Strategic Management Dr. Don Neubaum E Bexell

Class Sessions Tuesday & Thursday - 8:00am Tuesday & Thursday - 10:00am Both in 415 Bexell

WIC Writing Intensive Curriculum Writing as a critical aspect of the learning process Significant portion of your grade – over 30% Reflecting writing with typical business content

Individual Grades - 80% Midterm/Final – 20% each (40% total) Industry analysis – 20% Case write ups – 5% (10% total) Strategic issue summary – 10% Group Grades – 20% In-class case exam – 10% Strategic plan presentation – 10% Grading

Grades If you NEED a specific grade in this class, other than to simply “pass,” then you MUST me and come see me by the end of next week.

Midterm and Final Multiple Choice and Short Answer Midterm – 2/5 Chapters 1-4 Final – 3/20 Chapters 5-13, non-cumulative Both exams will focus on lecture material and text terms.

Typical Questions What four generic strategies exist? Why does Porter call them generic? According to Porter, when should firms diversify? What rules does he forward to judge the merits of diversification? What is the goal of executive compensation? Why is it so difficult to design an effective compensation package? What are the axis on the BCG and the GE Nine-Cell Matrix? Which model is superior and why?

Industry Analysis Within teams, you will select one of the following industries Personal Computer Soft Drink Cruise Line Airlines Gaming (Casinos and Gaming Resorts) Due 2/14 Highest team average will receive 5 extra points

Case Write Ups Analyzing two cases Due 1/22 and 2/29 3 pages, double spaced Specific questions and guidelines will be provided for each case Re-write each based on feedback you get from classmates. Rewrite as many times as you wish.

Strategic Issues Start most class sessions with 2-3 of these Articles from WSJ, Forbes, Fortune, etc. highlighting an aspect of strategy 2 page summary and a short (3 - 5 slides) 5 minute presentation Written feedback – allowing you to re- write the paper and redo your slides Sign up sheet will be distributed Graded equally on paper and presentation

Group In class Case Exam Group Exam – 2/12 Case handed out a week ahead of time Questions posted on the morning of the 12th Answers due by the next morning Work in your group using laptop/PC and your answers to me

Group Strategic Plan and Presentation Groups of four or five Last week of the quarter – 3/11 and 3/13 Company of your choice, with my approval PowerPoint presentation of 20 minutes – no paper necessary Can not analyze a company in the Personal Computer, Gaming, Cruise Line, Airlines or Soft Drink industries Sign up sheet for time slots will be distributed

Peer Evaluations Your group members will evaluate your contribution throughout the quarter Your group grades can be adjusted up and down, based upon their assessment of your contribution and effort.

One Minute Papers Write a short, ungraded essay at the end of most classes: 1) something you learned 2) giving an example 3) asking a question or clarification 4) making a comment 5) anything else Paper notebook with name and section marked on the cover

Participation While not specifically graded, I will be assessing your attendance, participation and one-minute papers. Final grades might be adjusted up and down, based upon my assessment. Students attending every class period will receive 5 points on the final

Golden Rule “No Tolerance” policy for cheating Guilty parties receive an F and will be dropped from the class Disciplinary actions may be taken

Standing-O Earn 5 bonus points on midterm Announce to us a recent accomplishment or achievement While you may do as many Standing-Os you want, you can only earn the 5 points once

Team Specials Teams can earn points from “Team Specials” tasks and assignments These points are tabulated over the quarter Students may also request team special points, subject to instructor approval Awards: Gold – exempt from Final Silver – 15 points added to midterm Bronze – opt out of one essay on final

In lieu of a case…. Attend 3 page write up detailing the “take- aways” from the presentation

Chapter One What is Strategy and Why is it Important?

Why do we need strategy? The reasons why firms succeed and fail is perhaps the central question in strategy Answers the fundamental question of the firm Where we are now? Where we going? How are we going to get there?

Strategic Management Defined decisions and actions that determine long-term performance formulation and implementation of plans designed to achieve objectives an action managers take to achieve one or more of an organization’s goals unifying theme that gives coherence and direction to organizational/individual decisions game plan management has for positioning the company in its chosen market, competing successfully, satisfying customers, and achieving good business performance management’s action plan for running the business and conducting operations; commitment to pursue a particular set of actions in growing the business, attracting customers, competing successfully, conducting operations, and improving financial and market performance

What is Strategy? Strategy is not doing similar activities better than your rivals – that’s operational effectiveness continual improvement not a sustainable advantage industry-wide cost reductions do not lead to increased profitability examples: PCs, automobiles, airlines

What is Strategy? 1)Strategy is performing different activities or performing similar activities in a different way As suggested by the book: 4 of the most dependable approaches are 1) low cost, 2) differentiating features, 3) fulfilling specialized needs, and 4) build unassailable set of capabilities.

What is Strategy? 1) Strategy is performing different activities or performing similar activities in a different way Strategy is about positioning a) Variety-based positioning offering a unique choice of goods/services – b) Needs-based positioning serving most/all of a particular group of customers’ needs - c) Access-based positioning serving a set of customers that require unique access –

What is Strategy? 2) Strategy is about choosing a position which requires tradeoffs, choosing what not to do without tradeoffs, all firms would imitate Tradeoffs arise from inconsistent image/reputation different activities, products, equipment, employees, skills, systems, machines priorities, internal coordination, and control

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing

Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports

Quick Turns No meals Short hauls Standard Fleet No baggage transfers Low Fares No seats Lean ground crews Secondary Airports No baggage transfers Low Fares Secondary Airports Quick Turns No meals No baggage transfers

What is Strategy? 3) Strategy is about combining activities as advantages come from fit and reinforcing Operational effectiveness is about excellence in individual activities Fit/integration increases sustainability by reducing imitability

What is Strategy? 4) The desire to grow is most threatening to an effective strategy Blurs uniqueness Creates compromises Reduces fit Erodes original advantages

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

Emergent strategy elements

What do Good Strategies Have in Common?

Chapter Two Managerial Process of Crafting and Executing Strategy

Fig. 2.1: The Strategy-Making, Strategy-Executing Process

Developing a Strategic Vision A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future. A strategic vision exists only as words and has no organizational impact unless and until it wins the commitment of company personnel and energizes them to act in ways that move the company along the intended strategic path!

Elements of a Strategic Vision Delineates management’s aspirations for the business Provides a panoramic view of “where we are going” by charting a strategic path Is distinctive and specific Avoids use of generic, dull & boring language that could apply to most any company Captures employees’ emotions steers them in a common direction Is challenging and a bit beyond a company’s immediate reach

Strategic Vision vs. Mission A strategic vision concerns “where we are going” Markets to be pursued Future product/ market/ customer/ technology focus Kind of company management is trying to create The mission statement focuses on its “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities The mission statement focuses on its “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

Mission Statements Boundaries of the current business Fundamental purpose that sets it apart from other firms of its type Conveys Who we are, What we do, and Why we are here A well-conceived mission statement distinguishes a company’s business makeup from that of other profit-seeking enterprises in language specific enough to give the company its own identify!

Fig. 2.1: The Strategy-Making, Strategy-Executing Process

Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term Strategic Intents All levels of the organization Top-down, not Bottom-up

Types of Objectives Required Outcomes focused on improving financial performance Outcomes focused on improving competitive vitality and future business position Financial Objectives Strategic Objectives $

6 Characteristics of a Good Objective

Importance of Stretch Objectives There’s no better way to avoid ho-hum results than by setting stretch objectives and using compensation incentives to motivate organization members to achieve the stretch performance targets! BHAG = Big Hairy Audacious Goals!

Current financial results are “lagging indicators” reflecting results of past decisions and actions— good profitability now does not translate into stronger capability for delivering better financial results later However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance Unless a company sets and achieves stretch strategic objectives, it is not developing the competitive muscle to deliver even better financial results in the years ahead! Leading versus Lagging Indicators

A balanced scorecard for measuring company performance is optimal; it entails Setting financial and strategic objectives Placing balanced emphasis on achieving both types of objectives Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market position. The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a company’s business position and give it a growing competitive advantage over rivals! On Balanced Scorecard

A Second Balanced Scorecard Comprehensive view of the firm from the customer, internal, financial and innovation/learning perspectives 1) How do customers see us? Time, quality, service & performance, costs 2) What must we excel at? 3) How do we look to shareholders? 4) Can we continue to improve and create value?

A Third Balanced Scorecard Triple Bottom-line Economic, social and environmental performance

Fig. 2.1: The Strategy-Making, Strategy-Executing Process

Fig. 2.1: A Company’s Strategy-Making Hierarchy

Levels of Strategic Management

Answers the question “Where?”

Levels of Strategic Management Answers the question “How?”

HP’s Corporate Strategy Enterprise Storage & Servers HP Services SoftwarePersonal Systems Imagining and Printing Financial Services Where are we going to compete? What businesses are we in?

HP’s Business Strategy Enterprise Storage & Servers HP Services SoftwarePersonal Systems Imagining and Printing Financial Services How are we going to compete against Dell? How are we going to compete against Sun Microsystems? Xerox? Cannon?

HP’s Business Strategy Enterprise Storage & Servers HP Services SoftwarePersonal Systems Imagining and Printing Financial Services Profits are won and lost at the business level!!

So….how can firm’s be profitable ? 1)Choose an attractive industry in which to compete - 2) Attain a competitive advantage within an industry -

Two Models of Profitability I/O Model (Industrial/Organizational Economics Model) Resource Based View of the Firm

I/O Model General Environment Industry Environment Competitive Environment Strategy & Performance 3 Assumptions 1) 2) 3) General Environment Industry Environment Competitive Environment

Resource Based View The Firm’s Resources & Capabilities Strategy & Performance 3 assumptions 1) 2) 3)

Team Name Write a team mission Write 3 objectives for your team Send them to by 8PM Tuesday