STRATEGIC

STRATEGIC
MANAGEMENT
MANAGEMENT
LECTURE
LECTURE

By
Dr. Peng Chan
“Without a strategy the
organization is like a
ship without a rudder,
going around in
circles.”
 Thinking Strategically:
The 3 Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
 Business(es) to be in and market
positions to stake out
 Buyer needs and groups to serve
 Outcomes to achieve

3. How will we get there?

Benefits of “Strategic Thinking”
and a “Strategic Approach” to
Managing
Guides entire firm regarding “what it is we are trying to do and
to achieve”
Makes managers more alert to
“winds of change, new opportunities,
and threatening developments
Unifies numerous strategy-related
decisions and organizational efforts
Creates a proactive atmosphere
Promotes development of an evolving business model
focused on bottom-line success
Provides basis for competing and achieving competitive
advantage

HELPS A COMPANY PREPARE FOR THE

FUTURE!
 The 5 Tasks of
Strategic Management
Task11 Task 2 Task 3 Task 4 Task 5

Formulate Monitor,
Develop Implement
Set Strategy Evaluate,
Vision and
Goals & to Achieve and Take
and Execute
Objectives Goals & Corrective
Mission Strategy
Objectives Action

Revise as Revise as Improve/ Improve/ Recycle

Needed Needed Change Change as Needed
 Who Performs the Five
Strategic Management Tasks?

Senior Corporate
Executives
Managers of
Subsidiary
Business Units
Functional Area
Managers
Operating
Managers
 SETTING CORPORATE
DIRECTION
[ TASKS 1 & 2]

“IF YOU DON’T KNOW WHERE

YOU ARE GOING, ANY ROAD
WILL TAKE YOU THERE”
SETTING CORPORATE
DIRECTION

TASK 1 – VISION & MISSION

TASK 2 – GOALS & OBJECTIVES

Developing a Strategic Vision
Task 1 of the Strategic Management Process

Involves thinking strategically about

 Future of company
 Where are we going?

Statement about a company’s long-term

direction
Example: Vision Statement
Verizon Communications

To be the customer’s first

choice for communications and
information services in every
market we serve,
domestic and international.
Example: Vision Statement
Levi Strauss & Company

We will clothe the world by

marketing the most appealing
and widely worn casual
clothing in the world.
Example: Vision Statement

Microsoft Corporation
(Old Vision)

“A computer on every
desk, in every home”
Example: Vision Statement
General Electric
(Jack Welch)

We will become number one or

number two in every market we
serve, and revolutionize this
company to have the speed and
agility of a small enterprise.
Example: Vision Statement
Microsoft Corporation
(New Vision)

"To enable people and

businesses throughout
the world to realize their
full potential"
Example: Vision Statement
General Electric
(Jeff Immelt)
GE is committed to achieving worldwide leadership in
each of its businesses. To achieve that leadership, GE's
ongoing business strategy centers on four key growth
initiatives:
- Technology
- Services
- Customer Centricity
- Globalization
MISSION

DEFINES A COMPANY’S BUSINESS:

• PRODUCT / MARKET
• TERRITORY / GEOGRAPHY
 Simple Mission Statements

Eastman Kodak
We are in the picture business.

Wit Capital
(an Internet startup company)

Our mission is to be the premier Internet

investment banking firm focused on the offering
and selling of securities to a community of online
individual investors.
 More Mission Statements …

Otis Elevator
Our mission is to provide any customer a means
of moving people and things up, down, and
sideways over short distances with higher
reliability than any similar enterprise in the world.

Avis Rent-a-Car
Our business is renting cars. Our mission is total
customer satisfaction.
 INTERNAL REVENUE SERVICE

OLD MISSION

The purpose of the IRS is to collect

the proper amount of tax revenues at
the least cost to the public, and in a
manner that warrants the highest
degree of public confidence in our
integrity, efficiency and fairness.
IRS - NEW MISSION (Since 1998)

Provide America’s taxpayers top

quality service by helping them
understand and meet their tax
responsibilities and by applying the
tax law with integrity and fairness
to all.
Setting Goals & Objectives
Second Task of Strategic Management

Converts vision and mission

into specific performance
targets
Creates yardsticks to track
performance
“Management by Objective”
(MBO) - focused on results
 GOALS
= BROAD TARGETS

OBJECTIVES
(a) QUANTIFIED
(b) TIME-BASED
2 CATEGORIES
1) FINANCIAL
2) STRATEGIC
Financial Goals
Strive for stock price appreciation
equal to or above the S&P 500 average
Maintain a positive cash flow every year
Achieve and maintain a AA bond rating
 Financial Objectives

Grow earnings per share 15% annually

Boostannual return on investment (or
EVA) from 15% to 20% within three years
Increase annual dividends per share
to stockholders by 5% each year
Strategic Goals
Increase firm’s market share
Overtake key rivals on quality or
customer service or product performance
Attain lower overall costs than rivals
Boost firm’s reputation with customers
Attain stronger foothold in international
markets
Achieve technological superiority
Become leader in new product introductions
Capture attractive growth opportunities
 STRATEGY
FORMULATION

[TASK 3]
What is Strategy?
A company’s strategy consists of the set of
competitive moves and business approaches
that management is employing to run the
company
Strategy is management’s “game plan” to
 Attract and please customers
 Stake out a market position
 Conduct operations
 Compete successfully
 Achieve organizational objectives
 Levels of Strategy-Making in
a Diversified Company

Corporate-Level Managers Corporate

Strategy

Two-Way Influence

Division Managers Business Strategies

Two-Way Influence

Functional Mgrs Functional Strategies

Two-Way Influence

Operating
Operating Strategies
Mgrs
 Levels of Strategy-Making in
a Single-Business Company

Executive-Level Managers Business

Strategy

Two-Way Influence

Functional Managers Functional Strategies

Two-Way Influence

Operating
Operating Strategies
Managers
 Networking of Vision, Missions,
Goals/Objectives, and Strategies
Level 1 Corporate-wide
Vision &
Corporate
Level
Corporate
Level
Corporate- Mission Goals/Objs Strategy
Level
Managers Two-Way Influence Two-Way Influence Two-Way Influence

Level 2 Business Business Business

Business-Level Level Level Level
Mission Goals/Objs Strategies
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 3
Functional Functional Functional
Functional
Goals Objectives Strategies
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 4
Plant Managers, Operating Operating Operating
Lower-Level Goals Objectives Strategies
Supervisors
 Factors Shaping the
Choice of Company Strategy
Social,
political, Competitive
Company  External Factors
opportunities
regulatory conditions
and threats to
and and industry
company’s
community attractiveness
well-being
factors

Determine
relevance Identify
Craft
of internal and
Company’s Strategic Situation and evaluate
the
strategy
external alternatives
factors

Resource
strengths, Influences of Shared values
capabilities, key and company
and
weaknesses
executives culture
 Internal Factors
 SWOT Analysis
- What to Look For
Potential Resource Potential Resource Potential Company Potential External
Strengths Weaknesses Opportunities Threats

• Powerful strategy • No clear strategic • Serving additional • Entry of potent new

• Strong financial direction customer groups competitors
condition • Obsolete facilities • Expanding to new • Loss of sales to
• Strong brand name • Weak balance geographic areas substitutes
image/reputation sheet; excess debt • Expanding product • Slowing market
• Widely recognized • Higher overall line growth
market leader costs than rivals • Transferring skills • Adverse shifts in
to new products exchange rates &
• Proprietary • Missing some key
trade policies
technology skills/competencies • Vertical integration
• Costly new
• Cost advantages • Subpar profits • Take market share
regulations
• Strong advertising • Internal operating from rivals
• Vulnerability to
• Product innovation problems . . . • Acquisition of business cycle
skills • Falling behind in rivals
• Growing leverage
• Good customer R&D • Alliances or JVs to of customers or
service • Too narrow expand coverage suppliers
• Better product product line • Openings to exploit • Reduced buyer
quality • Weak marketing new technologies needs for product
• Alliances or JVs skills • Openings to extend • Demographic
brand name/image changes
 The
The Basic
Basic Strategy
Strategy Framework:
Framework:
Link
Link between
between the
the Firm
Firm and
and its
its
Environment
Environment

THE FIRM
THE
Goals &
Values INDUSTRY
ENVIRONMENT
STRATEGY
Resources & STRATEGY
Capabilities Competitors
Customers
Structure & Suppliers
Systems
 Market-Focus
Market-Focus (External)
(External)
vs.
vs.
Resourced-Based
Resourced-Based (Internal)
(Internal)

Market-Focus – what industry do we

want to be in, the position we want to
take, and then how can we assemble
the resources to compete?
Resource-Based – what capabilities
do we want to build and what market
opportunities would exploit them best?
MARKET-FOCUS VIEW
OF STRATEGY
(EXTERNAL ANALYSIS)
The Components of a
Company’s Environment
INDUSTRY
ANALYSIS
5 Forces Model
Industry Driving Forces
Internet and e-commerce opportunities
Increasing globalization of industry
Changes in long-term industry growth rate
Changes in who buys the product and
how they use it
Product innovation
Technological change/process innovation
Marketing innovation
What Are the Key Factors for
Competitive Success?
Competitive factors most affecting every
industry member’s ability to prosper
 Specific strategy elements
 Product attributes
 Resources
 Competencies
 Competitive capabilities
KSFs spell the difference between
 Profit and loss
 Competitive success or failure
Example: KSFs for Beer Industry

Full utilization of brewing capacity -- to

keep manufacturing costs low
Strong network of wholesale
distributors -- to gain access to retail
outlets
Clever advertising -- to induce beer
drinkers to buy a particular brand
Example: KSFs for Apparel
Manufacturing Industry
Appealing designs and
color combinations -- to
create buyer appeal

Low-cost manufacturing
efficiency -- to keep selling
prices competitive
COMPETITOR
ANALYSIS
What Are the Market Positions
of Industry Rivals?

One technique for revealing the different

competitive positions of industry rivals is
strategic group mapping

A strategic group
consists of those
rivals with similar
competitive approaches
in an industry
Strategic Group Mapping
Firms in same strategic group have two or more
competitive characteristics in common
 Have comparable product line breadth
 Sell in same price/quality range
 Emphasize same distribution channels
 Use same product attributes to appeal to similar types
of buyers
 Use identical technological approaches
 Offer buyers similar services
 Cover same geographic areas
Example: Strategic Group Map
of Selected Retail Chains
 Concept of
Competitive Advantage
Competitive advantage exists when a
firm’s strategy gives it an edge in
 Attracting customers and
 Defending against competitive forces
Key to Gaining a Competitive Advantage
Convince customers firm’s product / service
offers superior value
 A good product at a low price
 A superior product worth paying more for
 A best-value product
5 Generic Competitive
Strategies
RESOURCE-BASED VIEW
OF STRATEGY
(INTERNAL ANALYSIS)
Core Competencies -- A
Valuable Company Resource
A competence becomes a core competence
when the well-performed activity is central to a
company’s competitiveness and profitability
Often, a core competence results from
collaboration among different parts of a company
Typically, core competencies reside in a
company’s people, not in assets on the balance
sheet
A core competence gives a company a
potentially valuable competitive capability
and represents a definite competitive asset
Examples of Core Competencies

Expertise in integrating multiple

technologies to create families of new
products
Know-how in creating operating systems for
cost efficient supply chain management
Speeding new/next-generation products to
market
Better after-sale service capability
Skills in manufacturing a high quality
product
System to fill customer orders accurately
and swiftly
Example: Honda’s Core
Competence

Expertise in gasoline engine

technology and small engine design
Example: Intel’s Core
Competence
Design of complex chips for
personal computers
Example: Procter & Gamble’s
Core Competencies
Superb marketing-distribution skills and R&D
capabilities in five core technologies - fats,
oils, skin chemistry, surfactants, emulsifiers
Example: Sony’s Core
Competence
Expertise in electronic technology and
ability to translate the expertise into
innovative products—miniaturized radios
and video cameras, TVs and VCRs with
unique features, attractively designed PCs
Distinctive Competence -- A
Competitively Superior Resource
A distinctive competence is a competitively significant
activity that a company performs better than its
competitors

 A distinctive competence
 Represents a competitively #1
valuable capability rivals do not have

 Presents attractive potential for

being a cornerstone of strategy
 Can provide a competitive edge in the
marketplace—because it represents a
competitively superior resource strength
Examples: Distinctive Competencies

Sharp Corporation
 Expertise in flat-panel display technology
Toyota, Honda, Nissan
 Low-cost, high-quality manufacturing
capability and short design-to-market cycles
Intel
 Ability to design and manufacture
ever more powerful microprocessors for PCs
Starbucks
 Store ambience and innovative coffee
drinks
 The Concept of a
Company Value Chain
A company’s business consists of all activities
undertaken in designing, producing, marketing,
delivering, and supporting its product or service

The value chain contains two types of activities

 Primary activities -- where most of the value
for customers is created
 Support activities -- facilitate performance of the
primary activities
Representative
Company Value Chain
Representative Value Chain for
an Entire Industry
The Value Chain System
for an Entire Industry
Assessing a company’s cost competitiveness
involves comparing costs all along the industry’s
value chain
Suppliers’ value chains are relevant because
 Costs, quality, and performance of inputs provided by
suppliers influence a firm’s own costs and product
performance
Forward channel allies’ value chains are
relevant because
 Forward channel allies’ costs and margins are part of
price paid by ultimate end-user
 Activities performed affect end-user satisfaction
Example: Key Value Chain
Activities
Pulp & Paper Industry

Timber farming
Logging
Pulp mills
Papermaking
 Example: Key Value Chain
Activities
Home Appliance Industry

Parts and components manufacture

Assembly
Wholesale distribution
Retail sales
Example: Key Value Chain
Activities
Soft-Drink Industry

Processing of basic ingredients

Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
Albertson’s
Retailing
Example: Key Value Chain
Activities
Computer Software Industry

Programming
Disk loading
Marketing
Distribution
Benchmarking Costs of
Key Value Chain Activities
Focuses on cross-company comparisons
of how certain activities are performed and
the costs associated with these activities
 Purchase of materials
 Payment of suppliers
 Management of inventories
 Getting new products to market
 Performance of quality control
 Filling and shipping of customer orders
 Training of employees
 Processing of payrolls
 STRATEGY
IMPLEMENTATION
& EXECUTION

[TASK 4]

“Strategies most often fail

because they aren’t
executed well.”
 Crafting vs. Executing Strategy

Crafting the Strategy Executing the

Strategy
Primarily a market-
driven activity Primarily an
operations-driven
Successful strategy
activity
making depends on
 Business vision Successful strategy
 Perceptive analysis of
execution depends
the situation on
 Good organization-building
 Attracting and and people management
pleasing customers  Creating a strategy-
 Outcompeting rivals supportive culture
 Continuous improvement
 Forging a competitive
advantage
 Getting things done and
delivering good results
Implementing a Newly Chosen
Strategy Requires Adept
Leadership
Implementing a new strategy
takes adept leadership to
 Convincingly communicate
reasons for the new strategy
 Overcome pockets of doubt
 Build consensus and enthusiasm
 Secure commitment of concerned parties
 Get all implementation pieces in place and
coordinated
Who Are the
Strategy Implementers?
Implementing and executing strategy involves a
company’s whole management team and all
of its employees
 Just as every part of a watch plays a role in making
the watch function properly, it takes all pieces of an
organization working cohesively for a strategy
to be well-executed
Top-level managers must lead the
process and orchestrate major initiatives
 But they must rely on the cooperation of middle
and lower-level managers to see that things go well in
the various parts of the organization and on
employees to perform their roles competently on a
daily basis
The 8 Actions of Implementing
and Executing Strategy
Numerous Roles
of Strategic Leaders
Culture
Taskmaster Mentor
Visionary Builder

Negotiator Process Coach

Chief Integrator
Entrepreneur
& Strategist Capabilities
Head
Builder
Cheerleader
Resource Acquirer
& Allocator Spokesperson
Arbitrator

Crisis Motivator Consensus

Builder Chief
Solver Administrator
Policy & Strategy
Enforcer Policymaker Implementer
 “UNLESS WE CHANGE
OUR DIRECTION WE ARE
LIKELY TO END UP
WHERE WE ARE HEADED”
~ Ancient Chinese proverb