or services that serve the

needs of a particular competitive segment.

−Particular buyer group—youths or senior citizens

−Different segment of a product line—professional craftsmen versus do-it-yourselfers

−Different geographic markets—East coast versus West coast


Focus Strategies (cont’d)

• Types of focused strategies−Focused cost leadership strategy−Focused differentiation strategy

• To implement a focus strategy, firms

must be able to:−Complete various primary and support

activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns.


Integrated Cost Leadership/

Differentiation Strategy

• A firm that successfully uses an

integrated cost

leadership/differentiation strategy

should be in a better position to:

− Adapt quickly to environmental changes.

− Learn new skills and technologies more quickly.

− Effectively leverage its core competencies while competing against its rivals.


References • Ungson G. R. & Wong, Y-Y (2008) Global Strategic Management. M. E.

Sharpe, New Yor., 579 p.• Meredith R. (2007) The Elephant and The Dragon – Rice of India and China

and What it Means for All of Us. WW Norton Comp., New Yor., 252 p• Angtmael, van A. (2007) The Emerging Markets Century - How a New

Breed of World-Class Companies Is Overtaking the World. Free Press, New York. 358 p.

• Friedman, T. L. (2007) The World Is Flat 3.0 - A Brief History of the Twenty-first Century Picador, 672 p.

• Hamel, G. (2000) Leading the Revolution. 333 p.• D’Aveni, R. A. (1995) Hypercompetitive Rivalries – Competing in Highly

Dynamic Environments. The Free Press. 288 p.• Ohmae, K. (1991) The Mind of the Strategist. McGraw-Hill, Inc. 304 p.• Pitts, R. & Lei, D. (2006) Strategic Management – Building and Sustaining

Competitive Advantage. South-Western Educational Publishing; 2nd edition 512 p.

• Tichy N. M (1983) Managing Strategic Change – Technical, Political and Cultural Dynamics. John Wiley & Sons, 464 p.

• Kaplan R.S: & Norton D. P. (2004) Strategy Maps – Converting Intangible Assets into Tangible Outcomes. HBS Press. 480 p.


References • Simons, R. (2000) Performance Measurement & Control Systems for

Implementing Strategy. Pearson Education, New yearsey. 792 p.

• Images of Strategy (2003) Edited by Cumming S. & Wilson, D. Blackwell

Publ. Ltd. 450 p.

• Collins, J. (2004) Hyvästä paras. Gummerus Oy, Jyväskylä. 363 s.

• Kim W. C. & Mauborgne, R. (2005) Blue Ocean Strategy. HBS Publishing.

240 p.

• Writing an Effective Business Plan. 4th edition. 2003 Deloitte & Touche

LLP, 52 p.


Thank You

Yale Consultancy Sdn Bhd

[email protected]

03-2021 0577

Yale Consultancy Sdn Bhd 44

mailto:[email protected]

understanding strategic management yale consultancy sdn bhd [email protected] +60 3 2021 0577 ...

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