Chapter 3: Strategic Mgt 1 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Strategic...

Chapter 3: Strategic Mgt 1Copyright 2005 Prentice Hall Inc. A Pearson Education Company

Strategic Managementand the Entrepreneur

Strategic Managementand the Entrepreneur


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

. . . from financial capital to . . . from financial capital to intellectual capital.intellectual capital.HumanHumanStructuralStructuralCustomerCustomer


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 it mission, goals , and objectives, and to keep it on its desired course.on its desired course.


Strategic Management and Strategic Management and Competitive AdvantageCompetitive Advantage

Developing a strategic plan is Developing a strategic plan is crucial to creating a crucial to creating a competitive competitive advantageadvantage, the aggregation of , the aggregation of factors that sets a company factors that sets a company apart from its competitors and apart from its competitors and gives it a unique position in the gives it a unique position in the market.market.

Example: Blockbuster VideoExample: Blockbuster Video


Key: Core CompetenciesKey: Core Competencies

Unique set of capabilities a company develops Unique set of capabilities a company develops in key areas, such as superior quality, customer in key areas, such as superior quality, customer service, innovation, team-building, flexibility, service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault responsiveness, and others that allow it to vault past competitors. past competitors. They are what a company does best. They are what a company does best. Best to rely on a Best to rely on a natural advantage natural advantage (often linked (often linked

to a company’s smallness).to a company’s smallness). Examples: Netflix and Tom’s of MaineExamples: Netflix and Tom’s of Maine


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 5.Step 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 VisionDevelop a Vision and and Create a Mission Statement Create a Mission Statement

Vision – an expression of what an Vision – an 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 Create a Mission StatementCreate a Mission Statement

Addresses question:"What business Addresses question:"What business are we in?”are we in?”

The mission is a written expression of The mission is a written expression of how the company will reflect the how the company will reflect the owner’s values, beliefs, and vision – owner’s values, beliefs, and vision – more than just “making money.”more than just “making money.”

Examples: Chick-fil-A and Ben & Examples: Chick-fil-A and Ben & Jerry’s Homemade. Jerry’s Homemade.


Step 1: Develop a Vision andStep 1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

(continued)(continued)

Study: 89% of employees say their Study: 89% of employees say their companies have a mission statementcompanies have a mission statementbut…but…

Only 23% of workers believe their Only 23% of workers believe their company’s mission statement has company’s mission statement has become a way of doing business!become a way of doing business!


Step 2: Assess Company Strengths Step 2: Assess Company Strengths

and Weaknessesand Weaknesses StrengthsStrengths

Positive internal factors that Positive internal factors that contribute to accomplishing the contribute to accomplishing the mission, goals, and objectives.mission, goals, and objectives.

WeaknessesWeaknesses Negative internal factors that inhibit Negative internal factors that inhibit

the accomplishment of the mission, the accomplishment of the mission, goals, and objectives.goals, and objectives.


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

OpportunitiesOpportunities Positive external factors the company can Positive external factors the company can

employ to accomplish its mission, goals, and employ to accomplish its mission, goals, and objectives.objectives.

ThreatsThreats Negative external factors that inhibit the firm's Negative external factors that inhibit the firm's

ability to accomplish its mission, goals, and ability to accomplish its mission, goals, and objectives.objectives.

The Power of External Market ForcesThe Power of External Market Forces

CompetitiveCompetitive EconomicEconomic

Political and Regulatory

Political and Regulatory

TechnologicalTechnological

Social and Demographic

Social and Demographic


Step 4: Identify Key Success Step 4: Identify Key Success FactorsFactors

Key success factors: Key success factors: relationships between a relationships between a controllable variable and a controllable variable and a critical factor that influence a critical factor that influence a company’s ability to compete company’s ability to compete in the market.in the market.

The keys to unlocking the The keys to unlocking the secrets of competing secrets of competing successfully in a particular successfully in a particular market segment.market segment.

Identifying Key Success FactorsIdentifying Key Success Factors

List the skills, characteristics, and core competencies that your List the skills, characteristics, and core competencies that your business must possess if it is to be successful in its market segment.business must possess if it is to be successful in its market segment.

Key Success FactorKey Success Factor How Your Company RatesHow Your Company Rates

1.1. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

2.2. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

3.3. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

4.4. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

5.5. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

Conclusions:Conclusions:


Step 5: Analyze CompetitorsStep 5: Analyze Competitors

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

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

threats they pose.threats they pose. Improve reaction time to competitors’ actions.Improve reaction time to competitors’ actions. Anticipate rivals’ next strategic moves. Anticipate rivals’ next strategic moves.


Step 5: Analyze CompetitorsStep 5: Analyze Competitors(continued)(continued)

Techniques do Techniques do notnot require unethical behavior: require unethical behavior: Monitor industry and trade publications.Monitor industry and trade publications. Talk to customers and suppliers.Talk to customers and suppliers. Regularly debrief employees, especially sales Regularly debrief employees, especially sales

representatives and purchasing agents.representatives and purchasing agents. Attend trade shows and conferences and study Attend trade shows and conferences and study

competitors’ sales literature.competitors’ sales literature. Watch for employment ads from competitors to get an Watch for employment ads from competitors to get an

idea about their plans for the future. idea about their plans for the future. Conduct patent searches for patents competitors have Conduct patent searches for patents competitors have

filed. filed. Get EPA reports that provide information about the Get EPA reports that provide information about the

factories of competing manufacturers.factories of competing manufacturers.


Step 5: Analyze CompetitorsStep 5: Analyze Competitors(continued)(continued)

Techniques do Techniques do notnot require unethical behavior: require unethical behavior: Learn about the kinds of equipment and raw materials Learn about the kinds of equipment and raw materials

competitors are importing from the competitors are importing from the Journal of Journal of Commerce Port Import Export Reporting ServiceCommerce Port Import Export Reporting Service..

Buy competitors’ products and “benchmark” them. Buy competitors’ products and “benchmark” them. Get competitors' credit reports.Get competitors' credit reports. Check out the reports publicly-held competitors must Check out the reports publicly-held competitors must

file with the SEC. file with the SEC. Check out the resources in your local library.Check out the resources in your local library. Use the World Wide Web to learn more about Use the World Wide Web to learn more about

competitors.competitors. Visit competing businesses to observe their operations.Visit competing businesses to observe their operations.

Sample Competitive Profile Matrix

Key Success Factors Your Business Competitor 1 Competitor 2

(from Step 4) Weight RatingWeighted

Score RatingWeighted

Score RatingWeighted

ScoreMarket Share 0.10 3 0.30 2 0.20 3 0.30Price Competitiveness 0.20 1 0.20 3 0.60 4 0.80Financial Strength 0.10 2 0.20 3 0.30 2 0.20Product Quality 0.40 4 1.60 2 0.80 1 0.40Customer Loyalty 0.20 3 0.60 3 0.60 2 0.40

Total 1.00 2.90 2.50 2.10


Knowledge ManagementKnowledge Management

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

Knowledge management involves:Knowledge management involves: Taking inventory of the special knowledge the people Taking inventory of the special knowledge the people

in the company possess. in the company possess. Organizing that knowledge and disseminating it to Organizing that knowledge and disseminating it to

those who need it. those who need it.


Step 6: Create Company GoalsStep 6: Create Company Goalsand Objectivesand Objectives

Goals - broad, long-range attributes to be Goals - broad, long-range attributes to be accomplished. “accomplished. “BHAGsBHAGs””

Objectives - more detailed, specific targets of Objectives - more detailed, specific targets of performance that are performance that are S.M.A.R.T.S.M.A.R.T. SSpecificpecific MMeasurableeasurable AAttainablettainable RRealistic (yet challenging)ealistic (yet challenging) TTimelyimely


Step 8: Formulate StrategiesStep 8: Formulate Strategies

Strategy - a road map of the actions an Strategy - a road map of the actions an entrepreneur draws up to fulfill a company’s entrepreneur draws up to fulfill a company’s mission, goals, and objectives. It is the company’s mission, goals, and objectives. It is the company’s game plan for gaining a competitive advantage.game plan for gaining a competitive advantage.

Three basic strategies:Three basic strategies:

Strategy?

Cost leadershipCost leadership

DifferentiationDifferentiation

FocusFocus

Three Strategic OptionsThree Strategic Options

Competitive AdvantageCompetitive Advantage

Target Target MarketMarket

IndustryIndustry

NicheNiche

Uniqueness PerceivedUniqueness Perceived by the Customerby the Customer

Low CostLow CostPositionPosition

DifferentiationDifferentiation Low CostLow Cost

Differentiation FocusDifferentiation Focus

CostFocusCost

Focus


Cost LeadershipCost Leadership Goal: to be Goal: to be thethe low-cost producer in the industry low-cost producer in the industry

(or market segment).(or market segment). Low-cost leaders have an advantage in reaching Low-cost leaders have an advantage in reaching

buyers who buy on the basis of price, and they buyers who buy on the basis of price, and they have the power to set the industry’s price floor.have the 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. Competing firms sell the same commodity products.Competing firms sell the same commodity products. A company can benefit from economies of scale.A company can benefit from economies of scale.

Example: American Champion AircraftExample: American Champion Aircraft


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

positioning its goods or services in a unique or positioning its goods or services in a unique or different fashion.different fashion.

Idea is to be special at something customers Idea is to be special at something customers value.value.

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

Examples: It’s A Wrap! Production Wardrobe Examples: It’s A Wrap! Production Wardrobe Sales and the Ice Hotel Sales and the Ice Hotel


FocusFocus Company selects one or more customer segments in Company selects one or more customer segments in

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

Strategy builds on Strategy builds on differencesdifferences among market among market segments.segments.

Rather than try to serve the total market, the Rather than try to serve the total market, the company focuses on serving a niche (or several company focuses on serving a niche (or several niches) within that market. niches) within that market.

Examples: The Apostolos Group and Panoz Auto Examples: The Apostolos Group and Panoz Auto DevelopmentDevelopment


Step 8: Translate StrategiesStep 8: Translate Strategies into Action Plans into Action Plans

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


Step 9: Establish Accurate ControlsStep 9: Establish Accurate Controls

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

indicators.indicators. Take corrective action.Take corrective action.


Balanced ScorecardsBalanced Scorecards

A set of measurements unique to a company A set of measurements unique to a company that includes both financial and operational that 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(continued)(continued)

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 continue Innovation 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 PerspectiveGoals Measures

Customer PerspectiveGoals Measures

Internal Business PerspectiveGoals Measures

Innovation and Learning PerspectiveGoals Measures

How do customersHow do customerssee us?see us?

How do we lookHow do we lookto shareholders?to shareholders?

At what must weAt what must weexcel?excel?

Can we continue toCan we continue toimprove and createimprove and createvalue?value?

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