Oniba MGM REVIEW.docx

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Department
Management
Course
MGM101H5
Professor
Dave Swanston
Semester
Winter

Description
The Concept of Business Strategy The long term success of an organization is based on two fundamental principles: Ability to create a strategic direction and market position (strategic plan) Ability to execute the core tactical initiatives within the plan + Well Directed + Efficient & Effectiveusiness Growth Positioned Strategy Tactics Execution & Profitability = • Strategies are customized for each business given market conditions & desired goals • Business strategy is all about understanding what opportunities exist • Think of strategies as answers to these questions: -Where we want to play? How we plan to win? • Answering these questions develop the seeds for what we call deliberate strategy (specific direction & actions) Business Stategy in Simple Terms Core Elements for accessing Business Strategy: 6 Key Areas 1. Purpose: Refers to the mission of the organization & the visions its owners/managers have Mission - The organization’s fundamental purpose/reason for existence; Mission Statement identifies the company’s broad goals. Wal-Mart’s vision is “helping people save money to live better” Vision - A forward-thinking statement that defines what a company wants to become & where it is going Wal-Mart’s vision is to become the world’s largest retailer 2. Markets: specific market segments the business itself is competing in. Weak markets will be evaluated in terms of exit strategies & harvesting (reflects reduced commitment to a particular market given its weak future growth) 3. Products & Services: review of current & potential new products/services. Sometimes products become obsolete, no longer desired b/c of new tech innovations 4. Resources: allocation of a business’s resources in support of its strategic decisions. There’s limitations to how much a business can produce, money they can commit to projects & tasks there workforce can handle at any given time. 5. Business System Configuration: Modifying infrastructures & systems to ensure success of the plan This can mean making changes to the distribution outlets, warehousing or product delivery, plants and facilities, manufacturing or assembly processes, marketing campaign, and so on 6. Responsibility & Accountability: identifying key objectives to be achieved & who is responsible for them; to assist managers in meeting objectives we use SMAC (specific, measurable, actionable & controllable) or SMART (specific, measurable, actionable, realistic & time sensible) A business’s strategic plan is its road map to success. It defines a specific route the business intends to take, provides benchmarks to measure success, and identifies where and how the business will interact with customers in meeting its mission & vision The general steps associated with the development of a strategic plan include: 1. Revisit Our Purpose: “Who are we? Where do we want to go?” 2. Undertake an Internal/External (I/E) Analysis to Understand Our Environment 3. Assess our View of the World: Opportunities & Threats (What’s our choice) 4. Choose a Direction (Where will we play? What threats we respond to?) 5. Implement Our Strategy (How will we win?) Strategic Planning Process Model • I/E Analysis is all about assessing business risk and change in 4 key areas: 1. Macro-economic: Use PESTELAnalysis 2. Industry: Use Porter’s Five Forces 3. Competitor: Use SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis 4. Company: Use SWOT and 3C Analyses • External Analysis focuses on understanding what is influencing markets today and what will influence them going forward – it is an assessment of the magnitude of change in a market arena and associated shifts in business risk • Internal Analysis focuses on company competencies, resources, capacity and capabilities and should include a full internal audit • Customer analysis focuses on identifying what shifts have taken place in the customer base in terms of attitudes, values and needs I/E Analysis Competitive Advantage Identification • A key outcome of the I/E analysis is identifying the competitive advantages an organization has compared to its competitors • The real measure of a competitive advantage is why a customer chooses to purchase your products over your 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) Areas for Establishing Competitive Advantage Opportunities Strategy Development • After completing the I/E analysis and identifying the organization’s competitive advantages, the next step is to make decisions as to which opportunities to pursue and how resources will be allocated • These decisions are then formulated into the strategic plan • The organization’s strategic plan possesses 3 parts: 1. Corporate Level Strategy – Defines what the organization intends to accomplish and where it plans to compete (markets to be focused on); considered to be the high level strategy that guides the organization’s overall activities; the “big picture” 2. Business Level Strategy – Defines how the organization intends to accomplish the corporate level strategy; Outlines specific objectives for each of the organization’s identified business initiatives and/or business units; responds to questions of how to compete in chosen market sectors 3. Operating Plan – Defines a detailed, immediate-term set of objectives and corresponding tactics designed to achieve a specific business initiative and the business strategy Use Merck & Co, a pharmaceutical player to highlight the relationship between corporate level & business strategy “Our vision is to merge as the leader in the pharmaceutical industry of the future” Merck & Co created corporate strategy by 5 key corporate level strategy objectives (the big picture): 1. Drive ongoing performance through their products •Pursue expansion of eligible patents for drugs, pursue approved as a first-line therapy for HIV treatment, develop new dose combo, invest in studies for promising drugs in their pipelines 2. Deliver greater value globally •Expand presence in existing markets, build strong presence in identified markets (key launches in Chist & India), shift investments based on opportunities from developed markets, be 1 to market new drugs, expand current presence in Japan & UK, drive > than 50%of revenue out US 3. Improve research productivity, create pipeline (R&D) – invest 20% in RD •Continue to fund & expand Merck & Bioventures, identify & follow on for patent expirations in 2017 (3 new drugs w. FDA in 2009), seek acquisition; 4. Deliver on our promise to patients •Increased accessibility to Merck Patient Assistant Program, %15 million investment to reduce disputes in diabetes, support US Health Care Reform, involved in solution process; improve access to worldwide medicine, vaccine and healthcare 5. Create a leaner, more responsive organization •Merger w. Scpienring Plough August 7 , 2009: $41 B in cash & stock •Once the corporate level & business level strategy & objectives have been identified, operating plans are developed to ensure successful execution; operating plan development process includes: how to compete (btt initiative & identification of key revenue drivers & rev forecasts Fundamentals to Operating Plan Formulation ---> Staffing, Infrastructure & Process Realignment Requirements ---> Market Identification Opportunity ---> Value Proposition & Positioning Analysis ---> Revenue Driver Identification & Sales Forecast ---> Upfront & Ongoing Cost Commitment Requirements ---> (Repeats) Prior to the implementation (execution) of the strategic plan, managers should review the plan with the intent of confirming the following: 1. The operational activities within the plan are properly aligned to achieve the plan’s objectives. 2. The budgets established & 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. A series of benchmarks or performance indicators have been established that will enable the management team to effectively monitor the plan’s progress. To access the fit of strategy being recommended, five critical questions should be answered: 1. Does your proposed strategy leverage your organization’s resources and capabilities? 2. Does your strategy fit with current and anticipated industry/market conditions? 3. Are the competencies that you plan to leverage considered to be sustainable for the required period? 4. Are the key drivers of ur strategy consistent with the organization’s strategic objective and position? 5. Do you have the ability and wherewithal to successfully implement the chosen strategy?" Strategy Execution -the final phase of strategic planning process is the “strategy execution phase”; process where management shifts its emphasis from what it wants to do & hopes to achieve, to actively engaging the business into executing the desired strategic thrusts & tactics. It is the stage where the organization becomes fully committed to the plan, resulting in “directional lock-in” Directional Lock-In: is the level of financial and operational commitment an organization incurs as a result of implementing the organization’s strategies; it directly equates the level of riskiness of the plan -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 SME (Small & Medium Sized Enterprise) • Finding time to plan strategically is one of the most difficult things on an SME owner’s “To Do” list • Their daily, weekly, and monthly efforts seem to focus on fighting fires or fixing problems • SME owners often lack the expertise and resources needed to undertake a strategy review • When they do get a chance to plan, it is often focused on short term, current year initiatives • However, SME owners must assess and anticipate changes occurring in their markets, the need for their products, and new opportunities that exist • Strategic planning will enable SME owners to make better decisions as to how to allocate their monetary, staffing, and operational resources Strategic Planning in the NFP (Not-for-Profit) Sector (Social Economy) • Like for-profits, NFPs must develop strategies and tactics that produce positive financial results otherwise they will not be able to sustain their operations; NFP strategies involve a stronger inclusion of needs delivery based on the collective interest and social goals • In formulating and implementing strategy in the social economy, NFP plans need to effectively respond to: 1. Mission Balance – Economic base versus social mission and goals 2. Vitality – Ability of the NFP to grow and sustain its membership and donor base 3. Collective Entrepreneurship – Ensuring the involvement of the community where the NFP is located & the population it serves are reflected in strategy development & implementation 4. Rootedness – Ensuring the NFP is interwoven into the fabric of the community it serves; strengthening partnerships and networks 5. Operational Effectiveness – Operating in a manner that demonstrates the NFP’s products/services are priced to ensure accessibility for its target social audience; provide support for those who are in need but are unable to pay Social Economy: Strategic Conclusions • Successful businesses have one very common denominator: they take the time to plan how the business will be positioned in the marketplace and what markets it will serve, and then they execute the critical components of their strategy better than their competitors • A successful business person knows what their competitive advantages are, and they know how to leverage them to ensure their business is “best of breed” • A successful strategy: - Properly assesses the external environment - Defines the changes and opportunities within the markets the organization intends to serve - Effectively allocates resources and maximizes capabilities • The successful organization visualizes strategy from the customer’s perspective and understands their key buying criteria and expectations Organization architecture: The totality of a firm’s organization, including formal organization structure, control systems, incentive systems, organizational culture, and people. Organization structure: The location of decision-making responsibilities in the firm, the formal division of the organization into subunits, and the establishment of integrating mechanisms to coordinate the activities of subunits. Controls: Metrics used to measure the performance of subunits & to judge how well managers are running those subunits. Incentives: Devices used to encourage desired employee behavior. Organizational culture: Values & assumptions that are shared among the employees of an organization. People: The employees of an organization, the strategy used to recruit, compensate, motivate, and retain those individuals, and the type of people they are in terms of their skills, values, and orientation. Organization Architect Structure Various Components of organization architect Are not independent of each other, each Controls People Incentives Component shapes the other. The people Component is used to reinforce prevailing culture Culture Designing Structure: Vertical Vertical differentiation: The location of decision-making responsibilities within a structure (centralized or decentralized) & also the number of layers in a hierarchy (tall or flat) Horizontal differentiation: The formal division of the organization into subunits. Integrating mechanisms: Mechanisms for coordinating subunits Centralization: concentration of decision-making authority at a high level in a management hierarchy. Arguments for Centralization 1. it can facilitate coordination: when performing final assembly, it needs to be coordinated smoothly; it can be achieved by centralizing production scheduling at the firms head office 2. Can help ensure the decisions are consistent with organizations objectives 3. It can avoid duplication of activities by various subunits within the organization (centralizing R&D functions at one or two locations) 4. an give top-level managers the means to bring about needed major organizational change -The Vodafone (Verizon) is the world’s leading mobile telecommunications company; the company switched from decentralized buying to central-led, commodity based structure Decentralization: vests decision-making authority in lower- level managers or other employee Arguments for Decentralization 1. Management can become overburdened when decision-making authority is centralized. Decentralization gives top management time to focus on critical issues by delegating more routine issues to lower-level managers and reducing the amount of information top managers process 2. Motivational research favors decentralization. Behavioral scientist argued that people are willing to give more to their jobs when they have more individual freedom and control over their work 3. Permits greater flexibility; more rapid response to environmental changes. In a centralized firm the need to refer decisions up the hierarchy for approval can significantly slow decision making 4. Result in better decisions. In a decentralized structure, decisions are made closer to the spot by individuals who (presumably) have better information than managers several levels up a hierarchy 5. It increases control, it establishes self-contained subunits; an autonomous subunit which has all the resources and decision making power required to run its operations daily. The more responsibility subunit managers have, the fewer excuses they have for poor performance Decentralization of Which Idecisions to a Therebyincreases responssiulitnt enhanaccountability control. Choices between Centralization and Decentralization -decisions regarding overall firm strategy, major financial expenditures, financial objectives, and legal issues are centralized at the senior management level in most organizations -Operating decisions, such as production, marketing, R&D, and human resource management, may or may not be centralized depending on the firm’s strategy and conditions in the external environment -when the realization of economies of scale is an important factor, there tends to be centralization. Thus purchasing and manufacturing decisions are often centralized in an attempt to eliminate duplication and realize scale economies. Sales decisions tend to be more decentralized b/c economies of scale are less of a consideration here -decentralization is favoured in environments characterized by high uncertainty and rapid change Tall Versus Flat Hierarchies Tall hierarchies have many layers of management and narrow spans of control Flat hierarchies have few layers and wide spans of control -to avoid being too stretched and too thin, firms add layers to the management hierarchy, hiring more managers and delegating some decision- making authority to them -as firms become taller, they expand product lines, expand to national markets but this creates problems in coordination and control which is solved by adding more layers Span of control: number of direct reports a manager has (before managers in charge of 6 subordinates) Problems in Tall Hierarchies -information may get accidently distorted as it passes down the layers eg “the telephone game” -deliberate distortion by midlevel managers who favour w. their superiors eg, a manager of a division may supress bad info & exaggerate good info in attempt to window-dress the performance of his unit to higher-level managers for their approval; causing him to get more resources, bonuses, avoid sanctions -they are expensive; increases cost structure of the firm -Organizations are inherently inertia – difficult to change; slower to change Delayering: reducing size of the hierarchies, seen as enforcing decentralization; can cause stress Designing Structure: Horizontal Differentiation -concerned with how to divide the organization into subunits; look at 4 different structures 1. Functional Structure -a structure that follows the obvious division of labour within the firm with different functions focusing on different tasks (marketing function, sales function); overseen by a manger or top management team 2. Multidivisional Structure -firm is divided into different divisions, each of which is responsible for a distinct business area (Divisions for lighting, consumer electronics, industrial electronics, medical systems) 3. Geographic Structure -a structure in which a firm is divided into different units on the basis of geography 4. Matrix Structure -an organization with two overlapping hierarchies Integrating Mechanisms: High Matrix Favored by firms in structure rapidly changing and high-technology environments Teams Need for Liaison coordination roles Favored by firms Direct in stable and Centralization contact low-technology environments Low Simple Integrating mechanisms Complex • All enterprises need coordination between subunits, whether those subunits are functions, businesses, or geographic areas. • There is a high need for coordination in firms that face uncertain & highly turbulent competitive environment, where rapid adaptation to changing market conditions is required for survival. • In contrast, if a firm is based in a stable environment characterized by little or no change, and if developing new products is not a central aspect of firm’s business strategy, the need for coordination between functions may be lower Informal Integrating Mechanisms: Knowledge Networks Knowledge network: is a network for transmitting in- formation within an organization that is based not on formal organization structure, but on informal contacts between managers within an enterprise and on distributed information systems (Manager B in Spain asks for Manager H in Hong Kong for help) Strategy, Coordination & Integrating Mechanisms: All enterprises need coordination among subunits, whether those subunits are functions, businesses, or geographic areas. However, the degree of coordination required and the integrating mechanisms used vary depending on the strategy of the firm. In the single-business enterprise, the need for coordination among functions is greater in firms that are competing through product innovation Human Resource Management Define: the process of determining human resources needs and then recruiting, selecting, developing, motivating, evaluating, compensating, and scheduling employees to achieve organizational goals -Human resources professionals can do a lot to develop people to fulfill roles that contribute to organizational success and individual happiness Developing the ultimate resource -some say employees are the “ultimate resource” since they develop ideas, -Today the job of HRM has taken on an entirely new role in the firm. In a survey conducted by DBM, an HR consulting firm, Canadian HR professionals expect that by 2013 at least 50% of their HR departments’ roles will involve providing strategic input and less time and energy will be spent on HR administration -In the future HR may become the most critical function, in that it will be responsible for dealing with all aspects of a business’s most critical resource—people (it is the responsibility of all managers now) The Human Resources Challenge The changes in the business environment that have had the most dramatic impact on the workings of the free enterprise system are changes in the labour force. The ability of businesses to compete in international markets depends on new products and services, and new levels of productivity. In other words, on people with good ideas Determining your human resources needs 1. Prepare HR inventory- Includes ages, names, education, capabilities, training, specialized skills, 2. Prepare a job analysis- Job Analysis: a study of what is done by employees who hold various job titles; necessary to recruit people & train employees. Job description: specifies the objectives of the job, the type of work to be done, the responsibilities and duties, the working conditions, and the relationship of the job to other functions (statement of the job) Job specifications: are a written summary of the minimum qualifications (e.g., education and skills) required of workers to do a particular job (statements about the person who does the job) 3. Accessing future human resources demand- B/c technology changes rapidly, training programs must be started long before the need is apparent. Human resources managers who are proactive—that is, who anticipate the organization’s requirements identified in the forecasting process—ensure that trained people are available when needed 4. Accessing future human resources supply- Labour force is shifting, more technically orientated, there’s increased shortages of some workers in the future computer and robotic repair workers) and an oversupply of others (e.g., assembly line workers 5. Establishing a strategic plan- Plan must address recruitment, selection, training & development, evaluation, compensation, scheduling & career management for the labour force. HR department must have upper management support for its acceptance & implementation Some companies use advanced technology to perform this human resources planning process more efficiently. IBM manages global workforce by using software & database that catalogue employee skills, experiences, schedules & references Recruiting Employees from a diverse population Recruitment: The set of a
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