THE STRATEGIC MANAGEMENT PROCESS [or How to Analyze a Case] Dr. Laura Whitcomb Mgmt 497

Strategic Management Definition = The process whereby managers establish an organization’s long-term direction. This involves: 1) Setting Mission & Goals 2) Strategy Formation --internal capabilities --external environment --selection of strategy 3) Strategy Implementation 4) Strategy Evaluation

How to Analyze a Case Mission/Vision & Objectives Current Strategy Industry Analysis S.W.O.T. Analysis Recommendations

MISSION Defined Answers the question “What business are we in?” or “Why do we exist?” --Customer Needs: What is being satisfied? --Customer Groups: Who is being satisfied? --Distinctive Competencies: How are customer needs being satisfied?

Pepsico vs. Coke? To be the world's premier consumer products company focused on convenient foods and beverages.  To Refresh the World...in body, mind, and spirit. To Inspire Moments of Optimism... through our brands and our actions. To Create Value and Make a Difference... everywhere we engage.

Vision Statements Future-oriented; transformative Mission = what is; vision = what will be Companies may have mission or vision or both Mission and/or vision often accompanied by statement of company values

GOALS = a desired future state that a company attempts to realize. Should be: - precise & measurable - addressing important issues - challenging but realistic - set for a specific time period - consistent with each other

Types of Goals Financial Customer Internal Process Learning & growth Profitability Revenue growth Long-term shareholder value Customer Product/service attributes; relationship; image Internal Process Operations, customers, innovation Corporate social responsibility Learning & growth Human, information, & organization resources

Levels of Strategy & Organization Structure Corporate Strategy ------>Corporate Head Office Business Strategy ------>Business Divisions Functional Strategy ------>R&D, HR, Finance, Operations, Marketing/Sales

Corporate Strategy Generic Alternatives/Grand Strategies Stability Expansion Retrenchment Combination

Expansion/Retrenchment Generic Choices How? Internal External Alliances What? Vertical integration Horizontal integration Diversification: related/unrelated

Nestle’s Corporate Strategy 2001 Acquired Purina pet food 2002/5 Acquired Dreyer’s Ice Cream 2006 Acquired Novartis nutrition business & Jenny Craig diet products 2007 Acquired Gerber baby foods WSJ 7/23/07 From Swiss retailers to US institutional investor pressures 29% of L’Oreal

Porter’s Generic Competitive Strategies Purpose: achieve above-average long-run ROI for your industry. Competitive Advantage Cost Leadership Differentiation Competitive Scope Broad Target Narrow Target (Focus/Niche)

Porter’s Generic Competitive Strategies

Tesla Goals & Strategy (summer 2007) Auto co. based in Silicon Valley Begin producing $98,000 electric sports car in Oct. 2007 Tesla engineers focus on the battery, computer software, & proprietary motor; outsource the rest Uses lithium ion batteries, used in laptops, vs. nickel metal hydride Development center in Detroit, with engineers hired away from Big 3 Future: Sedan called White Star, $55-68,000; in 5 years, Blue Star, $30,000 BusinessWeek, 7/30/07, pp. 73-4.

Corporate Culture = Collection of beliefs, expectations, and values learned and shared by members and transmitted from one generation of employees to another. = Collective mental programming.

Functions of Corporate Culture Conveys a sense of identity Generates employee commitment Adds to organizational stability Serves as a frame of reference

Industry Analysis: Porter’s 5 Competitive Forces Purpose: understand why some industries have higher profit margins & what factors can change long-run industry profitability. Risk of New Entry Rivalry Among Established Firms Bargaining Power of Buyers Bargaining Power of Suppliers Threat of Substitute Products

ENTRY Barriers Brand Loyalty Absolute Cost Advantages patents access to raw materials superior production techniques Economies of Scale Government Regulation

Factors Affecting Intensity of RIVALRY Competitive Structure number of firms relative market share Demand conditions growth decline Exit barriers

Factors Affecting BARGAINING POWER Number of firms in buyer vs. supplier industries Quantity or % of total orders Switching costs Standardization vs. specialization of input Threat of vertical integration

SUBSTITUTES = products from OTHER industries that serve consumers’ needs in a way that is similar to those being served by your industry. Example: coffee vs. tea vs. soft drinks NOTE: Substitutes are very difficult to monitor, because they can involve technological changes in industries that did not pose any threat in the past.

Company Situation Analysis INTERNAL: Strengths & Weaknesses financial position: relative & changes over time functional capabilities: sustainable? distinctive? EXTERNAL: Opportunities & Threats demographic & socio-cultural changes economic & political/legal changes industry & technological changes

RECOMMENDATIONS Shift from Analysis--->Synthesis Is a fundamental shift in strategy required or not? How do your recommendations line up with your SWOT analysis? Is this a feasible, creative solution that is supported by your analysis?