MGT CH.5-6

PORTER'S FOUR COMPETITIVE STRATEGIES (1 of 2)

1.Cost-leadership strategy •Keep the costs, and hence prices, of a product or service below those of competitors and target a wide market. •IKEA, Walmart, Home Depot, Bic pens 2.Differentiation strategy •Offer products that are of unique and superior value compared to those of competitors and target a wide market. •Ritz-Carlton hotels, Lexus automobiles

THREE TYPES of GRAND STRATEGIES

1.Growth strategy •Involves expansion, as in sales revenues, market share, number of employees, or number of customers. 2.Stability •Involves little or no significant change. 3.Defensive •Involves reduction in the organization's efforts. Retrenchment is another term for defensive strategy.

MANAGEMENT BY OBJECTIVES: THE FOUR-STEP PROCESS for MOTIVATING EMPLOYEES

1.Managers and employees jointly set objectives for the employee. 2.Managers develop action plans. 3.Managers and employees periodically review the employee's performance. 4.Managers make a performance appraisal and reward the employee according to results.

PORTER'S FOUR COMPTITIVE STRATEGIES (2 of 2)

3. Cost-focus strategy •Keep the costs of a product below those of competitors and target a narrow market. •Low cost beer or cigarettes, Red Box movie rentals 4. Focused-differentiation strategy •Offer products that are of unique and superior value compared to those of competitors and target a narrow market. •Lush, Ltd. a UK-based brand of natural soaps and bath products

GOALS

A specific commitment to achieve a measurable result within a stated period of time.

STEP 2: ASSESS the CURRENT REALITY

Assess the current reality •Look at where the organization stands internally and externally, to determine what's working and what's not. •See what can be changed so as to increase efficiency and effectiveness in achieving the organization's vision. •Tools include competitive intelligence, SWOT analysis, forecasting, benchmarking, Porter's model for industry analysis.

The THREE CORE PROCESSES of BUSINESS

Bossidy and Charan believe company's overall ability to execute is a function of effectively executing according to three processes. 1.People: consider who will benefit you in the future. •Because all work ultimately entails some human interaction, effort, or involvement--this is the most important process. 2.Strategy: consider how success will be accomplished. 3.Operations: consider what path will be followed.

STEP 1: ESTABLISHING the MISSION, VISION, and VALUES STATEMENT

Characteristics of a Good Values Statement: An organization's values are expressed in a values statement, which should describe what the organization stands for, its core priorities, the values its employees embody, and what its products contribute to the world.

DEVELOPING a SUSTAINABLE COMPETITIVE ADVANTAGE

Competitive advantage •The ability of an organization to produce goods or services more effectively than its competitors do, thereby outperforming them. Sustainable competitive advantage •Occurs when an organization is able to get and stay ahead in four areas: 1.In being responsive to customers. 2.In innovating. 3.In quality. 4.In effectiveness.

LEVELS of STRATEGY

Corporate-Level Strategy •Focuses on the organization as a whole. •What business or businesses should we be in? •Executives generally referred to as the "C-Suite." Business-Level Strategy •Focuses on individual business units or product/service lines. •How should we compete in the industry? •Managers at this level focus on issues aimed at implementing decisions under consideration from Corporate-Level. Functional-Level Strategy •Applies to the key functional departments or units within the business units. •How can business functions support the Business-Level strategy? •Functional managers focus more on tactical issues.

MANAGING YOUR CAREER READINESS

Critical Thinking/Problem Solving •Using sound reasoning to analyze a situation, make decisions, and solve problems. 1.Don't make quick or rash decisions during the planning process 2.Remin open-minded by obtaining and considering a wide range of information before making a judgement Most employment interviews will include questions where you are asked to respond to a scenario question in which a problem is presented. •Employers want to see critical thinking and your ability to analyze the situation and propose alternatives

The IMPORTANCE of DEADLINES

Deadlines can help concentrate the mind. Deadlines help you ignore extraneous matters in favor of what's important. Deadlines provide a mechanism for giving ourselves feedback.

The DIVERSIFICATION STRATEGY

Diversification •Operating several businesses in order to spread the risk. •Products may be related or unrelated. Vertical integration •Firm expands into businesses that provide the supplies it needs to make its products or that distribute and sell its products.

SWOT ANALYSIS (1 of 2)

Environmental scanning •Monitoring of an organization's internal and external environments to detect early signs of opportunities and threats that may influence the firm's plans. •SWOT, process for scanning: •Internal Strengths. •Internal Weaknesses. •External Opportunities. •External Threats.

EXECUTION: GETTING THINGS DONE

Execution •Consists of using questioning, analysis, and follow-through in order to mesh strategy with reality, align people with goals, and achieve results promised. •A survey of 769 global CEOs reviled that "excellence in execution" as their most important concern. This is the BEST way to turn a company around.

CASCADING GOALS: MAKING LOWER-LEVEL GOALS ALIGN with TOP GOALS

For MBO goal-setting to be successful, the following three things have to happen. 1.Top management must be committed to it. 2.Goals must be applied organizationwide. 3.Goals must "cascade"—be linked consistently down through the organization.

FORECASTING: PREDICTING the FUTURE

Forecasting •A vision or projection of the future. Trend analysis •Hypothetical extension of a past series of events into the future. •Basic assumption that the picture of the present can be projected into the future. Contingency planning •Creation of alternative hypothetical but equally likely future conditions. Benchmarking A process by which a company compares its performance with that of high-performing organizations.

STEP 3: FORMULATE CORPORATE, BUSINESS, and FUNCTIONAL STRATEGIES

Grand strategy •Comes after assessing the current reality. •Strategy formulation is the process of choosing among different strategies and altering them to best fit the organization's needs. •Translates the broad mission and vision statement into a corporate strategy which explains how the organization's mission is to be accomplished.

The OPERATING PLAN and ACTION PLAN

Operating plan •A plan that breaks long-term output into short-term targets or goals. •Turns strategic plans into actionable short-term goals and action plans. Action plan •Defines the course of action (the tactics) needed to achieve a stated goal. •Contains a projected date for completing the desired activities for each tactic.

THREE TYPES of OBJECTIVES USED in MBO

Performance Objectives:Focus Express the objective as an outcome or end-result. Examples: "Increase sport utility sales by 10%." "Reduce food spoilage by 15%." Behavioral Objectives:Focus Express the objective as the behaviors needed to achieve an outcome. Examples "Greet all potential automobile customers with a smile and offer to assist." "Ensure food is stored in seal-proof containers." "Attend five days of leadership training." "Learn basics of Microsoft Office software by June 1." Learning Objectives:Focus Express the objective in terms of acquiring knowledge or competencies. Examples "Attend sales training class." "Learn how the features in our sports utility vehicles compare to competitors."

PORTER'S FIVE COMPETITIVE FORCES

Porter contends that business-level strategies originate in five primary competitive forces in the firm's environment: 1.threat of new entrants. 2.bargaining power of suppliers. 3.bargaining power of buyers. 4.threats of substitute products or services. 5.rivalry among competitors.

LONG-TERM and SHORT-TERM GOALS

SHORT-TERM GOALS:•Sometimes referred to as tactical or operational goals, or just plain goals. •Generally span 12 months and connected to strategic goals in a hierarchy known as a means-end chain. LONG-TERM GOALS:•Referred to as strategic goals. •Tend to span 1 to 5 years and focus on achieving the strategies identified in a strategic plan. •Revision of strategic plan best if done closer to every 1-2 years

SMART GOALS

Specific: Goals should be stated in specific rather than vague terms. Measurable: Whenever possible, goals should be measurable, or quantifiable Attainable (Achievable): Goals should be challenging, of course, but above all they should be realistic and attainable Results-oriented (Realistic): Only a few goals should be chosen—say, five for any work unit. And they should be results-oriented—they should support the organization's vision. Target dates (Timely): Goals should specify the target dates or deadline dates when they are to be to be obtained.

STEP 5: MAINTAIN STRATEGIC CONTROL: The FEEDBACK LOOP

Strategic control •Monitoring the execution of strategy and taking corrective action, if necessary. The feedback loop is important to monitor progress so that corrective action can take place. •According to Bryan Barry, in his article, "A Beginners Guide to Strategic Planning," to keep on track, you must: •engage people. •keep it simple. •stay focused. •keep moving.

WHAT IS an EFFECTIVE STRATEGY?

Strategic positioning •Developed by famous strategist Michael Porter. •Attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. •"Performing different activities from rivals, or performing similar activities in different ways."

STEP 4: EXECUTE THE STRATEGY

Strategy implementation •Putting strategic plans into effect. •Means dealing with roadblocks within the organization's structure and culture and seeing if the right people and control systems are available to execute the plans. •Essential for success and is considered the greatest challenge for managers.

STRATEGY: SETTING LONG-TERM DIRECTION

Strategy or strategic plan •A large-scale action plan that sets the long-term goals and direction for an organization. •Represents an "educated guess" about what must be done in the long term for the survival or the prosperity of the organization or its principal parts. •Strategic plans generally reconsidered every year due to everchanging business conditions. •Expressed in terms like: •Grow business organically •Commitment to continuous evolution

MANAGEMENT BY OBJECTIVES (MBO)

Suggested by Peter Drucker in 1954, MBO spread largely because of the appeal of its emphasis on converting general objectives into specific ones for all members of an organization. To be effective using this approach remember: •MBO is to motivate rather than control subordinates. •An MBO program must be put in place throughout the entire organization. •Managers should meet with employees reasonably often to review progress (informally as needed and formally every three months).

FUNDAMENTALS of PLANNING

The approach to planning can be summarized in the diagram, which shows how an organization's mission becomes translated into action plans. The three main plans are: •Strategic planning, done by top managers for the next 1-5 years •Tactical planning, done by middle managers for the next 6-24 months •Operational planning, done by first-line managers for the next year

THREE TYPES of PLANNING for THREE LEVELS of MANAGEMENT

There are three types of planning for three levels of management: strategic planning, tactical planning, and operational planning. The key information here is to show how different levels of management use plans, and the timeframes of those plans. Top management is often engaged in strategic planning; middle management is often engaged in tactical planning, and first-line management is often engaged in operational planning.

STANDING PLANS and SINGLE-USE PLANS

There is also a difference between standing plans and single-use plans. Students likely have work (or school) experience with these types of plans. Your syllabus likely outlines different policies that address tardiness, late work, etc. McDonalds specifies exact procedures on how a hamburger should be dressed (mustard, ketchup, pickles) and in what order. Your campus likely has a rule about "no smoking in this building." The U.S. government space program has had several projects, including the Challenger project, the Hubble Telescope project, and the space shuttle project.

STRATEGIC POSITIONING and ITS PRINCIPLES

Three key principles underlie strategic positioning. 1.Strategy is the creation of a unique and valuable position. Three sources: •Few needs, many customers. •Jiffy Lube- only lubricants but to all kinds of motor vehicles •Broad needs, few customers. •Bessemer Trust- wealth management and investment advisory firm for only high net worth clients •Broad needs, many customers. •Carmike Cinemas- movie theater only operates in cites with populations of fewer than 200,000 people 2.Strategy requires trade-offs in competing. 3.Strategy involves creating a "fit" among activities.

The PLANNING/CONTROL CYCLE

Used to ensure the plans are moving in the right direction Planning happens in two steps: (1) Make the plan, and (2) Carry out the plan. Next, control happens in two following steps: (3) Control the direction by comparing the results with the plan, and (4) Control the direction in two ways (correct deviations or improve future plans). Remind students that the planning and control cycle loop exists for each level of planning—strategic, tactical, and operational. The corrective action in step 4 of the cycle (a) can get a project back on track before it's too late or (b) if it's too late, can provide data for improving future plans.

USING VRIO to ASSESS COMPETITIVE POTENTIAL

VRIO is a framework for analyzing a resource or capability to determine its competitive strategic question by answering four questions: 1.Value: Is the resource or capability valuable? 2.Rarity: Is the resource or capability currently controlled by only a few firms or no other firms? 3.Imitability: Is the resource or capability costly for other firms to imitate? 4.Organization: Is the firm organized to exploit the resource or capability?

PLANNING, STRATEGY and STRATEGIC MANAGEMENT

•Planning is the first of the four functions in the management process. •Planning involves setting goals and deciding how to achieve them. •It also involves ensuring the plans are linked to the business strategy.