Basics for Successful Strategy

Ryan Burkett

John Cerra

Jamilla Upchurch

Dean Davis

Uche Ubosi

Group 1- Presentation Disclaimer

Group 1 will be held harmless for the material covered in this presentation. The material in Chapter 2 must be covered even though some of you may have already heard the terms SWOT or Porter’s 5-Forces before this class, maybe once or twice?

Please do not boo or hiss or throw things at the group.

THANK YOU!

Introduction

Chapter 2 is an excellent review to help us remember what core requirements are required for a successful and strategic business plan. The author built the concepts that will follow this chapter on these basics principles.

Corporate Strategy vs. Business Strategy

Corporate Strategy- The focus is on “where” a business should invest its resources. It also focuses on “what” businesses are chosen for competition. What level of resources should be invested across the business portfolio. The product market may be undefined.

Business Strategy- By contrast the focus is on “how” the company should compete in a defined product market. How will the company differentiate their products?

Corporate Strategy vs. Business Strategy

Corporate Strategy

Business StrategyA

Business StrategyB

Business StrategyC

Business StrategyD

Products & Services to

Create Value in Product Mkt A

Products & Services to Create Value in Product Mkt B

Products & Services to Create Value in Product Mkt C

Products & Services to Create Value in Product Mkt D

Allocation of Corporate Resources

Hierarchy of Business Strategy

Competitive MarketDynamics SWOT Firm-Specific Resources

and Capabilities

Corporate Goal -

Mission

Actions

Business Strategy

Performance Goals/ Measures

Threat of New Entrants

•Industry growth•Industry Profitability•Barriers to entry

Threat of Substitutes•Closeness of substitutes•Availability in market

Political & Governmental

Power of Suppliers•Number of suppliers•Differentiated or commodity•Switching costs

Power of Buyers•Retailers / Consumers•Price sensitive •Brand loyal•Switching costs

Economic & Social

Intra-Industry CompetitionNumber of competitorsStage in Product Life CycleSegmentation of the marketExit barriers

Porter’s Five Forces - Augmented

Competitive Market Dynamics – Opportunities and Threats

Customers:– Who are they? How much do they buy?– Under what circumstances would they buy more

from us?– Are any groups particularly important?– Why do they buy our product/service?– How sensitive are they to price, quality, or

service?

Competitive Market Dynamics – Opportunities and Threats Suppliers:

– Who are our major suppliers and how much do we buy from each?

– Under what circumstances would we buy more or less?

– Are any suppliers or groups particularly important to us?

– Why do they buy our product/service?

– What supply factors are critical to us - price, quality, reliability or service?

Competitive Market Dynamics – Opportunities and Threats

Substitute Products:– What substitutes for our products/services exist in

the market place?

– How are they different from our offerings in terms of price, quality and performance?

– How likely are our customers to switch to a competitor’s products or services?

Competitive Market Dynamics – Opportunities and Threats

New Entrants:

– What are the barriers to entry deterring new entrants into our market?

– How strong is our brand franchise?

– How difficult would it be for a competitor to imitate the way we do business?

Competitive Market Dynamics – Opportunities and Threats Competitive Rivalry:

– Is the industry growing or shrinking?

– Are there few or many competitors?

– Is there overcapacity?

– What are the switching costs for customers?

– What is the ownership structure for competing firms?

– How important is our market to each of them?

Competitive Market Dynamics – Opportunities and Threats

Other Forces:– Government and political environment

– Technology

Resources and Capabilities

Analyze Internal Strengths & Weaknesses

– Assets - resource, owned/controlled by entity, that will yield future economic benefits

– Resources - a strength of the business embodied in the tangible or intangible assets that are tied semi-permanently to the firm

Balance Sheet Assets

( Assets used by a firm to generate revenues )

Current Assets- cash & other assets that will be turned into cash during the accounting cycle

Productive Assets- assets used to produce goods and services for customers

Intangible Assets- assets that have value yet are not material or physical

Current Assets(Cash, marketable securities,

accounts receivable, inventory…)

Cash need for inventory purchases, pay “bills”, meet current debt obligations

Cash Reserves important for funding growth or acquisition strategies

*Profit planning and performance measurement must include analysis of cash flows, cash reserves, and forecasts of cash required.

Productive Assets

(Computers/IT Equipment, Buildings, Manufacturing Equipment)

Represent assets necessary to compete directly or indirectly; technology, machinery, infrastructure

Productive Assets- must be sufficient in quantity and type to support the firm’s strategy.

Performance Measurement & Control Toolkit- offers techniques to analyze their acquisition and measure their effectiveness

Intangible Assets(Copyrights, Patents, Goodwill, Valuable Licenses)

Intangible Assets- are most often NOT seen,and have met the condition of having “the ability to quantify value with reasonable precision”

Examples- lease agreements, purchase of broadcast licenses, goodwill created from the purchase of a subsidiary

Intangible Resources

Resources that are critical to achieving profit goals and strategies, yet are rarely recognized on a firm’s financial statements. They include:

Distinctive Internal Capabilities.

Market Franchises.

Networks and Relationships with Suppliers and Customers.

Special resources and know-how possessed by a firm that give it competitive advantage in the marketplace

Distinctive Internal Capabilitiesdefined:

Types of Distinctive Internal Capabilities

Functional Skills-

Refers to the strengths (and weaknesses) in the major functional areas of a business, such as research and development, IT, production and manufacturing, marketing and sales.

Market Skills-

Refers to a business’s ability to respond quickly and effectively to market needs.

Embedded Skills-

Refers to the tangible resources that are difficult to acquire and/or replace. E.g. physical plant, distribution channels and information technology etc.

Distinctive Internal Capabilities

Take a long time to develop.

Are hard to copy/imitate.

In some instances are created by being the “first mover”.

Are the lifeblood of any firm operating in a competitive market.

Are a firms most valuable assets but most of them are not valued on a firm’s balance sheet. Hence the name, “Invisible Assets”.

Market Franchises *This refers to a business’s distinctive ability to attract

customers who are willing to purchase the business’s products and services based on marketwide perceptions of value.

Franchising requires high investment and managerial commitment to sustain existing and potential customer brand perception.

Financial accounting standards in North America do not allow the recognition of franchise value on a firm’s financial statement.

Relationships and Networks

Long term relationships are critical intangible

resources that must be nurtured with important

suppliers and customers.

Business to Suppliers

Business to Customer

Types of Relationships and Networks

Business to Supplier

This relationship is important to ensure the timely, most cost effective and efficient delivery of all the factor inputs essential to the success of any business.

Business to Customer

Distribution networks/channels are necessary to facilitate the flow of goods and services from the producer to the end consumer.

The 4 Ps of Strategy

Perspective- creating a mission

Position- choosing how to compete

Plan- setting performance goals

Patterns- feedback and adjustments

The 4 Ps of Strategy Perspective

Ideals, values and history woven together to view opportunities surrounding the business.

Mission– Provides perspective to all a firm’s activities

Five forces– Used to understand customers, suppliers,

products and competitors

The 4 Ps of Strategy Position

Managers must choose how to create value for customers based on the firm’s mission.– SWOT

How will the firm compete?– On Quality?– On Service?– On Product Design?– On Niche Strategy?

The 4 Ps of Strategy Plan

Managers must find ways to effectively implement strategy based on the firm’s position.– Preparing Plans– Communicating Intended Strategy– Coordinating Resources– Motivating Employees– Measuring/Monitoring Implementation

The 4 Ps of StrategyPatterns

Managers must use feedback mechanisms to either maintain or realign strategy.– Fostering Creativity– Challenging Subordinates to Share Ideas– Emergent Strategy

Strategy that emerges spontaneously as employees respond to unpredictable threats and opportunities through trial and error

Hierarchy of Business Strategy & the 4 Ps

Competitive MarketDynamics SWOT Firm-Specific Resources

and Capabilities

Corporate Goal -

Mission

Actions

Business Strategy

Performance Goals/ Measures

Perspective Position Plan Patterns

“With Food Sales Flat, Nestle´Stakes Future on Healthier Fare” WSJ 3/18/04

-The article depicts how Nestle´ is rethinking their strategic plan in order to sustain profitability in a changing market. The food industry is facing stagnant growth, Nestle´ is attempting to mingle science with food to serve a niche market for health conscious consumers. The products are known as “phood”. These products help lower cholesterol, aid in digestion, and provide other health benefits. Nestle´ has been mixing food with science since the 1800’s when one of their scientists invented baby formula to fight infant mortality.

-They are serious about this leap into this product extension, since they have invested 1/5 of its food budget ($600M), and 3500 people for R&D

Opportunities for the Food Industry

•Review Products

•Re-evaluate communication and education strategies

•Contribute to the scientific understanding of weight

management

PubMed publications, 1970-2005

0

5000

10000

15000

20000

25000

1970

-197

4

1975

-197

9

1980

-198

4

1985

-198

9

1990

-199

4

1995

-199

9

2000

-200

4*

Year

Number of publications

Starvation Obesity

* 2000-2002 data

www.Nestle.com

Increasing awareness of obesity issue by laypeople

0

200

400

600

800

1000

Oct-Dec

1999

Jan-Mar

Apr-Jun

2000

Jul-Sept

Oct-Dec

Jan-Mar

2001

Apr-Jun

Jul-Sep

Oct-Dec

Jan-Mar

2002

Apr-Jun

Jul-Sep

Nu

mb

er o

f m

edia

sto

ries

www.Nestle.com

Product Review

•Portion size

•Composition

•Labelling

•Marketing and advertising

www.Nestle.com

Nutrition Taste

Better Taste

Better Nutrition

More consumers

Easy choices = healthy choices

www.Nestle.com

Lean Cuisine, USAwww.Nestle.com

Nestlé Energy Management Research

Ensure optimal energy metabolism for health & well-beingFrom basic knowledge to product concepts

Weight Management

Insulin Resistance & Type II Diabetes

Energy for Performance

BasicKnowedge Observations

ConceptValidation

Productconcept

Subcutaneous fatwww.Nestle.com

In Summary...The dimensions of the 4 Ps must be managed

appropriately:

Finding the correct strategy is not an easy or task or every manager would reap the rewards of success

SWOT analysis is a necessary tool to understand the internal & external dynamics of a firm.

The 5-Forces Model should be used to understand the market as a whole.

The bottom line should be the creation of value for the stock holders and stakeholders of the company, and most importantly, the customers.