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BUS419 Business Policy
Factors Shaping Strategic Choice
HALL 2
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Objectives for Hall 2
Understand the Key Elements of a Business-levelStrategy;
Apply the Five Stages of the Strategic ManagementProcess
Apply Biblical Principles To the Five Stages of theStrategic Management Process
Comment on the Role of the Board of DirectorsRegarding Company Performance
Understand & Apply the 4 Classic GenericStrategies
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Objectives for Hall 2 (cont.)
Link Industry Conditions to Market Targeting, LowCost or Differentiation Strategies
Explain the Role of Strategic Alliances and
Partnerships In Crafting Strategies
Apply Michael Porters Five Forces Model of
Competition To Environmental Analysis
Deal With Ethical Issues Impacting the External
Environmental Analysis Complete a SWOT Analysis and Use It To Develop
Company Strategies
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Objectives for Hall 2 (cont.)
Relate Biblical Principles to Analyzing theCompanys Internal Environment & Crafting
Strategies
Apply the Principles of Value Chain Analysis to
Strategy Selection
Show How Vertical Integration and Outsourcing
Build a Superior Value Chain
Calculate and Explain Key Financial & OperatingRatios
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Thinking Strategically:
The Three Big Strategic Questions
1.Where are we now?
2.Where do we want to go?
Business(es) to be in and market positions
to stake out
Buyer needs and groups to serve
Direction to head
3.How are we going to get there?
A companys answer to howwill we get there? is its strategy
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Elements of a Companys Business Strategy
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Four Proven Strategic Approaches to
Winning a Sustainable Competitive Advantage
Developing a cost-based advantage
Creating a differentiation-based advantage
Focusing on a narrow market niche within an
industry
Developing unmatched resource
strengths and competitive capabilities
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Tests of a Winning Strategy
GOODNESS OF FIT TEST
How well does strategy fitthe firms situation?
COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainable competitiveadvantage?
PERFORMANCE TEST
Does strategy boost firm performance?
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The Strategy-Making, Strategy-Executing Process
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Characteristics of Effectively Worded Vision
Statements
GraphicPaints a picture of the kind ofcompany that management is trying tocreate
DirectionalForward looking FocusedSpecific enough to provide
guidance in decision making
FlexibleNot so focused that it makes it
difficult to adjust to change
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Characteristics of Effectively Worded Vision
Statements
FeasibleWithin the real of what is
possible
DesirableIndicates why the
directional path makes sense
Easy to CommunicateCan be
explained in simple terms
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Strategic Vision vs. Mission
A strategic vis ion
concerns a firms future
business path
where we are going Markets to be pursued
Future product/market/
customer/technology focus
The miss ion
statementof a firm
focuses on its present
business purpose -
who we are and what
we do Current product and service
offerings
Customer needs beingserved
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Setting Objectives
Purposeof set t ing object ives
Converts vision into specific performance targets
Creates yardsticks to track performance
Well-stated object ivesare
Quanti f iable
Measurable Contain a deadl inefor achievement
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Balanced Scorecard Objectives
Financial Objectives
Outcomes focusedon improving Financial
Performance
Strategic Objectives
Customer
Value creationInternal Processes Value creating processes
Learning and Growth Aligning organizational,
information, and human capitalwith strategy
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Objectives Are Needed at All Levels
1.First, set business-level objectives
2.Next, establish functional-areaobjectives
3.Then, operating-level objectives areestablished last
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Crafting a Strategy
Strategy Making Hierarchy fora Single Business Company
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Staff ing the o rganizat ionto
provide needed expertise
Al locat ing resourcesto
strategy-critical activities Establishing strategy-
support ive po l ic ies
What Does Strategy Implementation
Involve?
Installing in format ion , communicat ion ,
and operat ing systems
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Pushing for cont inuous improvementin how
value-creating activities are performed
Tying rewardsto achievement of resul ts
Creating a strategy -support ive co rpo rate cu lture
Exerting theleadersh ip necessary to drive the
process forward and keep improving
What Does Strategy Implementation
Involve?
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Evaluating Performance and
Making Corrective Adjustments
Tasksof crafting and implementingthe strategy are no ta one-t ime
exercise Customer needs and competitive conditions
change
New opportunities appear
One or more aspects of executing the
strategy may not be going well
All these trigger a need for correct iveact ionsand adjustments
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Corporate Governance: Strategic Role of
a Board of Directors Be inqu ir ing c r i ticsand overseers
Evaluate cal iberof senior executivesstrategy-making and strategy-executing ski l ls
Inst i tutea compensat ion planfor top executives
rewarding them for results that serve interests ofshareholders
Overseea companysf inancial account ing and
report ing pract ices
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Biblical Applications
Genesis 1:26-31
Matthew 25:14-30
II Corinthians 5:10
Luke 16:10-13
I Corinthians 4:2
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The External Environment and Its Influence on
Setting Objectives and Crafting a Strategy
The Four Generic Strategies & Their
Relationship to Market Coverage and Type ofCompetitive Advantage
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Competitive Strategies and Industry
Positioning
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When a Low Cost Strategy Works Best
Price compet it ion is vigorous
Product is standardized
There are few ways to achieve
differentiat ion Buyers incur l ow sw i tch ing costs
Buyers are largeand have significant bargaining
power
Industry newcomers use in t roductory low pr ices
to attract buyers and build customer base
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Where to Find Opportunities to
Differentiate
Supply chain activities
Product R&D and product design activities
Production R&D and technology-related activities
Manufacturing activities Distribution-related activities
Marketing, sales, and customer service activities
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How Collaborative Partnerships Build
Resource Strengths and Core Competencies
Expedite the development of new techno logiesorproducts
Overcome defic i ts in technicalor manufacturingexpertise
To create new sk i l l setsand capabilities by bringingtogether personnel of each partner
To impro ve supp ly chain ef fic iency
To gain econom ies of scalein
production and/or marketing To acquire or imp rove market access
via joint marketing agreements
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Answering the Question, Where are We
Now?
Two situational considerations
Companys external indus try andcompet it ive env ironment
Companys own market posi t ion andcompet i t iveness
Its competencies, capabilities,resource strengths and weaknesses, cost position,culture, and the strength of its leadership
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External Environmental Factors Shaping A
Companys Choice of Strategy
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Assessing a Companys Industry and Competitive
Environment: The Seven Key Questions to
Answer1. What are the industrys bus iness and econom ic trai ts?
2. What are the nature and strength of com pet i tive forces?
3. What forces are driving indust ry change?
4. What market pos i t ionsdo industry r ivalsoccupy?
5. What strategic moves are rivalslikely to make next?
6. What are the key factors o f compet i tive success?
7.
Does the indust ry out lookoffer good prospects forprofitability?
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Identifying the Industrys Dominant
Economic Features Market size and growth rate
Number of rivals
Scope of competitive rivalry
Pace of technological change Degree of vertical integration
Need for economies of scale
Learning and experience curve effects
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Porters Five Forces Model of
Competition
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When Is the Bargaining
Power of Buyers Stronger ? Buyers are largeand can demand concessions
Buyer swi tch ing costsfor substitutes are low
The num ber of buyersis small
Buyer demand is weakor declining
Buyers are wel l -informedabout sellers products, prices,and costs
Buyers threaten to integrate backward
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When Is the Bargaining
Power of Suppliers Stronger ?
Industry members incur h igh sw i tch ing costs
Needed inputs are in shor t supply
Supplier provides a dif ferent iated input
that enhances the quality or performance
of sellers products
There are on ly a few supp l iersof a specific input
Some suppliers threaten to integrate forward
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Identifying the Market Positions of Rivals
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Deciding Whether the Industry
Presents an Attractive Opportunity
Involves assessing whether the industryand competitive environment is attractive or unattract iveforearning good profits
Draws upon all the previous analysis
The industrys growth potential
The intensity of competition
Whether the impacts of the driving forcesare positive or negative
The companys competitive position in the industry relative to
rivals How well the company performs the industrys key success
factors
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Biblical Applications
Isaiah 55:8
Deuteronomy 10:12
Luke 9:25
Matthew 6:19-24
Proverbs 3:5-7
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Pinpointing the Key Factors
for Future Competitive Success
Key Success Factors(or KSFs) arecompetitive factors most affecting everyindustry membersability to prosper.
KSFs include: Specific product attributes
Necessary resources, competencies, and capabilities
Specific intangible assets
Competitive capabilities
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Key Questions in Situation Analysis
Question 1: How well is the companys strategy
working? Quest ion 2: What are the companys resource
strengths and weaknesses and its externalopportunities and threats?
Question 3:Are the companys prices and costs
competitive?
Question 4: Is the company competitively stronger orweaker than key rivals?
Question 5: What strategic issues and problems meritfront-burner managerial attention?
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Identifying Resource Strengths
and Competitive Capabilities
Common types of resou rce streng thsinclude
Skills or specialized expertise in a competitively importantcapability
Valuable physical assets
Valuable human assets or intellectual capital
Valuable organizational assets
Valuable intangible assets
Competitively valuable alliances or cooperative ventures
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Identifying Resource Weaknesses
and Competitive Deficiencies
A weaknessis something a firm lacks, does poorly,or a condition placing it at a disadvantage in themarketplace
Resource weaknessesrelate to
Inferior or unproven skills,expertise, or intellectual capital
Deficiencies in competitively important physical,organizational, or intangible assets
Missing or competitive inferior capabilities in key areas
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Identifying a Companys
Market Opportunities
Opportunities most relevantto a companyare those offering
Good matchwith its financial andorganizational resource capabilities
Best prospectsfor growth andprof i tabi l i ty
Most po tent ialforcompet i t iveadvantage
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Identifying External Threats to
Profitability and Competitiveness Entry of lower-cost foreign competitors
Burdensome regulations
Rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
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Company Value Chain
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Correcting Internal Cost Disadvantages
Implement best pract icesthroughout the company
Try to el iminate some cost-produc ing act ivi t iesaltogether by revamping value chain
Relocate high-cos t act ivi t iesto lower-costgeographic areas
See if high-cost activities can be outsourced
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Correcting Internal Cost Disadvantages
Invest in productivity enhancing, cost-savingtechnology
Find ways to detouraroundactivities or itemswhere cos ts are high
Redesign the productor its components to reducemanufacturing costs
Make up dif ferenceby achieving savings inbackward or forward po rt ions of value chain
system
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Situation Analysis Question 4: What Is the
Companys Competitive Strength?
Overall compet it ive posi t ioninvolve answering twoquestions
How does a company rank relat ive
to compet itorson each industry key success factor? Does a company have a net
competi t ive advantageor disadvantagevis--vis major competitors?
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Competitive Strength Assessments
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Biblical Applications
Romans 12:1-2
Matthew 5:13
Proverbs 3:7
Proverbs 20:10
Colossians 3:23-24
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Works Cited
Selected slides on Text material from John E.
Gamble and Arthur A. Thompson, Essentials of
Strategic Management, McGraw-Hill Irwin, New
York, N.Y. 2009. Selected slides on Computer Simulation Game
from, Foundation-The Ultimate Case Study
Version 2008 Student Guide, Management
Simulations, Northfield, IL., 2008.