BA 469 Strategic Management & Business Policy Manolete V. Gonzalez, Phd

BA 469 Course Introductions; Ch 1: What Is Strategy and Why Is It Important?

1-3 Introductions Name Major What do you expect/hope(?) to be doing 5 years from now? where?

1-4 Focus: General Management of an organization An organization is “a system of consciously coordinated activities or forces of two or more persons.”

1-5 General management perspective Strategic decisions: strategy comes from “strategos,” used in ancient times to refer to administrator of conquered regions, therefore the whole “enterprise” Beyond functional areas: for example, a company’s policy on what type of customers to go after affects marketing, production, finance, etc. Long-term implications, affect different functional areas

1-6 Learning Outcomes develop skills in using strategic assessment tools to identify company wide problems, develop skills in determining company wide strategy develop an awareness of the impact of external factors on business strategy understand the strategic challenges a business organization must address understand the difficulties/realities associated with formulating and implementing appropriate responses to these challenges

1-7 Text and Course Information Crafting and Executing Strategy: The Quest for Competitive Advantage, by Thompson, Strickland, Gamble. 15 th edition, Mc-Graw Hill/Irwin (2007) Information about the course, including the course description, requirements, and schedules, are in the BA 469 page of the COB website

1-8 Requirements Case Briefs and Reports 7 Case Briefs – 2 pages 1 Group Case Report – 8 pages See Report Instructions file for details Quizzes – 4 throughout term Multiple choice and possibly essay Based on concepts covered in chapters assigned after last quiz. 4 chapters for first quiz, 3 chapters for other three quizzes Participation – 10% of final grade

1-9 Requirements: case briefs and reports Case briefs and reports are due beginning of class case is assigned (see Schedule) READ instructions for Case briefs and reports on Report Instructions file carefully. There are specific instructions for particular cases Typed and write for an audience consisting of business professionals Submit these on time, penalties otherwise

1-10 Requirements – restating the obvious Come to class prepared Read Chapters assigned for the day Case assignments, whether briefs or reports, are also intended to get students prepared for discussion Participation grades are based on judgment as to active and meaningful contribution to class. In class writing. Speak up (clarification, disagreement, etc.)

1-11 House Rules Keep distractions to a minimum, respect your peers Shut off cell phones or place them in silent mode (note an unattended vibrating cell phone is distracting) Using laptops are ok for note taking or reference to notes. Avoid side discussions with your neighbor. Come to class on time; if you do arrive late, enter quietly and unobtrusively, e.g. do not walk in front of the instructor. If you have to leave early, let the instructor know and sit where you can leave without disturbing too many students. “Multi-tasking” during class is not appreciated, for example reading the newspaper, working on a paper for another class, sleeping, etc.

1-12 House Rules Respect each other: tolerate differences of opinion and manner of participating. If you have strong opinions, voice it and be heard, listen to responses, engage in an exchange of opinions, and then allow the class to move on. Humor, informal, ok. But do remember why we are in class. Other suggestions?

1-13 “Without a strategy the organization is like a ship without a rudder.” Joel Ross and Michael Kami

1-14 Chapter 1 Roadmap What Do We Mean By Strategy? Strategy and the Quest for Competitive Advantage Identifying a Company’s Strategy Why a Company’s Strategy Evolves Over Time A Company’s Strategy Is Partly Proactive and Partly Reactive Strategy and Ethics: Passing the Test of Moral Scrutiny

1-15 Chapter Roadmap The Relationship Between a Company’s Strategy and Its Business Model What Makes a Strategy a Winner? Why Are Crafting and Executing Strategy Important?

1-16 Thinking Strategically: The Three Big Strategic Questions 1. What’s the company’s present situation? 2. Where does the company need to go from here? What business(es) to be in? What market positions to stake out? What buyer needs and groups to serve? 3. How should it get there? A company’s answer to “how will we get there?” is its strategy

1-17 What Do We Mean By “Strategy”? Consists of competitive moves and business approaches used by managers to run the company

1-18 A Firm's Strategy Answers the questions... How to grow the business How to please customers How to outcompete rivals How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on) Strategy is HOW to...

1-19 A Firm's Strategy Answers the questions... And as the industry environment evolves.. How to respond to changing market conditions How to achieve targeted levels of performance Strategy is HOW o...

1-20 Choosing the “Hows” of Strategy Strategic choices about “how” are based on Trial-and-error organizational learning about w hat has worked and what has not worked Management’s appetite for taking risks Managerial analysis and strategic thinking about how best to proceed, given market conditions and the company’s circumstances

1-21 Key Elements of a Successful Strategy Developing a successful strategy hinges on making competitive moves aimed at Appealing to buyers in ways to set the enterprise apart from rivals and Carving out its own market position Involves developing a distinctive “aha” element to Attract customers and Produce a competitive edge Copying competitive moves of other successful companies rarely works!

1-22 A Powerful Strategy Leads to Sustainable Competitive Advantage A company achieves sustainable competitive advantage when an attractive number or buyers prefer its products/services over those of rivals and when the basis for this preference can be maintained over time Its nice when a strategy produces a temporary competitive edge but a durable edge over rivals greatly enhances a company’s prospects for winning in the marketplace and realizing above-average profits What separates a powerful strategy from an ordinary strategy is management’s ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage!

1-23 Three Strategic Approaches to Building Sustainable Competitive Advantage Be the industry’s low-cost provider a cost-based competitive advantage) Incorporate differentiating features a “superior product” type of competitive advantage keyed to higher quality, better performance, wider selection, value-added services, or some other attribute Focus on a narrow market niche win a competitive edge by doing a better job than rivals of serving the needs and preferences of buyers comprising a niche)

1-24 A Fourth Strategic Approach to Building Sustainable Competitive Advantage Developing expertise and resource strengths not easily imitated or matched by rivals (a capabilities-based competitive advantage)

1-25 Competitive Advantage Examples The text gives the following as striving to be the industry’s low-cost provider Wal-Mart Southwest Airlines Discussion Wal-Mart – perceptions of low price Southwest – low ticket prices, low cost provider

1-26 Competitive Advantage Examples Outcompete rivals on a key differentiating feature Johnson & Johnson – Reliability in baby products Harley-Davidson – King-of-the-road styling Rolex – Top-of-the-line prestige Mercedes-Benz – Engineering design and performance L.L. Bean – Good value Amazon.com – Wide selection and convenience

1-27 Competitive Advantage Examples (cont) The text suggests the following as focusing on a narrow market niche eBay – Online auctions Jiffy Lube International – Quick oil changes McAfee – Virus protection auctions Starbucks – Premium coffees and coffee drinks The Weather Channel – Cable TV Ritz-Carlton – Personalized customer service Discussion: depends on how one defines industry

1-28 Competitive Advantage Examples (cont) Develop expertise, resource strengths, and capabilities not easily imitated by rivals FedEx – Next-day delivery of small packages Walt Disney – Theme park management and family entertainment Toyota – Sophisticated production system Ritz-Carlton – Personalized customer service Discussion: technically Toyota may be described as outcompeting rivals based on differentiating features

1-29 Day 2 Questions on course requirements? Peer Evaluation of Case Brief: Whole Foods and Monsanto case briefs for ungraded peer review and option to revise/resubmit Finish Ch 1 Ch 2

1-30 Fig. 1.1: Identifying a Company’s Strategy

1-31 Why Do Strategies Evolve? Changes may be necessary to react to Shifting market conditions Technological breakthroughs Fresh moves of competitors Evolving customer preferences Emerging market opportunities New ideas to improve strategy Crisis situations

1-32 Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive

1-33 Linking Strategy With Ethics Ethical and moral standards go beyond Prohibitions of law and the language of “thou shalt not” to issues of Duty and “right” vs. “wrong” Ethical and moral standards address “What is the right thing to do?”

1-34 Linking Strategy With Ethics Two criteria of an ethical strategy: Does not entail actions and behaviors that cross the line from “should do” to “should not do” and “unsavory” or “shady” and Allows management to fulfill its ethical duties to all stakeholders

1-35 A Firm’s Ethical Responsibilities to Its Stakeholders Owners/shareholders – Rightfully expect some form of return on their investment Employees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise Customers - Rightfully expect a seller to provide them with a reliable, safe product or service Suppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairly Community - Rightfully expect businesses to be good citizens in their community

1-36 Role of Senior Executives: Linking Strategy with Ethics Forbid pursuit of ethically questionable business opportunities Insist all aspects of company strategy reflect high ethical standards Make it clear all employees are expected to act with integrity Install organizational checks and balances to Monitor behavior Enforce ethical codes of conduct Provide guidance to employees in gray areas Display genuine commitment to conduct business activities ethically

1-37 What Is a Business Model? A business model addresses “How do we make money in this business?” Is the strategy capable of delivering good bottom-line results? Do the revenue-cost-profit economics of the strategy make good business sense? expected revenue streams associated cost structure and potential profit margins Do resulting earnings streams and ROI indicate the strategy makes sense?

1-38 Relationship Between Strategy and Business Model Strategy... Deals with a company’s competitive initiatives and business approaches Business Model... Concerns whether revenues and costs flowing from the strategy demonstrate a business can be amply profitable and viable

1-39 For Discussion: Write your opinion and discuss Who has the better business model – Microsoft or Red Hat?

1-40 Microsoft’s Business Model Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users Sell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market share Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit Provide modest level of technical support to users at no cost Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

1-41 Red Hat’s Business Model Rely on collaborative efforts of volunteer programmers to create the software Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages Make source code open and available to all users Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users

1-42 Tests of a Winning Strategy GOODNESS OF FIT TEST How well does strategy fit the firm’s situation? COMPETITIVE ADVANTAGE TEST Does strategy lead to sustainable competitive advantage? PERFORMANCE TEST Does strategy boost firm performance?

1-43 Other Criteria for Judging the Merits of a Strategy Internal consistency and unity among all pieces of the strategy Degree of risk the strategy poses as compared to alternative strategies Degree to which the strategy is flexible and adaptable to changing circumstances While these criteria are relevant, they seldom override the importance of the three tests of a winning strategy!

1-44 Why Is Strategy Important? A compelling need exists for managers to proactively shape how a firm’s business will be conducted A strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary

1-45 Good Strategy + Good Strategy Execution = Good Management Crafting and executing strategy are core management functions Among all things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team Charts a company’s direction, Develops competitively effective strategic moves and business approaches, and Pursues what needs to be done internally to produce good day-in/day-out strategy execution

1-46 Good Strategy + Good Strategy Execution = Good Management Excellent execution of an excellent strategy is the best test of managerial excellence – and the most reliable recipe for winning in the marketplace!