Strategic Management Chapter 1
Sustained Competitive Advantage
A company's strategies enable it to maintain a competitive advantage (above-average profitability) for a number of years
Motivation
A passion for work that goes beyond money or status and a propensity to pursue goals with energy and persistence
Autonomous Action: Strategy Making by Lower-Level Managers
An alternative view is that individual managers deep within an organization can - and often do - exert a profound influence over the strategic direction of the firm Autonomous action may be particularly important in helping established companies deal with the uncertainty created by the arrival of a radical new technology that changes the dominant paradigm in an industry
Analyzing the Industry Environment Requires
An assessment of the competitive structure of the company's industry, including the competitive postion of the company and its major rivals Analysis of the nature, stage, dynamics and history of the industry
Articulation of the Business Model
Another key characteristic of good strategic leaders is their ability to identify and articulate the business model the company will use to attain its vision A business model is managers' conception of how the various strategies that the company pursues fit together into a congruent whole
Functional Managers
Are managers responsible for supervising a particular function, that is, a task, activity, or operation
General Managers
Are managers who bear responsibility for the overall performance of the company or for one of its major self-contained subunits or divisions
Functional-Level Managers
Are responsible for the specific business functions or operations that constitute a company or one of its divisions Responsibility is generally confined to one organized activity Major strategic role is to develop functional strategies in their areas that help fulfill the strategic objectives set by business- and corporate-level general managers Provide most of the information that makes it possible for business- and corporate-level managers to formulate realistic and attainable strategies Functional managers themselves may generate important ideas that subsequently become major strategies for the company
Major Goals (Strategic Objectives)
Are the precise and measurable desired future state that a company attempts to realize
Emergent Strategies
Are the unplanned responses to unforeseen circumstances They arise from autonomous action by individual managers deep within the organization, from serendipitous discoveries or events, or from an unplanned strategic shift by top-level managers in response to changed circumstances They are not the product of formal top-down planning mechanisms
Serendipity and Strategy
Business history is replete with examples of accidental events that help to push companies in new and profitable direction What these examples suggest is that many successful strategies are not the result of well-thought-out plans, but of serendipity - stumbling across good things unexpectedly
Appreciate the Meaningful Categories of Stakeholders for any Organization
Capital market stakeholders Product market stakeholders Organizational stakeholders
Strategy Name Meaning
Comes from a Greek word strategia meaning generalish Stratos meaning "army" Ago meaning "to lead"
Process
Conceptual, formal, analytical, learning
Vision
Concerns an organization's future Defines a desired future state It articulates what the company would like to achieve What the organization is trying to become Customer needs to be satisfied in the future
Corporate-Level Managers
Consists of the chief executive officer (CEO), other senior executives and corporate staff The CEO is the principal general manager In consultation with other senior executives, the role of corporate-level managers is to oversee the development of strategies for the whole organization
Mission
Conveys current business of the organization Is the purpose of the company, or a statement of what the company strives to do Provides the context within which strategies are formulated A company's reason for existence Business(es) that the company is in now Customer needs currently being served: who, what, and how
Levels of Management
Corporate-level managers Business-level managers Functional-level managers
Functional-level Strategies
Directed at improving the effectiveness of operations within a company, such as manufacturing, marketing, materials management, product development, and customer services
Being Well Informed
Effective strategic leaders develop a network of formal and informal sources who keep them well informed about what is going on within the company
What is the Second Component of the Strategic Management Process
External analysis
Internal Anlysis
Focuses on reviewing the resources, capabilities and competencies of a company
Scenario Planning
Formulating plans that are based upon "what-if" scenarios about the future Encourages managers to think outside the box and be more flexible; anticipate probable scenarios; recognize that successful strategic thinking encompasses managers at all levels of the corporation
Social Skills
Friendliness with a purpose
Strategic Managers
General Managers Functional Managers
Strategic Plans Generated by the Planning Process
Generally project over a period of 1 to 5 years and the plan is updated, or rolled forward, every year
Willingness to Delegate and Empower
High-performance leaders are skilled at delegation They recognize that unless they learn how to delegate effectively, they can quickly become overloaded with responsibilities They also recognize that empowering subordinates to make decisions is a good motivational tool and often results in decisions being mad by those who must implement them
The Feedback Loop
Indicates that strategic planning is ongoing; it never ends
Perspective
Intentional and "deep rooted"
What is the Third Component of the Strategic Planning Process?
Internal Analysis
Multidivisional Company
Is a company that competes in several different businesses and has created a separate self-contained division to manage each
Return on Invested Capital (ROIC)
Is a company's net profit over the capital invested in the firm (Profit/capital invested)
Plan
Is a guideline or crafted course of action
Business-Level Managers
Is a self-contained division that provides a product or service for a particular market The principal general manager at the business level, or the business-level manager, is the head of the division The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for indvidiual businesses Are concerned with strategies that are specific to a particular business
Strategy
Is a set of related actions that managers take to increase their company's performance An organization's overall direction to gain and sustain a competitive advantage to achieve mission and purpose
Values
Is a statement of how employees should conduct themselves and their business to help achieve the company mission Help drive and shape behavior within a company Are commonly seen as the bedrock of a company's organizational culture
Pattern
Is a stream of actions intended and emergent of opportunities
Strategic Leadership
Is creating competitive advantage through effective management of the strategy-making process
Risk Capital
Is equity capital for which there is no guarantee that stockholders will ever recoup their investment or earn a decent return
Business Model
Is management's model of how strategy will allow the company as a whole to achieve a competitive advantage
SWOT Analysis
Is the comparision of strengths, weaknesses, opportunities and threats
Realized Strategy
Is the product of whatever planned strategies are actually put into action and any unplanned, or emergent, strategies
Profitability
Is the return a company makes on the capital invested in the enterprise
Capital
Is the sum of money invested in the company: that is, stockholders' equity plus debt owed to creditors
What is the Goal of a SWOT Analysis?
Is to create, affirm, or fine-tune a company-specific business model that will best align, fit, or match a company's resources and capabilities to the demands of the environment in which it operates
Internal Analysis Goal
Is to identify the strengths and weaknesses of the company
Competitive Advantage
Is when a company's profitability is greater than the average profitability of firms in its industry
Corporate-Level Managers Cont.
It is the CEO's specific responsibility to develop strategies for competing in the individual business areas Concerned with strategies that span indvidual businesses Also provide a link between the people who oversee the strategic development of a firm and those who own it (the shareholders) Can be viewed as the agents of shareholders It is their responsibility to ensure that the coporate and business strategies that the company pursues are consistent with maximizing profitability and profit growth
What are Profitability and Profit Growth of a Company Determined By?
Its relative success in its industry Overall performance of its industry relative to other industries
Planned Strategies
Manliy planned strategies are not implemented because of unpredicted changes in the environment (they are unrealized)
What is the Ultimate Goal of profit-making Companies?
Maximizing shareholder value
They are Precise and Measurable
Measurable goals give managers a yardstick or standard against which they can judge their performance
Mission Statement Four Main Components
Mission Vision Values Goals
Net Profit
Net income after tax
Analyzing the Macroenvironment Consists of
New competition from emerging nations Examining macroeconmic, social, governmental, legal, international and technological factors that may affect the company and its industry
Vision, Eloquence and Consistency
One of the key tasks of leadership is to give an organization a sense of direction Strong leaders seem to have a clear and compelling vision of where the organization should go, are eloquent enough to communicate this vision to others within the organization in terms that energize people, and consistenly articulate their vision until it becomes part of the organization's culture
Position
Placement in the environment relative to competitors
Strategic Thinking
Plan Pattern Position Perspective Process
Mission Statement
Provides the framework - or context- within which strategies are formulated
Strategy Implementation
Putting strategies into action
How is Profitability Measured by a Company?
Return on invested capital (ROIC)
Shareholder Value
Returns that shareholders earn from purchasing shares in a company
Formal Strategic Planning Process Five Main Steps
Select the corporate mission and major corporate goals Analyze the organization's external competitive environment to identify opportunities and threats Analyze the organization's internal operating environment to identify the organization's strengths and weaknesses Select strategies that build on the organization's strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats Implement the strategies
Strategy Formulation
Selecting strategies based on analysis of an organization's external and internal environment
Emotional Intelligence Includes
Self‐awareness Self‐regulation Motivation Empathy Social skills
Profit Growth can be Achieved By:
Selling products in rapidly growing markets Gaining market share from rivals Selling more to existing customers Expanding overseas or by diversifying into new lines of business
Why is Maximizing Shareholder Value the Ultimate Goal of Profit-Making Companies?
Shareholders provide a company with the risk capital that enables managers to buy the resources needed to produce and sell goods and services Shareholders are the legal owners of a corporation and their shares therefore represent a claim on the profits generated by a company
In the typical scenario-planning exercise
Some scenarios are optimistic and some are pessimistic Teams of managers are asked to develop specific strategies to cope with each scenario
The Astute of the Power
Strategic leaders must often play the power game with skill and attempt to build consensus for their ideas rather than use their authority to force ideas through; they must act as members of a coalition or its democratic leaders rather than as dictators
Determinants of Value
Strategic leadership is concerned with managing the strategy-making process to increase the performance of a company, thereby increasing the value of the enterprise to its owners, its shareholders
Why do Some Organizations Succed and Other Fail?
Strategy
Commitment
Strong leaders demonstrate their commitment to their visions and business models by actions and words and they often lead by example
Strategy Implementation Involves
Taking actions at the functional, business and coporate levels to execute a strategic plan
Self-Regulation
The ability to control or redirect disruptive impulses or moods, that is, to think before acting
Self-Awareness
The ability to understand one's own moods, emotions and drives, as well as their effect on others
Empathy
The ability to understand the feelings and viewpoints of subordinates and to take those into account when making decisions
Profit Growth
The increase in net profit over time
Three Interrelated Environments that Should be Examined when Undertaking an External Analyssis
The industry environment in which the company operates The country or national environment The wider socioeconomic or macroenvironment
What is Profitability's Result?
The result is how efficiently and effectively managers use the capital at their disposal to produce goods and services that satisfy customer needs
Organizational Culture
The set of values, norms and standards that control how employees work to achieve an organization's mission and goals
Business-level Strategies
The way it positions itself in the marketplace to gain a competitive advantage, and the different positioning strategies that can be used in different industry settings
Well-Constructed Goals Four Main Characteristics
They are precise and measurable The address crucial issues They are challenging but realistic They specify a time period in which the goals should be achieved, when that is appropriate
They are Challenging but Realistic
They give all employees an incentive to look for ways of improving the operations of an organization If a goal is unrealistic in the challenges it poses, employees may give up; a goal that is too easy may fail to motivate managers and other employees
Strategy and Stakeholders
Those individuals or groups who affect and are affected by an organization's performance That is, they have a "stake" in the organization
The specify a time period in which the goals should be achieved, when that is appropriate
Time constraints tell employees that success requires a goal to be attained by a given date, not after that date Deadlines can inject a sense of urgency into goal attainment and act as a motivator However, not all goals require time constraints
What is the First Component of the Strategic Management Process?
To craft the organization's mission statement
External Analysis Purpose
To identify strategic opportunities and threats within the organization's operating environment that will affect how it pursues its mission
What is the Purpose of a SWOT Analysis?
To identify the strategies to exploit external opportunities, counter threats, build on and protect company strengths and eradicate weaknesses
They Address Crucial Issues
To maintain focus, managers should select a limited number of major goals to assess the performance of the company the goals that are selected should be crucial or important ones
What is the Purpose of Goals?
To specify with precision what must be done if the company is to attain its mission or vision
Characteristics of Effective Strategic Leader
Vision, eloquence, and consistency Articulation of a business model Commitment Being well informed Willingness to delegate and empower Astute use of authority Emotional intelligence
Strategy Making in an Unpredictable World
We live in a world in which uncertainty, complexity, and ambiguity dominate and in which small chance events can have a large and unpredictable impact on outcomes
An Effective Strategic Leader Asks
Where is our organization today? Where do we want it to be in the future? What needs to be done to get there?
Global Strategies
Which address how to expand operations outside the home country to grow and prosper in a world where competitive advantage is determined at a global level
Corporate-level Strategies
Which answer the primary questions: What business or businesses should we be in to maximize the long-run profitability and profit growth of the organization, and how should we enter and increase our presence in these businesses to gain a competitive advantage
A company should Define its Business in Terms of Three Dimensions:
Who is being satisfied (what customer groups) What is being satisfied (what customer needs) How customers' needs are being satisfied (by what skills, knowledge, or distinctive competencies)
