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Chapter 9 Notes (on Strategy)

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University of Toronto Mississauga
James Appleyard

MGM Chapter 9 Notes Strategic Competitiveness •Goal of business is to achieve a sustainable competitive advantage – one that is perpetually difficult for imitators to imitate. •Astrategy is a plan guiding resource allocation to achieve long-term organizational goals. •Strategic intent focuses and applies organizational energies on a unifying, compelling goal. •Today, strategies have to adapt to a constantly shifting world. “Long-term” aspect of strategy is becoming shorter. Also, strategies have to change to deal with copycats. •Strategic management is the process of formulating and implementing strategies. •Ultimate goals of every business is “above-average returns”, which means profits that exceed what could be earned from alternative investments of equivalent risk. •Global economy has created an environment of hypercompetition, where at least a several players compete with each other. In hypercompetition, any competitive advantage is temporary and quickly imitated, strategies have to continuously change. Customer benefits from hypercompetition due to lower prices and better service. The Strategic Management Process •Strategic management have two responsibilities: strategy formulation and strategy implementation. •Five strategic questions: (1) What is our business mission? (2) Who are our customers? (3) What do our customers value? (4) What have been our results? (5) What is our plan? •Mission of an organization is the organization's reason for existence in society. A good mission statement communicates the underlying philosophy that will guide all employees in their operations. In fact, a good mission statement serves all stakeholders well. Stakeholder test is called a strategic constituencies analysis. •Core values guide a company by stating what is and what is not appropriate. Strong core values help organization build institutional identity. •Operating objectives are specific performance results that contribute to longer strategic goals. They are short term targets such as “10% increase in net income compared to last quarter” •To help analyze organizational resources and capabilities, a SWOT analysis can be used. This is strengths, weaknesses, opportunities, and threats to a business' operations. A major goal is to identify the “core competency, which is the special strength that gives an organization a competitive advantage. •Opportunities and threats from external sources also have to be analyzed. Michael Porter's model of five strategic forces. Companies that do well in these five categories are known as “attractive” industries. •Industry competitors – intensity of rivalry among firms in the industry •New entrants – threats of new competitors entering the market •Suppliers – bargaining power of suppliers •Customers – bargaining power of buyers •Substitutes – threats of substitute products and services. •Three levels of Strategy: •Corporate Strategy: What businesses do we pursue? What direction are we headed? •Business Strategy: How do we compete in each of our major businesses? •Strategic business unit is a major business area that operates with some autonomy. •Functional Strategy: How do we best support each of our business strategies? •These includes strategies in finance, marketing, manufacturing, etc. Corporate Strategy •Growth strategies promote expansion of a firm's current operations. Required for long-term survival. Growth does not necessarily equate to effectiveness. •Concentration: expansion within the same business area. (Coca Cola makes more coke) •Diversification: acquisition or investment in new business areas. •Related diversification: PepsiCo acquiring Tropicana •Unrelated diversification: Mcdonalds acquiring IKEA. Can be risky. •Backward Vertical integration: business acquires suppliers •Forward Vertical integration: business acquires distributors •Retrenchment strategy seeks to correct weaknesses by changing operations. •Liquidation: stop business and sell assets to pay creditors •Restructuring: making major changes to reduce scale or mix of operations. •Downsizing: decrease size of operations to reduce costs and improve efficiency •Divestiture: Selling off parts of the organition to refocus on core competencies •Global Strategies •Globalization Strategy views world as one large market and pushes for standardization of marketing and products. Most likely to be more efficient. (ethnocentric view) •Multidomestic Strategy customizes products and advertising to best fit local needs. More likely to be more effective. (polycentric view) •Transnational strategy: a balance between globalization strategy and multidomestic strategy. Seeks efficiencies of global operations with attentio
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