chap02 strategic management and the entrepreneur
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Chapter 2: Strategic Mgt 1Copyright 2003 Prentice Hall Publishing Company
Strategic Management
and the Entrepreneur
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Chapter 2: Strategic Mgt 2Copyright 2003 Prentice Hall Publishing Company
AMajor Shift . . .
AMajor Shift . . .
. . . From financial capital to. . . From financial capital to
intellectual capital.intellectual capital.
HumanHuman
StructuralStructural
CustomerCustomer
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Chapter 2: Strategic Mgt 3Copyright 2003 Prentice Hall Publishing Company
Strategic ManagementStrategic Management
Is crucial to building a successful business.Is crucial to building a successful business.
Involves developing a game plan to guide aInvolves developing a game plan to guide a
company as it strives to accomplish its mission,company as it strives to accomplish its mission,goals , and objectives, and to keep it on itsgoals , and objectives, and to keep it on its
desired course.desired course.
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Chapter 2: Strategic Mgt 4Copyright 2003 Prentice Hall Publishing Company
Is Strategic Planning Really ThatIs Strategic Planning Really That
Important?Important?
Study of 500 small companies:Study of 500 small companies:
One of the most significant factors inOne of the most significant factors in
distinguishing growing companies fromdistinguishing growing companies fromthose in decline: use of a written businessthose in decline: use of a written business
plan.plan.
Another study:Another study:
Only 12% of small companies had a longOnly 12% of small companies had a long--
range plan in writing.range plan in writing.
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Chapter 2: Strategic Mgt 5Copyright 2003 Prentice Hall Publishing Company
Strategic Management andStrategic Management and
Competitive EdgeCompetitive Edge Developing a strategic plan is crucialDeveloping a strategic plan is crucial
to creating ato creating a competitive advantagecompetitive advantage,,
the aggregation of factors that sets athe aggregation of factors that sets acompany apart from its competitorscompany apart from its competitors
and gives it a unique position in theand gives it a unique position in the
market.market.
Example: Adventurous TravelerExample: Adventurous TravelerBookstoreBookstore
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Chapter 2: Strategic Mgt 7Copyright 2003 Prentice Hall Publishing Company
Strategic Management ProcessStrategic Management Process
Step 1Step 1: Develop a vision and translate it: Develop a vision and translate it
into a mission statement.into a mission statement.
Step 2Step 2: Assess strengths and weaknesses.: Assess strengths and weaknesses.Step 3Step 3: Scan environment for: Scan environment for
opportunities and threats.opportunities and threats.
Step 4Step 4: Identify key success factors: Identify key success factors . .
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Chapter 2: Strategic Mgt 8Copyright 2003 Prentice Hall Publishing Company
Strategic Management Process ...Strategic Management Process ...
Step 5Step 5: Analyze competition: Analyze competition . .
Step 6Step 6: Create goals & objectives.: Create goals & objectives.Step 7Step 7: Formulate strategies: Formulate strategies . .
Step 8Step 8: Translate plans into actions: Translate plans into actions . .
Step 9Step 9: Establish accurate controls: Establish accurate controls . .
(continued)(continued)
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Chapter 2: Strategic Mgt 9Copyright 2003 Prentice Hall Publishing Company
Step 1:Step 1: Develop a Vision Develop a Vision andand
Create a Mission StatementCreate a Mission Statement VisionVision ± ± an expression of what anan expression of what an
entrepreneur stands for and believes in.entrepreneur stands for and believes in.
A clearly defined vision:A clearly defined vision: Provides directionProvides direction
Determines decisionsDetermines decisions
Motivates peopleMotivates people
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Chapter 2: Strategic Mgt 10Copyright 2003 Prentice Hall Publishing Company
Step 1: Develop a Vision andStep 1: Develop a Vision and
C reate a Mission Statement C reate a Mission Statement MissionMission -- addresses question:"Whataddresses question:"What
business are we in?´business are we in?´
A written expression of how theA written expression of how thecompany will reflect the owner¶scompany will reflect the owner¶svalues, beliefs, and vision.values, beliefs, and vision.
Sets the tone for the entire companySets the tone for the entire company
and guides the decisions people make.and guides the decisions people make. Example: Fetzer VineyardsExample: Fetzer Vineyards
http://www.fetzer.com/http://www.fetzer.com/
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Chapter 2: Strategic Mgt 11Copyright 2003 Prentice Hall Publishing Company
Step 2: Assess Company StrengthsStep 2: Assess Company Strengths
and Weaknessesand Weaknesses StrengthsStrengths
Positive internal factors thatPositive internal factors that
contribute to accomplishing thecontribute to accomplishing the
mission, goals, and objectives.mission, goals, and objectives.
WeaknessesWeaknesses
Negative internal factors that inhibitNegative internal factors that inhibit
the accomplishment of the mission,the accomplishment of the mission,
goals, and objectives.goals, and objectives.
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Chapter 2: Strategic Mgt 12Copyright 2003 Prentice Hall Publishing Company
Step 3: Scan for OpportunitiesStep 3: Scan for Opportunities
and Threatsand Threats OpportunitiesOpportunities
Positive external factors the company canPositive external factors the company canemploy to accomplish its mission, goals, andemploy to accomplish its mission, goals, andobjectives.objectives.
ThreatsThreats
Negative external factors that inhibit the firm'sNegative external factors that inhibit the firm'sability to accomplish its mission, goals, andability to accomplish its mission, goals, andobjectives.objectives.
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External Market ForcesExternal Market Forces
Competitive Economic
Political and
Regulatory
Technological
Social and
Demographic
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Chapter 2: Strategic Mgt 14Copyright 2003 Prentice Hall Publishing Company
Step 4: Identify K ey SuccessStep 4: Identify K ey Success
FactorsFactors K ey success factors:K ey success factors:
relationships between arelationships between a
controllable variable and acontrollable variable and a
critical factor that influence acritical factor that influence a
company¶s ability to competecompany¶s ability to compete
in the market.in the market.
The keys to unlocking theThe keys to unlocking the
secrets of competingsecrets of competing
successfully in a particularsuccessfully in a particular
market segment.market segment.
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Chapter 2: Strategic Mgt 15Copyright 2003 Prentice Hall Publishing Company
Step 5: Analyze CompetitorsStep 5: Analyze Competitors
Analyzing key competitors allows an entrepreneurAnalyzing key competitors allows an entrepreneur
to:to:
avoid surprises from existing competitors¶ newavoid surprises from existing competitors¶ new
strategies and tactics.strategies and tactics. identify potential new competitors and theidentify potential new competitors and the
threats they pose.threats they pose.
improve reaction time to competitors¶ actions.improve reaction time to competitors¶ actions.
anticipating rivals¶ next strategic moves.anticipating rivals¶ next strategic moves.
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Chapter 2: Strategic Mgt 16Copyright 2003 Prentice Hall Publishing Company
Step 5: Analyze CompetitorsStep 5: Analyze Competitors
Techniques doTechniques do not not require unethicalrequire unethical
behavior:behavior:
Monitor industry and trade publications.Monitor industry and trade publications.
Talk to customers and suppliers.Talk to customers and suppliers.Listen to employees, especially salesListen to employees, especially sales
representatives and purchasing agents.representatives and purchasing agents.
Attend trade shows and conferences.Attend trade shows and conferences.
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Chapter 2: Strategic Mgt 17Copyright 2003 Prentice Hall Publishing Company
Step 5: Analyze CompetitorsStep 5: Analyze Competitors
Techniques doTechniques do not not require unethicalrequire unethicalbehavior:behavior:
Study competitors' literature andStudy competitors' literature and"benchmark" their products and services."benchmark" their products and services.
Get competitors' credit reports.Get competitors' credit reports.
Check out the local library.Check out the local library.
Use the World Wide Web to learn more aboutUse the World Wide Web to learn more aboutcompetitors.competitors.
Visit competing businesses to observe theirVisit competing businesses to observe theiroperations.operations.
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Sample Competitive Profile Matrix
Key Success Factors Your Business Competitor 1 Competitor 2
(from Step 4) Weight Rating
Weighted
Score Rating
Weighted
Score Rating
Weighted
ScoreMarket Share 0.10 3 0.30 2 0.20 3 0.30
Price Competitiveness 0.20 1 0.20 3 0.60 4 0.80
Financial Strength 0.10 2 0.20 3 0.30 2 0.20
Product Quality 0.40 4 1.60 2 0.80 1 0.40
Customer Loyalty 0.20 3 0.60 3 0.60 2 0.40
Total 1.00 2.90 2.50 2.10
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Chapter 2: Strategic Mgt 19Copyright 2003 Prentice Hall Publishing Company
K nowledge ManagementK nowledge Management
The practice of gathering, organizing, andThe practice of gathering, organizing, and
disseminating the collective wisdom anddisseminating the collective wisdom and
experience of a company¶s employees for theexperience of a company¶s employees for the
purpose of strengthening its competitive position.purpose of strengthening its competitive position.
K nowledge management involves:K nowledge management involves:
Taking inventory of the special knowledge the peopleTaking inventory of the special knowledge the people
in the company possess.in the company possess.
Organizing that knowledge and disseminating it toOrganizing that knowledge and disseminating it to
those who need it.those who need it.
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Chapter 2: Strategic Mgt 20Copyright 2003 Prentice Hall Publishing Company
Step 6: Create Company GoalsStep 6: Create Company Goals
and Objectivesand Objectives GoalsGoals -- broad, longbroad, long--range attributes to berange attributes to be
accomplished.accomplished.
³BHAGS´³BHAGS´ ± ± one factor that sets apart successfulone factor that sets apart successfulcompanies from unsuccessful ones.companies from unsuccessful ones.
ObjectivesObjectives -- more detailed, specific targets of more detailed, specific targets of performance that are S.M.A.R.T.performance that are S.M.A.R.T.
SSpecificpecific
MMeasurableeasurable
AAssignablessignable
R Realistic (yet challenging)ealistic (yet challenging)
TTimelyimely
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Step 7: Formulate StrategiesStep 7: Formulate Strategies
StrategyStrategy
A ³road map´ that guides a company through aA ³road map´ that guides a company through a
turbulent environment as it seeks to fulfill its mission,turbulent environment as it seeks to fulfill its mission,
goals, and objectives.goals, and objectives.
A game plan for winning.A game plan for winning.
Three basic strategies:Three basic strategies:
Strategy?
Cost leadership
Differentiation
Focus
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Three Strategic OptionsThree Strategic Options
Competitive AdvantageCompetitive Advantage
TargetTarget
MarketMarket
IndustryIndustry
NicheNiche
Uniqueness PerceivedUniqueness Perceived
by the Customer by the Customer
Low CostLow Cost
PositionPosition
Differentiation Low Cost
DifferentiationFocus
CostFocus
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Chapter 2: Strategic Mgt 23Copyright 2003 Prentice Hall Publishing Company
Cost LeadershipCost Leadership
Goal: to beGoal: to be thethe lowlow--cost producer in thecost producer in theindustry or market segment.industry or market segment.
Advantages:Advantages:
reaching buyers who buy on the basis of price.reaching buyers who buy on the basis of price.
power to set the industry¶s price floor.power to set the industry¶s price floor.
Works well when:Works well when:
buyers are sensitive to price changes.buyers are sensitive to price changes.
when competing firms sell the same commoditywhen competing firms sell the same commodity
products.products. when a company can benefit from economies of when a company can benefit from economies of
scale.scale.
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Chapter 2: Strategic Mgt 24Copyright 2003 Prentice Hall Publishing Company
DifferentiationDifferentiation
Company seeks to build customer loyalty byCompany seeks to build customer loyalty bypositioning its goods or services in a unique orpositioning its goods or services in a unique ordifferent fashion.different fashion.
Idea is to be unique at something customersIdea is to be unique at something customers
value.value. K ey: Build basis for differentiation on a coreK ey: Build basis for differentiation on a core
competency, those things that the smallcompetency, those things that the smallcompany is uniquely good at doing incompany is uniquely good at doing in
comparison to its competitors.comparison to its competitors. Example: East Bank ClubExample: East Bank Club
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Chapter 2: Strategic Mgt 25Copyright 2003 Prentice Hall Publishing Company
FocusFocus
Company selects one or more customerCompany selects one or more customersegments in a market, identifies customers¶segments in a market, identifies customers¶special needs, wants, or interests, and thenspecial needs, wants, or interests, and thentargets them with a product or service designedtargets them with a product or service designed
specifically for them.specifically for them. Strategy builds onStrategy builds on differencesdifferences among marketamong market
segments.segments.
Rather than try to serve the total market, theRather than try to serve the total market, the
company focuses on serving a niche (or severalcompany focuses on serving a niche (or severalniches) within that market.niches) within that market.
Example: Clown Shoes and PropsExample: Clown Shoes and Props
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Chapter 2: Strategic Mgt 26Copyright 2003 Prentice Hall Publishing Company
Step 9: Translate StrategiesStep 9: Translate Strategies
into Action Plansinto Action Plans
Create projects by defining:Create projects by defining:
PurposePurpose
ScopeScope
ContributionContribution
Resource requirementsResource requirements
TimingTiming
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Chapter 2: Strategic Mgt 27Copyright 2003 Prentice Hall Publishing Company
Step 10: Establish Accurate ControlsStep 10: Establish Accurate Controls
The plan establishes the standards againstThe plan establishes the standards against
which actual performance is measured.which actual performance is measured.
Entrepreneur must:Entrepreneur must:
identify and track key performanceidentify and track key performance
indicators.indicators.
Take corrective action.Take corrective action.
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Chapter 2: Strategic Mgt 28Copyright 2003 Prentice Hall Publishing Company
Balanced ScorecardsBalanced Scorecards
A set of measurements unique to a companyA set of measurements unique to a company
that includes both financial and operationalthat includes both financial and operational
measuresmeasures Gives managers a quick, yet comprehensive,Gives managers a quick, yet comprehensive,
picture of a company¶s overall performance.picture of a company¶s overall performance.
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Chapter 2: Strategic Mgt 29Copyright 2003 Prentice Hall Publishing Company
Balanced ScorecardsBalanced Scorecards
Four Perspectives:Four Perspectives:
Customer: How do customers see us?Customer: How do customers see us?
Internal Business: At what must we excel?Internal Business: At what must we excel?
Innovation and Learning: Can we continueInnovation and Learning: Can we continue
to improve and create value?to improve and create value?
Financial: How do we look to shareholders?Financial: How do we look to shareholders?
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The Balanced Scorecard Links Performance Measures.The Balanced Scorecard Links Performance Measures.
Financial PerspectiveFinancial Perspective
GoalsGoals MeasuresMeasures
Customer PerspectiveCustomer PerspectiveGoalsGoals MeasuresMeasures
Internal Business PerspectiveInternal Business PerspectiveGoalsGoals MeasuresMeasures
Innovation and Learning PerspectiveInnovation and Learning Perspective
GoalsGoals MeasuresMeasures
How do customersHow do customers
see us?see us?
How do we look How do we look
to shareholders?to shareholders?
At what mustAt what must
we excel?we excel?
Can we continue toCan we continue to
improve and createimprove and create
value?value?