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4-1
Chapter 4

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 Developing a strategy for success!
Don’t just respond to the chaos in the
environment, create the disruptions that
revolutionize the industry, and, in the process,
create a competitive edge
Apple Computer and the iPod

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 The world economy is shifting from financial to
intellectual capital
 Knowledge is no longer just a factor of
production, it is the critical factor of production

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Knowledge management: the practice of
gathering, organizing, and disseminating the
collective wisdom and experience of a company’s
employees for the purpose of strengthening its
competitive position

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Intellectual capital: comprised of
1.Human capital
2.Structural capital
3.Customer capital

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Strategic management: a process that involves
developing a game plan to guide the company as it
strives to accomplish its vision, mission, goals, and
objectives and to keep it from straying off its
desired course

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Competitive advantage: the aggregation of factors
that sets a company apart from its competitors and
gives it a unique position in the market
The key to business success is to build a unique
competitive advantage that creates value for
customers, is sustainable, and is difficult to duplicate

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 To define competitive advantage, entrepreneurs
should consider:
The products they sell
The services they provide
The pricing they offer
The way they sell
The values to which they are committed

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Core competencies: unique set of skills,
knowledge, or abilities that a company develops in
key areas such as superior quality, customer
service, innovation, team-building, flexibility,
responsiveness, and others that allow it to vault past
competitors

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Building a Sustainable Competitive Advantage

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 Use core competencies to define a compelling
value proposition: the value that the combination
of goods and services that a business delivers to
customers to create a sustainable competitive
edge
Product or service leadership
Customer intimacy
Operation excellence

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
5. Analyze competition
6. Create goals and objectives
7. Formulate strategies
8. Translate plans into actions
9. Establish accurate controls

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 Step 1: Develop a Clear Vision and Translate It into a
Meaningful Mission Statement
Vision
An expression of what an entrepreneur stands for
and believes in and the values on which they build
their business
Answers the question: “What kind of business do
we want to be”

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 A clearly defined vision:
Provides direction
Determines decisions
Motivates people
Allows a company to persevere in the face of
adversity

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 Mission
Answers the question "What business am I in?”
Makes clear to everyone “why we are here” and
“where we are going”

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 Elements of a mission statement
The purpose of the company
The business we are in
The values of the company

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
 Assess strengths and weaknesses

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 Step 2: Assess the Company’s Strengths and
Weaknesses
Strengths: positive internal factors that
contribute to accomplishing the mission, goals,
and objectives
Weaknesses: negative internal factors that
inhibit the company’s ability to accomplish its
mission, goals, and objectives

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Identifying Company’s Strengths and Weaknesses

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
 Scan environment for opportunities and threats

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 Step 3: Scan the Environment for Opportunities and
Threats Facing the Business
 Opportunities: positive external options the company
can exploit to accomplish its mission, goals, and
objectives
Threats: negative external forces that inhibit the
company’s ability to accomplish its mission, goals,
and objectives

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Identifying Opportunities and Threats

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Identifying and Managing Major Threats

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
 Identify key success factors

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 Step 4: Identify the Key Factors for Success in
the Business
Key success factors: factors that influence
a company’s ability to compete successfully
in an industry
Determine a company’s ability to compete
in the marketplace

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Identifying Key Success Factors

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
 Analyze competition

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 Step 5: Analyze the Competition
Tracking competition helps companies:
Avoid surprises from existing competitors’ new
strategies and tactics
Identify potential new competitors
Anticipate rivals’ next strategic moves
Improve reaction time to competitors’ actions
Improve their ability to differentiate their companies’
products and services from those of competitors
Refine their companies’ competitive edge

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Small Business Success Index

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 Competitor Analysis
Direct competitors
Offer the same products and services
Customers often compare prices, features, and deals
among these competitors when they shop
Significant competitors
Offer some of the same or similar products or services
Product or service lines overlap but not completely
Indirect competitors
Offer same or similar products in only a small number
of areas

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Competitive profile matrix: allows
entrepreneurs to evaluate their companies
against major competitors on the key success
factors for their market segments

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Sample Competitive Profile Matrix

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
5. Analyze competition
 Create goals and objectives

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 Step 6: Create Company Goals and Objectives
Goals: broad, long-range attributes to be accomplished;
general and abstract
“BHAGS”
Objectives: are specific targets of performance
Specific
Measurable
Assignable
Realistic (yet challenging)
Timely
Written down

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What Makes an Effective BHAG?

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
5. Analyze competition
6. Create goals and objectives
 Formulate strategies

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 Step 7: Formulate Strategic Options and Select
the Appropriate Strategies
Strategy: a “road map” that guides a company
through a turbulent environment as it seeks to
fulfill its mission, goals, and objectives
Mission, goals, and objectives = ends
Strategy = means

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 Three strategic options:

Cost
Cost leadership
leadership

Strategy? Differentiation
Differentiation

Focus
Focus

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 Cost leadership strategy: to be the low-cost producer
in the industry or market segment
Advantages:
Reaching buyers who buy on the basis of price
Power to set the industry’s price floor
Works well when:
Buyers are sensitive to price changes
Competing firms sell the same commodity products
A company can benefit from economies of scale
Disadvantages:
Purchase decisions are driven by price not loyalty
 Can underestimate costs

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 Differentiation strategy: company seeks to build
customer loyalty by positioning its goods or services in
a unique or different fashion
Idea is to be better than the competition at something
customers value
Key to success:
Build basis for differentiation on a distinctive
competence, something that a small company is
uniquely good at doing in comparison to its
competitors
Create perceived value for the customer

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 Focus strategy: company selects one or more
customer segments in a market, identifies customers’
special needs, wants, or interests, and then targets
them with a product or service designed specifically for
them
Strategy builds on differences among market
segments
 Rather than try to serve the total market, the company
focuses on serving a niche (or several niches) within
that market

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
5. Analyze competition
6. Create goals and objectives
7. Formulate strategies
 Translate plans into actions

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 Step 8: Implement the strategy
Create projects by defining:
Purpose
Scope
Contribution
Resource requirements
Timing

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 Strategic management is a continuous process
1. Develop a vision and translate it into a mission
statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
5. Analyze competition
6. Create goals and objectives
7. Formulate strategies
8. Translate plans into actions
 Establish accurate controls

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 Step 9: Establish Accurate Controls
Controlling the strategy
Entrepreneur must:
Identify and track key performance indicators
Take corrective action if necessary
Balanced scorecard: a set of measurements
unique to a company that includes both financial
and operational measures
Gives managers a quick yet comprehensive
picture of a company’s overall performance

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The Balanced Scorecard

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 Five Perspectives:
1. Customer: How do customers see us?
2. Internal Business: At what must we excel?
3. Innovation and Learning: Can we continue to
improve and create value?
4. Financial: How do we look to shareholders?
5. Corporate Citizenship: What must we do to meet our
social responsibility to society as a whole, the
environment, the community, and other
stakeholders?

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