chapter 3: strategic management1 copyright 2002 prentice hall publishing company strategic...

Chapter 3: Strategic Management 1Copyright 2002 Prentice Hall Publishing Company

Strategic Managementand the Entrepreneur

Strategic Managementand the Entrepreneur


Strategic ManagementStrategic Management

Crucial to building a successful business. 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.


Is Strategic Planning Really That Is Strategic Planning Really That Important?Important?

Study of 500 small companies:Study of 500 small companies: One of the most significant factors in One of the most significant factors in

distinguishing growing companies from distinguishing growing companies from those in decline: use of a written business those in decline: use of a written business plan.plan.

Another study:Another study: Only 12% of small companies had a long-Only 12% of small companies had a long-

range plan in writing. range plan in writing.


Strategic Management and Strategic Management and Competitive EdgeCompetitive Edge

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

Example: Example: Stardust Technologies, Inc.Stardust Technologies, Inc.


Strategic Management ProcessStrategic Management Process

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

Step 2Step 2: Define core competencies and target : Define core competencies and target market and identify desired market position.market and identify desired market position.

Step 3Step 3: Assess strengths and weaknesses.: Assess strengths and weaknesses.

Step 4Step 4: Scan environment for opportunities : Scan environment for opportunities and threats.and threats.

Step 5Step 5: Identify key success factors: Identify key success factors..


Strategic Management ProcessStrategic Management Process

Step 6Step 6: Analyze competition: Analyze competition..

Step 7Step 7: Create goals and objectives.: Create goals and objectives.

Step 8Step 8: Formulate strategies: Formulate strategies..

Step 9Step 9: Translate plans into actions: Translate plans into actions..

Step 10Step 10: Establish accurate controls: Establish accurate controls..

(continued)(continued)


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 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

The Mission Statement addresses question: The Mission Statement addresses question: “What business are we in?”“What business are we in?”

The mission is a written expression of how The mission is a written expression of how the company will reflect the owner’s values, the company will reflect the owner’s values, beliefs, and vision.beliefs, and vision.

The company’s mission depicts its The company’s mission depicts its charactercharacter, , identityidentity, and , and scope of operationscope of operation in enough in enough detail to distinguish the company in the detail to distinguish the company in the marketplace.marketplace.


Vision and MissionVision and Mission(Review – different view)(Review – different view)

Vision: Vision: An overall picture of where the entire An overall picture of where the entire

organization would like to be in the organization would like to be in the

future future

Mission: Mission: A statement of what the various A statement of what the various

organizational units do and what they organizational units do and what they

hope to accomplish in alignment with hope to accomplish in alignment with

the organizational visionthe organizational vision


Prime Inc.Prime Inc.Mission and ValuesMission and Values

MissionMission

To prosper while providing To prosper while providing excellent service to our excellent service to our customerscustomers

© 2001 by Prentice Hall, Inc.

Prime ValuesPrime ValuesCustomers—Finding, servicing, Customers—Finding, servicing, and keeping customers and keeping customers guarantees our existence.guarantees our existence.

Service—We will provide quality Service—We will provide quality service that meets or exceeds our service that meets or exceeds our customers’ requirements.customers’ requirements.

Value—We will price our service Value—We will price our service at rates that are a true value to at rates that are a true value to our customers.our customers.

Profit—To remain free and Profit—To remain free and provide security for our company provide security for our company and associates, we must earn a and associates, we must earn a profit.profit.


The Bama Companies, Inc.The Bama Companies, Inc.Mission and VisionMission and Vision

MissionMission

People helping people be People helping people be successful.successful.


VisionVision

To delight our customers with To delight our customers with the Bama experience…again the Bama experience…again and again by setting the and again by setting the standard, and being the best standard, and being the best in our products, our service, in our products, our service, and our people.and our people.


Aire-MasterAire-MasterMission and ValuesMission and Values

MissionMission

To provide invaluable To provide invaluable services that enhance the services that enhance the customer’s image of quality.customer’s image of quality.


ValuesValuesPositive mental attitudePositive mental attitude

Teamwork and communicationTeamwork and communication

Concern for othersConcern for others

Going the extra mileGoing the extra mile

Innovative thinkingInnovative thinking

Training and educationTraining and education

HonestyHonesty

ReliabilityReliability

ExcellenceExcellence

Constant improvementConstant improvement


Important Components of Important Components of Organizational VisionOrganizational Vision

Organizational

PurposeBroad Goals

Core Values and Beliefs

Summary of What

Organization Does


Components of Organizational Components of Organizational Vision and Mission StatementsVision and Mission Statements

Markets

Technology

Concern for Survival, Profits,

and Growth

Products orServices

Self-concept

Concern forPublic Image

Concern forEmployees

Philosophy

Customers


Step 2: Step 2: Define Core CompetenciesDefine Core Competencies and Market Positionand Market Position

Company must define its set of core Company must define its set of core competencies that enable it to serve competencies that enable it to serve customers better than rivals.customers better than rivals.

Core Competencies Core Competencies –– a unique set of a unique set of capabilities a company develops in key capabilities a company develops in key operational areas that allow it to vault past operational areas that allow it to vault past competitors. 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 (often

linked to the company’s size).linked to the company’s size).


Step 2: Define Core Competencies Step 2: Define Core Competencies and and Market PositionMarket Position

Market segmentation – carving up the mass Market segmentation – carving up the mass market into smaller, more homogenous units market into smaller, more homogenous units and then attacking certain segments with a and then attacking certain segments with a specific marketing strategy. specific marketing strategy.

Proper positioning Proper positioning –– creating the desired creating the desired image for the business in the customer’s image for the business in the customer’s mind. mind.


Step 3: Assess Company Strengths Step 3: 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 4: Scan for Opportunities Step 4: 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.


Step 5: Identify Key Success Step 5: 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.


Step 6: Analyze CompetitorsStep 6: 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 6: Analyze CompetitorsStep 6: Analyze CompetitorsTechniques that do Techniques that 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. Listen to employees, especially sales representatives and Listen to employees, especially sales representatives and

purchasing agents.purchasing agents. Attend trade shows and conferences.Attend trade shows and conferences. Study competitors’ literature and “benchmark” their Study competitors’ literature and “benchmark” their

products and services.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 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.


Step 7: Create Company GoalsStep 7: Create Company Goalsand Objectivesand Objectives

Goals Goals –– broad, long-range attributes to be broad, long-range attributes to be accomplished.accomplished.

Objectives Objectives –– 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 AAttainablettainable RRealistic (yet challenging)ealistic (yet challenging) TTimelyimely


Why Have Goals?Why Have Goals?

Goals:Goals:

1. Direct all organizational work toward a 1. Direct all organizational work toward a

common and unified purposecommon and unified purpose

2. Act as targets for motivating people2. Act as targets for motivating people

3. Serve as criteria against which work 3. Serve as criteria against which work

accomplishments are measuredaccomplishments are measured


Types of GoalsTypes of Goals

SpecificitySpecificity SpecificSpecific DirectionalDirectional

Areas of Areas of

Organizational WorkOrganizational Work Technology and Technology and

operationsoperations MarketingMarketing FinancialFinancial

Time FrameTime Frame Long termLong term Short termShort term

BreadthBreadth Organization-Organization-

wide wide OperationalOperational


Characteristics of Good Characteristics of Good GoalsGoals

Written in terms of outcomes rather than actionsWritten in terms of outcomes rather than actions

Measurable and quantifiableMeasurable and quantifiable

Clear as to a time frameClear as to a time frame

Challenging yet attainableChallenging yet attainable

Written downWritten down

Communicated to all organizational membersCommunicated to all organizational members


The Goal-Setting ProcessThe Goal-Setting Process

Steps:Steps:

1. Review the organizational vision and mission(s)1. Review the organizational vision and mission(s)

2. Evaluate available resources2. Evaluate available resources

3. Determine broad, long-term, organization-wide goals3. Determine broad, long-term, organization-wide goals

4. Write down the organization-wide goals4. Write down the organization-wide goals

5. Determine specific, short-term operational goals5. Determine specific, short-term operational goals

6. Write down the operational goals6. Write down the operational goals

7. Review results 7. Review results


Relationship Between Relationship Between Organizational Goals and StrategiesOrganizational Goals and Strategies

Organizational Organizational

Vision and Mission(s)Vision and Mission(s)

Organization-wide GoalsOrganization-wide Goals

Operational GoalsOperational Goals

Operational StrategiesOperational Strategies


Step 8: Formulate StrategiesStep 8: Formulate Strategies

Strategy Strategy –– a “road map” to guide the company a “road map” to guide the company through a turbulent environment as it seeks to through a turbulent environment as it seeks to fulfill its mission, goals, and objectives. It is the fulfill its mission, goals, and objectives. It is the company’s game plan for winning.company’s game plan for winning.

Three basic strategies:Three basic strategies:

Strategy?

Cost leadershipCost leadership

DifferentiationDifferentiation

FocusFocus

Strategic OptionsStrategic 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


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.


FocusFocus

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


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

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

reaching buyers who buy on the basis of price, reaching buyers who buy on the basis of price, and they have the power to set the industry’s and they have the power to set the industry’s price floor.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.


Financial and Accounting Strategies Financial and Accounting Strategies for Entrepreneurial Venturesfor Entrepreneurial Ventures

Evaluating Financial PerformanceEvaluating Financial Performance

What type of analysis?What type of analysis?

How much analysis?How much analysis?

How often to analyze?How often to analyze?

Forecasting, Planning, and Budgeting Forecasting, Planning, and Budgeting

What type of forecast?What type of forecast?

How often to forecast?How often to forecast?

Financing MixFinancing Mix

Short-term versus long-term Short-term versus long-term

funding sources funding sources

Permanent or temporary sources Permanent or temporary sources

Other Financial Management Decisions Other Financial Management Decisions Capital budgetingCapital budgeting Stock dividend policyStock dividend policy Cash flow managementCash flow management Cash and securities managementCash and securities management Receivable and inventory managementReceivable and inventory management Term loans and leasesTerm loans and leases


Information Systems Strategies Information Systems Strategies for Entrepreneurial Venturesfor Entrepreneurial Ventures

Systems TechnologySystems Technology ManualManual Computer basedComputer based

Types of Information SystemTypes of Information System Transaction processing systemTransaction processing system Office automation systemOffice automation system Knowledge work systemKnowledge work system Management information systemManagement information system Decision support systemDecision support system Executive support systemExecutive support system


Step 9: Translate StrategiesStep 9: Translate Strategies into Action Plans into 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 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

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?


Dimensions of Dimensions of Organizational CultureOrganizational Culture

Attention toDetail

OutcomeOrientation

Team Orientation

Aggressiveness

Stability People Orientation

Innovation andRisk-Taking


Organizational CultureOrganizational Culture

How Organizational Culture Is Learned:How Organizational Culture Is Learned:

StoriesStories

RitualsRituals

Material SymbolsMaterial Symbols

LanguageLanguage

Role of Physical SurroundingsRole of Physical Surroundings


Building a Healthy CultureBuilding a Healthy Culture

Guidelines:Guidelines:

1. Change has to start at the top.1. Change has to start at the top.

2. Think about your culture when hiring.2. Think about your culture when hiring.

3. Two-way communication is important.3. Two-way communication is important.

4. If you don’t believe in it, don’t fake it.4. If you don’t believe in it, don’t fake it.

chapter 3: strategic management1 copyright 2002 prentice hall publishing company strategic...

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