Chapter 1: Strategic Management
What are the two leadership perspectives?
1. EXTERNAL CONTROL PERSPECTIVE -
•External forces determine the organization’s success.
•Economic downturns.
2. ROMANTIC VIEW -
•A leader is the key force in the organization’s success.
•Steve Jobs.
Strategy Implementation
Strategy implementation takes action to implement the formulated strategy:
•Ensure proper strategic control systems.
•Establish an appropriate organizational design, coordinating and integrating activities within the firm.
•Coordinate activities with suppliers, customers, alliance partners.
•Leadership ensures organizational commitment to excellence and ethical behavior.
•Promote learning and continuous improvement.
•Act entrepreneurially in creating new opportunities.
qStrategic control and corporate governance.
Exercise Informational Behavioral Control
qCreating effective organizational designs.
Organizational structures must be consistent with strategy.
qCreating a learning organization and an ethical organization.
Benefit from individual and collective talents.
qFostering corporate entrepreneurship.
Firms must find new ways to renew themselves.
1. The Competitive Environment
2. Porter’s Five Forces Model of Industry Competition
3. Value net
1.
The competitive environment consists of factors in the task or industry environment that are particularly relevant to a firm’s strategy:
•Competitors (existing or potential).
•Including those considering entry into an entirely new industry.
•Customers (or buyers).
•Suppliers.
•Including those considering forward integration.
2.
The threat of new entrants – possibility that the profits of established firms in the industry may be eroded by new competitors.
Buyers have bargaining power.
Buyers can force down prices, bargain for higher quality or more services, or play competitors against each other.
Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services.
Substitute products and services limit the potential returns of an industry.
Rivalry tactics include price competition, advertising battles, new product introductions, increased customer service or warranties.
3. Company (in the middle surrounded by) Substitutors, customers, suppliers, and complementary
1. Support Activity: Technology Development
2. Support Activity: Human Resource Management
3. Support Activity: General Administration
1.
Technology development is related to a wide range of activities.
•Effective research and development activities for process and product initiatives.
•Collaborative relationships between research and development and other departments.
•State-of-the-art facilities and equipment.
•Excellent professional qualifications of personnel.
•Use of data analytics.
2.
Human resource management consists
of activities involved in recruitment, hiring, training and development, and compensation
of all types of personnel.
•Effective employee recruiting, development, and retention mechanisms.
•Quality relations with trade unions.
•Reward and incentive programs to motivate all employees.
3.
General administration involves:
•Effective planning systems to attain overall goals and objectives.
•Excellent relations with diverse stakeholder groups.
•Effective information technology to coordinate and integrate value-creating activities across the value chain.
Ability of top management to anticipate and act on key environmental trends and events, create strong values, culture and reputation
1. The Central Role of Knowledge 1
2. The Central Role of Knowledge
1.
Intellectual capital is a measure of the value of a firm’s intangible assets. It is the difference between a firm’s market value and book value.
It includes these assets:
•Reputation.
•Employee loyalty and commitment.
•Customer relationships.
•Company values.
•Brand names.
•Experience and skills of employees.
2.
Human capital includes the individual capabilities, knowledge, skills, and experience of the company’s employees and managers.
Social capital includes the network of relationships that individuals have throughout the organization.
Knowledge management is critical to organizational success. Knowledge includes:
•Explicit knowledge.
•Codified, documented, easily reproduced, and widely distributed.
•Tacit knowledge.
•In the minds of employees, based on their experiences and backgrounds.
How can leaders make a difference?
•Be proactive — anticipate change.
•Refine strategies continually.
•Be aware of external opportunities and threats.
•Understand thoroughly the firm’s resources and capabilities.
•Make strategic management both a process and a way of thinking throughout the organization.
1. Perceptual acuity?
2. Environmental Scanning and Monitoring
3. Environmental Forecasting
4. Competitive Intelligence
1. Allows managers to sense what's coming i.e. keeping pace, detecting warning signals
2.
Environmental scanning involves surveillance of a firm’s external environment:
•Predicts environmental changes to come.
•Detects changes already under way.
•Allows firm to be proactive.
Environmental monitoring tracks evolution of environmental trends:
•Sequences of measurable facts/events.
•Streams of activities or trends from outside the organization.
3.
Environmental forecasting predicts change.
•Plausible projections about:
•Direction of environmental change?
•Scope of environmental change?
•Speed of environmental change?
•Intensity of environmental change?
Scenario analysis is an in-depth approach.
•What are some of the ways trends may affect an issue?
•Can we project alternative futures based on these assessments?
4.
Competitive intelligence
•Helps firms define and understand their industry.
•Identifies rivals’ strengths and weaknesses:
•Collect data on competitors.
•Interpret intelligence data.
•Helps firms avoid surprises:
•Anticipate competitors’ moves.
•Decrease response time.
•Potential for unethical behavior while gathering intelligence.
1. Strategy Groups within Industries
2. Consider
1.
Two unassailable assumptions in industry analysis:
•No two firms are totally different.
•No two firms are exactly the same.
Strategic groups – clusters of firms that share similar strategies:
•Breadth of product and geographic scope.
•Price/quality.
•Degree of vertical integration.
•Type of distribution.
2. •Which activities must a firm effectively manage and integrate in order to attain competitive advantages in the marketplace?
Which resources and capabilities must a firm create and nurture in order to sustain a competitive advantage?
1. Resource-Based View of the Firm
2. Types of Tangible Firm Resources
3. Types of Intangible Firm Resources
1.
The resource-based view of the firm (RBV) integrates two activities.
1.An internal analysis of phenomena within a company.
2.An external analysis of the industry and its competitive environment.
Resources can lead to a competitive advantage.
•If they are valuable, rare, hard to duplicate
•If tangible resources, intangible resources, and organizational capabilities are combined.
2.
Tangible resources are assets that are relatively easy to identify.
•Physical assets: plant and facilities, location, machinery and equipment.
•Financial assets: cash and cash equivalents, borrowing capacity, capacity to raise equity.
•Technological resources: data analytic algorithms, patents, copyrights, trademarks.
•Organizational resources: effective planning processes, evaluation and control systems.
3.
Intangible resources are difficult for competitors to account for or imitate. They are embedded in unique routines and practices.
•Human resources: trust, experience and capabilities of employees; managerial skills, firm specific practices and procedures.
•Innovation resources: technical and scientific expertise and ideas; innovation capabilities.
•Reputation resources: brand names, reputation for fairness with suppliers, non-zero sum relationships; reputation for reliability and product quality with customers.
Human Capital
1. Attracting Human Capital
2. Developing Human Capital
3. Retaining Human Capital
1.
Hire for attitude, train for skill with an emphasis on:
•General knowledge and experience.
•Social skills, values, beliefs, attitudes.
Recognize the geographical preferences of talent:
•Supply not matching demand for technology-trained talent.
•Hard to lure talent away from current position or city.
•Best to locate work near schools to maintain connections.
Use algorithms for selection :
•Simple screening of education background, previous job title, key words.
•Online exercise and use AI to choose promising candidates.
2.
Training and development must take place at all levels of the organization.
•Requires the active involvement of leaders at all levels.
•Includes mentoring and sponsoring lower-level employees.
•Emphasizes the need to monitor progress and track development so knowledge can be shared.
Consider evaluating human capital to assess the “soft” skills.
•Use 360-degree evaluation and feedback systems.
3.
Retention mechanisms must prevent the transfer of valuable and sensitive information outside the organization.
•Help employees identify with an organization’s mission and values.
•Provide challenging work and a stimulating environment.
•Offer financial and nonfinancial rewards and incentives.
•Money is not the most important reason why people take or leave jobs.
•Consider accommodating working families with children.
How can strategic management be defined?
Strategic management involves:
•Analysis.
•Strategic goals (vision, mission, strategic objectives).
•Internal and external environment.
•Decisions — Formulation.
•What industries should we compete in?
•How should we compete in those industries?
•Actions — Implementation of strategy.
•Allocate necessary resources.
•Design the organization to bring intended strategies to reality.
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.
Recognizes trade-offs between efficiency and effectiveness
SWOT and the general environment
1. SWOT analysis is a basic technique for analyzing firm and industry conditions.
•A firm’s internal conditions = Strengths and Weaknesses:
•Where the firm excels or where it may be lacking.
•Any environmental or external conditions = Opportunities and Threats:
•Developments that exist in the general environment.
•Activities among firms competing for the same customers in an industry.
•Must consider both internal and external factors simultaneously.
2.
The general environment is composed of factors that are both hard to predict and difficult to control:
•Demographic.
•Sociocultural.
•Political/Legal.
•Technological.
•Economic.
Global.
1. Value-Chain Analysis
2. Primary Activities
3. Support Activities
1.
Value-chain analysis looks at the sequential process of value-creating activities.
•Value is the amount buyers are willing to pay for what a firm provides.
•How is value created within the organization?
•How is value created for other organizations in the overall supply chain or distribution channel?
The value received must exceed the costs of production
2.
Primary activities contribute to the direct physical creation of the product or service; the sale and transfer to the buyer; and service after the sale.
•Inbound logistics.
•Operations.
•Outbound logistics.
•Marketing and sales.
•Service.
3.
Support activities either add value by themselves or add value through important relationships with both primary activities and other support activities.
•Procurement.
•Technology development.
•Human resource management.
General administration
1. Types of Firm Resources: Organizational Capabilities
2. Evaluating Firm Performance - Balanced Scorecard Analysis
a) Financial Ratio Analysis
1. Organizational capabilities are competencies or skills that a firm employs to transform inputs into outputs.
Capacity to combine tangible and intangible resources, using organizational processes to attain desired ends:
•Outstanding customer service.
•Excellent product development capabilities.
•Innovativeness of products and services, and flexibility in manufacturing processes
•Ability to hire, motivate, and retain human capital.
2.
•Employees.
•Owners.
•Customer satisfaction.
•Internal processes.
•Innovation, learning and improvement activities.
•Financial perspectives.
a)
•Balance sheet.
•Income statement.
•Market valuation.
•Historical comparison.
•Comparison with industry norms.
•Comparison with key competitors.
1. Social Capital
2. Social Networks
1.
Social capital:
•Are the friendships and working relationships among talented individuals.
•It helps to tie knowledge workers to a given firm.
•Interaction, sharing, and collaboration will help develop firm specificities, with a higher probability of retaining key knowledge workers.
2.
Social network analysis depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patterns.
•Who links to whom within the network or cluster?
•Who communicates to whom and how effective is this communication?
Social ties can link individuals so they can:
•Convey needed resources.
•Exchange information and support.
•Treat each other in positive ways.
Develop trusting relationships to improve the groups’ effectiveness
1. and 2. What's the difference in intended and realized strategies?
3. What is strategy analysis
1. Intended Strategy -
•Organizational decisions are determined only by analysis.
•Intended strategies rarely survive in the original form.
2. Realized Strategy - Decisions are determined by both analysis (deliberate)
and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences (emergent).
3.
•Strategy analysis is the starting point in the strategic management process.
•The analysis needs to be done to effectively formulate and implement strategies.
•It involves careful analysis of the overarching goals of the organization.
•It requires a thorough analysis of the organization’s external and internal environment.
Analyzing organizational goals and objectives.
•Establish a hierarchy of goals:
•Vision.
•Mission.
•Strategic Objectives.
Analyzing the external environment of the firm.
•Managers must monitor and scan the environment
as well as analyze competitors:
•General environment.
•Industry environment.
Assessing the internal environment of the firm.
•Analyze strengths and relationships among activities that constitute a firm’s value chain.
•Analysis can uncover potential sources of competitive advantage.
Assessing a firm’s intellectual assets.
•Knowledge workers and other intellectual assets drive competitive advantage and wealth creation.
•Networks and relationships plus technology enhance collaboration, accumulates and stores knowledge.
1. The Demographic Segment
2. The Social Segment
3. The Political/Legal Segment
1.
Demographics are easily understandable and quantifiable:
•Aging population.
•Rising affluence.
•Changes in ethnic composition.
•Geographic distribution of population.
•Greater disparities in income levels.
2.
Sociocultural forces influence the values, beliefs, and lifestyles of a society:
•More women in the workforce.
•Increase in temporary workers.
•Greater concern for fitness.
•Greater concern for the environment.
•Postponement of family formation.
3.
Political/Legal processes and legislation influence environmental regulations with which industries must comply:
•Increases in federally mandated minimum wages.
•Taxation at local, state, federal levels.
•Legislation on corporate governance reforms in bookkeeping, sock options, and so forth (Sarbanes-Oxley act of 2002).
•Tariffs
•Internal Political strife
•Global trade factors
•Immigration
1. Primary Activity: Inbound Logistics
2. Primary Activity: Operations
3. Primary Activity: Outbound Logistics
1.
Inbound logistics are primarily associated with receiving, storing and distributing inputs to the product.
•Material handling.
•Warehousing.
•Inventory control.
•Vehicle scheduling.
•Returns to suppliers.
Factors to consider include:
•Location of distribution facilities.
•Warehouse layout.
2.
Operations include all activities associated with transforming inputs into the final product form.
•Machining.
•Packaging and Assembly.
•Testing or quality control.
•Printing.
•Facility operations.
Factors to consider include:
•Efficient plant operations and layout.
•Incorporation of appropriate process technology.
3.
Outbound logistics includes collecting, storing, and distributing the product or service to buyers.
•Finished goods and warehousing.
•Material handling.
•Delivery vehicle operation.
•Order processing, scheduling and distribution.
Factors to consider include:
•Effective shipping processes.
•Minimizing shipping costs by grouping goods into large lot sizes.
1. Financial Ratio Analysis
2. The Balanced Scorecard
1.
Five types of financial ratios:
1.Short-term solvency or liquidity.
2.Long-term solvency measures.
3.Asset management or turnover.
4.Profitability.
5.Market value.
Meaningful ratio analysis must include:
•Analysis of how ratios change over time.
•Comparison with industry norms.
•Comparison with key competitors.
2.
A meaningful integration of many issues that come into evaluating performance
Four key perspectives:
1.How do customers see us? (customer perspective)
2.What must we excel at? (internal perspective)
3.Can we continue to improve and create value? (innovation and learning perspective)
4.How do we look to shareholders?
(financial perspective)
1. Social Network Analysis - a) Closure Relationships
b) Bridging Relationships
2. Social Capital: Potential Downside
1. a) The degree to which all members of the social network have relationships with other group members.
b) Relationships in a social network that connect otherwise disconnected people.
2.
Social capital does have some potential downsides.
•Groupthink. Herd Mentality
•Dysfunctional human resource practices.
•Expensive socialization processes (orientation, training).
•Distortion or selective use of information to favor preferred courses of action.
Strategy Formulation
Based on strategy analysis, strategy formulation is developed at several levels:
•Business-level strategy: How to compete in a given business to attain competitive advantage.
•Corporate-level strategy: What businesses to compete in; how businesses can be managed to achieve synergy.
•International strategy: What strategies are needed as the business ventures beyond its national boundaries.
•Entrepreneurial initiatives: How can businesses create new value.
Formulating business-level strategy.
•Successful firms develop bases for sustainable competitive advantage through:
•Cost leadership and/or:
•Differentiation, as well as:
•Focusing on a narrow or industrywide market segment.
Formulating corporate-level strategy.
•Addresses a firm’s portfolio (or group) of businesses:
•What business or businesses should we compete in?
•How can we manage this portfolio of businesses to create synergies?
Formulating international strategy.
•What is the appropriate entry strategy?
•How do we go about attaining competitive advantage in international markets?
Entrepreneurial strategy and competitive dynamics.
•How do we recognize viable opportunities?
•How do we formulate effective strategies?
1. The Technological Segment
2. The Economic Segment
3. The Global Segment
1.
Technological developments lead to new products and services. They can create new industries and alter existing ones:
•Genetic engineering.
•Internet technology
•Research in synthetic materials.
•Nanotechnology.
•Physiolytics
The current social movement towards more data privacy presents opportunities for some firms to establish a competitive advantage around data privacy.
2.
Economic forces affect all industries:
•Interest rates.
•Unemployment.
•Consumer Price Index.
•Trends in GDP.
•Changes in stock market valuations.
•National debt.
3.
Global forces offer both opportunities and risks:
•Changes in global trade.
•Currency exchange rates.
•Emergence of the Indian and Chinese economies.
•Trade agreements among regional blocs
(NAFTA, EU, ASEAN).
•Creation of the WTO (leading to decreasing tariffs/free trade in services).
•Increased risks associated with terrorism.
1. Primary Activity: Marketing and Sales
2. Primary Activity: Service
3. Support Activity: Procurement
1.
Marketing and sales activities involve purchases of products and services by end users, and how to get buyers to make those purchases.
•Advertising and promotion.
•Sales force management.
•Pricing and price quoting.
•Channel selection and channel relations.
Factors to consider include:
•Innovative approaches to promotion and advertising.
•Identification of customer segments and needs.
2.
Service includes all actions associated with providing service to enhance or maintain the value of the product.
•Installation and repair.
•Training.
•Parts supply.
•Product adjustment.
Factors to consider include:
•Quick response to customer needs.
•Quality of service personnel, ongoing training.
3.
Procurement involves how the firm purchases inputs used in its value chain.
•Procurement of raw material inputs.
•Optimizing quality and speed.
•Minimizing associated costs.
•Development of collaborative win-win relationships with suppliers.
•Analysis and selection of alternative sources of inputs to minimize dependence on one supplier.
Supply Chain
1 (supplier) Source raw materials - 2 Make products - 3 Deliver to customers to bring returns ($) back to each level. Upstream - Downstream (core operations)
1. Codifying Knowledge for Competitive Advantage ( Recap) - a) Tacit knowledge
b) Explicit (codified) knowledge
2. Protecting Intellectual Assets
3. Protecting Intellectual Assets Through Dynamic Capabilities
1. a)
•Embedded in personal experience.
•Shared only with the consent and participation of the individual.
•Has the organization effectively used technology to codify knowledge for competitive advantage?
b)
•Can be documented.
•Can be widely distributed.
•Can be easily replicated.
•Can be reused many times at very low cost.
2.
•Intellectual property rights are more difficult to define and protect than property rights for physical assets.
•Intellectual property can be easily stolen.
•If intellectual property rights are not reliably protected by the state, there will be no incentive to develop new products and services.
•Intellectual property has significant development costs but very low marginal costs.
•Effective protection is necessary before any investor will provide financing.
3.
Dynamic capabilities involve the capacity to anticipate, shape, and adapt to a shifting competitive landscape.
•Identifying, developing, and assessing technological opportunities that relate to customer needs.
•Mobilizing resources to capture value.
•Continuing the process of transforming, revolutionizing industries and economies.