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Strategic Management

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Title: Strategic Management


1
Strategic Management
2
What is Strategy?
  • A companys strategy consists of the set of
    competitive moves and business approaches that
    management is employing to run the company
  • Strategy is managements game plan to
  • Attract and please customers
  • Stake out a market position
  • Conduct operations
  • Compete successfully
  • Achieve organizational objectives

3
What is a Business Model?
  • A companys business model addresses How do we
    make money in this business?
  • Is the strategy that management is pursuing
    capable of delivering good bottom-line results?
  • Do the revenue-cost-profit economics of the
    companys strategy make good business sense?
  • Look at the revenue streams the strategy is
    expected to produce
  • Look at the associated cost structure and
    potential profit margins
  • Do the resulting earnings streams and ROI
    indicate the strategy makes sense and that the
    company has a viable business model?

4
Strategy vs. Business Model What is the
Difference?
  • Strategy -- Deals with a companys competitive
    initiatives and business approaches
  • Business Model -- Concerns whether the revenues
    and costs flowing from the strategy demonstrate
    that the business can be amply profitable and
    viable

5
Redhat Linuxs Business Model
6
Microsofts Business Model
7
What is the Difference between Operational
Effectiveness(OE) and Strategic Positioning?
  • Operational Effectiveness is performing similar
    activities better than rivals
  • Affects the relative cost position and levels of
    differentiation
  • Japanese activities addressed OE(imitate rather
    than innovate)
  • Deals with issues such as eliminating waste,
    employing advanced technology, motivating
    employees.

8
Operational Effectiveness - The Productivity
Frontier
  • The sum of all existing best practices at a given
    time
  • The frontier of OE can be individual activities
    or group activities(order processing,
    manufacturing, purchasing linked by IT).
  • Move a company towards the frontier(improving OE)
    by capital investment, org. development, systems
    design, management.
  • Move the frontier as a result of research -
    laptop computers, personal organizers, email,
    TQM, benchmarkeing.

9
Problem with competing on the basis of OE
  • Advantages are easy to copy-there are no secrets
  • As everyone gets closer to the frontier, it
    becomes harder to maintain a lead
  • Moving the frontier raises the bar for everyone
    but gives nobody an advantage
  • Competitive convergence - everyone gets to the
    same place.
  • The airlines have the same technology, the same
    costs and have no real way to get ahead

10
Strategic Positioning is about deliberately
choosing a different set of activities than
rivals that delivers a unique mix of values,
resulting in a competitive advantage that cant
be easily copied.
11
Airlines
  • Full Service Airlines
  • Any point A to any point B
  • First Class, Business Class, Coach, promotional
  • Seat Assignments in advance
  • Baggage handling and transfer
  • Hub and Spoke system to promote connecting
    flights
  • Coordinate schedules
  • Meals
  • Drinks
  • Southwest Airlines
  • Mid sized cities and secondary airports
  • Frequent reliabile departures
  • Very low ticket prices
  • Quick turnarouds
  • Standardized aircraft
  • no seat assignments
  • no meals

12
Furniture Retailing
  • Typical Furniture Stores
  • Areas displaying samples
  • books of fabric, colors etc.
  • Different types of woods
  • Sales people assisting customers with choices.
  • Decorating services
  • Third party manufacturing
  • Delivery in 6-8 weeks
  • Maximum customization and service at a high cost
  • Ikea
  • Clear in store displays
  • No sales people
  • low cost
  • ready to assemble
  • Ikea designed products
  • Customer picks up product in boxes from
    warehouse, brings it home and assembles
  • In store child care
  • Extended hours

13
Operational Effectiveness vs. Strategy (Summary)
  • Operational Effectiveness
  • Performing similar activities better than rivals
  • Efficiency
  • Practices that allow firm to better utilize inputs
  • Strategic Positioning
  • Performing different activities than rivals or
  • Performing similar activities in different ways

14
Operational Effectiveness vs Strategic
Positioning (Summary)
  • Competition based on operational effectiveness
    alone is mutually destructive, leading to wars of
    attrition that can be arrested only by limiting
    competition.
  • Competitive strategy is about being different.
    It means deliberately choosing a different set of
    activities to deliver a unique mix of value

15
The Five Tasksof Strategic Management
16
Missions vs. Strategic Visions
  • A mission statement focuses on current business
    activities -- who we are and what we do
  • Current product and service offerings
  • Customer needs being served
  • Technological and business capabilities
  • A strategic vision concerns a firms future
    business path -- where we are going
  • Markets to be pursued
  • Future technology-product-customer focus
  • Kind of company that management is trying to
    create

17
Characteristics ofa Mission Statement
  • Defines current business activities, highlighting
    boundaries of current business
  • Present products and services
  • Types of customers served
  • Conveys
  • Who we are,
  • What we do, and
  • Why we are here

A companys mission is not to make a profit! Its
true mission is its answer to What will we do to
make a profit? Making is profit is an objective
or intended outcome!
18
Key Elements ofa Mission Statement
  • Three factors to consider
  • Customer needs What is being satisfied
  • Customer groups Who is being satisfied
  • Technologies/resources/business approaches used
    and activities performed How customer needs are
    satisfied

19
Trader JoesMission Statement
(a unique grocery store chain)
To give our customers the best food and beverage
values that they can find anywhere and to provide
them with the information required for informed
buying decisions. We provide these with a
dedication to the highest quality of customer
satisfaction delivered with a sense of warmth,
friendliness, fun, individual pride, and company
spirit.
20
Strategic Vision
  • A picture in your minds eye of what the company
    will look like in the future.

21
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22
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23
Examples of Strategic Visions
Red Hat Linux To extend our position as the most
trusted Linux and open source provider to the
enterprise. We intend to grow the market for
Linux through a complete range of enterprise Red
Hat Linux software, a powerful Internet
management platform, and associated support and
services.
Wells Fargo We want to satisfy all of our
customers financial needs,help them success
financially, be the premier providerof financial
services in every one of our markets, andbe
known as one of Americas great companies.
24
Examples of Strategic Visions
  • Wyeth
  • Our vision is to lead the way to a healthier
    world. Bycarrying out this vision at every
    level of our organization,we will be recognized
    by our employees, customers, and shareholders as
    the best pharmaceutical company in the world,
    resulting in value for all. We will achieve this
    by
  • Leading the world in innovation by linking
    pharmaceutical, biotech, and vaccines
    technologies
  • Making quality, integrity, and excellence
    hallmarksof the way we do business
  • Attracting, developing, and motivating the best
    people
  • Continually growing improving our business

25
Setting Objectives
Second Task of Strategic Management
  • Converts strategic vision and mission into
    specific performance targets
  • Creates yardsticks to track performance
  • Pushes firm to be inventive and focused on
    results
  • Helps prevent complacency and coasting

26
Characteristics of a Goal
  • Specific
  • Measurable
  • Time Constrained
  • Achievable

27
Types of Objectives Required
Financial Objectives
Strategic Objectives
  • Outcomes focusedon improving financial
    performance
  • Outcomes focused on improving long-term
    competitive business position

28
Examples FinancialObjectives
  • X increase in annual revenues
  • X increase annually in after-tax profits
  • X increase annually in earnings per share
  • Annual dividend increases of X
  • Profit margins of X
  • X return on capital employed (ROCE)
  • Increased shareholder value
  • Strong bond and credit ratings
  • Sufficient internal cash flows to fund 100 of
    new capital investment
  • Stable earnings during periods of recession

29
Examples StrategicObjectives
  • Winning an X market share
  • Achieving lower overall costs than rivals
  • Overtaking key competitors on product performance
    or quality or customer service
  • Deriving X of revenues from sale of new
    products introduced in past 5 years
  • Achieving technological leadership
  • Having better product selection than rivals
  • Strengthening companys brand name appeal
  • Having stronger national or global sales and
    distribution capabilities than rivals
  • Consistently getting new or improved products to
    market ahead of rivals

30
Strategic Performance Fosters Better
Financial Performance
  • A companys achievement of satisfactory financial
    performance, by itself, is not enough
  • Financial performance measures are lagging
    indicators reflecting results of past decisions
    and actions
  • Of equal or greater importance is a companys
    performance on measures of its strategic
    well-being its competitiveness and market
    position
  • Strategic performance measures are leading
    indicators of a companys future financial
    performance and business prospects
  • Achievement of strategic performance targets
  • Signals growing competitiveness
  • Signals growing strength in the marketplace

31
Which type of goal is more important Strategic
or Financial?
32
Balanced Scorecard Approach Strategic and
Financial Objectives
  • Balanced scorecard approach for measuringcompany
    performance requires both
  • Financial objectives
  • Strategic objectives
  • Emphasis on financial performance may
    assumepriority over strategic performance when
    companys
  • Financial performance is dismal and
  • Survival is threatened
  • Otherwise, management is advised to put more
    emphasis on achieving strategic objectives

The surest path to sustained future
profitabilityyear after year is to relentlessly
pursue strategic outcomesthat strengthen a
companys business position andgive it a growing
competitive advantage over rivals!
33
Objectives Are Neededat All Levels
  • 1. First, establish organization-wide objectives
    and performance targets
  • 2. Next, set business andproduct line objectives
  • 3. Then, establish functionaland departmental
    objectives
  • 4. Individual objectives are established last

34
Importance ofTop-Down Objectives
  • Guide objective-setting and strategy-making at
    lower levels
  • Ensures financial and strategic performance
    targets for all business units, divisions, and
    departments are directly connected to achieving
    company-wide objectives
  • Integration of objectives has two advantages
  • Helps produce cohesion among objectives
    andstrategies of different parts of organization
  • Helps unify internal efforts to move acompany
    along the chosen strategic path

35
Concept of Strategic Intent
  • A company exhibits strategic intent when it
    relentlessly pursues an ambitious strategic
    objective and concentrates its competitive
    actions and energies on achieving that objective!

36
Characteristics of Strategic Intent
  • Indicates firms intent to stake out a particular
    position over the long-term
  • Involves establishing a BHAG - big, hairy,
    audacious goal
  • Signals relentless commitment to winning

37
Crafting a Strategy
Third Task of Strategic Management
  • Strategy involves determining whether to
  • Concentrate on a single business or several
    businesses (diversification)
  • Cater to a broad range of customers or focus on a
    particular niche
  • Develop a wide or narrow product line
  • Pursue a competitive advantage based on
  • Low cost or
  • Product superiority or
  • Unique organizational capabilities

38
Types of Strategy
  • Grand Strategy
  • Growth, Consolidation, Divest
  • Generic Strategy
  • Low Cost
  • Differentiation
  • International Strategy
  • Domestic - Make it here/sell it here
  • Export Make it here/sell it there
  • Multicountry- Make it there/sell it there
  • Global Make it anywhere/sell it anywhere
  • Diversification
  • Related
  • Unrelated

39
Figure 1-2 A Companys Strategy is Partly
Planned and Partly Reactive

Abandoned strategy features
Company Experiences, Know-how, Resource Strengths
and Weaknesses, and Competitive Capabilities
Planned Strategy
New initiatives plus ongoing strategy features
continued from prior periods
Actual Company Strategy
Adaptive reactions to changing circumstances
Reactive Strategy
40
Crafting Strategy is anExercise in
Entrepreneurship
  • Strategy-making is a market-driven and
    customer-driven activity that involves
  • Keen eye for spotting emerging market
    opportunities
  • Keen observation of customer needs
  • Innovation and creativity
  • Prudent risk-taking
  • Strong sense of how to grow and strengthen
    business

41
What is a Strategic Plan?
Where firm is headed -- Strategic vision and
business mission
Short and long term performance targets --
Strategic and financial objectives
Action approaches to achieve targeted results --
A comprehensive strategy
42
What Does Strategy Implementation and
Execution Include?
  • Building a capable organization
  • Allocating resources to strategy-critical
    activities
  • Establishing strategy-supportive policies
  • Motivating people to pursue the target objectives
  • Tying rewards to achievement of results
  • Creating a strategy-supportive corporate culture
  • Installing needed information, communication, and
    operating systems
  • Instituting best practices and programs for
    continuous improvement
  • Exerting the leadership necessary to drive the
    process forward and keep improving

43
Monitoring, Evaluating, and Taking Corrective
Actions as Needed
Fifth Task of Strategic Management
  • The tasks of crafting, implementing, and
    executing a strategy are not a one-time exercise
  • Customer needs and competitiveconditions change
  • New opportunities appear technology advances
    any number of other outside developments occur
  • One or more aspects of executing thestrategy may
    not be going well
  • New managers with different ideas take over
  • Organizational learning occurs
  • All these trigger the need for corrective actions
    and adjustments

44
Levels of Strategy-Making in a
Single-Business Company
Executive-Level Managers
Business Strategy
Functional Managers
Functional Strategies
Operating Managers
Operating Strategies
45
Figure 2.2 Corporate Strategy fora
Diversified Company
Narrow or broad-based diversification
Is diversification related, unrelated or a mix?
Approach to capital allocation
Corporate Strategy
Scope of geographic operations
Efforts to capture cross-business strategic fits
Moves to add new new businesses
Moves to divest weak business units
Moves to build positions in new industries
46
Objectives Are Needed at All Levels
  • Objective-setting process is top-down, not
    bottom-up!
  • 1. First, establish organization-wide objectives
    and performance targets
  • 2. Next, set business and
    product line objectives
  • 3. Then, establish functional
    and departmental objectives
  • 4. Individual objectives are established last

47
Strategic Management Principle
  • Objective-setting needs to be more of a top-down
    than a bottom-up process in order to guide
    lower-level managers and organizational units
    toward outcomes that support the achievement of
    overall business and company objectives.

48
Goal Alignment
49
Functional Strategies
  • Game plan for a strategically-relevant function,
    activity, or business process
  • Details how key activities will
    be managed
  • Provide support for business strategy
  • Specify how functional objectives
    are to be achieved

50
Operating Strategies
  • Concern narrower strategies for managing
    grassroots activities and strategically-relevant
    operating units
  • Add detail to business and functional strategies

51
Example Operating Strategy
Improving Delivery Order-Filling
  • Manufacturer of plumbing equipment emphasizes
    quick delivery and accurate order-filling as
    keystones of its customer service approach.
    Warehouse manager took following approaches
  • Inventory stocking strategy allowing 99 of all
    orders to be completely filled without
    backordering any item
  • Staffing strategy of maintaining workforce
    capability to ship any order within 24 hours

52
Example Operating Strategy
Boosting Worker Productivity
  • To boost productivity by 10, managers of firm
    with low-price, high-volume strategy take
    following actions
  • Recruitment manager develops selection process
    designed to weed out all but best-qualified
    candidates
  • Information systems manager devises way to use
    technology to boost productivity of office
    workers
  • Compensation manager devises improved incentive
    compensation plan
  • Purchasing manager obtains new
    efficiency-increasing tools and equipment

53
Uniting the Companys Strategy-Making Effort
  • A companys strategy is a collection of
    strategies and initiatives being acted on by
    managers at various organizational levels
  • Separate levels of strategy must be unified into
    a cohesive, company-wide action plan
  • Pieces of strategy should fit together like the
    pieces of a puzzle

54
Figure 2.4 Networking of Missions,Objectives
, and Strategies
Corporate Level Objectives
Corporate-wide Strategic Vision
Corporate Level Strategy
Business Level Objectives
Business Level Strategic Vision
Business Level Strategies
Functional Objectives
Functional Missions
Functional Strategies
Operating Objectives
Operating Missions
Operating Strategies
55
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