7/23/2019 Hall 2.pdf

1/49

BUS419 Business Policy

Factors Shaping Strategic Choice

HALL 2

7/23/2019 Hall 2.pdf

2/49

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

7/23/2019 Hall 2.pdf

3/49

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

7/23/2019 Hall 2.pdf

4/49

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

7/23/2019 Hall 2.pdf

5/49

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

7/23/2019 Hall 2.pdf

6/49

Elements of a Companys Business Strategy

7/23/2019 Hall 2.pdf

7/49

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

7/23/2019 Hall 2.pdf

8/49

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?

7/23/2019 Hall 2.pdf

9/49

The Strategy-Making, Strategy-Executing Process

7/23/2019 Hall 2.pdf

10/49

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

7/23/2019 Hall 2.pdf

11/49

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

7/23/2019 Hall 2.pdf

12/49

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

7/23/2019 Hall 2.pdf

13/49

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

7/23/2019 Hall 2.pdf

14/49

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

7/23/2019 Hall 2.pdf

15/49

Objectives Are Needed at All Levels

1.First, set business-level objectives

2.Next, establish functional-areaobjectives

3.Then, operating-level objectives areestablished last

7/23/2019 Hall 2.pdf

16/49

Crafting a Strategy

Strategy Making Hierarchy fora Single Business Company

7/23/2019 Hall 2.pdf

17/49

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

7/23/2019 Hall 2.pdf

18/49

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?

7/23/2019 Hall 2.pdf

19/49

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

7/23/2019 Hall 2.pdf

20/49

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

7/23/2019 Hall 2.pdf

21/49

Biblical Applications

Genesis 1:26-31

Matthew 25:14-30

II Corinthians 5:10

Luke 16:10-13

I Corinthians 4:2

7/23/2019 Hall 2.pdf

22/49

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

7/23/2019 Hall 2.pdf

23/49

Competitive Strategies and Industry

Positioning

7/23/2019 Hall 2.pdf

24/49

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

7/23/2019 Hall 2.pdf

25/49

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

7/23/2019 Hall 2.pdf

26/49

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

7/23/2019 Hall 2.pdf

27/49

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

7/23/2019 Hall 2.pdf

28/49

External Environmental Factors Shaping A

Companys Choice of Strategy

7/23/2019 Hall 2.pdf

29/49

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?

7/23/2019 Hall 2.pdf

30/49

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

7/23/2019 Hall 2.pdf

31/49

Porters Five Forces Model of

Competition

7/23/2019 Hall 2.pdf

32/49

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

7/23/2019 Hall 2.pdf

33/49

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

7/23/2019 Hall 2.pdf

34/49

Identifying the Market Positions of Rivals

7/23/2019 Hall 2.pdf

35/49

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

7/23/2019 Hall 2.pdf

36/49

Biblical Applications

Isaiah 55:8

Deuteronomy 10:12

Luke 9:25

Matthew 6:19-24

Proverbs 3:5-7

7/23/2019 Hall 2.pdf

37/49

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

7/23/2019 Hall 2.pdf

38/49

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?

7/23/2019 Hall 2.pdf

39/49

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

7/23/2019 Hall 2.pdf

40/49

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

7/23/2019 Hall 2.pdf

41/49

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

7/23/2019 Hall 2.pdf

42/49

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

7/23/2019 Hall 2.pdf

43/49

Company Value Chain

7/23/2019 Hall 2.pdf

44/49

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

7/23/2019 Hall 2.pdf

45/49

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

7/23/2019 Hall 2.pdf

46/49

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?

7/23/2019 Hall 2.pdf

47/49

Competitive Strength Assessments

7/23/2019 Hall 2.pdf

48/49

Biblical Applications

Romans 12:1-2

Matthew 5:13

Proverbs 3:7

Proverbs 20:10

Colossians 3:23-24

7/23/2019 Hall 2.pdf

49/49

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.