2.4 Integration and Strategic Management

Strategy Map

A strategy map outlines the strategic approaches along each of the four dimensions of the balanced score card.

inputs; outputs

Operations refers to the transformation process of converting blank__________ into __________.

reducing the effort required by customers

Which one of the following is most likely to lead to customer loyalty?

Performance management tools

While scores of tools are available for enterprise performance management, we will confine our discussion to a few major ones: 1. Balanced Score Card and Strategy Map 2. Activity Based Costing 3. Supply Chain Management 4. A Systems Framework for Performance Management

Strategic groups

are firms in an industry that follow similar strategies such as low cost and acceptable quality. Firms within a group compete among each other but not with other strategic groups. At the other extreme, a strategic group may comprise a few firms following a high price, high perceived value strategy. Again, firms within the group compete among each other but not with other strategic groups. A firm may be present in different strategic groups by offering products with different value propositions and distinctive brand names.

A quality management system

can provide the framework for continual improvement to increase the probability of enhancing the customer experience even while meeting the expectations of other stakeholders (shareholders, employees, suppliers, and society). A well-orchestrated quality management system provides confidence to the organization and its stakeholders that it can roll out products and services that consistently meet or exceed requirements.

Return on Investment (ROI)

in the realm of quality, is the ratio derived from the sum of the improvement benefits divided by the sum of the costs of the improvement. For example, a 10:1 ratio means that $10 of benefits were derived for every $1 of cost. The ROI concept can help you to justify the cost of quality improvement projects and loss prevention processes, determine the value of continuing a project already underway, and evaluate the overall organizational effectiveness of an implemented quality initiative.

Six SIgma

is a method that provides organizations with the tools to improve the capability of their business processes. This increase in performance and decrease in process variation lead to defect reduction and improvement in profits, employee morale, and quality of products and services. At the heart of Six Sigma is the DMAIC approach (Define, Measure, Analyze, Improve, and Control). Processes require inputs (x) and produce outputs (y). If you control the inputs, you will control the outputs. This is expressed as: y = f(x).

Service

is as important as the product itself. Customers expect contact personnel to be courteous, knowledgeable, and capable of solving their problems. Service can be a great differentiator in today's competitive environment.

Concentrated Strategy (focus on one segment)

the organization focuses on one segment of the market. Focus is a good entry strategy as it involves fewer resources and therefore less risk than trying to cater to multiple segments. Focus is also useful at the highest end of the market such as in the case of designer jewelry, antiques, paintings, rare musical instruments, and "prestige" goods.

values

A firm has many goals and a set of blank__________ that shape the achievement of the goals.

Complacency

A low performance orientation with high psychological safety leads to blank__________

strategic approaches

A low performance orientation with high psychological safety leads to blank__________

apathy

A low performance orientation with low psychological safety leads to blank_____

Customer Focus and Loyalty

Great customer experience is at the heart of business success. Customer service is the lifeblood of the customer experience. Satisfied customers are likely to turn into loyal customers. Loyal customers become advocates and even evangelists. Dissatisfied customers can cause havoc to any business. Some studies show that it is much more expensive to create a new customer than it is to retain a customer. A focus on service quality is the foundation for meeting customer expectations.

Positioning

Product position is the way customers perceive a product or service on important attributes when comparing it with other products and services. Positioning is the combination of emotional attributes that customers experience while looking at a product or service.

Customer Focus and Service Quality

Production and consumption of many services are inseparable. Quality occurs during service delivery, at the interaction between the customer and the contact person from the service firm. Service Quality is a comparison between Expectations and Performance. Quality Evaluations involve Outcomes and Processes - service quality depends not only on the result (outcome) but also on the service delivery (process).

Objectives

Objectives represent the transition from the mission (purpose of business) into objectives. Scholars make a distinction between goals and objectives. Goals are generic or qualitative (Example: We want to make profits) while objectives are specific and measurable. Objectives are of two types - strategic and financial.

SUPPLY CHAIN MANAGEMENT

Inbound logistics is sometimes synonymously used with blank__________.

focus differentiation

Cinnabon and Kopi Luwak are examples of a blank__________ strategy.

Why is Loyalty Important?

Consider customer loyalty as two pies - one containing factors that drive loyalty and the other containing factors that drive disloyalty. The loyalty pie - product quality and brand; slice for service is small. The disloyalty pie - service accounts for most of this pie.

Defining External Customers

Customers can broadly be viewed from three perspectives: Demographics - what is your typical customer profile as regards age, gender, ethnicity, geographic location, and economic status? Demographic factors are easy to define and relatively easy to collect. But they rarely convey buying behavior by themselves. Psychographics - how do customers feel about products and services? Do they prefer quality irrespective of price? Do they support products and services based on how the organization is committed to protecting and preserving the eco-system? What drives customers? Behavioral - past actions that may enable you to predict the future. Today, marketers typically track customers' social media activities to (or "intending to") understand behavioral patterns.

A Market Segment should be:

Effective Segmentation Requirements To be useful, a market segment should be: Measurable, Accessible, Substantial, Differentiable, and Actionable. Measurable attributes include the size, purchasing power, and profiles of the segments. Accessible refers to the fact that you can effectively reach and serve the chosen market. Substantial refers to the fact that the markets are large and profitable enough to serve. Differentiable refers to the fact that the markets are conceptually distinguishable and respond differently to marketing mix programs and elements. Actionable refers to the fact that effective programs can be designed (product, price, promotion, and distribution) for attracting and serving the segments.

firm infrastructure

Firm infrastructure refers to leadership, finance, MIS and related activities that act like a glue to all functions. Innovation (R & D) is another building block of competitive advantage. People are the greatest resource a company has and needs to be nurtured. Procurement is part of supply chain management and is critical because in manufacturing nearly two thirds of the product cost goes toward materials.

service

In terms of the value chain concept, the ultimate differentiator is blank__________.

strategies and objectives

In terms of value chain integration, leadership provides the mission, vision, blank__________, and __________

Internal customers

Internal customers are those within an organization that your work impacts. As an example, the customer service function is the internal customer of the sales function which, in turn, is the internal customer of the marketing function. Unless you satisfy your internal customers, it is unlikely that you will satisfy your external customers. Satisfying internal customers is an organization's ability to facilitate teamwork across the organization. The critical first step in this is to instill in every individual the perpetual awareness, understanding, and appreciation that customer service is everyone's business.

structure and strategy

Leaders can mitigate task-oriented resistance to change by aligning blank__________.

Growth Strategies - Ansoff's Model

Market penetration: Colgate increased its toothpaste sales by merely increasing the size of the nozzle. Market development: McDonald's expanded into a global enterprise with little or no product modification - burgers, fries, and colas. Product development: Innovation is a key driver for success. Apple releases its new products first in the US and other industrialized countries, and only later into other markets. Diversification: ALCON has integrated vertically backwards by acquiring bauxite mines in the Caribbean. Levi's has integrated vertically forward by having its own retail stores. Walmart integrated horizontally in India by acquiring an existing retailer Flipkart. GE is a diversified company offering aircraft engines, medical equipment, financial services and many other unrelated things.

Marketing and Sales

Marketing and Sales is the range of activities associated with customer acquisition, satisfaction, and retention. Knowing what customers expect and providing it to them when, where, and how they want it is the key success factor.

Situation Analysis - Five Forces

Michael Porter developed the Five Forces model as a tool to understand the presence and strength of competitive forces. Sources of competitive pressure are: Competitive rivalry within an industry. Threat of new entrants. Threat of substitutes. Bargaining power of buyers (customers). Bargaining power of suppliers.

Poka Yoke (Mistake-Proofing)

Poka-yoke is the Japanese term for mistake-proofing. Poka-yoke is the first step in creating an error-free system. Error-proofing is a manufacturing technique of preventing errors by designing the manufacturing process, equipment, and tools so that an operation cannot be performed incorrectly.

Strategic Leadership Skills (6)

Research covering over 20,000 executives suggests that strategic leaders need six skills to navigate through uncharted territory. Management literature cites the six skills as distinct components. Leaders tend to look at one or two in any given situation. Such an isolated approach leads to poor decisions. The six skills are interdependent and complementary. An adaptive strategic leader combines resoluteness with flexibility. An adaptive strategic leader is persistent and views errors (as distinct from catastrophic failures) as opportunities to learn and can anticipate change and embrace change before competitors.

relatively heterogenous; relatively homogenous

Segmentation is the process of dividing a blank____________ market into __________ clusters, each of which have some common characteristics.

expectations; performance

Service quality is a comparison between blank__________ and __________.

inseparability

Service quality is characterized by intangibility, heterogeneity, and blank__________

The Leadership Challenge

Several scholars have interpreted the challenge for today's leaders: Collins and Porras infer that great leaders have the ability and capabilities to bridge differences of preference, opinion, and interests at a higher level. Trompenaars and Hampden-Turner argue that 21st century leadership goes beyond professional competence. It relates to the personal development objectives of everyone in the organization. De Wit and Meyer opine that strategic leaders apply leadership principles to strategic issues and tensions.

Hybrid Strategy

Some scholars have argued that cost leadership and differentiation are not mutually exclusive, and that they can be combined to yield a hybrid or best-cost-provider strategy.

The Ideal Customer

The Ideal Customer Who is your ideal customer? Describe - based on demographics, psychographics, and behavior. Locate - geographically and culturally - local, regional, national, or global. Understand - the purchase process, the problem to be solved, the "job to be done" from the customer's perspective, quantity, frequency, value, and decision-making process (impulse, limited search, or extensive search; individual, family, team, or organization). Connect - with current customers, gather insights, find out why they chose you, what do you have that others don't? Create - customer profiles. The top 20% who typically account for 80% or more of revenues, the next 30%, the next 30%, and the bottom 20%.

Kaizen

The Japanese method of continuous improvement is called blank__________.

The Need for Change

The Need for Change Change is inevitable. The competitive and macro environments are in a constant state of flux. Unless organizations adapt and change, failure is certain. 1. Technology: Technology drives markets. INTEL has consciously killed its products before they reach the maturity stage to force the industry to switch to its new generation of microprocessors. Can you imagine a PC manufacturer today that can offer you a PC with a 80386 or 80486 processor? 2. Globalization: The process of globalization has blurred many traditional concepts in management. Apparel manufacturer United Colors of Benetton (UCB) sources its raw material from China and India, has different stages of the manufacturing process in Thailand, Taiwan, Philippines, Malaysia, and Singapore. The design team works in Italy and France. Where would you say a UCB apparel is "manufactured"? 3. Changing market requirements: Customer requirements change. Demographics change. In the mobile telephone industry, customers routinely expect two cameras, access to the internet, network capabilities in their offices, audio, video, conferencing capabilities, data processing and storage, social media, and much more. Such major changes in expectations can be a challenge to even the large players. 4. Intense domestic and international competition: Practically every country has some kind of competition law that discourages monopolies and large-scale mergers. Agreements under GATT and WTO ensure market access to every nook and corner of the world. Daimler Benz, BMW, Audi, and Volvo compete fiercely in the EU and also across the world. 5. New Leadership Opportunities and Threats: With changes in leadership, the pace of change accelerates. GE under Jack Welch went through a roller-coaster ride of divestitures and new ventures and in the process became a rather unwieldy conglomerate. Amazon under Jeff Bezos is no longer just an online retailer - it has entered the cloud services space, media, and aerospace industries. In each of these industries, Amazon has to compete with a set of formidable competitors. At the same time, Amazon has to compete with local players in each country where it wishes to have a significant presence.

qualitative; quantitative

The difference between goals and objectives is that goals are blank__________ and objectives are __________.

Leading Change

The role of the strategic leader is to facilitate change that results in better performance. Change oriented leaders initiate new strategies or modify existing strategies to match the requirements of the turbulent environment in which organizations exist.

strategy implementation; performance evaluation

The five stage strategic management process is comprised of mission and vision, objectives, strategy formulation, blank__________, and __________.

Closing the Loop: Feedback and Control

The five tasks represent a systems approach to strategy. Thus, the mission and vision are the inputs to generate objectives. Objectives determine the strategy to be followed. Once chosen, the strategy has to be implemented. Measuring performance and taking corrective action is critical to success. At every stage, revisions and changes are possible based on internal and external factors. Thus, strategic management is a dynamic process that goes on 24x7 as long as the firm lasts.

Linking the Budget to Strategy

The implementation of any strategy - generic or growth - requires: 1. resources to support the strategy. 2. Fair and transparent screening of requests for new capital projects and larger operating budgets. 3. Shifting resources based on strategic priorities - downsizing some processes, upsizing some, and eliminating the unnecessary ones.

6 Skills: Anticipate

The key to being a successful strategic leader is the ability to anticipate change. We have seen in the previous section that anticipation requires a thorough understanding of economic (market) factors as well as psychological (people) factors. Anticipation is the skill that most leaders find difficult to master. Guide to improve the ability to anticipate: 1. Listen to customers, suppliers, and other value chain partners. 2. Use scenario planning to figure out the changes that may happen in the industry. 3. Use simulation to understand the consequences of different scenarios. 4. Study a rapidly growing competitor to understand what you may be missing. 5. List customers who have left you recently and try to find the reasons. 6. Keep your organizational antenna open 24x7 to catch signals that might affect you.

What is Performance Management?

What is Performance Management? An organization must grapple with three major questions or choices constantly: Market and customer choices - which segments and types of customers to serve and not to serve. Product or service choices - what to offer and equally important, what not to offer. Sustainability choices - how to keep winning, how to keep learning, and how to meet the expectations of various stakeholders. While performance management can provide insights into all three, it is most useful in achieving the third dimension - continuous adaptation, agility, and successful execution of strategies. Performance management is particularly useful in managing uncertainty and complexity. This section explores the contours of performance management. What Is Performance Management? If we remove all the technicalities, performance management is all about improvement. How do we create value for our customers? How do we create an ecosystem with employees, suppliers, distribution channels, regulators, and society in which each stakeholder group perceives its expectations as having been met? How do we anticipate and embrace change?

Strategic Challenges

Writing down a mission and a vision, and stating objectives do not complete the strategy process. Among the challenges to be addressed by strategy are: How do we satisfy our customers? How do we measure customer satisfaction? How to we improve it constantly? How do we grow - in the same industry and in other industries? Do we start from scratch or do we acquire an existing business? How do we adapt to rapidly changing industry and economic environments? How do we spot or create new opportunities and be the first to exploit them? How do we achieve strategic and financial objectives? How do we create synergy (the whole being greater than the sum of the parts) between functions, departments, divisions, and geographies?

Strategic objectives

facilitate the achievement of a competitive position and superior performance. Example: Over the next two years, we aim to increase operational efficiency (ratio of output to input) by 10%, reduce transaction costs by 5%, improve our market share by 12%, enhance economic value added by 20%, and improve customer satisfaction from the current 78% to 85%.

innovation and marketing

firms following a differentiation strategy need to focus on blank__________.

Financial objectives

focus on financial performance. Example: We project an increase in ROI of 3% this year compared to the last year.

Outbound Logistics

is the process of delivering the product to the customer either through a distribution channel or directly. The key here is to deliver on the promise - quality, quantity, price, and warranty

Positioning Maps

show consumer perceptions of brands versus competing products on important buying dimensions. These dimensions include: 1. Product differentiation - Ferrari vs. an entry level car. 2. Service differentiation - First Class, Business Class, Premier Economy, and Economy in airlines. 3. Channels of distribution - Direct Marketing, Wholesalers, Distributors, Retailers, and Online. 4. People - Work Environment, Company Culture, Opportunities for Career Development, Diversity, Great Place to Work, and Equal Opportunity. 5. Image - The Body Shop vs. companies that use chemicals and animal testing, Green Companies vs. Polluting Companies.

Kaizen Methodology

(Kai = Change; Zen = Good) The Japanese method of continuous improvement.

DMAIC

At the heart of Six Sigma is the blank__________ process.

focus cost leadership

Checkers Drive In and Redbox are examples of a blank__________ strategy.

managing conflicting expectations of people

Strategic leadership is about __________ in the process of exploiting opportunities.

purpose

The three key elements of enterprise performance management are blank__________, processes, and people

The two generic strategies

are cost leadership and differentiation. Based on the target market, two additional strategies emerge - focus cost leadership and focus differentiation. A hybrid strategy is possible but a "stuck-in-the-middle" strategy must be avoided.

The five-step approach to strategy

involves developing a mission, setting objectives, formulating a strategy, implementing the strategy, and evaluating performance. Constant feedback and corrective action completes the system.

Vision

is an aspirational future state that an organization desires to be in. Vision represents an ideal that an organization commits to in the long run.

Organizational change

is any transition that requires a change in human performance. Change involves activities related to planning, designing, implementing, and internalizing tools, resources, procedures, routines, processes, or systems that will require people to perform their jobs differently.

Strategic leadership

is the ability to think, act, and influence others in ways that ensure the enduring success of the organization. An adaptive strategic leader combines resoluteness with flexibility. An adaptive strategic leader is persistent and views errors as opportunities to learn and can anticipate change and embrace change before competitors. The key strategic leadership skills are anticipation, challenging the status-quo, interpretation of conflicting scenarios, decision-making, alignment, and constant learning. Organizational change is any transition that requires a change in human performance. Change is inevitable. But change is also resisted. Strategic leaders facilitate change and ensure superior firm performance.

Value Proposition

is the full mix of benefits upon which a firm positions its brands: More for more (unique features and attributes that command a premium price) - customers pay more for Apple's products in the belief they are getting a product with more features and greater reliability than competitors' products. More for the same (better than competition for the same price) - Toyota has positioned its Lexus and Prius as offering more features for the same price as that of competing cars. Same for less (attributes similar to competition but at a lower price) - Samsung and LG have followed this approach, using the Android operating system and claiming features similar to more expensive brands; in turn, Xiomi and Huawei have pushed the prices further down while claiming features similar to that of Samsung and LG. Less for much less (fewer attributes but at a much lower price) - deep discount auction sites such as eBay and Tophatter belong to this category. You may be getting a used product or a product whose value is difficult to determine at a very low price. More for less (superior attributes at a lower price - ultimate differentiator) - new products with fancy features may adopt this approach during the introduction stage. The firm is willing to undergo a short-term loss to gain market share. However, this is difficult to sustain over the life-cycle of a product or service.

Quality

is the inherent degree of excellence of a product or service. It is also referred to as conformance to requirements at the start of use.

Reliability

refers to the state of the product or service after an interval of time (will it continue to perform adequately after a week, a month, or a year?). While quality can be expressed as time zero defects, reliability needs a probability model known as the life distribution model.

Operations

refers to the transformation process of converting inputs into outputs. The key concept in operations is efficiency - the ratio of output to a unit of input. The higher the efficiency, the lower is the unit cost, and the greater the probability of achieving superior value.

Service Quality Components

reliability, responsiveness, assurance, empathy, tangibles COMMUNICATION: Keeping customers informed in a language they can understand; listening; explaining the service, the cost, and trade-off between service and cost. Assuring customers that problem/s will be solved. CREDIBILITY: Trustworthiness, Honesty; always having the customer's interest at heart; the reputation of the firm. Characteristics of contact personnel. The degree of hard sell involved in interactions with the customer. SECURITY: Freedom from danger, risk, or doubt. Physical safety, financial security, and confidentiality. UNDERSTANDING THE CUSTOMER: Learn the customer's specific requirements. Provide individualized attention. Recognize the regular customer. TANGIBLES: Physical evidence of service facility. The appearance of personnel. Tools or equipment used to provide service. Physical presentations of the service (Example: A Credit Card). Other customers present in the service facility.

Abell's framework

shifts the focus from the company to customers. In other words, customer focus is the critical factor in organizational success (this will further be explored in the customer focus section). Examples: Amazon.com: "To be Earth's most customer-centric company, where customers can find and discover anything they may want to buy online, and to offer its customers the lowest possible prices." Sony: "To be the company that inspires and fulfills your curiosity."

Undifferentiated Strategy (mass marketing)

treats entire markets as one and tries to address the market with one offering, one price, one type of promotion, and one type of distribution. Traditionally, commodities such as salt and sugar belong to this category. Changing lifestyles and customer expectations have meant that even with commodities some differentiation is sought. For example, low-sodium salt and packaged goods containing lower levels of salt, brown sugar, and sugar cubes are meant to create a kind of artificial differentiation.

Problem Solving Methodology

1. Define the problem - often, organizations focus on the symptom and lose sight of the real problem. For example, declining sales is a symptom. The underlying problem could range from poor quality to high prices to inadequate marketing effort to doubtful positioning, among others. Helpful techniques to define the problem are flow charts to depict the process and cause and effect diagrams to identify the root cause. 2. Generate alternative solutions - postpone the selection of one solution until several alternatives have been explored and assessed. Considering multiple alternatives can significantly enhance the value of your final solution. 3. Evaluate and select an alternative - Skilled problem solvers use a series of considerations when selecting the best alternative. They consider the extent to which: -A particular alternative will solve the problem without causing other unanticipated problems. -All the individuals involved accept the alternative. -Implementation of the alternative is likely. -The alternative aligns with the organizational mission, core purpose, objectives, and constraints. 4. Implement and follow up on the solution - Leaders may be called upon to order the solution to be implemented by others, "sell" the solution to others, or facilitate the implementation by involving the efforts of others. The most effective approach, by far, is to involve others in the implementation as a way of minimizing resistance to subsequent changes.

Kaizen Principles

1. There is always room for improvement. 2. Everyone has the potential to offer suggestions. 3. Everyone's opinion is valuable and is considered. 4. Any improvement (change) requires personal discipline and commitment. 5. Teamwork works (accomplished through Quality Circles) The Kaizen framework starts with the premise that quality is a journey - not a destination. Thus, there is always room for improvement. The people who are responsible for any process are in the best position to offer suggestions for improvement. Quality becomes a bottom-up approach in which everyone participates, and everyone's views are valued. The emphasis on personal discipline places the ownership of any process on those responsible for the outcomes. Achieving quality and continuous improvement is the responsibility of cross-functional teams or quality circles (a quality circle is a team drawn from different functions).

Why Do People Resist Change?

1. Threat of self-interest - each one of us brings a baggage of values based on a variety of factors - it is not easy to change them. 2. Uncertainty and loss of comfort zone - change can be fun or it can be painful - many of us are content with the status quo. 3. Lack of faith in the change process - Is it required? Will it succeed? 4. Lack or deficit of trust in the leadership - authentic leadership is about legitimacy and stands on a three-legged foundation: trust, respect, and fairness. 5. Threat to values - personal or organizational - morality and ethics cannot be understood and practiced in the same way as exact sciences like mathematics or physics. 6. Fear of the unknown and the fear of being manipulated.

The Change Process - Eight Stage Model

1. a sense of urgency - agile teams in the software industry have just three weeks to complete a project. 2. Form a powerful guiding coalition - based on trust, respect, integrity, purpose, and values. 3. Develop a compelling vision - when Walt Disney says their overarching goal is "to make people happy" it creates an environment of cheer and optimism. 4. Communicate the vision widely - does everyone in the organization perceive it the way you do? 5. Empower employees to act on the vision - at SAS Airlines, the first employee you interact with is empowered to solve your problem. 6. Generate and celebrate short-term wins - to maintain momentum. 7. Consolidate gains, create opportunities for greater change. 8. Evolve change in organizational culture to reflect values and principles while encouraging performance and providing psychological safety.

Mission

A Mission is a statement that provides the rationale for an organization's existence. Organizations tend to define their business in terms of products or services. This is a narrow view and precludes an examination of alternatives and goals.

Quality for Competitive Advantage

As shown in the previous slide, quality is one of the building blocks of competitive advantage, along with operational efficiency, innovation, and customer responsiveness or customer focus. Quality has a two-fold advantage: Quality reduces wastage and re-work. As a result, quality reduces costs. Contrary to popular perception, higher the level of quality, lower is the level of per-unit cost. A perception of superior quality allows the firm to charge a premium (higher prices) for its products or services. The higher price results in higher profits. Thus, quality is the only pillar of competitive advantage that facilitates the simultaneous pursuit of cost leadership and differentiation.

6 Skills: Decide

Decision-making is tricky in the best of times. When you have incomplete information, or when you have to make time-constrained decisions, the process becomes even more difficult. The important aspect of decision-making (that many leaders miss) is never to make it a binary choice (yes/no, go/no-go). Instead, look at the trade-offs, understand the implications for the short-term and the long-term, and examine whether you can combine only the best of two conflicting solutions and come up with a creative, new solution. Guidelines to improve your ability to decide: 1. Reframe binary decisions by looking at alternatives. 2. Break down complex decisions into components and look for unintended consequences at each stage. 3. Have a set of criteria for short-term decisions and another set for long-term decisions. 4. Take others into confidence when you about to make a choice - one or more members could still be looking for information. 5. Be clear about who to include in the decision process and who can influence the decision. 6. Try pilot runs before rolling out any major project or making any commitment.

Activity Based Costing (ABC)

First articulated by Kaplan and Bruns in the 1980s, Activity Based Costing may be considered as a refinement of absorption costing. ABC traces resource consumption to the source and allocates costs to final outputs. Resources are assigned to activities and activities to cost objects. Cost objects use cost drivers to allocate activity costs to outputs. The main advantage of ABC is that it provides a more meaningful picture of product or service costs, and thereby can lead to better pricing decisions. By focusing on cost drivers, ABC isolates activities that do not create value and paves the way for managers to either eliminate them or at the least to reduce such costs. ABC can also be used for profitability analysis for offerings and customers. Thus, it can be a valuable complement to the Balanced Score Card, Continuous Improvement, and related Performance Management techniques.

Focused Strategy Examples

Focused cost leadership: Redbox rental DVD vending machines placed outside grocery stores. Papa Murphy's inexpensive take-and-bake pizzas aimed at budget-conscious families. Claire's inexpensive jewelry aimed at young women. Checkers Drive In that cuts costs by not offering indoor seating. Focused differentiation: Build-a-Bear Workshop - premium pricing for the interactive process of designing and building a teddy bear. Cinnabon's pricey pastries. Specialty stores that sell only organic, pesticide-free, chemical-free fruits, vegetables, nuts, and other farm products. Kopi Luwak coffee beans that sell up to $300 per pound compared with $15 for ordinary coffee beans.

Core Competencies

Resources and capabilities are not enough to achieve a competitive advantage. Capabilities must turn into core competencies. A capability becomes a core competency if it satisfies four criteria called VRIN. V - Valuable - helps to exploit opportunities and neutralize threats.R - Rare - a capability not possessed by many others.I - Inimitable - difficult to imitate - such as culture, ambiguous processes, or complex technology.N - Non-substitutable - when a process cannot be performed any other way.

anticipate

Ken Olsen of DEC failed to blank__________ the change occurring in the industry, focused too much on engineering precision, and brought about the downfall of the company

Loyalty

Loyalty refers to customers' intention to continue doing business with a company, increase their spending, or say good things about the company (or refrain from saying bad things). Key findings of research conducted globally and validated using isolating techniques from thousands of structured interviews: Delighting customers does not build loyalty; reducing their effort - the work they must do to get their problem solved - does. Acting deliberately on this insight can help improve customer service, reduce customer service costs, and decrease customer churn.

Plan-Do-Check-Act Model

One of the most widely used tools for continuous improvement is a four-step quality model - the plan-do-check-act (PDCA) cycle, also known as the Deming Cycle or Shewhart Cycle. Plan - Identify an opportunity and plan for change Do - Implement the change on a small scale (pilot, trial, experiment) Check - Use data to analyze results and determine whether it made a difference Act - If the change was successful, implement it on a wider scale and continuously assess results. If the change did not work, begin the cycle again.

transition; human performance

Organizational change is any __________ that requires a change in __________.

Response to Change

Organizations have discovered several ways of managing the process. 1. Flat and agile organizational structures: Hierarchies are being dismantled, reporting mechanisms are being simplified, and the emphasis is at which the organizations can adapt. Zappos has eliminated the hierarchy and introduced a concept called holacracy. 2. Empowering, team-oriented cultures: A clear shift towards self-managing teams can be seen in every industry. Adobe has teams that can work in any manner (at the workplace, at home, in a library, or anywhere they like) but have to come up with the desired product or solution within a specified time frame (typically three weeks). CISCO has cross-functional teams for every major project and has automated processes to such an extent that customers can solve most of their problems themselves. 3. Transformational Leadership: There is a compelling need for transformational leaders - people who can affect others by positively impacting their goals and beliefs through vision and values, and intellectual stimulation. Herb Kelleher of Southwest and Ken Iverson of Nucor transformed their organizations through personal example.

customer perceptions

Positioning maps show blank__________ of brands versus competing brands on important buying decisions.

Balanced Score Card and Strategy Map

Robert Kaplan and David Norton pioneered the Balanced Score Card and Strategy Map concepts. The Balanced Score Card looks at organizational performance through four prisms: Financial: How do we create value and how do we measure it? Common measures include Return on Investment, Return on Net Assets, Return on Sales, and Earnings Per Share. Customer focus: Who are our customers? What do they expect? How should we deliver? How do we measure? How do we improve? Internal processes: How are processes connected? Are they independent or interdependent? How do we provide autonomy and ensure collaboration? How do we measure operational efficiency and human productivity? Organizational capacity: How do we develop core competencies? How do we inculcate a culture of innovation? How do we absorb and disseminate explicit and tacit knowledge? How do we use knowledge as a source of competitive advantage?

6 Skills: Align

Stakeholders have widely differing expectations. Strategic leaders consciously balance the expectations and find common ground. Success is a function of proactive communication, trust, and engagement. Guidelines to improve your ability to align: 1. Communicate early and combat the two most common complaints in organizations - "No one asked me" and "No one told me." 2. Identify key stakeholders and map expectations. Look for lack of alignment, hidden agendas, and coalitions. 3. Use constructive dialogue to expose areas of misunderstanding and resistance. 4. Reach out directly to those who oppose change and address their concerns. 5. Monitor stakeholders' positions during implementation and look for signs that trouble may be around the corner. 6. Recognize (and where possible reward) colleagues who work toward alignment.

The Five Tasks of Strategic Management

Step 1: Developing a Vision and Mission Vision is usually the overarching goal that the founder or entrepreneur has for the business. It is embedded in the values, beliefs, and aspiration of the promoter. Mission, in contrast, is a team exercise carried out by executives from different functions. The idea is to provide a road map to realize the vision. Sometimes, vision and mission are combined to form a single statement - this might well translate into the organization's value proposition - what do we have to offer to different stakeholders - customers, suppliers, employees, society, and even competitors, and how do we preserve and protect the environment? Step 2: Setting Objectives The vision, mission, and value proposition are made operational by setting out specific objectives. Both short-term and long-term strategic and financial objectives are set and communicated across the organization. While we have to be realistic in what is achievable and what is not, the strategy scholar Gary Hamel suggests that objectives must "stretch" every individual, function, department, and division. Step 3: Crafting a Strategy In his work on competitive strategy, Michael Porter suggested two approaches to achieving competitive advantage - cost leadership and differentiation. Cost leadership is the ability of an organization to improve operational efficiency and reduce unit cost to a level that is lower than that of competitors. Assuming that the organization can charge the same price or even a lower price than competitors, cost leadership provides above-industry-average returns and is a valuable strategy to follow. Differentiation is the ability of a firm to provide unique features, characteristics, service, brand image, and exclusivity, all of which combine to enable the firm to charge a premium price and thus earn above-industry-average returns. The important aspect of differentiation is the perceived uniqueness of the product or service. In subsequent work, Michael Porter has added a second dimension - the size of the target market - large or small (focused or niche or micro market) yielding four strategy alternatives - cost leadership, differentiation (that address large markets), focused cost leadership and focused differentiation (that address small markets or a market segment or a part of a segment called a niche). Porter's generic strategies are depicted graphically in the next slide. The horizontal axis shows the source of competitive advantage. The vertical axis shows the scope (market size) of competitive advantage. Step 4: Implementing a Strategy Implementing a strategy involves creating a fit between the way things are done and the way things ought to be done. Thus, fit can go astray along several dimensions. (1)Resources and Capabilities: Some of the well-publicized PR nightmares faced by United, Wells Fargo, Uber, Yahoo, and Equifax have nothing to do with resources. Each one of them has to do with the lack of some capability. Invariably, fit or the lack of it boils down to leadership and culture. Leadership that is based on integrity and ethics never compromises on customer information even if it hurts the bottom line. Similarly, an organization that fosters a "performance at any cost" culture faces the danger of getting into a hole from which there is no escape. (2)Internal and External factors: Many firms suffer from internal strife, petty politics, favoritism, and nepotism. Unless these are addressed through a combination of support structures and reward mechanisms, no strategy will work. Similarly, the external environment is beyond any firm's control. Political, Economic, Social, and Technological changes take a heavy toll on what a firm can do. Rapid adaptation without compromising the core values is the key success factor. Step 5: Evaluating Performance Strategic management is not a one-off exercise. Continuous evaluation and changing direction, if required, are necessary because: 1. The business environment changes - on political, economic, social, or technological dimensions. 2.Customer expectations change - customer satisfaction may no longer be sufficient; customer delight and an occasional (positive) surprise may be necessary. 3. Changes in key positions bring in new ideas and never-before-tested solutions. 4. Given that change is the only constant, organizations should develop agility, adaptability, and flexibility. Also, they need to reduce complexity and ambiguity, enhance simplicity and transparency, measure performance, compare with expectations, alter direction as necessary, and in extreme cases, re-visit strategy and question assumptions made.

6 Skills: Learn

Strategic leaders are great learners. They lead organizational learning. They promote a culture of constructive inquiry, a fearless analysis of failures, and a celebration of success. Guidelines to improve your ability to learn: 1. Institute after-action reviews, document lessons learned, and communicate insights. Create opportunities for everyone to learn. 2. Recognize (and even reward) honest failure. 3. Conduct annual learning audits - these may be more important than financial audits. 4. Identify initiatives that do not produce the intended results and examine the cause without bias. 5. Create a culture in which inquiry is valued and respected, and mistakes are learning opportunities.

empowering people

Strategic leaders can mitigate people-oriented resistance to change by

Strategic Leadership and Change

Strategic leaders can mitigate the resistance to both people-oriented resistance and task-oriented resistance to change. Leaders can mitigate people-oriented resistance by: 1. Showing relentless support and unwavering commitment to the change process. 2. Communicating the need and urgency for change. 3. Continuously communicating progress of the change process. 4. Avoiding micromanaging. 5. Empowering people. 6. Helping others to deal with the trauma of change. 7. Preparing people for change through counseling and training. Leaders can mitigate task-oriented resistance by: 1. Assembling a coalition of supporters. 2. Aligning organizational structure with new strategy for consistency. 3. Assessing the organizational landscape for likely enthusiasts, supporters, fence-sitters, and opponents. 4. Recruiting and filling key positions with people who enjoy and embrace change easily. 5. Knowing when to use ad-hoc teams and task forces to speed up implementation. 6. Understanding when prototyping is desirable and when full-scale deployment is possible.

6 Skills: Challenge

Strategic leaders challenge the status-quo. Strategic leaders are not afraid to question assumptions - their own as well as those of others. Strategic leaders almost never make decisions in a hurry. They are open-minded, accept divergent views without their bias interfering in the process, and above all, listen. Guidelines to improve your ability to challenge: 1. Focus on the cause, not the symptom. For example, if revenues fall by 5%, ask why. Don't give up till you find out the cause and come up with a solution. 2. Ask yourself about the long-standing assumptions about yourself, your organization, your processes, and your people. Don't be afraid of modifying or even giving up some assumptions when you find they are no longer valid. 3. Develop a culture of psychological safety - create a time and a place where people can express their views openly without the fear of ridicule. 4. Examine the feasibility of creating a rotating position with the specific mandate to challenge the status-quo. 5. Ensure that a team has diversity in thought - having a group of like-minded people may sound great, but is a sure recipe for mediocrity. 6. Get inputs from people not directly connected with a decision to receive an objective perspective.

Growth strategies

Strategy requires organizations to grow. Without growth, firms cannot survive. Growth can be along several dimensions. As a model, we can look at growth in four stages. 1. Single business serves a local or regional market. 2. Geographic expansion. 3. Vertical integration - backward or forward. 4. Diversification - growth slows and the firm enters new industries - related or unrelated.

After Action Review (AAR)

The After Action Review (AAR) is a simple but powerful tool to help you do this. Conducting an AAR at the end of a project, program, or event can help you and your team learn from your efforts. Further, sharing the results from your AAR can help future teams learn your successful strategies and avoid the pitfalls you have worked to overcome. First used by the Army on combat missions, the AAR is a structured approach for reflecting on the work of a group and identifying strengths, weaknesses, and areas for improvement. Without an AAR, you run the risk of "repeatedly learning your lessons the hard way." An AAR is centered on four questions: What was expected (or supposed) to happen? What actually happened? What went well and why? What can be improved and how?

Anaylze; act

The three step continuous improvement methodology is comprised of Assess, blank__________, and

Types of Organizations Involved in Change

The types of organization explained: 1. Hierarchy 2. Flatarchy 3. Holacracy A hierarchical organization is an organizational structure where every entity in the organization, except one, is subordinate to a single other entity. A flatter organization looks more like a squashed triangle than a steep pyramid, with fewer boxes for C-suite or Executive level VPs near the top and more boxes for salaried staff and hourly employees down below. Similarly, a flat organization refers to an organization structure with few or no levels of management between management and staff level employees. A holacratic organization allows for distributed decision making while giving employees the opportunity to work on what they do best. There is still some form of structure and hierarchy but it's not based on people as much as it based on functional areas or departments. Information is openly accessible and issues are processed within the organization during special and ongoing meetings.

Value Chain - Michael Porter

The value chain is comprised of two types of activities - primary activities that directly create value, and support activities that facilitate the primary activities. The value chain is not a hierarchy. The primary and support activities complement each other. If the value created by the interaction of primary and support activities is greater than the cost of carrying out the activities, a margin (profit in simple terms) is generated. If the costs exceed the value, a negative margin (or loss) results.

Elements of Value

The value in marketing is also called customer-perceived value. Customer-perceived value is the difference between a customer's evaluation of the benefits and costs of a product or service in comparison with others. Traditionally, the concept of value relates to the Unique Value Proposition (UVP) or Unique Selling Proposition (USP). A compelling UVP or USP is the building block of differentiating your offering in relation to others.

6 Skills: Interpret

When you challenge the status-quo, you should expect conflicting information. Synthesizing the conflicting viewpoints without bringing emotion into play and interpreting the outcome is a key step in strategic leadership. Guidelines to improve your ability to interpret: 1. When you analyze ambiguous data, look for at least three explanations. Involve different stakeholders in the process of analyzing the data. 2. Start with the details and enlarge out to the big picture view (most leaders do the opposite). 3. Search for missing information and evidence that challenges your assumptions. 4. Combine qualitative information with quantitative analysis. 5. Take a step back - allow the idea to stay away for a day or two - indulge in your favorite hobby, and re-visit the idea with an open mind.

Defining Your Customers

Who are your customers? Most organizations have difficulty answering the questions. The retail giant Wal-Mart receives 230 million foot-falls in its stores every week. Should the company care equally about all the 230 million? Or should Wal-Mart categorize customers in some manner and serve the "best" customers in a "unique" way? Defining your customers is the first step in running a successful business. Providing your customers with what they expect is the key to sustained success.

Leaadership

is the ability to: Set and achieve challenging goals, Make timely and clear decisions, Outperform the competition, and Inspire others to perform well and reach their potential. Leaders walk the talk (set the right example to others) and practice the precept (what they say and what they do converge).

Supply Chain Management (SCM)

is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating these flows both within and among organizations. The objective of an effective SCM system is to minimize inventories at every stage. In other words, the concepts of Just in Time (JIT) and supply chains go together. SCM flows are comprised of: Product or Service flow. Data and Information flow, and Finance flow Vertically integrated partnerships or value-adding partnerships are a set of independent organizations working closely together to manage the flow of goods and services along the entire value-chain. In the most successful models, value-adding partnerships are comprised of small companies, each of which performs one part of the value-added chain and coordinates its activities with the rest of the chain.

Segmentation

is the process of dividing a large heterogenous market into relatively homogeneous parts or segments that you can reach efficiently and effectively with products and services that match their unique needs.

Inbound Logistics

is the process of ensuring that raw materials, components, consumables, maintenance equipment, and everything required for manufacturing a product are available in time, at the lowest cost, and meeting quality requirements. Inbound logistics is sometimes used synonymously with Supply Chain Management.

Situation Analysis

is the process of identifying strategic opportunities and choices. Situation analysis involves: External factors - the macroenvironment (industry and competitive conditions)Internal factors - the organization's resources, capabilities, and distinctive competencies. Tools that are useful in carrying out a situation analysis are: SWOT (Strengths, Weaknesses, Opportunities, and Threats). Porter's Five Forces Model.

Micro-marketing Strategy (niche or part of one segment)

looks at a part of a segment and is thus a refinement of the concentrated strategy. For example, Lefty's in San Francisco is a retail store that caters to left-handed people only. Everything in the store caters to left-handers. Lush is a cosmetics company (similar to The Body Shop) that uses organic ingredients, does not do any animal testing, and uses eco-friendly packaging. Square is a powerful point-of-sale software that allows store owners to accept credit card payments via phones or tablets.

Differentiated Strategy (multiple segments)

or multi-segment strategy is the most widely used segmentation approach. Most products and services today use multiple segments to cater to different classes of customers. Laptops range from $100 to $3000 based on function, speed, display, and other characteristics. Mobile phones range from a low of $50 to a high of $1000 based on features. You can have food for $10 in a fast food outlet or spend $250 in a fancy restaurant. Airlines have configurations such as first class, business class, premium economy, and economy. Automobiles range from $12000 to a few million dollars. Apparel ranges from a few dollars to a few thousand dollars. Sometimes the same product is packaged differently to cater to different segments.