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business midterm 2

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Dave Swanston

Planning Business Strategy The development of an organization’s business strategy is fundamentally one of the most important responsibilities of a senior management team or, in the case of a small business, the business owner. For an organization to be successful over the long term, managers need to have a game plan as to where and how to compete in the markets in which they intend to serve. "business strategy is all about understanding what opportunities exist in the marketplace and which ones should be pursued.” Fundamental principals for long term success of an organization: 1. Ability to create a strategic direction and market position (strategic plan) 2. Ability to execute core tactical initiatives within plan Strategies Customized for each business given market conditions and desired goals Understanding what opportunities exist in market place and which to pursue “Where do we want to play?” “How do we plan to win?” Core Elements For Assessing Strategy 1. Purpose Mission: organization’s purpose/reason for existence; company’s broad goals Vision: a forward-thinking statement that defines what a company wants to become and where it’s going 2. Markets Markets the business sees itself competing in Harvesting: reducing focus in a certain market given perceived weak future growth or profitability potential 3. Products & Services Review of current and potential new products/services 4. Resources Allocation of a business’s resources in support of strategic decisions 5. Business System Configuration Modifying infrastructure and system to ensure success of plan 6. Responsibility &Accountability Identifying key objectives to be achieved and who’s responsible Abusiness’s strategic plan is its roadmap to success Defines specific route intended to take Provides benchmarks to measure success Identifies where and how business will interacts with customers in meeting missions & vision Strategic Planning Process Model Steps associated with development of strategic plan: Assess fit of current mission and vision of organization Undertake Internal/External (I/E) Analysis to Understand Our Environment Accessing business risk and change in o Macro-econ: Use PESTELAnalysis o Industry: Use Porter’s Five Forces o Competitor: Use SWOT (Strengths, Weaknesses, Opportunities, Threats) o Company: Use SWOT and 3C (competencies, capabilities, capacity) Analysis External: o Focuses on understanding what is influencing markets today and what will influence them going forward o Assessment of magnitude of change in a market arena & associated shifts in business risk o Use PESTEL, Porter’s five forces, competitor SWOT Internal: o Focuses on company competencies, resources, capacity & capabilities (3C analysis) o Full internal audit o CompanySWOT Customer: o Changes in attitudes, behaviour, needs Assess our View of the World: Opportunities & Threats Customer analysis focuses on identifying what shifts have taken place in the customer base in terms of attitudes, values and needs Competitive Advantage Identification A key outcome of the I/E analysis is identifying the competitive advantages an organization has compared to its competitors Competitive advantages are either: Strategic – “First mover” actions in a marketplace; the ability to see how your organization can change the rules of the game in the market Operational – Being more efficient and effective than competitors in transformation and marketing processes (such as superior quality or customer support/response) Strategy Development The organization’s strategic plan possesses 3 parts: Corporate Level Strategy – Defines what the organization intends to accomplish and where it plans to compete (markets to be focused on); the “big picture” Business Level Strategy – Defines how the organization intends to accomplish the corporate level strategy within business units or different markets Operating Plan – Defines a detailed, immediate-term set of objectives and corresponding tactics designed to achieve a specific business initiative and the business strategy Competitive advantage Choose a direction Which opportunities make the most sense, given our market position, resources, & environmental dynamics? What threats must we respond to? Implement Strategy Develop plan Define key performance indicators for monitoring it Execute Business Models PESTEL Guides in developing understanding of macro-econ environment (political, economic, societal, technological, environmental, legal) Porter’s Five Forces Guides in understanding dynamics of industry within which we compete 1. Intensity of rivalry 2. Threat of new entrants 3. Threat of new product/service substitutes 4. Power or control of supplies 5. Power or control of buyers Types of Competition Guides in understanding nature of industry’s competitive landscape o Perfect competition o Monopolistic competition o Oligopoly o Monopoly SWOTAnalysis Strengths, weaknesses, opportunities, threats Competitive SWOT: size up competition Company SWOT: define company’s SWOTs 3C Analysis Assessment of competencies, capabilities, and capacity with respect to resources we possess CompetitiveAdvantage Identification Key outcome of I/E analysis Why a customer chooses to purchase your products over competitors’ Strategic o “First mover” actions in marketplace- ability to see how organization change rules of game in market Operational o Being more efficient and effective in transformation and marketing processes (e.g. superior quality or customer support/response) Strategy Development Which opportunities to pursue and how resources will be allocated 1. Corporate Level Strategy o Defines what the organization intends to accomplish and where it plans to compete (markets to focus on) o High level strategy that guides organization’s overall activities o The “big picture” 2. Business Level Strategy o Defines how organization intends to accomplish corporate level strategy o Outlines specific objectives for each of the organization’s identified business initiatives/business units o Responds to questions of how to compete in chosen market sectors 3. Operating Plan o Defines detailed, immediate-term set of objectives and corresponding tactics designed to achieve a specific business initiative and business strategy Strategic plan The organization’s strategic plan should identify where and how it intends to compete in the marketplace; identify which weapons of competitive rivalry it will lever- age as its products/services battle for market share; and define the marketing and operational plans required to effectively and efficiently execute the plan. Prior to the implementation (execution) of the strategic plan, managers should review the plan with the intent of confirming the following: Theoperationalactivitieswithintheplanareproperlyalignedtoachievetheplan’sobjectives. 2. The budgets established, and the money to be generated, are realistic when compared to sales forecasts. 3. The resources needed to successfully execute the plan are available or can be acquired. 4. Aseries of benchmarks or performance indicators have been established that will enable Strategy Execution: " It is this portion of the process where management shifts its emphasis from what it wants to do, and hopes to achieve, to actively engaging the business into executing the desired strategic thrusts and tactics. It is in this stage where the organization becomes fully committed to the plan, result- ing in a degree of “directional lock-in” taking place." "Directional Lock-in is the level of financial and operational commitment an organization incurs as a result of implement- ing the organization’s strategies.” "In the execution phase, organizations commit their capital resources for needs such as building plants, retooling existing plants, building new equipment, funding research and development for new products and services, undertaking marketing and advertising campaigns, funding warehouse and distribution logistics support, and hiring staff. The amount of investment into these items that is required by an organization at the front end of the execution of a strategy results in the degree of directional lock-in that a company experiences. The more money invested up front the greater the risk to the company, as the return of this investment is determined by the success of the strategy in the marketplace. " "Akey requirement of the strategy execution phase is for managers to continuously monitor the success of the implementation of the strategy and to take corrective action quickly in the event that things are not going well. Managers keep their finger on the pulse of the execution of the strategy by measuring success against predefined benchmarks or objectives. Sales forecasts become sales targets for sales managers. Operations managers monitor and manage processes and materials purchases, as well as labour levels, to ensure that costs stay in line. Finance managers monitor the cash flowing into and out of the business to ensure the company can continue to pay its bills and that the revenue coming in from business operations is sufficient to meet current and future cash requirements. SME’S (Small and Medium-Size Enterprises) Need to plan strategically is as important for small businesses as for major multinational organizations. "Unlike large organizations, which possess significant managerial resources with specific specializations, and which generally have a board of directors and a given level of emphasis on assessing strategic direction at defined periods of time, SME managers and owners often find them- selves acting as the marketing, human resource, operations, and financial managers, all rolled into one. NFPs (Not-for-Profit) Must develop strategies and tactics that produce positive financial results otherwise they will not be able to sustain operations involves stronger inclusion of needs delivery based on collective interest and social goals 1. Mission Balance: Economic base versus social mission and goals 2. Vitality: Ability of NFP to grow and sustain its membership and donor base 3. Collective Entrepreneurship: Ensuring involvement of community where NFP is located and population it serves are reflected in strategy development and implementation 4. Rootedness: Ensuring NFP is interwoven into fabric of community it serves; strengthening partnerships and networks 5. Operational Effectiveness: Operating in manner that demonstrates NFP’s products/services are priced to ensure accessibility for its target social audience; provide support for those who are in need but unable to pay Successful business, one common denominator: Take time to plan how business will be positioned in market place ,What markets it will serve, Execute critical components of strategy better than competitors, Successful businessperson, Knows their competitive advantages, Knows how to leverage them to ensure business is “best of breed” Successful Strategy, Properly assesses external environment Defines changes and opportunities within markets the organization intends to serve Effectively allocates resources and maximizes capabilities Organizing and Human Resources Primary Management Decision- How to organize work How do we divide tasks into jobs? How do we coordinate the work and link jobs? Through division and integration Organization architecture: totality of a firm’s organization Formal organization structure o Location of decision-making responsibilities in firm o Formal division of organization into subunits o Establishment of integrating mechanisms to coordinate activities of subunit Control systems o Metrics used to measure performance of subunits; judge how well mangers are running units Incentive systems o Devices used to encourage desired employee behavior Organizational culture o Values and assumptions shared among employees of organization People o Employees of organization o Strategy used to recruit, compensate, motivate, and retain individuals o Type of people they are in terms of skills, values, and orientation Vertical differentiation o Location of decision-making responsibilities within structure o Centralization or decentralization? Centralization: concentration of decision-making authority at high level in management hierarchy 1. Facilitates coordination 2. Ensures decisions are consistent with organizational objectives 3. Avoid duplication of activities by various subunits 4. Can give top-level managers the means to bring out needed major organizational changes Decentralization: decision-making authority in lower level managers or other employees 1. Top management can become overburdened when decision-making authority is centralized 2. Motivational research favors decentralization- people like freedom and control over their work 3. Greater flexibility- more rapid response to environmental changes 4. Can result in better decisions (e.g. doesn’t make sense of CEO in U.S. to make decisions for branch in Germany) 5. Increase control Decentralization of
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