MANAGMENT_EFF_CH2 - Strategic Management and the...

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Unformatted text preview: Strategic Management and the Entrepreneur Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt A Major Shift . . . . . . From financial capital to intellectual capital. Human Structural Customer Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Strategic Management Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Is crucial to building a successful business. Involves developing a game plan to guide a company as it strives to accomplish its mission, goals , and objectives, and to keep it on its desired course. Is Strategic Planning Really That Important? Study of 500 small companies: One of the most significant factors in distinguishing growing companies from those in decline: use of a written business plan. Another study: Only 12% of small companies had a long­ range plan in writing. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Strategic Management and Competitive Edge Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Developing a strategic plan is crucial to creating a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market. Example: In­N­Out Burger Key: Core Competencies Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team­ building, flexibility, responsiveness, and others that allow it to vault past competitors. They are what a company does best. Best to rely on a natural advantage (often linked to a company’s “smallness”). Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt 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. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Strategic Management Process ... (continued) Step 5: Analyze competition. Step 6: Create goals & objectives. Step 7: Formulate strategies. Step 8: Translate plans into actions. Step 9: Establish accurate controls. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Sun Tzu and the Art of Business Principle 1. Capture your market without destroying it. Principle 2. Avoid your competitors’ strengths and attack their weaknesses. Principle 3. Use foreknowledge and deception to maximize the power of business intelligence. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Sun Tzu and the Art of Business Principle 4. Use speed and preparation to swiftly overcome the competition. Principle 5. Use alliances and strategic control points in the industry to “shape” your opponents and make them conform to your will. Principle 6. Develop your character as a leader to maximize the potential of your employees. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 1: Develop a Vision and Create a Mission Statement Vision – an expression of what an entrepreneur stands for and believes in. Vision is based on an entrepreneur’s values. A clearly defined vision: Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Provides direction Determines decisions Motivates people Step 1: Develop a Vision and Create a Mission Statement Mission ­ addresses question:"What business are we in?” A written expression of how the company will reflect the owner’s values, beliefs, and vision. Sets the tone for the entire company and guides the decisions people make. Example: Fetzer Vineyards http://www.fetzer.com/fetzer/wineries/philosophy.a Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 2: Assess Company Strengths and Weaknesses Strengths Positive internal factors that contribute to accomplishing the mission, goals, and objectives. Weaknesses Negative internal factors that inhibit the accomplishment of the mission, goals, and objectives. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 3: Scan for Opportunities and Threats Opportunities Positive external options the company can employ to accomplish its mission, goals, and objectives. Threats Negative external forces that inhibit the firm's ability to accomplish its mission, goals, and objectives. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt External Market Forces External Market Forces Technological Technological Competitive Competitive Political and Political and Regulatory Regulatory Economic Economic Social and Social and Demographic Demographic Step 4: Identify Key Success Factors Key success factors: relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market. The keys to unlocking the secrets of competing successfully in a particular market segment. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 5: Analyze Competitors Analyzing key competitors allows an entrepreneur to: Avoid surprises from existing competitors’ new strategies and tactics. Identify potential new competitors and the threats they pose. Improve reaction time to competitors’ actions. Anticipate rivals’ next strategic moves. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 5: Analyze Competitors Techniques do not require unethical behavior: Monitor industry and trade publications. Talk to customers and suppliers. Listen to employees, especially sales representatives and purchasing agents. Attend trade shows and conferences Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 5: Analyze Competitors Techniques do not require unethical behavior: Monitor competitors’ employment ads. Conduct searches for patents filed by competitors. Check EPA reports about manufacturing. Search databases for types of materials and equipment competitors are importing. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 5: Analyze Competitors Techniques do not require unethical behavior: Study competitors' literature and "benchmark" their products and services. Get competitors' credit reports and SEC filings. Check out the local library. Use the World Wide Web to learn more about competitors. Visit competing businesses to observe their operations. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Sample Competitive Profile Matrix Key Success Factors Your Business Weighted (from Step 4) Weight Rating Score Quality 0.25 4 1.00 Customer Retention 0.20 3 0.60 Location 0.15 4 0.60 Perception of Value 0.20 4 0.80 Cost Control 0.20 3 0.60 Total 1.00 3.60 Competitor 1 Competitor 2 Weighted Weighted Rating Score Rating Score 2 0.50 2 0.50 2 0.40 3 0.60 3 0.45 4 0.60 2 0.40 3 0.60 1 0.20 4 0.80 1.95 3.10 Key Success Factors Analysis Quality 4 3 2 Cost Control 1 Customer Retention My Company Competitor 1 Competitor 2 0 P erception of Value Location Knowledge Management The practice of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position. Knowledge management involves: Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Taking inventory of the special knowledge the people in the company possess. Organizing that knowledge and disseminating it to those who need it. Step 6: Create Company Goals and Objectives Goals ­ broad, long­range attributes to be accomplished. “BHAGS” – one factor that sets apart successful companies from unsuccessful ones. Objectives ­ more detailed, specific targets of performance that are S.M.A.R.T. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Specific Measurable Assignable Realistic (yet challenging) Timely Step 7: Formulate Strategies Strategy A “road map” that guides a company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives. Focused on the key success factors identified in Step 4. Mission, goals, and objectives = Ends Strategy = Means Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 7: Formulate Strategies Three basic strategies: Cost leadership Cost leadership Strategy? Differentiation Differentiation Focus Focus Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Three Strategic Options Three Strategic Options Source of Competitive Advantage Uniqueness Perceived by the Customer by Industry Low Cost Position Differentiation Differentiation Low Cost Low Cost Differentiation Differentiation Focus Focus Cost Cost Focus Focus Target Target Market Market Niche Cost Leadership Goal: to be the low­cost producer in the industry or market segment. Advantages: Reaching buyers who buy on the basis of price. Power to set the industry’s price floor. Works well when: Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Buyers are sensitive to price changes. Competing firms sell the same commodity products. A company can benefit from economies of scale. Differentiation Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. Idea is to be unique at something customers value. Key: Build basis for differentiation on a core competencies, those things that the small company is uniquely good at doing in comparison to its competitors. Example: Audiophile International Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Focus Company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them. Strategy builds on differences among market segments. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Focus Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market. Examples Frank J. Zamboni and Company Wilson Audio Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 8: Strategies into Action Plans Create projects by defining: Purpose Scope Contribution Resource requirements Timing Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Step 9: Establish Accurate Controls The plan establishes the standards against which actual performance is measured. Entrepreneur must: identify and track key performance indicators. Take corrective action. Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt Balanced Scorecard Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt A set of measurements unique to a company that includes both financial and operational measures Gives managers a quick, yet comprehensive, picture of a company’s overall performance. Balanced Scorecards 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? Chapter 2 Strategic Mgt Chapter 2 Strategic Mgt The Balanced Scorecard Links Performance Measures. The Balanced Scorecard Links Performance Measures. How do we look to shareholders? Financial Perspective Goals Measures How do customers How see us? see At what must At we excel? we Customer Perspective Goals Measures Internal Business Perspective Goals Measures Innovation and Learning Perspective Innovation Goals Measures Can we continue to improve and create value? ...
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