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Importance of mission, vision and objectives in strategic management process. Few examples of strategic and financial objectives.
Strategy is the direction and scope of an organization over the long term which:
Achieves advantage for the organization
Optimizes utilization of limited resources
Fulfill stakeholder expectation within:
Management of the process of strategic decision making and implementing
Understanding the strategic position
Developing strategic choices for the future
Turning strategy into action
More alert to environment (opportunities and threats)
To steer resources to desirable areas promising growth and profits
• Typical strategic moves:
• Alter geographical coverage
• Mergers and acquisitions
• Strategic and/or collaborative alliances
• Managing internal R&D, production, finance and other key functions
• Strengthen competitive capabilities
• New industries or business entry
• React to external changes
• Turn around a company in crises
• Double digit growth
• Typical types:
• Planned strategy– new initiative (proactive)
• Reactive strategy- emerging circumstances
• Abandoned strategy
• Company strategies are partly visible and partly hidden to outside view
• Strategies develop over time to match internal and external factors in congruence with company values
• Developing strategy is partly an exercise in entrepreneurship
• Seeking new opportunities
• Doing existing things in new ways
• Risk taking capabilities
• Strategy making is an ongoing process
Strategic Management Process
• Vision: Management’s aspiration for Organisation and its Business – “Where we are going”
• Mission: is a statement of Company’s present Business Scope – “who we are and what we do”
• Objectives: Specific performance targets
• Two important dimensions – measurement value and time period
• Financial Objectives
• Strategic Objectives
• Give organisation it’s own identity, business emphasis and path for development
• Mission statement sets company apart from other similarly situated company
• Incorporate in mission statement:
• What is being satisfied
• Who is being satisfied (customer groups)
• How the company delivers value to customers
• Good mission statements are highly unique to the company for which they are developed
• Diversified companies have broader mission statements
• Large organisations (Corporates) have mission statements for key functional areas / departments / divisions
• We are in picture business – Eastman Kodak
• Our business is renting cars. Our business is total customer satisfaction
• Our mission is to provide any customer a means of moving people and things up and down, and sideways over short distances with higher reliability than any other similar enterprises in the world
• “Our vision: Getting to a billion connected computers worldwide, millions of servers and trillions of dollars of e- commerce. Our mission: Being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful
• A computer on every desk and in every home using great software as an empowering tool changed to: Empower people through great software, any time, any place and on any device.
• Vision: Our vision of persuasive networking is of a world where connections are simpler, more powerful, more affordable, more global and more available to all. Mission: To connect more people and organisations to information in more innovative, simple and reliable ways than any other networking company in the world
• Developing Strategic Vision
• To take the organisation in the desired direction
• Defining mission statement
• Deciding on long-term course and action plan
• Communicating to elicit commitment
• Mission to Strategic Vision
• Entrepreneurial ability to force market growth, development/change, technology impact and buyer needs
• Develop a vision to help create a roadmap
• Warn about ‘inflection’ points – threats/opportunities that will come along needing strategic corrections
• A well articulated vision creates enthusiasm
• Establishing Objectives
• Objectives represent managerial commitment to achieving specific performance targets within specific time
• Financial Vs Strategic Objectives
• Aim is to have both on the above priority, but more often trade-off situations are common
• Objectives should aim at building stronger long term competitive position than having short term priority
• Establishing Objectives
• Establish SMART goal/objectives
• S – Stretched
• M – Measurable
• A – Agreed
• R – Realistic
• T – Time bound
• Top down Vs bottom up objective setting
• Long term & short term objectives
• Corporate objectives are split into divisional/functional/operational objectives
What are internal and external factors are evaluated to do a SWOT analysis
• SWOT Analysis
• Is a powerful tool for sizing up a firm’s:
♦ Internal strengths (the basis for strategy)
♦ Internal weaknesses (deficient capabilities)
♦ Market opportunities (strategic objectives)
♦ External threats (strategic defenses)
IDENTIFYING A COMPANY’S INTERNAL STRENGTHS
• A Competence
• Is an activity that a firm has learned to perform with proficiency—a capability.
• A Core Competence
• Is a proficiently performed internal activity that is central to a firm’s strategy and competitiveness.
• A Distinctive Competence
• Is a competitively valuable activity that a firm performs better than its rivals.
IDENTIFYING A FIRM’S WEAKNESSES AND COMPETITIVE DEFICIENCIES
• A Weakness (Competitive Deficiency)
• Is something a firm lacks or does poorly (in comparison to others) or a condition that puts it at a competitive disadvantage in the marketplace.
• Types of Weaknesses:
• Inferior skills, expertise, or intellectual capital
• Deficiencies in physical, organizational, or intangible assets
• Missing or competitively inferior capabilities in key areas
IDENTIFYING A COMPANY’S MARKET OPPORTUNITIES
• Characteristics of Market Opportunities:
• An absolute “must pursue” market
♦ Represents much potential but is hidden in “fog of the future.”
• A marginally interesting market
♦ Presents high risk and questionable profit potential.
• An unsuitable\mismatched market
♦ Is best avoided as the firm’s strengths are not matched to market factors.
IDENTIFYING THE THREATS TO A FIRM’S FUTURE PROFITABILITY
• Types of Threats:
• Normal course-of-business threats
• Sudden-death (survival) threats
• Considering Threats:
• Identify the threats to the firm’s future prospects.
• Evaluate what strategic actions can be taken to neutralize or lessen their impact.
What to Look for in Identifying a Firm’s Strengths, Weaknesses, Opportunities, and Threats
What are the influencing factors that forces organizations to forge alliances
♦ Horizontal scope is the range of product and service segments that a firm serves within its focal market.
♦ Vertical scope is the extent to which a firm’s internal activities encompass one, some, many, or all of the activities that make up an industry’s entire value chain system, ranging from raw-material production to final sales
and service activities.
• Is the combining of two or more firms into a single corporate entity that often takes on a new name.
• Is a combination in which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired.
1. Creating a more cost-efficient operation out of the combined companies.
2. Expanding the firm’s geographic coverage.
3. Extending the firm’s business into new product categories.
4. Gaining quick access to new technologies or other resources and capabilities.
5. Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.
6. Increasing a firm’s horizontal scope strengthens its business and increases its profitability by:
6.1.Improving the efficiency of its operations
6.2.Heightening its product differentiation
6.3.Reducing market rivalry
6.4.Increasing the firm’s bargaining power over suppliers and buyers
6.5.Enhancing its flexibility and dynamic capabilities
WHY MERGERS AND ACQUISITIONS SOMETIMES FAIL TO PRODUCE ANTICIPATED RESULTS
• Strategic Issues:
• Cost savings may prove smaller than expected.
• Gains in competitive capabilities take longer to realize or never materialize at all.
• Organizational Issues
• Cultures, operating systems and management styles fail to mesh due to resistance to change from organization members.
• Loss of key employees at the acquired firm.
• Managers overseeing integration make mistakes in melding the acquired firm into their own.
• A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.
An strategic alliance:
1. Facilitates achievement of an important business objective.
2. Helps build, sustain, or enhance a core competence or competitive advantage.
3. Helps remedy an important resource deficiency or competitive weakness.
4. Helps defend against a competitive threat, or mitigates a significant risk to a company’s business.
5. Increases the bargaining power over suppliers or buyers.
6. Helps open up important new market opportunities.
7. Speeds the development of new technologies and/or product innovations.
BENEFITS OF STRATEGIC ALLIANCES AND PARTNERSHIPS
• Minimize the problems associated with vertical integration, outsourcing, and mergers and acquisitions.
• Are useful in extending the scope of operations via international expansion and diversification strategies.
• Reduce the need to be independent and self-sufficient when strengthening the firm’s competitive position.
• Offer greater flexibility should a firm’s resource requirements or goals change over time.
• Are useful when industries are experiencing high-velocity technological advances simultaneously.
WHY AND HOW STRATEGIC ALLIANCES ARE ADVANTAGEOUS
• Strategic Alliances:
• Expedite development of promising new technologies or products.
• Help overcome deficits in technical and manufacturing expertise.
• Bring together the personnel and expertise needed to create new skill sets and capabilities.
• Improve supply chain efficiency.
• Help partners allocate venture risk sharing.
• Allow firms to gain economies of scale.
• Provide new market access for partners.
Adjusting the agreement over time to fit new circumstances
Ens ring both parties keep th ir commitme ts
Being sensitive to cultural differences
Recognizing that the alliance must benefit both sides
Structuring the decision-making process for swift actions
Strategic Alliance FActors
Strategic Alliance FActors
Adjusting the agreement over time to fit new circumstances
Ens r both parti s ke p their om itment
Recognizing that the alliance must benefit b th s des
B ing s ns tive to cultural differences Picking a G od par ner
♦ The best alliances are highly selective, focusing on particular value chain activities and on obtaining a specific competitive benefit.
♦ Alliances enable a firm to build on its strengths and to learn.
REASONS FOR ENTERING INTO STRATEGIC ALLIANCES
• When seeking global market leadership:
• Enter into critical country markets quickly.
• Gain inside knowledge about unfamiliar markets and cultures through alliances with local partners.
• Provide access to valuable skills and competencies concentrated in particular geographic locations.
• When staking out a strong industry position:
• Establish a stronger beachhead in target industry.
• Master new technologies and build expertise and competencies.
• Open up broader opportunities in the target industry.
PRINCIPLE ADVANTAGES OF STRATEGIC ALLIANCES
1. They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing.
2. They are more flexible organizational forms and allow for a more adaptive response to changing conditions.
3. They are more rapidly deployed—a critical factor when speed is of the essence.
STRATEGIC ALLIANCES VERSUS OUTSOURCING
• Key Advantages of Strategic Alliances:
• The increased ability to exercise control over the partners’ activities.
• A greater commitment and willingness of the partners to make relationship-specific investments as opposed to arm’s-length outsourcing transactions.
ACHIEVING LONG-LASTING STRATEGIC ALLIANCE RELATIONSHIPS
THE DRAWBACKS OF STRATEGIC ALLIANCES AND PARTNERSHIPS
• Culture clash and integration problems due to different management styles and business practices.
• Anticipated gains do not materialize due to an overly optimistic view of the potential for synergies or the unforeseen poor fit of partners’ resources and capabilities.
• Risk of becoming dependent on partner firms for essential expertise and capabilities.
• Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals.
Five forces of Michaels porter’s measure of industry attractiveness
Analyzing the Five Competitive Forces: How to Do It
Step 1:Identify the specific competitive pressures associated with each of the five forces
Step 2:Evaluate the strength of each competitive force -- fierce, strong, moderate to normal, or weak?
Step 3:Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits
Rivalry Among Competing Sellers
• Usually the strongest of the five forces
• Key factor in determining strength of rivalry
• How aggressively are rivals using various weapons of competition to improve their market positions and performance?
• Cutthroat or brutal, strong ,moderate and week
• Competitive rivalry is a combative contest involving
• Offensive actions
• Defensive countermoves
Weapons for Competing and Factors Affecting Strength of Rivalry
What Are the Typical Weapons for Competing?
• Vigorous price competition
• More or different performance features
• Better product performance
• Higher quality
• Stronger brand image and appeal
• Wider selection of models and styles
• Bigger/better dealer network
• Low interest rate financing
• Higher levels of advertising
• Stronger product innovation capabilities
• Better customer service
• Stronger capabilities to provide buyers with custom-made products
What Causes Rivalry to be Stronger?
• Competitors engage in frequent and aggressive launches of new offensives to gain sales and market share
• Slow market growth
• Number of rivals increases and rivals are of equal size and competitive capability
• Buyer costs to switch brands are low
• Industry conditions tempt rivals to use price cuts or other competitive weapons to boost volume
• A successful strategic move carries a big payoff
• Diversity of rivals increases in terms of visions, objectives, strategies, resources, and countries of origin
• Strong rivals outside the industry acquire weak firms in the industry and use their resources to transform the new firms into major market contenders
What Causes Rivalry to be Weaker?
• Industry rivals move only infrequently or in a non-aggressive manner to draw sales from rivals
• Rapid market growth
• Products of rivals are strongly differentiated and customer loyalty is high
• Buyer costs to switch brands are high
• There are fewer than 5 rivals or there are numerous rivals so any one firm’s actions has minimal impact on rivals’ business
Competitive Force of Potential Entry
• Seriousness of threat depends on
• Size of pool of entry candidates and available resources
• Barriers to entry
• Reaction of existing firms
• Evaluating threat of entry involves assessing
• How formidable entry barriers are for each type of potential entrant and
• Attractiveness of growth and profit prospects
Factors Affecting Strength of Threat of Entry
Common Barriers to Entry
• Sizable economies of scale
• Cost and resource disadvantages independent of size
• Brand preferences and customer loyalty
• Capital requirements and/or other specialized resource requirements
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions
When Is the Threat of Entry Stronger?
• There’s a sizable pool of entry candidates
• Entry barriers are low
• Industry growth is rapid and profit potential is high
• Incumbents are unwilling or unable to contest a newcomer’s entry efforts
• When existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence
When Is the Threat of Entry Weaker?
• There’s only a small pool of entry candidates
• Entry barriers are high
• Existing competitors are struggling to earn good profits
• Industry’s outlook is risky
• Industry growth is slow or stagnant
Competitive Force of Substitute Products
Substitutes matter when customers are attracted to the products of firms in other industries
How to Tell Whether Substitute Products Are a Strong Force
• Whether substitutes are readily available and attractively priced
• Whether buyers view substitutes as being comparable or better
• How much it costs end users to switch to substitutes
Factors Affecting Competition From Substitute Products
When Is the Competition From Substitutes Stronger?
• There are many good substitutes that are readily available
• The lower the price of substitutes
• The higher the quality and performance of substitutes
• The lower the user’s switching costs
Competitive Pressures From Suppliers and Supplier-Seller Collaboration
• Whether supplier-seller relationships represent a weak or strong competitive force depends on
• Whether suppliers can exercise sufficient bargaining leverage to influence terms of supply in their favor
• Nature and extent of supplier-seller collaboration in the industry
Factors Affecting the Bargaining Power of Suppliers
When Is the Bargaining Power of Suppliers Stronger?
• Industry members incur high costs in switching their purchases to alternative suppliers
• Needed inputs are in short supply
• Supplier provides a differentiated input that enhances the quality of performance of sellers’ products or is a valuable part of sellers’ production process
• There are only a few suppliers of a specific input
• Some suppliers threaten to integrate forward
When Is the Bargaining Power of Suppliers Weaker?
• Item being supplied is a commodity
• Seller switching costs to alternative suppliers are low
• Good substitutes exist or new ones emerge
• Surge in availability of supplies occurs
• Industry members account for a big fraction of suppliers’ total sales
• Industry members threaten to integrate backward
• Seller collaboration with selected suppliers provides attractive win-win opportunities
Competitive Pressures: Collaboration Between Sellers and Suppliers
• Sellers are forging strategic partnerships with select suppliers to
• Reduce inventory and logistics costs
• Speed availability of next-generation components
• Enhance quality of parts being supplied
• Squeeze out cost savings for both parties
• Competitive advantage potential may accrue to sellers doing the best job of managing supply-chain relationships
• Whether seller-buyer relationships represent a weak or strong competitive force depends on
• Whether buyers have sufficient bargaining leverage to influence terms of sale in their favor
• Extent and competitive importance of seller-buyer strategic partnerships in the industry
Factors Affecting Bargaining Power of Buyers
When Is the Bargaining Power of Buyers Stronger?
• Buyer switching costs to competing brands or substitutes are low
• Buyers are large and can demand concessions
• Large-volume purchases by buyers are important to sellers
• Buyer demand is weak or declining
• Only a few buyers exists
• Identity of buyer adds prestige to seller’s list of customers
• Quantity and quality of information available to buyers improves
• Buyers have ability to postpone purchases until later
• Buyers threaten to integrate backward
When Is the Bargaining Power of Buyers Weaker?
• Buyers purchase item infrequently or in small quantities
• Buyer switching costs to competing brands are high
• Surge in buyer demand creates a “sellers’ market”
• Seller’s brand reputation is important to buyer
• A specific seller’s product delivers quality or performance that is very important to buyer
• Buyer collaboration with selected sellers provides attractive win-win opportunities
Competitive Pressures: Collaboration Between Sellers and Buyers
• Partnerships are an increasingly important competitive element in business-to-business relationships
• Collaboration may result in mutual benefits regarding
• Just-in-time deliveries
• Order processing
• Electronic invoice payments
• Data sharing
• Competitive advantage potential may accrue to sellers doing the best job of managing seller-buyer partnerships
Strategic Implications of the Five Competitive Forces
• Competitive environment is unattractive from the standpoint of earning good profits when
• Rivalry is vigorous
• Entry barriers are low and entry is likely
• Competition from substitutes is strong
• Suppliers and customers have considerable bargaining power
Strategic Implications of the Five Competitive Forces
• Competitive environment is ideal from a profit-making standpoint when
• Rivalry is moderate
• Entry barriers are high and no firm is likely to enter
• Good substitutes do not exist
• Suppliers and customers are in a weak bargaining position
Coping With the Five Competitive Forces
• Objective is to craft a strategy to
• Insulate firm from competitive pressures
• Initiate actions to produce sustainable competitive advantage
• Allow firm to be the industry’s “mover and shaker” with the “most powerful” strategy that defines the business model for the industry
Significance of value chain in developing competitive capabilities
: HOW DO A FIRM’S VALUE CHAIN ACTIVITIES IMPACT ITS COST STRUCTURE AND CUSTOMER VALUE PROPOSITION?
• Signs of a Firm’s Competitive Strength:
• Its prices and costs are in line with rivals.
• Its customer-value proposition is competitive and cost effective.
• Its bundled capabilities are yielding a sustainable competitive advantage.
• The higher a firm’s costs are above those of close rivals, the more competitively vulnerable it becomes.
• Conversely, the greater the amount of customer value that a firm can offer profitably relative to close rivals, the less competitively vulnerable the firm becomes.
THE CONCEPT OF A COMPANY VALUE CHAIN
• The Value Chain
• Identifies the primary internal activities that create and deliver customer value and the requisite related support activities.
• Permits a deep look at the firm’s cost structure and ability to offer low prices.
• Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices.
• A company’s value chain identifies the primary activities and related support activities that create customer value.
COMPARING THE VALUE CHAINS OF RIVAL FIRMS
• Value Chain Analysis
• Facilitates a comparison, activity-by-activity, of how effectively and efficiently a firm delivers value to its customers, relative to its competitors.
• The Value Chain Analysis Process:
• Segregate the firm’s operations into different types of primary and secondary activities to identify the major components of its internal cost structure.
• Use activity-based costing to evaluate the activities.
• Do the same for significant competitors.
♦ A firm’s cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chains of its suppliers and distribution channel allies.
VALUE CHAIN SYSTEM FOR AN ENTIRE INDUSTRY
• Industry Value Chain:
• The firm’s internal value chain
• The value chains of industry suppliers
• The value chains of channel intermediaries
• Effects of the Industry Value Chain:
• Costs and margins of suppliers and channel partners can affect prices to end consumers.
• Activities of channel partners can affect industry sales volumes and customer satisfaction.
• A Representative Value Chain System
♦ A company’s cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chains of its suppliers and distribution channel allies.
♦ Benchmarking is a potent tool for improving a company’s own internal activities that is based on learning how other companies perform them and borrowing their “best practices.”
• Involves improving a firm’s internal activities based on learning from other firms’ “best practices.”
• Assesses whether the cost competitiveness and effectiveness of a firm’s value chain activities are in line with its competitors’ activities.
• Sources of Benchmarking Information
• Reports, trade groups, analysts and customers
• Visits to benchmark companies
• Data from consulting firms
• Benchmarking the costs of a firm's activities against rivals provides hard evidence of whether the firm is cost- competitive.
STRATEGIC OPTIONS FOR REMEDYING A COST OR VALUE DISADVANTAGE
• Places in the total value chain system for a firm to look for ways to improve its efficiency and effectiveness:
•.1. The firm’s own internal activity segments
•.2. The suppliers’ part of the overall value chain system
•.3. The forward channel portion of the value chain system.
IMPROVING INTERNALLY PERFORMED VALUE CHAIN ACTIVITIES
• Implement best practices throughout the firm, particularly for high-cost activities.
• Eliminate some cost-producing activities altogether by revamping the value chain.
• Relocate high-cost activities to areas where they can be performed more cheaply.
• Outsource activities that can be performed by vendors or contractors more cheaply than if done in-house.
• Invest in productivity enhancing, cost-saving technological improvements.
• Find ways to detour around activities or items where costs are high.
• Redesign products and/or components to facilitate speedier and more economical manufacture or assembly.
IMPROVING THE EFFECTIVENESS OF THE CUSTOMER VALUE PROPOSITION AND ENHANCING DIFFERENTIATION
• Implement best practices for quality for high-value activities.
• Adopt best practices and technologies that spur innovation, improve design, and enhance creativity.
• Implement the best practices in providing customer service.
• Reallocate resources to activities having the most impact on value for the customer and their most important purchase criteria.
• For intermediate buyers, gain an understanding of how the activities the firm performs impact the buyer’s value chain.
• Adopt best practices for marketing, brand management, and enhancing customer perceptions.
IMPROVING SUPPLIER-RELATED VALUE CHAIN ACTIVITIES
• Pressure suppliers for lower prices.
• Switch to lower-priced substitute inputs.
• Collaborate closely with suppliers to identify mutual cost-saving opportunities.
• Work with suppliers to enhance the firm’s differentiation.
• Select and retain suppliers who meet higher-quality standards.
• Coordinate with suppliers to enhance design or other features desired by customers.
• Provide incentives to suppliers to meet higher-quality standards, and assist suppliers in their efforts to improve.
IMPROVING VALUE CHAIN ACTIVITIES OF FORWARD CHANNEL ALLIES
• Achieving Cost-Based Competitiveness:
• Pressure forward channel allies to reduce their costs and markups.
• Collaborate with forward channel allies to identify win-win opportunities to reduce costs.
• Change to a more economical distribution strategy, including switching to cheaper distribution channels.
ENHANCING DIFFERENTIATION THROUGH ACTIVITIES AT THE FORWARD END OF THE VALUE CHAIN SYSTEM
• Engage in cooperative advertising and promotions with forward channel allies.
• Use exclusive arrangements with downstream sellers or other mechanisms that increase their incentives to enhance delivered customer value.
• Create and enforce standards for downstream activities and assist in training channel partners in business practices.
♦ Performing value chain activities with capabilities that permit the firm to either outmatch rivals on differentiation or beat them on costs will give the firm a competitive advantage.
Translating Company Performance of Value Chain Activities into Competitive Advantage
Translating Company Performance of Value Chain Activities into Competitive Advantage (cont’d)