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

Copyright Copyright ©©2009 Pearson Education, Inc. Publishing as Prentice Hall2009 Pearson Education, Inc. Publishing as Prentice Hall 11Chapter 2 Strategic ManagementChapter 2 Strategic Management

Strategic Managementand the Entrepreneur


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, revolutionize their industries, and, in the process, create a in the process, create a competitive edge 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 capital HumanHuman StructuralStructural CustomerCustomer


Strategic ManagementStrategic Management

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

Involves developing a game plan to Involves developing a game plan to guide a company as it strives to guide a company as it strives to accomplish its mission, goals, and accomplish its mission, goals, and objectives, and to keep it on its objectives, and to keep it on its desired coursedesired course


Strategic Management Strategic Management and Competitive Edgeand Competitive Edge Developing a strategic plan Developing a strategic plan

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

Example: Honest TeaExample: Honest Tea


Key: Core Key: Core CompetenciesCompetencies Unique set of skills, knowledge, or Unique set of skills, knowledge, or

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


Key: Core Key: Core CompetenciesCompetencies

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

for everything a company doesfor everything a company does Difficult for competitors to duplicateDifficult for competitors to duplicate Must provide customers with a Must provide customers with a

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

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


Strategic Strategic Management Management ProcessProcess

Step 1Step 1: Develop a vision and : Develop a vision and translate it into a mission statementtranslate it into a mission statement

Step 2Step 2: Assess strengths and : Assess strengths and weaknessesweaknesses

Step 3Step 3: Scan environment for : Scan environment for opportunities and threatsopportunities and threats

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


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

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

objectivesobjectives Step 7Step 7: Formulate : Formulate

strategiesstrategies Step 8Step 8: Translate plans into : Translate plans into

actionsactions Step 9Step 9: Establish accurate : Establish accurate

controlscontrols

(continued)(continued)


Step 1: Step 1: Develop a VisionDevelop a Vision and Create a Mission and Create a Mission StatementStatement

Vision – an expression of what an Vision – an expression of what an entrepreneur stands for and believes entrepreneur stands for and believes in; the “sixth sense that tells us why in; the “sixth sense that tells us why we make a difference in the world” we make a difference in the world”

Vision is based on an entrepreneur’s Vision is based on an entrepreneur’s values - 3 to 6 core values 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 Step 1: Develop a Vision and Cand Create a Mission reate a Mission StatementStatement

Mission - addresses Mission - addresses question:"What business are we question:"What business are we in?”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 Sets the tone for the entire company and guides the company and guides the decisions people make decisions people make


Step 1: Develop a Vision Step 1: Develop a Vision and Cand Create a Mission reate a Mission StatementStatement

Elements:Elements: PurposePurpose Business we are inBusiness we are in ValuesValues

Example: Fetzer Vineyards Example: Fetzer Vineyards


Step 2: Assess Step 2: Assess Company Strengths Company Strengths and Weaknessesand Weaknesses

StrengthsStrengths Positive internal factors that Positive internal factors that

contribute to accomplishing contribute to accomplishing the mission, goals, and the mission, goals, and objectivesobjectives

WeaknessesWeaknesses Negative internal factors that Negative internal factors that

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


Step 3: Scan for Step 3: Scan for Opportunities and Opportunities and ThreatsThreats

OpportunitiesOpportunities Positive external options the Positive external options the

company can exploit to company can exploit to accomplish its mission, goals, accomplish its mission, goals, and objectivesand objectives

ThreatsThreats Negative external forces that Negative external forces that

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


65 Million Years Ago…65 Million Years Ago…

Today…movie theater owners – threats?

External Market External Market ForcesForces

CompetitiveCompetitive EconomicEconomic

Political and Regulatory

Political and Regulatory

TechnologicalTechnological

Social and DemographicSocial 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 factors that influence a company’s ability to a company’s ability to compete successfully compete successfully in an industryin an 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 moremore competitive competitive

Factors: Factors: Smarter rivalsSmarter rivals More price competitionMore price competition Increased customer awareness Increased customer awareness


CompetitorCompetitorAnalysisAnalysis

Direct competitorsDirect competitors Offer the same products and servicesOffer the same products and services Customers often compare prices, features and Customers often compare prices, features and

deals among these competitors when they shopdeals among these competitors when they shop Significant competitorsSignificant competitors

Offer some of the same or similar products or Offer some of the same or similar products or servicesservices

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 Offer same or similar products in only a small number of areasnumber of areas



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

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

threats they posethreats they pose Improve reaction time to competitors’ Improve reaction time to competitors’

actionsactions Anticipate rivals’ next strategic moves Anticipate rivals’ next strategic moves Improve ability to differentiate your Improve ability to differentiate your

company from competitors company 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 Listen to employees, especially

sales representatives and sales representatives and purchasing agentspurchasing agents

Attend trade shows and Attend trade shows and conferencesconferences



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 Search databases for types of materials

and equipment competitors are and equipment competitors are importingimporting



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

"benchmark" their products and services"benchmark" their products and services Get competitors' credit reports and SEC Get competitors' credit reports and SEC

filingsfilings Check out the local libraryCheck out the local library Use the World Wide Web to learn more Use the World Wide Web to learn more

about competitorsabout competitors Visit competing businesses to observe Visit competing businesses to observe

their operationstheir operations





Step 6: Create Step 6: Create Company Goals and Company Goals and ObjectivesObjectives

Goals – broad, long-range attributes to be Goals – broad, long-range attributes to be accomplished; general and abstractaccomplished; general and abstract ““BHAGS” – one factor that sets apart BHAGS” – one factor that sets apart

successful companies from unsuccessful onessuccessful companies from unsuccessful ones Objectives – more detailed, specific Objectives – more detailed, specific

targets of performance that are S.M.A.R.T.targets 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 through a turbulent environment as it seeks to fulfill its mission, goals, and seeks to fulfill its mission, goals, and objectives 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


Three Strategic Three Strategic OptionsOptionsThree basic strategies:Three basic strategies:

Strategy?

Cost leadershipCost leadership

DifferentiationDifferentiation

FocusFocus

Three Strategic Three Strategic OptionsOptions

Source of Competitive AdvantageSource of Competitive Advantage

Target Target MarketMarket

IndustryIndustry

NicheNiche

Uniqueness PerceivedUniqueness Perceived by the Customerby the Customer

Low-CostLow-CostPositionPosition

DifferentiationDifferentiation

Low CostLow Cost

Differentiation Focus

Differentiation Focus

CostFocusCost

Focus



Cost LeadershipCost Leadership

Goal: to be Goal: to be thethe low-cost producer in the low-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 A company can benefit from economies of

scale scale


DifferentiationDifferentiation Company seeks to build customer Company seeks to build customer

loyalty by positioning its goods or loyalty by positioning its goods or services in a unique or different fashionservices in a unique 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 distinctive competence, something that a small company is uniquely good at a small company is uniquely good at doing in comparison to its competitors doing in comparison to its competitors

Example: PharmacaExample: Pharmaca


FocusFocus Company selects one or more Company selects one or more

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

Strategy builds on Strategy builds on differencesdifferences among market segmentsamong market segments


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

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

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


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 Step 9: Establish Accurate ControlsAccurate Controls

The plan establishes the standards The plan establishes the standards against which actual performance is against which actual performance is measured 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 andand operational measures operational measures

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



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 Innovation and Learning: Can we continue

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



Customer

InternalBusiness

Innovation and Learning

Financial

CorporateCitizenship


All rights reserved. No part of this publication may All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, electronic, mechanical, photocopying, recording, or otherwise, without the prior written or otherwise, without the prior written permission of the publisher. Printed in the United permission of the publisher. Printed in the United States of America.States of America.

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

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