Chap02 Strategic Management and the Entrepreneur

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Chapter 2: Strategic Mgt 1Copyright 2003 Prentice Hall Publishing Company

Strategic Management

and the Entrepreneur




AMajor Shift . . .

AMajor Shift . . .

. . . From financial capital to. . . From financial capital to

intellectual capital.intellectual capital.

HumanHuman

StructuralStructural

CustomerCustomer




Strategic ManagementStrategic Management

Is crucial to building a successful business.Is crucial to building a successful business.

Involves developing a game plan to guide aInvolves developing a game plan to guide a

company as it strives to accomplish its mission,company as it strives to accomplish its mission,goals , and objectives, and to keep it on itsgoals , and objectives, and to keep it on its

desired course.desired course.




Is Strategic Planning Really ThatIs Strategic Planning Really That

Important?Important?

Study of 500 small companies:Study of 500 small companies:

One of the most significant factors inOne of the most significant factors in

distinguishing growing companies fromdistinguishing growing companies fromthose in decline: use of a written businessthose in decline: use of a written business

plan.plan.

Another study:Another study:

Only 12% of small companies had a longOnly 12% of small companies had a long--

range plan in writing.range plan in writing.




Strategic Management andStrategic Management and

Competitive EdgeCompetitive Edge Developing a strategic plan is crucialDeveloping a strategic plan is crucial

to creating ato creating a competitive advantagecompetitive advantage,,

the aggregation of factors that sets athe aggregation of factors that sets acompany apart from its competitorscompany apart from its competitors

and gives it a unique position in theand gives it a unique position in the

market.market.

Example: Adventurous TravelerExample: Adventurous TravelerBookstoreBookstore






Strategic Management ProcessStrategic Management Process

Step 1Step 1: Develop a vision and translate it: Develop a vision and translate it

into a mission statement.into a mission statement.

Step 2Step 2: Assess strengths and weaknesses.: Assess strengths and weaknesses.Step 3Step 3: Scan environment for: Scan environment for

opportunities and threats.opportunities and threats.

Step 4Step 4: Identify key success factors: Identify key success factors . .




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

Step 5Step 5: Analyze competition: Analyze competition . .

Step 6Step 6: Create goals & objectives.: Create goals & objectives.Step 7Step 7: Formulate strategies: Formulate strategies . .

Step 8Step 8: Translate plans into actions: Translate plans into actions . .

Step 9Step 9: Establish accurate controls: Establish accurate controls . .

(continued)(continued)




Step 1:Step 1: Develop a Vision Develop a Vision andand

Create a Mission StatementCreate a Mission Statement VisionVision ± ± an expression of what anan expression of what an

entrepreneur stands for and believes in.entrepreneur stands for and believes in.

A clearly defined vision:A clearly defined vision: Provides directionProvides direction

Determines decisionsDetermines decisions

Motivates peopleMotivates people




Step 1: Develop a Vision andStep 1: Develop a Vision and

C reate a Mission Statement C reate a Mission Statement MissionMission -- addresses question:"Whataddresses question:"What

business are we in?´business are we in?´

A written expression of how theA written expression of how thecompany will reflect the owner¶scompany will reflect the owner¶svalues, beliefs, and vision.values, beliefs, and vision.

Sets the tone for the entire companySets the tone for the entire company

and guides the decisions people make.and guides the decisions people make. Example: Fetzer VineyardsExample: Fetzer Vineyards

http://www.fetzer.com/http://www.fetzer.com/




Step 2: Assess Company StrengthsStep 2: Assess Company Strengths

and Weaknessesand Weaknesses StrengthsStrengths

Positive internal factors thatPositive internal factors that

contribute to accomplishing thecontribute to accomplishing the

mission, goals, and objectives.mission, goals, and objectives.

WeaknessesWeaknesses

Negative internal factors that inhibitNegative internal factors that inhibit

the accomplishment of the mission,the accomplishment of the mission,

goals, and objectives.goals, and objectives.




Step 3: Scan for OpportunitiesStep 3: Scan for Opportunities

and Threatsand Threats OpportunitiesOpportunities

Positive external factors the company canPositive external factors the company canemploy to accomplish its mission, goals, andemploy to accomplish its mission, goals, andobjectives.objectives.

ThreatsThreats

Negative external factors that inhibit the firm'sNegative external factors that inhibit the firm'sability to accomplish its mission, goals, andability to accomplish its mission, goals, andobjectives.objectives.



External Market ForcesExternal Market Forces

Competitive Economic

Political and

Regulatory

Technological

Social and

Demographic




Step 4: Identify K ey SuccessStep 4: Identify K ey Success

FactorsFactors K ey success factors:K ey success factors:

relationships between arelationships between a

controllable variable and acontrollable variable and a

critical factor that influence acritical factor that influence a

company¶s ability to competecompany¶s ability to compete

in the market.in the market.

The keys to unlocking theThe keys to unlocking the

secrets of competingsecrets of competing

successfully in a particularsuccessfully in a particular

market segment.market segment.




Step 5: Analyze CompetitorsStep 5: Analyze Competitors

Analyzing key competitors allows an entrepreneurAnalyzing key competitors allows an entrepreneur

to:to:

avoid surprises from existing competitors¶ newavoid surprises from existing competitors¶ new

strategies and tactics.strategies and tactics. identify potential new competitors and theidentify potential new competitors and the

threats they pose.threats they pose.

improve reaction time to competitors¶ actions.improve reaction time to competitors¶ actions.

anticipating rivals¶ next strategic moves.anticipating rivals¶ next strategic moves.





Techniques doTechniques do not not require unethicalrequire unethical

behavior:behavior:

Monitor industry and trade publications.Monitor industry and trade publications.

Talk to customers and suppliers.Talk to customers and suppliers.Listen to employees, especially salesListen to employees, especially sales

representatives and purchasing agents.representatives and purchasing agents.

Attend trade shows and conferences.Attend trade shows and conferences.





Techniques doTechniques do not not require unethicalrequire unethicalbehavior:behavior:

Study competitors' literature andStudy competitors' literature and"benchmark" their products and services."benchmark" their products and services.

Get competitors' credit reports.Get competitors' credit reports.

Check out the local library.Check out the local library.

Use the World Wide Web to learn more aboutUse the World Wide Web to learn more aboutcompetitors.competitors.

Visit competing businesses to observe theirVisit competing businesses to observe theiroperations.operations.



Sample Competitive Profile Matrix

Key Success Factors Your Business Competitor 1 Competitor 2

(from Step 4) Weight Rating

Weighted

Score Rating

Weighted

Score Rating

Weighted

ScoreMarket Share 0.10 3 0.30 2 0.20 3 0.30

Price Competitiveness 0.20 1 0.20 3 0.60 4 0.80

Financial Strength 0.10 2 0.20 3 0.30 2 0.20

Product Quality 0.40 4 1.60 2 0.80 1 0.40

Customer Loyalty 0.20 3 0.60 3 0.60 2 0.40

Total 1.00 2.90 2.50 2.10




K nowledge ManagementK nowledge Management

The practice of gathering, organizing, andThe practice of gathering, organizing, and

disseminating the collective wisdom anddisseminating the collective wisdom and

experience of a company¶s employees for theexperience of a company¶s employees for the

purpose of strengthening its competitive position.purpose of strengthening its competitive position.

K nowledge management involves:K nowledge management involves:

Taking inventory of the special knowledge the peopleTaking inventory of the special knowledge the people

in the company possess.in the company possess.

Organizing that knowledge and disseminating it toOrganizing that knowledge and disseminating it to

those who need it.those who need it.




Step 6: Create Company GoalsStep 6: Create Company Goals

and Objectivesand Objectives GoalsGoals -- broad, longbroad, long--range attributes to berange attributes to be

accomplished.accomplished.

³BHAGS´³BHAGS´ ± ± one factor that sets apart successfulone factor that sets apart successfulcompanies from unsuccessful ones.companies from unsuccessful ones.

ObjectivesObjectives -- more detailed, specific targets of more detailed, specific targets of performance that are S.M.A.R.T.performance that are S.M.A.R.T.

SSpecificpecific

MMeasurableeasurable

AAssignablessignable

R Realistic (yet challenging)ealistic (yet challenging)

TTimelyimely



Step 7: Formulate StrategiesStep 7: Formulate Strategies

StrategyStrategy

A ³road map´ that guides a company through aA ³road map´ that guides a company through a

turbulent environment as it seeks to fulfill its mission,turbulent environment as it seeks to fulfill its mission,

goals, and objectives.goals, and objectives.

A game plan for winning.A game plan for winning.

Three basic strategies:Three basic strategies:

Strategy?

Cost leadership

Differentiation

Focus



Three Strategic OptionsThree Strategic Options

Competitive AdvantageCompetitive Advantage

TargetTarget

MarketMarket

IndustryIndustry

NicheNiche

Uniqueness PerceivedUniqueness Perceived

by the Customer by the Customer

Low CostLow Cost

PositionPosition

Differentiation Low Cost

DifferentiationFocus

CostFocus




Cost LeadershipCost Leadership

Goal: to beGoal: to be thethe lowlow--cost producer in thecost producer in theindustry or market segment.industry or market segment.

Advantages:Advantages:

reaching buyers who buy on the basis of price.reaching buyers who buy on the basis of price.

power to set the industry¶s price floor.power to set the industry¶s price floor.

Works well when:Works well when:

buyers are sensitive to price changes.buyers are sensitive to price changes.

when competing firms sell the same commoditywhen competing firms sell the same commodity

products.products. when a company can benefit from economies of when a company can benefit from economies of

scale.scale.




DifferentiationDifferentiation

Company seeks to build customer loyalty byCompany seeks to build customer loyalty bypositioning its goods or services in a unique orpositioning its goods or services in a unique ordifferent fashion.different fashion.

Idea is to be unique at something customersIdea is to be unique at something customers

value.value. K ey: Build basis for differentiation on a coreK ey: Build basis for differentiation on a core

competency, those things that the smallcompetency, those things that the smallcompany is uniquely good at doing incompany is uniquely good at doing in

comparison to its competitors.comparison to its competitors. Example: East Bank ClubExample: East Bank Club




FocusFocus

Company selects one or more customerCompany selects one or more customersegments in a market, identifies customers¶segments in a market, identifies customers¶special needs, wants, or interests, and thenspecial needs, wants, or interests, and thentargets them with a product or service designedtargets them with a product or service designed

specifically for them.specifically for them. Strategy builds onStrategy builds on differencesdifferences among marketamong market

segments.segments.

Rather than try to serve the total market, theRather than try to serve the total market, the

company focuses on serving a niche (or severalcompany focuses on serving a niche (or severalniches) within that market.niches) within that market.

Example: Clown Shoes and PropsExample: Clown Shoes and Props




Step 9: Translate StrategiesStep 9: Translate Strategies

into Action Plansinto Action Plans

Create projects by defining:Create projects by defining:

PurposePurpose

ScopeScope

ContributionContribution

Resource requirementsResource requirements

TimingTiming




Step 10: Establish Accurate ControlsStep 10: Establish Accurate Controls

The plan establishes the standards againstThe plan establishes the standards against

which actual performance is measured.which actual performance is measured.

Entrepreneur must:Entrepreneur must:

identify and track key performanceidentify and track key performance

indicators.indicators.

Take corrective action.Take corrective action.




Balanced ScorecardsBalanced Scorecards

A set of measurements unique to a companyA set of measurements unique to a company

that includes both financial and operationalthat includes both financial and operational

measuresmeasures Gives managers a quick, yet comprehensive,Gives managers a quick, yet comprehensive,

picture of a company¶s overall performance.picture of a company¶s overall performance.




Balanced ScorecardsBalanced Scorecards

Four Perspectives:Four Perspectives:

Customer: How do customers see us?Customer: How do customers see us?

Internal Business: At what must we excel?Internal Business: At what must we excel?

Innovation and Learning: Can we continueInnovation and Learning: Can we continue

to improve and create value?to improve and create value?

Financial: How do we look to shareholders?Financial: How do we look to shareholders?



The Balanced Scorecard Links Performance Measures.The Balanced Scorecard Links Performance Measures.

Financial PerspectiveFinancial Perspective

GoalsGoals MeasuresMeasures

Customer PerspectiveCustomer PerspectiveGoalsGoals MeasuresMeasures

Internal Business PerspectiveInternal Business PerspectiveGoalsGoals MeasuresMeasures

Innovation and Learning PerspectiveInnovation and Learning Perspective

GoalsGoals MeasuresMeasures

How do customersHow do customers

see us?see us?

How do we look How do we look

to shareholders?to shareholders?

At what mustAt what must

we excel?we excel?

Can we continue toCan we continue to

improve and createimprove and create

value?value?

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Chap02 Strategic Management and the Entrepreneur

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