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BUS800 - Ch1-6,9-12

19 Pages

Course Code
BUS 800
Neil Wolff

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Ch1 – What is Strategy? Describe strategy & the 4 generic strategies  Strategy – action plan for outperforming its competitors & achieving superior profitability; competing differently 1. Striving to be industry’s low-cost provider, aiming for cost-based competitive advantage over rivals (eg. Wal-Mart) 2. Outcompeting rivals on the basis of differentiating features (eg. Higher quality, wider product selection, added performance, value-added services, more attractive styling, & technological superiority) (eg. Apple) 3. Developing an advantage based on offering more value for the money (best-cost provider strategy) (eg. Target) 4. Focusing on narrow market niche within an industry (eg. McAfee)  Achieve advantage through greater efficiency in serving a niche  Greater effectiveness in meeting the niche’s special needs Describe sustainable competitive advantage - Competitive advantage – provides buyers with superior value compared to rival sellers or offers same value at lower cost to firm - Sustainable if it persists despite best efforts of competitors to match/surpass this advantage Evolving Strategy:  Deliberate strategy – proactive strategy (planned & realized)  Emergent strategy – reactive strategy (emerge as changing conditions warrant, adaptive) Business Model – management’s blueprint for delivering product/service to customers, generating revenues sufficient to cover costs & yield attractive profit - Customer value proposition & profit formula - Contribution Margin per Unit = Sale Price – Variable Cost / Fixed Cost Describe/apply the 3 tests of a winning strategy 1. The Fit Test – how well does strategy fit company’s situation?  Externally – Match industry & competitive conditions, best market opportunities, business environment  Internally – match supply chain management, operations, sales & marketing  Dynamic consistency 2. The Competitive Advantage Test – can strategy help company achieve (long-lasting) sustainable competitive advantage? 3. The Performance Test – is strategy producing good company performance?  Competitive strength & market standing  Profitability & financial strength Good strategy + Good Strategy Execution = Good Management Ch2 – Charting a Company’s Direction  Explain vision, mission, core values, & objective  Describe the 5 tasks strategic model and related concepts Vision: - Describes management’s aspirations for future & outlines company’s strategic course and long- term direction - Where are we going and why - Convincing rationale for why this makes good business sense for company - Common direction of company - Distinctive and specific to organization - Feasible, memorable, forward looking & directional Mission Statement: - Purpose and its present business (who we are, what we do, why we are here) - Identifies company product/services, specifies buyer needs that it seeks to satisfy and customer groups or markets it serves, gives company its own identity Objectives (financial & strategic): - Convert vision & mission into specific performance targets - Specific results management wants to achieve - Company performance in light of industry economic & competitive conditions & company’s internal capabilities - Quantifiable/measurable, contain deadline for achievement - Financial objective - Strategic objective – outcomes that indicate company is strengthening its market standing, competitive position and future business prospects Values – beliefs, traits, behavioural norms that company personnel expected to display Objectives – organization’s performance targets management wants to achieve Strategic intent – pursue ambitious strategic objective Balance Scorecard – combining use of strategic & financial objectives, tracking their achievement and giving management a more complete & balanced view of how well organization is performing Corporate strategy – multi-business level, how to improve company performance or gain competitive advantage by managing set of businesses simultaneously Business strategy – single business level, (same as corporate) but particular line of business Strategic plan – future direction and business purpose performance targets and strategy Corporate Governance 1. Oversee company’s financial accounting & financial reporting practices 2. Critically appraise company’s direction, strategy & business approaches 3. Evaluate the calibre of senior executives’ strategic leadership skills 4. Institute compensation plan for top executives that rewards them for actions and results that serve shareholder interests Ch3 – External Assessment  Explain macro environment  Explain 5-force model  Explain driving forces  Explain strategic position of and possible moves  Explain KSFs  Explain importance of industry profitability and attractiveness Macro-environment – environmental context which company’s industry is situated PESTEL  Political – policies & processes, government intervention in economy  Economic – climate & interest rates, exchange rates, inflation & etc  Socio-cultural – societal values, attitudes, cultural factors, lifestyles  Technological – technological change  Environmental – ecological environment (weather & etc)  Legal & regulatory – regulations & laws 5 Competitive Forces  Rival sellers – buyer demand, costly to switch brands, less strongly differentiated  New entrants  Substitute  Supplier bargaining power  Customer bargaining power Driving Forces of Industry Change - Changes in long term industry growth rate - Increasing globalization - Emerging new internet capabilities and applications - Changes in who buys the product & how they use it - Technological change & manufacturing process innovation - Product and marketing innovation - Entry/exit of major firms - Diffusion of technical know-how across companies and countries - Changes in cost and efficiency - Reductions in uncertainty and business risk - Regulatory influences and government policy changes - Changing societal concerns, attitudes & lifestyles Strategic group mapping – displaying markets or competitive positions that rival firms occupy in the industry Strategic group – cluster of industry rivals that have similar competitive approaches and market positions Competitor Analysis  Current strategy – how company is currently competing  Objectives – strategic & performance objectives  Capabilities – key strengths and weaknesses  Assumptions – held about itself and in industry Key Success Factors of Industry Key Success Factors – strategy elements, product & service attributes, operational approaches, resources & competitive capabilities that are essential to surviving and thriving in industry - Basis of choosing between competing brands of sellers - Resources and capabilities must company have to be competitively successful - Shortcomings certain to put company significant competitive disadvantage Ch4 – Internal Assessment  Assess company’s strategic performance  Identify critical resources, capabilities, weaknesses, opportunities & threats  Explain the value chain  Explain competitive strength assessment  Identify key strategic issues Strategic Performance Best Indicators - Achieving its stated financial & strategic objectives - Financial performance above industry average or gaining customers & increasing its market share Company’s Resources & Capabilities Competitive assets – resources & capabilities, ability to succeed in marketplace Resource – productive input or competitive asset owned/controlled by firm  Tangible – physical, financial, technological, organizational  Intangible – human asset, intellectual capital, brands, image, reputation, relationships, incentive & corporate culture Capability /competence– capacity of firm to perform some internal activity competently; organizational capabilities developed & enabled through deployment of company’s resources or some combination of its resources; eg. Knowledge based, people & intellectual capital, organizational processes & systems Resource bundle – linked & closely integrated set of competitive assets centered around 1+ cross functional capabilities VRIN (resource test for sustainable competitive advantage) Valuable  Relevant to company’s strategy making company more effective competitor, able to exploit market opportunities and ward off external threats Rare  if held by only a small number of firms in industry or specific competitive domain Inimitable  resources difficult and more costly for competitors to imitate  reflect high level of social complexity (company culture, interpersonal relationships among managers or R&D, trust relations with customers/suppliers) Non-substitutable Dynamic capability - evolve portfolio of resources & capabilities to sustain its competitiveness and help drive improvements in its performance or create new ones SWOT Strengths  Quality of its resources and capabilities  Supply chain management, R&D, production, distribution, sales and marketing, customer service  Company’s skill or proficiency in performing an activity consistently = competence (capability)  Core competence – activity central to its strategy and competitive success  Distinctive competence – company performs better than its rivals  Some competencies only for market survival, most rivals also have them Weaknesses  Shortcomings, disadvantages in marketplace, competitive liabilities  Inferior or unproven skills, expertise, intellectual capital  Deficiencies in competitive important physical, organizational or intangible assets  Missing or competitively inferior capabilities in key areas Opportunities  Absolute “must pursue” market – much potential  Marginally interesting market – high risk, questionable profit potential  Unsuitable/mismatched market – best avoided as firm strengths not matched to market Threats  Normal course of business threat, sudden death (survival) threat Value Chain (activities, costs & assets associated…) Primary (create value for customer)  Supply chain management – purchasing materials, merchandise, consumable items from vendors; receiving, storing, disseminating inputs from suppliers; inventory management  Operations - convert inputs into final product form (production, assembly, packaging, equipment maintenance, facilities, operations, quality assurance, environmental protection)  Distribution – dealing with physically distributing product to buyers (finished goods warehousing, order processing, order picking & packing, shipping, delivery vehicle operations, establishing and maintaining a network of dealers and distributors)  Sales and marketing – advertising and promotion, market research and planning, dealer/distributor support  Service – provide assistance to buyers, inquiries & complaints Secondary (facilitate & enhance performance of primary activities)  Product R&D, Technology, and Systems Development – product R&D, process design improvement, equipment design, computer software development, telecommunication systems, computer-assisted design and engineering, database capabilities, development of computerized support systems  Human Resources Management – recruitment, hiring, training, development, compensation of all types of personnel, labour relations, development of knowledge-based skills & core competencies  General Administration – general management, accounting & finance, legal & regulatory, safety & security, management info systems, forming strategic alliances and collaborating with strategic partners Benchmarking – potent tool for improving a company’s own internal activities that’s based on learning how other companies perform them & borrowing their “best practices” Competitive Strength Assessment (use key success factors) - Pinpoint its strengths & weaknesses against rivals and point directly to the kinds of offensive/defensive actions it can use to exploit competitive strengths & reduce vulnerabilities 6. Is the company performing the 10 basic managerial tasks of the strategy execution process? a) staffing the organization 10 o putting together a strong management team o recruiting & retaining talented employees (experience, technical skills & intellectual capital) b) building the organizational capabilities 10 o developing a set of resources and capabilities suited to current strategy o updating resources & capabilities as external conditions and the firm’s strategy change o training and retaining company personnel to maintain knowledge based and skills based capabilities c) creating a strategy-supportive organizational structure 10 o instituting organizational arrangements that facilitate good strategy execution o establishing lines of authority and reporting relationships o deciding how much decision-making authority to delegate (to lower level managers & frontline employees) d) allocating sufficient resources to strategic execution 11 e) instituting policies and procedures that facilitate strategy execution 11 o provide top-down guidance regarding how things need to be done  channel individual & group efforts along a strategy supportive path  align actions & behaviour of company personnel with requirements for good strategy execution  place limits on independent action and help overcome resistance to change o help ensure consistency in how execution-critical activities are performed  improve quality and reliability of strategy execution  help coordinate strategy execution efforts of individuals and groups throughout the organization o promote creation of a work climate that facilitates good strategy execution f) adopting best practice and business processes that drive strategy execution activities 11 o best practice – method of performing activity that consistently delivers superior results compared to other approaches o business process reengineering – radically redesigning & streamlining how activity is performed, with intent to achieve quantum improvements in performance (one time improvement) o total quality management (TQM) – creating total quality culture, involving managers & employees at all levels, bent on continuously improving performance of every value chain activity (ongoing) o Six Sigma programs – advanced statistical methods to improve quality by reducing defects & variability in performance of business process (define, measure, analyze, design & verify) (ongoing) g) installing information and operating systems that enable company personnel to do their strategic roles proficiently 11 o implement information system that tracks data for: customers, operations, employees, supplier/strategic partners, financial performance o monitor employee performance by empowering workers h) tying rewards and incentives directly to the achievement of strategic and financial targets 11 o provide attractive perks & fringe benefits o giving awards & other forms of public recognition to high performers & celebrate achievement of organizational goals o relying on promotion from within whenever possible o inviting & acting on ideas and suggestions from employees o creating a work atmosphere in which there’s genuine caring and mutual respect among workers & between management and employees o stating strategic vision in inspirational terms that make employees feel they’re part of something very worthwhile in larger social sense o sharing info with employees about financial performance, strategy, operational measures, market conditions, & competitor’s actions o provide comfortable and attractive working environment i) instilling a corporate culture that promotes good strategy execution 12 j) exercising the internal leadership needed to propel strategy implementation forward 12 Ch5 – 5 Generic Competitive Strategies  Please customers, strengthen its market position, counter the maneuver of rivals, respond to shifting market conditions, & achieve particular kind of competitive advantage 2 factors distinguish one competitive strategy from another: - Whether company’s market target is broad or narrow - Company pursuing a competitive advantage linked to lower costs or differentiation 5 generic competitive strategies 1. Low-cost provider strategy – striving to achieve lower overall costs than rivals on comparable products that attract a broad spectrum of buyers 2. Broad differentiation strategy – seeking to differentiate the company’s product offering from rival’s with superior attributes that will appeal to a broad spectrum of buyer 3. Focused low-cost strategy – concentrating on narrow buyer segment (or market niche) & outcompeting rivals on costs, thus being able to serve niche members @ lower price 4. Focused differentiation strategy – concentrating on a narrow buyer segment & outcompeting rivals with product offering that meets specific meets & requirements of niche members better than product offerings of rivals 5. Best-cost provider strategy – give customers more value for their money by satisfying buyers’ expectations on key quality/features/performance/service attributes while beating their price expectations. Hybrid strategy with differentiation & low cost. Aim for best cost & prices among sellers offering products with comparable differentiating attributes 1. Low-Cost Provider Strategies - Lower overall costs than competitors - Low cost leaders – have lowest industry costs. Find ways to drive costs out of their businesses & still provide product/service that buyers find acceptable o Lower cost edge to underprice competitors & attract price sensitive buyers to increase total profits o Maintain present price & present market share, use lower cost edge to earn higher profit margin on each unit sold = increase total profits & overall return on investment - To achieve cost advantage o Perform value chain activities more cost efficiently than rivals (cost driver) o Revamp firms overall value chain to eliminate or bypass some cost producing activities Cost Efficient Management of Value Chain Cost driver – strong influence on a company’s costs 1. Economies of scale 2. Learning & experience 3. Capacity utilization 4. Supply chain efficiencies 5. Input costs (lower cost but not affect quality) 6. Bargaining power with suppliers or others in value chain systems to gain concessions (price discounts) 7. Using communication systems & IT to achieve operating efficiencies 8. Employing advanced production technology & process design to improve overall efficiency 9. Cost advantages of outsourcing or vertical integration 10. Motivate employees through incentives & company culture Revamping Value Chain System to Lower Cost - Sell directly to consumers, & bypass activities & costs of distributors and dealers o Create own sales force than use independent dealers o Conduct sales operations online - Streamlining operations by eliminating low value added or unnecessary work steps & activities - Reducing materials handling & shipping costs by having suppliers locate their plants/warehouse close to company’s own facilities Low-Cost provider strategy works best when: Disadvantages:  Price competition among rival sellers is vigorous  Overly aggressive price  Products of rival sellers essentially identical & readily cutting = lower profitability available from many sellers  Rely on reducing cost, easily  Few ways for product differentiation copied by rivals  Most buyers use product in same ways (standardized)  Too fixated on cost reduction = ignore buyer interest  Low switching cost  Majority of sales made to a few, large volume buyers  Industry newcomers use introductory low prices to build consumer base 2. Broad Differentiation Strategies Successful differentiation allows firm to: - Ask for premium price for its product - Increase unit sales - Gain buyer loyalty to its brand Unique Drivers 1. Superior product features, design & performance 2. Improve customer services 3. Production R&D activities 4. Technology & innovation 5. Sales & marketing, brand building 6. Continuous quality improvement (quality control processes) 7. High quality inputs 8. Employee skills, training & experience (intellectual capital) Revamping Value Chain system to increase differentiation - Coordinating with channel allies to enhance customer perceptions of value - Coordinating with suppliers to better address customer needs Delivering Superior Value via Broad Differentiation Strategy  Incorporate product attributes & user features that lower buyer’s overall costs  Incorporate tangible features (specs)  Incorporate intangible features (eg. Environmental)  Signal value of company’s product to buyers (higher price = high quality & performance) Differentiation works best when: Disadvantages - Buyer needs & uses of product are diverse - Rapid imitation - Many ways to differentiate product/service - Unenthusiastic response from buyers that have value to buyers - Overspending on efforts to differentiate = - Few rival firms follow similar differentiation erode profitability approach - Tiny differences from rivals - Technological change is fast paced, rapid - Too many frills exceed consumer needs evolving product features - Charing too high a price premium 3. Focused Strategies - Only difference is size of buyer group 4. Best Cost Provider Strategies Best when: product differentiation = norm, attract large number of value-conscious buyers; mid-range products
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