week 2 - chapter 02 strategic management

Chapter 2: Strategic Management

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Chapter 2 Strategic ManagementChapter 2 Strategic Management 11

Strategic Managementand the Entrepreneur

HCC HCC -- SAIGONTECH SAIGONTECH –– Small Business Management Small Business Management -- Fall 2010 Fall 2010 –– Instructor: Son PhamInstructor: Son Pham--

Chapter 2 Strategic ManagementChapter 2 Strategic Management Copyright Copyright ©©2009 Pearson Education, Inc. Publishing as Prentice Hall2009 Pearson Education, Inc. Publishing as Prentice Hall 22

Strategic ManagementStrategic Management

Small companies that are prepared Small companies that are prepared can can createcreate the disruptions that the disruptions that revolutionize their industries, and, in revolutionize their industries, and, in the process, create a competitive edge the process, create a competitive edge Apple Computer and the iPodApple Computer and the iPod

Knowledge has become Knowledge has become thethe critical critical factor of productionfactor of production

Intellectual capital counts! Intellectual capital counts!


A Major Shift . . .A Major Shift . . .

. . . from financial capital to . . . from financial capital to intellectual capitalintellectual capitalHumanHumanStructuralStructuralCustomerCustomer


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Strategic ManagementStrategic Management

Is crucial to building a successful business Is crucial to building a successful business Involves developing a game plan to guide a Involves developing a game plan to guide a

company as it strives to accomplish its company as it strives to accomplish its mission, goals, and objectives, and to keep mission, goals, and objectives, and to keep it on its desired courseit on its desired course


Strategic Management and Strategic Management and Competitive EdgeCompetitive Edge Developing a strategic plan is Developing a strategic plan is

crucial to gaining a crucial to gaining a competitive advantagecompetitive advantage, the , the aggregation of factors that aggregation of factors that sets a company apart from its sets a company apart from its competitors and gives it a competitors and gives it a unique position in the marketunique position in the market

Example: Honest TeaExample: Honest Tea


Key: Core CompetenciesKey: Core Competencies

Unique set of skills, knowledge, or Unique set of skills, knowledge, or abilities that a company develops in abilities that a company develops in key areas such as superior quality, key areas such as superior quality, customer service, innovation, teamcustomer service, innovation, team--building, flexibility, responsiveness, building, flexibility, responsiveness, and others that allow it to vault past and others that allow it to vault past competitors competitors


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Key: Core CompetenciesKey: Core Competencies

Core competencies are what a Core competencies are what a company does best company does best Durable, forming the building blocks for Durable, forming the building blocks for

everything a company doeseverything a company doesDifficult for competitors to duplicateDifficult for competitors to duplicateMust provide customers with a valuable Must provide customers with a valuable

perceived benefit perceived benefit Best to rely on a Best to rely on a natural advantage natural advantage

(often linked to a company’s (often linked to a company’s “smallness”)“smallness”)


Strategic Management Strategic Management ProcessProcess

Step 1Step 1: Develop a vision and translate : Develop a vision and translate it into a mission statementit into a mission statementStep 2Step 2: Assess strengths and : Assess strengths and weaknessesweaknessesStep 3Step 3: Scan environment for : Scan environment for opportunities and threatsopportunities and threatsStep 4Step 4: Identify key success factors: Identify key success factors


Strategic Management Strategic Management Process ...Process ...

Step 5Step 5: Analyze competition: Analyze competitionStep 6Step 6: Create goals and : Create goals and objectivesobjectives

Step 7Step 7: Formulate strategies: Formulate strategiesStep 8Step 8: Translate plans into : Translate plans into actionsactions

Step 9Step 9: Establish accurate : Establish accurate controlscontrols

(continued)(continued)


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Step 1: Step 1: Develop a VisionDevelop a Vision and and Create a Mission StatementCreate a Mission Statement Vision Vision –– an expression of what an an expression of what an

entrepreneur stands for and believes in; entrepreneur stands for and believes in; the “sixth sense that tells us why we make the “sixth sense that tells us why we make a difference in the world” a difference in the world”

Vision is based on an entrepreneur’s Vision is based on an entrepreneur’s values values -- 3 to 6 core values 3 to 6 core values

A clearly defined vision:A clearly defined vision: Provides directionProvides direction Determines decisionsDetermines decisions Motivates peopleMotivates people


Step 1: Develop a Vision and Step 1: Develop a Vision and CCreate a Mission Statementreate a Mission Statement Mission Mission -- addresses question:"What addresses question:"What

business are we in?”business are we in?” A written expression of how the A written expression of how the

company will reflect the owner’s company will reflect the owner’s values, beliefs, and visionvalues, beliefs, and vision

Sets the tone for the entire company Sets the tone for the entire company and guides the decisions people and guides the decisions people make make


Step 1: Develop a Vision and Step 1: Develop a Vision and CCreate a Mission Statementreate a Mission Statement Elements:Elements: PurposePurpose Business we are inBusiness we are in ValuesValues

Example: Fetzer Vineyards Example: Fetzer Vineyards


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Step 2: Assess Company Step 2: Assess Company Strengths and WeaknessesStrengths and Weaknesses StrengthsStrengths Positive internal factors that Positive internal factors that

contribute to accomplishing the contribute to accomplishing the mission, goals, and objectivesmission, goals, and objectives

WeaknessesWeaknesses Negative internal factors that Negative internal factors that

inhibit the company’s ability to inhibit the company’s ability to accomplish its mission, goals, accomplish its mission, goals, and objectivesand objectives


Step 3: Scan for Step 3: Scan for Opportunities and ThreatsOpportunities and Threats

OpportunitiesOpportunities Positive external options the Positive external options the

company can exploit to company can exploit to accomplish its mission, goals, and accomplish its mission, goals, and objectivesobjectives

ThreatsThreats Negative external forces that Negative external forces that

inhibit the company’s ability to inhibit the company’s ability to accomplish its mission, goals, and accomplish its mission, goals, and objectivesobjectives


65 Million Years Ago…65 Million Years Ago…

Today…movie theater owners – threats?


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External Market ForcesExternal Market Forces

Competitive Economic

Political and Regulatory

Technological

Social and Demographic

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall


Step 4: Identify Key Step 4: Identify Key Success FactorsSuccess Factors Key success factors: Key success factors:

factors that influence a factors that influence a company’s ability to company’s ability to compete successfully in compete successfully in an industryan industry

The keys to unlocking The keys to unlocking the secrets of the secrets of succeeding in a succeeding in a particular market particular market segmentsegment


Step 5: Analyze Step 5: Analyze CompetitorsCompetitors Study: Top execs say that their Study: Top execs say that their

industries are becoming industries are becoming moremorecompetitive competitive

Factors: Factors: Smarter rivalsSmarter rivalsMore price competitionMore price competition Increased customer awareness Increased customer awareness


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CompetitorCompetitorAnalysisAnalysis Direct competitorsDirect competitors

Offer the same products and servicesOffer the same products and services Customers often compare prices, features and deals Customers often compare prices, features and deals

among these competitors when they shopamong these competitors when they shop

Significant competitorsSignificant competitors Offer some of the same or similar products or servicesOffer some of the same or similar products or services Product or service lines overlap but not completelyProduct or service lines overlap but not completely

Indirect competitorsIndirect competitors Offer same or similar products in only a small number Offer same or similar products in only a small number

of areasof areas


CompetitorCompetitorAnalysisAnalysis

Analyzing key competitors allows entrepreneurs Analyzing key competitors allows entrepreneurs to:to: Avoid surprises from existing competitors’ new Avoid surprises from existing competitors’ new

strategies and tacticsstrategies and tactics Identify potential new competitors and the Identify potential new competitors and the

threats they posethreats they pose Improve reaction time to competitors’ actionsImprove reaction time to competitors’ actions Anticipate rivals’ next strategic moves Anticipate rivals’ next strategic moves Improve ability to differentiate your company Improve ability to differentiate your company

from competitors from competitors


Techniques do Techniques do notnot require require unethical behavior:unethical behavior:Monitor industry and trade Monitor industry and trade

publicationspublications Talk to customers and suppliersTalk to customers and suppliers Listen to employees, especially sales Listen to employees, especially sales

representatives and purchasing representatives and purchasing agentsagents

Attend trade shows and conferencesAttend trade shows and conferences



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Techniques do Techniques do notnot require unethical require unethical behavior:behavior:Monitor competitors’ employment adsMonitor competitors’ employment ads Conduct searches for patents filed by Conduct searches for patents filed by

competitorscompetitors Check EPA reports about manufacturingCheck EPA reports about manufacturing Search databases for types of materials and Search databases for types of materials and

equipment competitors are importingequipment competitors are importing



Techniques do Techniques do notnot require unethical require unethical behavior:behavior: Study competitors' literature and "benchmark" Study competitors' literature and "benchmark"

their products and servicestheir products and services Get competitors' credit reports and SEC filingsGet competitors' credit reports and SEC filings Check out the local libraryCheck out the local library Use the World Wide Web to learn more about Use the World Wide Web to learn more about

competitorscompetitors Visit competing businesses to observe their Visit competing businesses to observe their

operationsoperations




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Step 6: Create Company Step 6: Create Company Goals and ObjectivesGoals and Objectives Goals Goals –– broad, longbroad, long--range attributes to be range attributes to be

accomplished; general and abstractaccomplished; general and abstract “BHAGS” “BHAGS” –– one factor that sets apart successful one factor that sets apart successful

companies from unsuccessful onescompanies from unsuccessful ones Objectives Objectives –– more detailed, specific targets more detailed, specific targets

of performance that are S.M.A.R.T.of performance that are S.M.A.R.T. SSpecificpecific MMeasurableeasurable AAssignablessignable RRealistic (yet challenging)ealistic (yet challenging) TTimelyimely


Step 7: Formulate Step 7: Formulate StrategiesStrategies StrategyStrategy A “road map” that guides a company A “road map” that guides a company

through a turbulent environment as it seeks through a turbulent environment as it seeks to fulfill its mission, goals, and objectives to fulfill its mission, goals, and objectives

Focused on the key success factors Focused on the key success factors identified in Step 4identified in Step 4 Mission, goals, and objectives = EndsMission, goals, and objectives = Ends Strategy = MeansStrategy = Means


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Three Strategic OptionsThree Strategic Options

Three basic strategies:Three basic strategies:

Strategy?

Cost leadership

Differentiation

Focus

Three Strategic OptionsThree Strategic Options

Source of Competitive AdvantageSource of Competitive Advantage

Target Target MarketMarket

IndustryIndustry

NicheNiche

Uniqueness PerceivedUniqueness Perceivedby the Customerby the Customer

LowLow--CostCostPositionPosition

Differentiation Low Cost

DifferentiationFocus

CostFocus



Cost LeadershipCost Leadership

Goal: to be Goal: to be thethe lowlow--cost producer in the cost producer in the industry or market segmentindustry or market segment

Advantages: Advantages: Reaching buyers who buy on the basis of priceReaching buyers who buy on the basis of price Power to set the industry’s price floorPower to set the industry’s price floor

Works well when:Works well when: Buyers are sensitive to price changesBuyers are sensitive to price changes Competing firms sell the same commodity Competing firms sell the same commodity

productsproducts A company can benefit from economies of scale A company can benefit from economies of scale


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DifferentiationDifferentiation Company seeks to build customer loyalty Company seeks to build customer loyalty

by positioning its goods or services in a by positioning its goods or services in a unique or different fashionunique or different fashion

Idea is to be better than the competition Idea is to be better than the competition at something customers valueat something customers value

Key: Build basis for differentiation on a Key: Build basis for differentiation on a distinctive competence, something that a distinctive competence, something that a small company is uniquely good at doing small company is uniquely good at doing in comparison to its competitors in comparison to its competitors

Example: PharmacaExample: Pharmaca


FocusFocus Company selects one or more customer Company selects one or more customer

segments in a market, identifies segments in a market, identifies customers’ special needs, wants, or customers’ special needs, wants, or interests, and then targets them with a interests, and then targets them with a product or service designed specifically product or service designed specifically for themfor them

Strategy builds on Strategy builds on differencesdifferences among among market segmentsmarket segments


FocusFocus Rather than try to serve the total Rather than try to serve the total

market, the company focuses on serving market, the company focuses on serving a niche (or several niches) within that a niche (or several niches) within that market market

Examples:Examples: Amazing Butterflies Amazing Butterflies 1570 Cinema Services1570 Cinema Services Freed of LondonFreed of London


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Step 8: Strategies into Step 8: Strategies into Action PlansAction Plans

Create projects by defining:Create projects by defining: PurposePurpose ScopeScope ContributionContribution Resource requirementsResource requirements TimingTiming


Step 9: Establish Accurate Step 9: Establish Accurate ControlsControls The plan establishes the standards against The plan establishes the standards against

which actual performance is measured which actual performance is measured Entrepreneur must:Entrepreneur must: Identify and track key performance Identify and track key performance

indicatorsindicators Take corrective actionTake corrective action


Balanced ScorecardBalanced Scorecard

A set of measurements unique to a A set of measurements unique to a company that includes both financial company that includes both financial andandoperational measuresoperational measures

Gives managers a quick yet comprehensive Gives managers a quick yet comprehensive picture of a company’s overall performancepicture of a company’s overall performance


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Five Perspectives:Five Perspectives:1.1. Customer: How do customers see us?Customer: How do customers see us?2.2. Internal Business: At what must we excel?Internal Business: At what must we excel?3.3. Innovation and Learning: Can we continue to Innovation and Learning: Can we continue to

improve and create value?improve and create value?4.4. Financial: How do we look to shareholders? Financial: How do we look to shareholders? 5.5. Corporate Citizenship: What must we do to Corporate Citizenship: What must we do to

meet our social responsibility to society as a meet our social responsibility to society as a whole, the environment, the community, and whole, the environment, the community, and other stakeholders? other stakeholders?



Customer

InternalBusiness

Innovation and Learning

Financial

CorporateCitizenship

week 2 - chapter 02 strategic management

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