2. What is a Strategy?
īŽ Examples of Corporate Strategy in 2009
ī¨ GM files for Chapter 11 bankruptcy
ī¨ Chrysler is sold to Fiat and leaving bankruptcy
ī¨ Best Buy is adding patio furniture to its product assortment
īŽ A strategy is a business approach to a set of competitive moves that are designed to generate a
successful outcome
īŽ A strategy is managementâs game plan for
ī¨ Strengthening the organizationâs competitive position
ī¨ Satisfying customers
ī¨ Achieving performance targets
īŽ Three big questions involved in a strategy
ī¨ Where are we now?
ī¨ Where do we want to go?
ī¨ How will we get there?
ī¨ How do we know if we got there?
Kelley Summer 2009
GM 105 Strategic Management
3. Tasks Involved in Strategic Management
īŽ Defining business and stating a mission
īŽ Setting measurable objectives
īŽ Crafting a strategy to achieve objectives
īŽ Implementing a strategy
īŽ Evaluating performance of the strategy, reviewing new developments and
taking corrective action
Kelley Summer 2009
GM 105 Strategic Management
4. Developing a Mission & Objectives
īŽ An organizationâs Mission
ī¨ Reflects managementâs vision of what the organization seeks to do and become
ī¨ Provides a clear view of what the organization is trying to accomplish for its
customers
ī¨ Indicates intent to take a business position
īŽ An organizationâs Objectives
ī¨ Convert the mission into performance targets
ī¨ Track performance over time
ī¨ Must be achievable
ī¨ Two types
īŽ Financial â outcomes that relate to improving financial performance
īŽ Strategic â outcomes that will result in greater competitiveness & stronger long-term
market position
Kelley Summer 2009
GM 105 Strategic Management
5. Examples of Types of Objectives
īŽ Financial
ī¨ Increase earnings growth from 10 to 15% per year
ī¨ Boost return on equity investment from 15 to 20% in 2009
ī¨ Achieve and maintain a AAA bond rating
īŽ Strategic
ī¨ Increase market share from 18 to 22% in 2009
ī¨ Overtake rivals on quality or customer service by 2010
ī¨ Attain lower overall costs that rivals by 2011
ī¨ Become leader in new product introductions by 2010
ī¨ Achieve technological superiority by 2012
Kelley Summer 2009
GM 105 Strategic Management
6. What Does a Strategy Include?
īŽ How to satisfy customers
īŽ How to grow the business
ī¨ Organic growth
ī¨ Acquisition
īŽ How to respond to changing industry and market conditions
īŽ How to best capitalize on new opportunities
īŽ How to manage each functional piece of business
īŽ How to achieve strategic and financial objectives
Kelley Summer 2009
GM 105 Strategic Management
7. What is a Strategic Plan
īŽ A strategic plan maps
ī¨ Where the organization is headed
ī¨ Short and long range performance targets
ī¨ Actions of management to achieve desired outcomes
īŽ A strategic plan consists of
ī¨ Mission statement
ī¨ Strategic and financial performance objectives
ī¨ Comprehensive strategy for achieving the objectives
Kelley Summer 2009
GM 105 Strategic Management
8. Implementing Strategy
īŽ Implementing a strategy involves
ī¨ Creating fits between the way things are done and what it takes for effective
strategy execution
ī¨ Executing strategy efficiently and effectively
ī¨ Producing desired results on time
īŽ The most important fit is between a strategy and
ī¨ Organizational capabilities
ī¨ A reward structure
ī¨ Internal support systems
ī¨ Organizational culture
Kelley Summer 2009
GM 105 Strategic Management
9. Evaluating Performance
īŽ The tasks of strategic management are not one-time only exercises
because
ī¨ Times and conditions change
ī¨ Events change over time
ī¨ New ways to do things surface
ī¨ New managers have different ideas take over
īŽ Managers must
ī¨ Constantly evaluate performance
ī¨ Monitor situation and decide how well things are working
ī¨ Make necessary adjustments
īŽ Alter organizationâs long-term direction
īŽ Raise or lower performance objectives
īŽ Modify strategy
Kelley Summer 2009
GM 105 Strategic Management
10. A Situation Analysis
īŽ A situation analysis identifies strategic options and opportunities
īŽ A situation analysis involves
ī¨ External factors: Macroenvironment (industry and competitive conditions)
ī¨ Internal factors: Microenvironment (organizationâs internal situation and
competitive position)
īŽ External factors
ī¨ Industryâs dominant economic traits
ī¨ Competitive forces
ī¨ Competitive moves of rivals
ī¨ Key success factors
ī¨ Attractiveness of the industry
Kelley Summer 2009
GM 105 Strategic Management
12. Five Forces Model
Rivalry among sellers
Substitute
Products
Buyers
Potential EntrantsSuppliers
Kelley Summer 2009
GM 105 Strategic Management
13. Analysis of Competitive Forces
īŽ The analysis is designed to identify the main sources of competitive forces
and the strength of the pressure
īŽ Sources of competitive pressures are defined by
ī¨ Rivalry among competitors
ī¨ Substitute products
ī¨ Potential entry
ī¨ Bargaining power of suppliers
ī¨ Bargaining power of buyers
īŽ Rate the strength of each competitive force
īŽ Explain how each competitive force works and its role in the overall
competitive picture
Kelley Summer 2009
GM 105 Strategic Management
14. Environmental Scanning
īŽ A way to monitor and interpret social, political, economic, ecological and
technological events in an effort to spot trends and conditions that could
eventually impact the industry and the organization.
īŽ The purpose of environmental scanning is to raise the consciousness of
managers about potential developments that could have an important
impact on industry conditions and pose new opportunities and threats
Kelley Summer 2009
GM 105 Strategic Management
15. Assessing Competitive Positions: Strategic Groups
īŽ A Strategic Group consists of those rival firms with similar competitive
approaches and positions in an industry
īŽ A Strategic Group displays different competitive positions that rival firms
occupy
īŽ Organizations in the same strategic group have one or more competitive
characteristics in common
ī¨ Sell in the same price/quality range
ī¨ Cover same geographic areas
ī¨ Be vertically integrated to same degree
ī¨ Emphasize same types of distribution channels
ī¨ Offer buyers similar services
ī¨ Use identical technological approaches
Kelley Summer 2009
GM 105 Strategic Management
16. Competitor Analysis
īŽ An organizationâs strategy is affected by
ī¨ Current strategies of competitors
ī¨ Actions competitors are likely to take
īŽ Profile of key competitors involves studying
ī¨ Current position in the industry of each competitor
ī¨ Strategic objectives and recent business plans of each competitor
ī¨ Basic competitive approach of each competitor
īŽ Successful strategies take into account
ī¨ Understanding competitor strategies
ī¨ Evaluating their vulnerability to driving forces and competitive pressures
ī¨ Sizing strengths and weaknesses of each competitor
ī¨ Anticipating each competitorâs next move
Kelley Summer 2009
GM 105 Strategic Management
17. Key Industry Success Factors
īŽ Key success factors spell the difference between
ī¨ Profit and loss
ī¨ Competitive success or failure
īŽ A key success factor can be
ī¨ A specific skill or talent
ī¨ Competitive capability
ī¨ Something an organization must do to satisfy customers
īŽ Being distinctively better than competitors on one or more key success
factors produces a competitive advantage
īŽ Key success factors consist of 3-5 major determinants of financial and
competitive success in an industry
Kelley Summer 2009
GM 105 Strategic Management
19. Competitive Strategy
īŽ A competitive strategy consists of moves to
ī¨ Attract customers
ī¨ Withstand competitive pressures
ī¨ Strengthen an organizationâs market position
īŽ The objective of a competitive strategy is to generate a competitive
advantage, increase the loyalty of customers and beat competitors
īŽ A competitive strategy is narrower in scope than a business strategy
īŽ Five competitive strategies are
ī¨ Overall low-cost leadership strategy
ī¨ Best cost provider strategy
ī¨ Broad differentiation strategy
ī¨ Focused low-cost strategy
ī¨ Focused differentiation strategy
Kelley Summer 2009
GM 105 Strategic Management
20. Overall Low-Cost Leadership Strategy
īŽ Strive to be the overall low-cost provider in an industry
īŽ How to achieve overall low-cost leadership
ī¨ Scrutinize each cost activity
ī¨ Manage each cost lower year after year
ī¨ Reengineer cost activities to reduce overall costs
ī¨ Cut some cost activities out of the value chain
īŽ Competitive strengths of a overall low-cost strategy
ī¨ Organization in a better position to compete offensively on price
ī¨ Organization is better able to negotiate with large customers
ī¨ Organization is able to use price as a defense against substitutes
ī¨ Low cost is a significant barrier to entry
ī¨ Organization is more insulated from the power of suppliers
Kelley Summer 2009
GM 105 Strategic Management
22. When Does an Overall Low-Cost Strategy Work
the Best
īŽ When price competition is a dominant competitive force
īŽ The product is a âcommodityâ
īŽ There are few ways to differentiate the product
īŽ Most customers have similar needs/requirements
īŽ Customers incur low switching costs changing sellers
īŽ Customers are large and have significant bargaining power
Kelley Summer 2009
GM 105 Strategic Management
23. When Doesnât a Overall Low-Cost Strategy Work
īŽ When technological breakthroughs open cost reductions for
competitors, negating a low-cost providerâs efficiency advantage
īŽ Competitors find it relatively easy and inexpensive to imitate the
leaderâs low cost methods
īŽ Low-cost leader focuses so much on cost reduction that the
organization fails to respond to
ī¨ Changes in customer requirements for quality and service
ī¨ New product developments
ī¨ Reduced customer sensitivity to price
Kelley Summer 2009
GM 105 Strategic Management
24. Broad Differentiation Strategies
īŽ Striving to build customer loyalty by differentiating an organizationâs
products from competitorsâ products
īŽ Keys to success include
ī¨ Finding ways to differentiate to create value for customers that are not easily
copied
ī¨ Not spending more to differentiate than the price premium that can be charged
īŽ A successful differential strategy allows an organization to
ī¨ Set a premium price
ī¨ Increase unit sales
ī¨ Build brand loyalty
Kelley Summer 2009
GM 105 Strategic Management
25. Broad Differentiation Strategies
īŽ Where to look for differentiation opportunities
ī¨ Supply chain
ī¨ Research and development
ī¨ Production activities
ī¨ Marketing, sales and service activities
īŽ Strengths of a Differentiation Strategy
ī¨ Customers develop loyalty to the brand
ī¨ Brand loyalty acts as an entry barrier
ī¨ Organization is better able to fend off threats of substitute products because of
brand loyalty
ī¨ Reduces bargaining power of large customers since other brands are less
attractive
ī¨ Seller may be in a better position to resist efforts of suppliers to raise prices
Kelley Summer 2009
GM 105 Strategic Management
26. Pitfalls of a Broad Differentiation Strategy
īŽ Trying to differentiate on an unimportant product feature that doesnât result
in providing more value to the customer
īŽ Over differentiating the product such that the product features exceed the
customersâ needs
īŽ Charging a price premium that buyers perceive as too high
īŽ Ignoring need to signal value
īŽ Not identifying what customers consider valuable
Kelley Summer 2009
GM 105 Strategic Management
27. Best-Cost Provider Strategy
īŽ Striving to give customers more value for the money by combining an
emphasis on low cost with an emphasis on upscale differentiation
ī¨ Combines low-cost and differentiation
īŽ The objective is to create superior value by meeting or beating customer
expectation on product attributes and beating their price expectations
īŽ Keys to success
ī¨ Match close competitors on key product attributes and beat them on cost
ī¨ Expertise at incorporating upscale product attributes at a lower cost than
competitors
ī¨ Contain costs by providing customers a better product
Kelley Summer 2009
GM 105 Strategic Management
28. Advantages of Best-Cost Provider Strategy
īŽ Competitive advantage comes from matching close competitors on key
product attributes and beating them on price
īŽ Most successful best-cost providers have skills to simultaneously manage
costs down and product quality up
īŽ Best-cost provider can often beat an overall low-cost strategy and a broad
differentiation strategy where
ī¨ Customer diversity makes product differentiation the norm
ī¨ Many customers are price and value sensitive
Kelley Summer 2009
GM 105 Strategic Management
29. Focus Strategies
īŽ Focus strategy based on low-cost
ī¨ Concentrate on a narrow customer segment beating the competition on lower
cost
īŽ Focus strategy based on differentiation
ī¨ Offering niche customers a product customized to their needs
īŽ Overall objective of both focus strategies is to do a better job of serving a
niche target market than competitors
īŽ Keys to success
ī¨ Choose a niche were customers have a distinctive preference, unique needs or
special requirements
ī¨ Develop a unique ability to serve the needs of a niche target market
Kelley Summer 2009
GM 105 Strategic Management
30. What Makes a Niche Attractive?
īŽ Large enough to be profitable
īŽ Good growth potential
īŽ Not critical to the success of major competitors
īŽ Organization has the resources to effectively serve the niche
īŽ Organization can defend itself against challengers through a superior ability
to serve the niche
īŽ No competitors are focusing on the niche
Kelley Summer 2009
GM 105 Strategic Management
31. Strengths and Risks of Focus Strategies
īŽ Strengths
ī¨ Competitors donât have the motivation to meet specialized needs of the niche
ī¨ Organizationâs competitive advantage could be seen as a barrier to entry
ī¨ Organizationâs competitive advantage provides an obstacle for substitutes
ī¨ Organizationâs ability to meet the needs of customers in the niche can reduce the
bargaining power of large niche buyers
īŽ Risks
ī¨ Broad differentiated competitors may find effective ways to enter the niche
ī¨ Niche customersâ preferences may move toward the product attributes desired by
a larger market segment
ī¨ Profitability may be limited if too many competitors enter the niche
Kelley Summer 2009
GM 105 Strategic Management
32. From Single-Business to Diversification
īŽ Stage 1 - Single-business serves a local or regional market
īŽ Stage 2 â Geographic expansion
īŽ Stage 3 â Vertical integration
īŽ Stage 4 â Growth slows so the business diversifies
Kelley Summer 2009
GM 105 Strategic Management
33. The Growth Matrix
Products
Present New
M
a Present
r
k
e New
t
s
Market Product
Penetration Development
Market Diversification
Development
Kelley Summer 2009
GM 105 Strategic Management
34. Market Penetration
īŽ Use when markets are not saturated with an organizationâs products
īŽ Use when the usage rate of present customers can be increased
īŽ Use when the market shares of the major competitors has been declining
īŽ Use when the relationship between sales and marketing expenses is high
īŽ Use when increased economies of scale provide the opportunity for
competitive advantages
Kelley Summer 2009
GM 105 Strategic Management
35. Product Development
īŽ Use when the organization has successful products that are in the maturity
stage of the product life cycle. The objective is to attract satisfied customers
to try new, improved products
īŽ Use when an organization competes in an industry that is characterized by
rapid technological change
īŽ Use when competitors offer better quality products at comparable prices
īŽ Use if the organization competes in a high-growth industry
īŽ Use when the organization has strong research and development
capabilities
Kelley Summer 2009
GM 105 Strategic Management
36. Market Development
īŽ Use when channels of distribution are available, reliable and inexpensive
īŽ Use when the organization is very successful in what it does
īŽ Use when the organization has excess production capacity
īŽ Use when the organization possesses the needed capital and human
resources to manage the expanded operations
īŽ Use when unsaturated markets exist
Kelley Summer 2009
GM 105 Strategic Management
37. Diversification
īŽ Use when entering new industries
ī¨ Acquire an existing company in the target industry
ī¨ Start a new company internally
ī¨ Form a joint venture
īŽ Acquiring an existing company
ī¨ Quick entry into target market
ī¨ Able to hurdle entry barriers
īŽ Technological inexperience
īŽ Gain access to reliable suppliers
īŽ Being of a size to match competitors in terms of efficiency and costs
īŽ Get distribution access
Kelley Summer 2009
GM 105 Strategic Management
38. Start a New Company
īŽ Use when ample time exists to enter by starting from scratch
īŽ Use if existing competitors are slow to respond to changes in the industry
īŽ Use if it is more economical to start from scratch rather than acquiring an
existing company
īŽ Use if the organization already has most of the needed skills
īŽ Use if additional capacity will not adversely impact the industry
īŽ Use when the new company doesnât have to go head-to-head against
powerful competitors
Kelley Summer 2009
GM 105 Strategic Management
39. Joint Ventures
īŽ Use when it is too risky to go it alone
īŽ Use when pooling competencies of partners provides a stronger competitor
īŽ Drawbacks
ī¨ Which partner will do what
ī¨ Who has effective control
īŽ Potential conflicts
ī¨ Sourcing of components
ī¨ Control over cash flows and profits
ī¨ Whether operations should conform to one partner or the other
Kelley Summer 2009
GM 105 Strategic Management
40. Linking the Budget to Strategy
īŽ Implementation of a strategy requires
ī¨ Enough resources to support the strategy
ī¨ Screening of requests for new capital projects and bigger operating budgets
ī¨ Shifting resources to support new strategy priorities
- Downsizing some areas and upsizing other areas
- Eliminating activities that are no longer needed
How well budget allocations are linked to the needs of a strategy
can either promote or impede the implementation process.
Kelley Summer 2009
GM 105 Strategic Management
41. Implementing Best Practices & Continuous
Improvement
īŽ Implementing a strategy involves adopting âbest practicesâ
ī¨ Best practices means:
īŽ Benchmarking is an integral part of a successfully implemented strategy
ī¨ Continuous improvement programs
ī¨ Total quality management - TQM
Kelley Summer 2009
GM 105 Strategic Management
42. Instituting Best Practices & Continuous
Improvement
īŽ Quality improvement programs are linked to
ī¨ Defect-free manufacture
ī¨ Superior product quality
ī¨ Superior customer service
ī¨ Total customer satisfaction
Identifying & implementing best practices is a journey, not a
destination; itâs an exercise in doing things in a world-class
way.
Kelley Summer 2009
GM 105 Strategic Management
43. Formal Reporting of Strategy-Critical Information
īŽ Accurate & timely information is essential to guide action
īŽ Prompt feedback on implementation initiatives are needed BEFORE actions
are fully completed
īŽ Monitoring early implementation actions serves two purposes
ī¨ Quick detection of the need to adjust the strategy or its implementation
ī¨ Making sure things are moving in the planned direction
īŽ Critical success variables must be track as needed
Kelley Summer 2009
GM 105 Strategic Management
44. Formal Reporting of Strategy-Critical Information
īŽ Information systems should cover
ī¨ Customer data
ī¨ Operations data
ī¨ Employee data
ī¨ Financial data
Accurate information allows a strategy to be monitored and
corrective action to be taken promptly
Kelley Summer 2009
GM 105 Strategic Management
45. Commitment to Chosen Strategy
īŽ Implementing rewards & incentives inducing employees to make the
strategy work
ī¨ The reward structure must motivate people to do the very things it takes to mjake
the strategy work successfully
īŽ Requiring results, not intentions
īŽ Keys to implementing pay-for-performance programs
ī¨ Make performance targets the basis for structuring the incentive system
ī¨ Ensure performance targets are clearly defined and every person/group is
accountable for achieving them
ī¨ Be fair and impartial in comparing actual performance against targets
ī¨ Avoid rewarding non-performers
ī¨ Explore reasons for deviations (âpoorâ individual performance or circumstances
beyond the individualâs control)
Kelley Summer 2009
GM 105 Strategic Management