Module 1

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Strategic Management Module:1

³Without a strategy the organization is like a ship without a rudder.´ Joel Ross and Michael Kami Authors and Consultants $ ³A Strategy is a commitment to undertake one set of actions rather than another.´ Jack Welch Former CEO, General Electric

What Do We Mean By Strategy?
± Strategy and the Quest for Competitive Advantage ± Identifying a Company¶s Strategy ± Why a Company¶s Strategy Evolves Over Time ± A Company¶s Strategy Is Partly Proactive and Partly Reactive

Strategy and Ethics: Passing the Test of Moral Scrutiny The Relationship Between a Company¶s Strategy and Its Business Model What Makes a Strategy a Winner? Why Are Crafting and Executing Strategy Important?

Thinking Strategically: The Three Big Strategic Questions
1. What¶s the company¶s present situation? 2. Where does the company need to go from here? ± Business(es) to be in and market positions to stake out ± Buyer needs and groups to serve ± Direction to head 3. How should it get there?

± A company¶s answer to ³how will we get there?´ is its strategy

What Do We Mean By ³Strategy´?
Management¶s ³action plan´ to Consists of competitive moves and business approaches used by managers to run the company ± Grow the business ± Attract and please customers ± Compete successfully ± Conduct operations ± Achieve target levels of organizational performance

The Hows That Define a Firm's Strategy
How to grow the business How to please customers How to outcompete rivals
Strategy is HOW to . . .

How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on) How to respond to changing market conditions How to achieve targeted levels of performance

Choosing the ³Hows´ of Strategy
Strategic choices about ³how´ are based on ± Trial-and-error organizational learning about what has Trial-andworked and what has not worked ± Management¶s appetite for taking risks ± Managerial analysis and strategic thinking about how best to proceed, given market conditions and the company¶s circumstances In choosing a strategy, management is in effect saying, ³Among all the many different business approaches and ways of competing we could have chosen, we have decided to employ this particular combination of competitive and operating approaches in moving the company in the intended direction, strengthening its market position, and competitiveness, and boosting performance.´

Key Elements of a Successful Strategy
Developing a successful strategy hinges on making competitive moves aimed at ± Appealing to buyers in ways to set the enterprise apart from rivals and ± Carving out its own market position Involves developing a distinctive ³aha´ element to ± Attract customers and ± Produce a competitive edge

Copying competitive moves of other successful companies rarely works!

Key Elements: Comcast¶s Strategy
Roll out high-speed Internet or broadband service to highcustomers via cable modems Promote a new video-on-demand service to allow digital video-onsubscribers to watch TV programs whenever they want Promote a video-on-demand service so digital customers video-oncan order and watch pay-per-view movies pay-perPartner with Sony, MGM, and others to expand movie offerings Use VoIP technology to offer subscribers Internet-based Internetphone service at a fraction of the cost charged by others Use video-on-demand and CDV offerings to combat video-onmounting competition from satellite TV providers Employ a sales force to sell advertising to businesses that were shifting advertising dollars from sponsoring network programs to sponsoring cable programs Significantly improve customer service

For Discussion: Your Opinion
From your perspective as a cable or satellite service consumer, does Comcast¶s strategy (as described in Illustration Capsule 1.1) seem to be well-matched wellto industry and competitive conditions? Does the strategy seem to be keyed to a cost advantage, differentiating features, serving the unique needs of a niche, or developing resource strengths and competitive capabilities rivals can¶t imitate or trump (or a mixture of these)? What is there about Comcast¶s strategy that can lead to sustainable competitive advantage?

Strategy and the Quest for Competitive Advantage
The heart and soul of any strategy are the actions and moves in the marketplace that a company makes to strengthen its competitive position and gain a competitive advantage over rivals A creative distinctive strategy that sets a company apart from rivals and yields a competitive advantage is a company¶s most reliable ticket to above average profitability ± Competing with a competitive advantage is more profitable than competing with no advantage ± Competing with a competitive disadvantage nearly always results in below-average belowprofitability

Strategic management
³Strategic Management is the set of managerial decisions and actions that determines the long-run performance longof an organisation.´ Strategic management is the art, science and craft of formulating, implementing and evaluating crosscrossfunctional decisions that will enable an organization to achieve its long-term longobjectives.

Strategy
Johnson and Scholes define strategy as follows: "Strategy is the direction and scope of an organisation over the longlongterm: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations".

Factors affecting strategies
society forces political and regulatory forces citizenship considerations the industry and competitive conditions opportunities and threats organizational strengths and weaknesses ethical considerations personal managerial ambitions company culture

Strategic Thinking
It is a process of developing or examining the assumptions about the future upon which the organization¶s mission, goals and strategy are based, to evaluate whether they still reflect the realities the organization faces. Strategic Thinking Should Consider the enterprise as a whole Be about the long term and not the immediate Address the organisations relationship with the environment and its capabilities and resources Be based on fact and reality with some imagination Have a good understanding of the present Be able to think imaginatively about the future

4 Key requirements of strategic thinking
± ± A definite purpose in mind An understanding of the firm¶s environment, particularly of the forces that affect or impede the fulfilment of that purpose, the environmental view; the project view; and the measurement view The organization, the people, the organization structure, and the resources necessary to make it all work Creativity in developing the effective responses to all the above factors

±

±

Basics of Strategic Management
Four aspects that set strategic management apart
± Interdisciplinary
Capstone of the Business degree

± External focus
Competition

± Internal focus ± Future direction

Importance of Strategic Management
Provide direction and momentum for the business Encouraging new ideas Developing a sustainable competitive advantage for the business Helps in achieving the organizational goals in an effective and efficient manner. actually gives the organization direction, a sense of identity and unity towards what the business goal

Characteristics of Strategic Management Process
Strategic management strengthens the competitive position Strategic management coordinates and integrates business activities Strategic management satisfies customers Strategic management works towards achieving performance targets Strategic management is adaptive

Functions of strategic management
Evolve business goals, by formulating its future mission and vision in terms of the expectations of the stake-holders stakeSet objectives that are achievable in light of changing external factors that include regulation, competition, technology, and customers Evolve and develop a competitive strategy to achieve the mission Create an effective organizational structure and arrange the resources to successfully carry out the strategy Evaluate the performance so that necessary corrective measures can be taken to keep it on track to achieve the vision

What is a strategic plan?
A Strategic Plan maps out
± Where firm is headed ± Short and long range performance targets ± Actions of management to achieve outcomes

A Strategic Plan consists of
± A strategic vision & business mission ± Strategic & financial performance objectives ± Comprehensive strategy for achieving the objectives

Strategic Management Process

Identifying the organisation¶s current mission, objectives, and strategies
Mission: the firm¶s reason for being
Who we are, What we do, and Where we are now

Goals: the foundation for further planning
Measurable performance targets

Conducting an external analysis
± The environmental scanning of specific and general environments ± Focuses on identifying opportunities and threats

Conducting an internal analysis
± Assessing organizational resources, capabilities, activities and culture:
Strengths (core competencies) create value (core for the customer and strengthen the competitive position of the firm. Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage. Steps 2 and 3 combined are called a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats)

Formulating strategies
± Develop and evaluate strategic alternatives ± Select appropriate strategies for all levels in the organization that provide relative advantage over competitors ± Match organizational strengths to environmental opportunities ± Correct weaknesses and guard against threats

Implementing strategies
± Implementation: effectively fitting organisational structure and activities to the environment ± Effective strategy implementation requires an organisational structure matched to its requirements.

Evaluating results
± How effective have strategies been? ± What adjustments, if any, are necessary?

What Is a Business Model?
A business model addresses ³How do we make money in this business?´ ± Is the strategy capable of delivering good bottom-line results? bottomDo the revenue-cost-profit economics revenue-costof the strategy make good business sense? ± Look at revenue streams the strategy is expected to produce ± Look at associated cost structure and potential profit margins ± Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money?

Relationship Between Strategy and Business Model
Strategy . . . Deals with a company¶s competitive initiatives and business approaches
Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a business can be amply profitable and viable

Microsoft¶s Business Model
Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users Sell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market share Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit Provide modest level of technical support to users at no cost Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

Red Hat¶s Business Model
Rely on collaborative efforts of volunteer programmers to create the software Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages Make source code open and available to all users Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users

Test Your Knowledge
The nitty-gritty issue surrounding a company¶s business nittymodel is whether A. the strategy is capable of producing sustainable competitive advantage. B. it matches the company¶s external and internal situation. C. the chosen strategy makes good business sense from a money-making perspective. moneyD. the company¶s strategy and strategic moves are mostly proactive. E. the company¶s strategy stands a really good chance of hitting a home-run in the marketplace. home-

For Discussion: Your Opinion

Who has the best business model ± Microsoft or Red Hat?

Tests of a Winning Strategy
GOODNESS OF FIT TEST ± How well does strategy fit the firm¶s situation? COMPETITIVE ADVANTAGE TEST ± Does strategy lead to sustainable competitive advantage? PERFORMANCE TEST ± Does strategy boost firm performance?

Other Criteria for Judging the Merits of a Strategy
Internal consistency and unity among all pieces of the strategy Degree of risk the strategy poses as compared to alternative strategies Degree to which the strategy is flexible and adaptable to changing circumstances
Whil these riteri re relevant, they seld the i rtance f the t r t t f a i i verride tr t !

Why Is Strategy Important?
A compelling need exists for managers to proactively shape how a firm¶s business will be conducted

A strategy-focused firm is more likely strategyto be a strong bottom-line performer bottomthan one that views strategy as secondary

Good Strategy + Good Strategy Execution = Good Management
Crafting and executing strategy are core management functions Among all things managers do, nothing affects a company¶s ultimate success or failure more fundamentally than how well its management team ± Charts a company¶s direction, ± Develops competitively effective strategic moves and business approaches, and ± Pursues what needs to be done internally to produce good day-in/day-out strategy execution day-in/day-

Excellent execution of an excellent strategy is the best test of managerial excellence ± and the most reliable recipe for winning in the marketplace!

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