3)strategic management ed updated

8/13/2019 3)Strategic Management ED Updated

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Strategic Management

and the Entrepreneur


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Learning Objective

Upon completion of this chapter the students willbe able to

Understanding the importance of strategic management

to a small business.

Explain why and how a small business must create acompetitive advantage in the market

Develop a strategic plan for a business using the steps

in the strategic management process.

Discuss the characteristics of low-cost, differentiation,and focus strategies and know when to employ them.

Understand the importance of control as the balanced

scorecard in the planning process


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A Major Shift. . .

Without strategic plan a company can have

success for a short time.

Shift in the world economy from a base of

financial capital to intellectual capital.

Human- talent, skill, ability

Structural- accumulated knowledge and

experience Customer- customer base, positive

reputation, ongoing relationship and

goodwill.


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Strategic Management

Is crucial to building a successful

business.

Involves developing a game plan to

guide a company as it strives toaccomplish its mission, goals , and

objectives, and to keep it on its desired

course.


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Strategic Management and

Competitive Advantage

The goal of developing a strategicplan is to creating a competitiveadvantage,

the aggregation of factors that sets acompany apart from its competitors and

gives it a unique position in the market.

Example: Blockbuster Video

Inventory cost is one tenth of theinventory

Greater collection


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Key: Core Competencies

Only building competitive advantage is notenough sustainable competitive advantagecan be built by developing set of corecompetencies

Unique set of capabilities a company develops inkey areas, (such as superior quality, customerservice, innovation, team-building, flexibility,responsiveness, and others) that allow it to vaultpast competitors.

They are what a company does best.

Best to rely on a natural advantage (oftenlinked to a companys smallness).

Examples: Netflixonline DVD rental Service


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Strategic Management Process

Step 1. Develop a vision and translate it into a mission

statement.Step 2. Assess strengths and weaknesses.

Step 3. Scan environment for opportunities and threats.

Step 4. Identify key success factors.

Step 5. Analyze competition.

Step 6. Create goals & objectives.

Step 7. Formulate strategies.

Step 8. Translate plans into actions.

Step 9. Establish accurate controls.


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Step 1:

Develop a Visionand Create a Mission Statement

Vision Purpose is to focus everyones attention on

the same target and to inspire them to reach it

An expression of what an entrepreneur standsfor and believes in.

A clearly defined vision: Provides directiondetermine the path

Determines decisionsinfluence decision

Motivates people.- inspire people for action Mission statement

Addresses question:" What business are wein?


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Step 2:

Assess Company Strengths and Weaknesses

Strengths Positive internal factors that contribute

to accomplishing the mission, goals,

and objectives.

Important skills, knowledge, resources

that contribute to the firms success

Weaknesses

Negative internal factors that slow

down the accomplishment of the

mission, goals, and objectives.


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Step 3:

Scan for Opportunities and Threats

Opportunities

Positive external factors the company can employ

to accomplish its mission, goals, and objectives.

Restaurant industry analysis

Big Toys Coach Works Threats

Negative external factors that inhibit the firm's

ability to accomplish its mission, goals, and

objectives. Competitor, government regulation, economic

recession, interest rate raise, technological

advances

Wal-Mart


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The Power of External Market Forces

Competitive Economic

Political and

Regulatory

Technological

Social and

Demographic


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Step 4:

Identify Key Success Factors

Key success factors: relationships

between a controllable variable and

a critical factor that influence a

companys ability to compete in the

market. The keys to unlocking the secrets

of competing successfully in a

particular market segment.

Cost factors

Product quality

Solid relationship


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Step 5:

Analyze Competitors

Analyzing key competitors allows an

entrepreneur to:

Avoid surprises from existingcompetitors new strategies and

tactics.

Identify potential new competitors and

the threats they pose. Improve reaction time to competitors

actions.

Anticipate rivals next strategic moves.


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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 0.40Customer Loyalty 0.20 3 0.60 3 0.60 2 0.40

Total 1.00 2.90 2.50 2.10


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Step 6:

Create Company Goals and Objectives

Goals and objectives give them target toaim for and provide a basis forevaluating performance.

Goals - broad, long-range attributes to

be accomplished. Objectives - more detailed, specific

targets of performance that areS.M.A.R.T.

Specific Measurable

Attainable

Realistic (yet challenging)

Timely


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Step 7:

Formulate Strategies

Strategy - a road map of the actions an

entrepreneur draws up to fulfill a companys

mission, goals, and objectives. It is the

companys game plan for gaining a competitive

advantage. Three basic strategies:

Strategy?

Cost leadership

Differentiation

Focus


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Three Strategic Options


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Cost Leadership

Goal: to be thelow-cost producer in theindustry (or market segment).

Low-cost leaders have an advantage inreaching buyers who buy on the basis of

price, and they have the power to set theindustrys price floor.

Works well when:

Buyers are sensitive to price changes. Competing firms sell the same commodity

products.

A company can benefit from economies of

scale.


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Cost Leadership

Example: McDonald's has been extremelysuccessful with this strategy by offering basic fast-food meals at low prices. They are able to keepprices low through a division of labor that allows itto hire and train inexperienced employees rather

than trained cooks. It also relies on few managerswho typically earn higher wages. These staffsavings allow the company to offer its foods forbargain prices.


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Differentiation

Company seeks to build customer loyaltyby positioning its goods or services in aunique or different fashion.

Idea is to be special at somethingcustomers value.

Key: Build basis for differentiation on adistinctive competence, something that thesmall company is uniquely good at doing in

comparison to its competitors. Examples:

Federal Express with superior service;

Caterpillar with high spare parts availability


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Focus

Company selects one or morecustomer segments in a market,identifies customers special needs,wants, or interests, and then targetsthem with a product or servicedesigned specifically for them.

Strategy builds on differencesamong

market segments.


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Focus

Rather than try to serve the total

market, the company focuses onserving a niche (or several niches)within thatmarket.

Example, if you operate a bakery that onlyprepares wedding cakes, you would aim tobe the cheapest producer of wedding cakes,although your competitors might producecheaper cakes of other varieties.

Examples: Its A Wrap! Production WardrobeSales . Sell wardrobe, props and equipmentsfrom several of the studios recent moviesfor the customers who wanted to wear what

the stars had worn.


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Step 8:

Translate Strategies into Action Plans

Create projects by defining: Purpose

Scope

Contribution Resource requirements

Timing


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Step 9:

Establish Accurate Controls

The plan establishes the standardsagainst which actual performance is

measured.

Entrepreneur must: Identify and track key performance

indicators.

Take corrective action.


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Balanced Scorecards

A set of measurements unique to a companythat includes both financial and operationalmeasures

Gives managers a quick, yet comprehensive,

picture of a companys overall performance.

Four Perspectives: Customer: How do customers see us?

Internal Business: At what must we excel?

Innovation and Learning: Can we continue to

improve and create value? Financial: How do we look to shareholders?


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Balanced Scorecards

Four Perspectives:

Customer: How do customers see us? Time : how long it takes to deliver

Quality :reliability, durability accuracy of the product

Performance : performance and expectation

Service : how well it meets customer expectation of value?

Internal Business: At what must we excel? Quality, cycle time, productivity, cost, other that employees

directly influence

Innovation and Learning: Can we continue to improve

and create value? Continuous improvement

Financial: How do we look to shareholders? Profitability, growth and shareholder value.

Th B l d S d Li k P f M


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The Balanced Scorecard Links Performance Measures.

Financial Perspective

Goals Measures

Customer Perspective

Goals Measures

Internal Business Perspective

Goals Measures

Innovation and Learning Perspective

Goals Measures

How do customers

see us?

How do we look

to shareholders?

At what must we

excel?

Can we continue to

improve and create

value?

3)strategic management ed updated

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