Scarborough eesbm11e ppt04 Strategic Managementand the Entrepreneur

transcript

Chapter 4

Developing a strategy for success! Don’t just respond to the chaos in the

environment, create the disruptions that revolutionize the industry, and, in the process, create a competitive edge Apple Computer and the iPod

The world economy is shifting from financial to intellectual capital

Knowledge is no longer just a factor of production, it is the critical factor of production

Knowledge management: the practice of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position

Intellectual capital: comprised of1.Human capital2.Structural capital3.Customer capital

Strategic management: a process that involves developing a game plan to guide the company as it strives to accomplish its vision, mission, goals, and objectives and to keep it from straying off its desired course

Competitive advantage: the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the marketThe key to business success is to build a unique competitive advantage that creates value for customers, is sustainable, and is difficult to duplicate

To define competitive advantage, entrepreneurs should consider: The products they sellThe services they provideThe pricing they offerThe way they sellThe values to which they are committed

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

Building a Sustainable Competitive Advantage

Use core competencies to define a compelling value proposition: the value that the combination of goods and services that a business delivers to customers to create a sustainable competitive edge Product or service leadershipCustomer intimacyOperation excellence

Strategic management is a continuous process1. Develop a vision and translate it into a mission

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats4. Identify key success factors5. Analyze competition6. Create goals and objectives7. Formulate strategies8. Translate plans into actions9. Establish accurate controls

Step 1: Develop a Clear Vision and Translate It into a Meaningful Mission StatementVision

An expression of what an entrepreneur stands for and believes in and the values on which they build their business

Answers the question: “What kind of business do we want to be”

A clearly defined vision:Provides directionDetermines decisionsMotivates peopleAllows a company to persevere in the face of

adversity

Mission Answers the question "What business am I in?”Makes clear to everyone “why we are here” and

“where we are going”

Elements of a mission statementThe purpose of the companyThe business we are inThe values of the company

statement Assess strengths and weaknesses

Step 2: Assess the Company’s Strengths and WeaknessesStrengths: positive internal factors that

contribute to accomplishing the mission, goals, and objectives

Weaknesses: negative internal factors that inhibit the company’s ability to accomplish its mission, goals, and objectives

Identifying Company’s Strengths and Weaknesses

statement2. Assess strengths and weaknesses Scan environment for opportunities and threats

Step 3: Scan the Environment for Opportunities and Threats Facing the BusinessOpportunities: positive external options the company

can exploit to accomplish its mission, goals, and objectives

Threats: negative external forces that inhibit the company’s ability to accomplish its mission, goals, and objectives

Identifying Opportunities and Threats

Identifying and Managing Major Threats

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats Identify key success factors

Step 4: Identify the Key Factors for Success in the BusinessKey success factors: factors that influence

a company’s ability to compete successfully in an industryDetermine a company’s ability to compete

in the marketplace

Identifying Key Success Factors

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats4. Identify key success factors Analyze competition

Step 5: Analyze the CompetitionTracking competition helps companies:

Avoid surprises from existing competitors’ new strategies and tactics

Identify potential new competitorsAnticipate rivals’ next strategic movesImprove reaction time to competitors’ actionsImprove their ability to differentiate their companies’

products and services from those of competitorsRefine their companies’ competitive edge

Small Business Success Index

Competitor AnalysisDirect competitors

Offer the same products and servicesCustomers often compare prices, features, and deals

among these competitors when they shopSignificant competitors

Offer some of the same or similar products or servicesProduct or service lines overlap but not completely

Indirect competitorsOffer same or similar products in only a small number

of areas

Competitive profile matrix: allows entrepreneurs to evaluate their companies against major competitors on the key success factors for their market segments

Sample Competitive Profile Matrix

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats4. Identify key success factors5. Analyze competition Create goals and objectives

Step 6: Create Company Goals and ObjectivesGoals: broad, long-range attributes to be accomplished;

general and abstract“BHAGS”

Objectives: are specific targets of performance SpecificMeasurableAssignableRealistic (yet challenging)TimelyWritten down

What Makes an Effective BHAG?

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats4. Identify key success factors5. Analyze competition6. Create goals and objectives Formulate strategies

Step 7: Formulate Strategic Options and Select the Appropriate Strategies Strategy: a “road map” that guides a company

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

Mission, goals, and objectives = endsStrategy = means

Three strategic options:

Strategy?

Cost leadership

Differentiation

Cost leadership strategy: to be the low-cost producer in the industry or market segmentAdvantages:

Reaching buyers who buy on the basis of pricePower to set the industry’s price floor

Works well when:Buyers are sensitive to price changesCompeting firms sell the same commodity productsA company can benefit from economies of scale

Disadvantages: Purchase decisions are driven by price not loyalty Can underestimate costs

Differentiation strategy: company seeks to build customer loyalty by positioning its goods or services in a unique or different fashionIdea is to be better than the competition at something

customers valueKey to success:

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

Create perceived value for the customer

Focus strategy: company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for themStrategy builds on differences among market

segmentsRather than try to serve the total market, the company

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

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats4. Identify key success factors5. Analyze competition6. Create goals and objectives7. Formulate strategies Translate plans into actions

Step 8: Implement the strategyCreate projects by defining:

PurposeScopeContributionResource requirementsTiming

statement2. Assess strengths and weaknesses3. Scan environment for opportunities and threats4. Identify key success factors5. Analyze competition6. Create goals and objectives7. Formulate strategies8. Translate plans into actions Establish accurate controls

Step 9: Establish Accurate Controls Controlling the strategy

Entrepreneur must:Identify and track key performance indicatorsTake corrective action if necessary

Balanced scorecard: a set of measurements unique to a company that includes both financial and operational measuresGives managers a quick yet comprehensive

picture of a company’s overall performance

The Balanced Scorecard

Five Perspectives:1. Customer: How do customers see us?2. Internal Business: At what must we excel?3. Innovation and Learning: Can we continue to

improve and create value?4. Financial: How do we look to shareholders?5. Corporate Citizenship: What must we do to meet our

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

Scarborough eesbm11e ppt04 Strategic Managementand the Entrepreneur

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