Chapter 3: Strategic Management1 Copyright 2002 Prentice Hall Publishing Company Strategic Management and the Entrepreneur

Chapter 3: Strategic Management2 Copyright 2002 Prentice Hall Publishing Company Strategic Management n Crucial to building a successful business. n 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.

Chapter 3: Strategic Management3 Copyright 2002 Prentice Hall Publishing Company Is Strategic Planning Really That Important? n 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. n Another study:  Only 12% of small companies had a long- range plan in writing.

Chapter 3: Strategic Management4 Copyright 2002 Prentice Hall Publishing Company Strategic Management and Competitive Edge n 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. n Example: Stardust Technologies, Inc.

Chapter 3: Strategic Management5 Copyright 2002 Prentice Hall Publishing Company Strategic Management Process Step 1: Develop a vision and translate it into a mission statement. Step 2: Define core competencies and target market and identify desired market position. Step 3: Assess strengths and weaknesses. Step 4: Scan environment for opportunities and threats. Step 5: Identify key success factors.

Chapter 3: Strategic Management6 Copyright 2002 Prentice Hall Publishing Company Strategic Management Process Step 6: Analyze competition. Step 6: Analyze competition. Step 7: Create goals and objectives. Step 7: Create goals and objectives. Step 8: Formulate strategies. Step 8: Formulate strategies. Step 9: Translate plans into actions. Step 9: Translate plans into actions. Step 10: Establish accurate controls. Step 10: Establish accurate controls. (continued)

Chapter 3: Strategic Management7 Copyright 2002 Prentice Hall Publishing Company Knowledge Management n 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. n Knowledge management involves:  Taking inventory of the special knowledge the people in the company possess.  Organizing that knowledge and disseminating it to those who need it.

Chapter 3: Strategic Management8 Copyright 2002 Prentice Hall Publishing Company Step 1: Develop a Vision and Create a Mission Statement n Vision – an expression of what an entrepreneur stands for and believes in. n A clearly defined vision:  Provides direction  Determines decisions  Motivates people

Chapter 3: Strategic Management9 Copyright 2002 Prentice Hall Publishing Company Step 1: Develop a Vision and Create a Mission Statement n The Mission Statement addresses question: “What business are we in?” n The mission is a written expression of how the company will reflect the owner’s values, beliefs, and vision. n The company’s mission depicts its character, identity, and scope of operation in enough detail to distinguish the company in the marketplace.

Chapter 3: Strategic Management10 Copyright 2002 Prentice Hall Publishing Company Vision and Mission (Review – different view) Vision: An overall picture of where the entire organization would like to be in the future Mission: A statement of what the various organizational units do and what they hope to accomplish in alignment with the organizational vision

Chapter 3: Strategic Management11 Copyright 2002 Prentice Hall Publishing Company Prime Inc. Mission and Values Mission To prosper while providing excellent service to our customers © 2001 by Prentice Hall, Inc. Prime Values Customers—Finding, servicing, and keeping customers guarantees our existence. Service—We will provide quality service that meets or exceeds our customers’ requirements. Value—We will price our service at rates that are a true value to our customers. Profit—To remain free and provide security for our company and associates, we must earn a profit.

Chapter 3: Strategic Management12 Copyright 2002 Prentice Hall Publishing Company The Bama Companies, Inc. Mission and Vision Mission People helping people be successful. © 2001 by Prentice Hall, Inc. Vision To delight our customers with the Bama experience…again and again by setting the standard, and being the best in our products, our service, and our people.

Chapter 3: Strategic Management13 Copyright 2002 Prentice Hall Publishing Company Aire-Master Mission and Values Mission To provide invaluable services that enhance the customer’s image of quality. © 2001 by Prentice Hall, Inc. Values Positive mental attitude Teamwork and communication Concern for others Going the extra mile Innovative thinking Training and education HonestyReliabilityExcellence Constant improvement

Chapter 3: Strategic Management14 Copyright 2002 Prentice Hall Publishing Company Important Components of Organizational Vision Organizational Purpose Broad Goals Core Values and Beliefs Summary of What Organization Does

Chapter 3: Strategic Management15 Copyright 2002 Prentice Hall Publishing Company Components of Organizational Vision and Mission Statements Markets Technology Concern for Survival, Profits, and Growth Products or Services Self-concept Concern for Public Image Concern for Employees Philosophy Customers

Chapter 3: Strategic Management16 Copyright 2002 Prentice Hall Publishing Company Step 2: Define Core Competencies and Market Position n Company must define its set of core competencies that enable it to serve customers better than rivals. n Core Competencies – a unique set of capabilities a company develops in key operational areas that allow it to vault past competitors.  They are what a company does best.  Best to rely on a natural advantage (often linked to the company’s size).

Chapter 3: Strategic Management17 Copyright 2002 Prentice Hall Publishing Company Step 2: Define Core Competencies and Market Position n Market segmentation – carving up the mass market into smaller, more homogenous units and then attacking certain segments with a specific marketing strategy. n Proper positioning – creating the desired image for the business in the customer’s mind.

Chapter 3: Strategic Management18 Copyright 2002 Prentice Hall Publishing Company Step 3: Assess Company Strengths and Weaknesses n Strengths  Positive internal factors that contribute to accomplishing the mission, goals, and objectives. n Weaknesses  Negative internal factors that inhibit the accomplishment of the mission, goals, and objectives.

Chapter 3: Strategic Management19 Copyright 2002 Prentice Hall Publishing Company Step 4: Scan for Opportunities and Threats n Opportunities  Positive external factors the company can employ to accomplish its mission, goals, and objectives. n Threats  Negative external factors that inhibit the firm’s ability to accomplish its mission, goals, and objectives.

Chapter 3: Strategic Management20 Copyright 2002 Prentice Hall Publishing Company Step 5: Identify Key Success Factors n Key success factors: relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market. n The keys to unlocking the secrets of competing successfully in a particular market segment.

Chapter 3: Strategic Management21 Copyright 2002 Prentice Hall Publishing Company Step 6: 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 3: Strategic Management22 Copyright 2002 Prentice Hall Publishing Company Step 6: Analyze Competitors Techniques that 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.  Study competitors’ literature and “benchmark” their products and services.  Get competitors’ credit reports.  Check out the local library.  Use the World Wide Web to learn more about competitors.  Visit competing businesses to observe their operations.

Chapter 3: Strategic Management23 Copyright 2002 Prentice Hall Publishing Company Step 7: Create Company Goals and Objectives n Goals – broad, long-range attributes to be accomplished. n Objectives – more detailed, specific targets of performance that are S.M.A.R.T.  Specific  Measurable  Attainable  Realistic (yet challenging)  Timely

Chapter 3: Strategic Management24 Copyright 2002 Prentice Hall Publishing Company Why Have Goals? Goals: 1. Direct all organizational work toward a common and unified purpose 2. Act as targets for motivating people 3. Serve as criteria against which work accomplishments are measured

Chapter 3: Strategic Management25 Copyright 2002 Prentice Hall Publishing Company Types of Goals Specificity p Specific p Directional Areas of Organizational Work p Technology and operations p Marketing p Financial Time Frame p Long term p Short term Breadth p Organization- wide p Operational

Chapter 3: Strategic Management26 Copyright 2002 Prentice Hall Publishing Company Characteristics of Good Goals oWritten in terms of outcomes rather than actions oMeasurable and quantifiable oClear as to a time frame oChallenging yet attainable oWritten down oCommunicated to all organizational members

Chapter 3: Strategic Management27 Copyright 2002 Prentice Hall Publishing Company The Goal-Setting Process Steps: 1. Review the organizational vision and mission(s) 2. Evaluate available resources 3. Determine broad, long-term, organization-wide goals 4. Write down the organization-wide goals 5. Determine specific, short-term operational goals 6. Write down the operational goals 7. Review results

Chapter 3: Strategic Management28 Copyright 2002 Prentice Hall Publishing Company Relationship Between Organizational Goals and Strategies Organizational Vision and Mission(s) Organization-wide Goals Operational Goals Operational Strategies

Chapter 3: Strategic Management29 Copyright 2002 Prentice Hall Publishing Company Step 8: Formulate Strategies n Strategy – a “road map” to guide the company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives. It is the company’s game plan for winning. n Three basic strategies: Strategy? Cost leadership Differentiation Focus

Strategic Options Competitive Advantage TargetMarket Industry Niche Uniqueness Perceived by the Customer by the Customer Low Cost Position Differentiation Low Cost Differentiation Focus Differentiation Focus Cost Focus Cost Focus

Chapter 3: Strategic Management31 Copyright 2002 Prentice Hall Publishing Company Differentiation n Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. n Idea is to be special at something customers value. n Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors.

Chapter 3: Strategic Management32 Copyright 2002 Prentice Hall Publishing Company Focus n 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. n Strategy builds on differences among market segments. n Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market.

Chapter 3: Strategic Management33 Copyright 2002 Prentice Hall Publishing Company Cost Leadership n Goal: to be the low-cost producer in the industry (or market segment). n Low-cost leaders have an advantage in reaching buyers who buy on the basis of price, and they have the power to set the industry’s price floor. n Works well when:  buyers are sensitive to price changes.  competing firms sell the same commodity products.  a company can benefit from economies of scale.

Chapter 3: Strategic Management34 Copyright 2002 Prentice Hall Publishing Company Financial and Accounting Strategies for Entrepreneurial Ventures Evaluating Financial Performance oWhat type of analysis? oHow much analysis? oHow often to analyze? Forecasting, Planning, and Budgeting oWhat type of forecast? oHow often to forecast? Financing Mix oShort-term versus long-term funding sources oPermanent or temporary sources Other Financial Management Decisions oCapital budgeting oStock dividend policy oCash flow management oCash and securities management oReceivable and inventory management oTerm loans and leases

Chapter 3: Strategic Management35 Copyright 2002 Prentice Hall Publishing Company Information Systems Strategies for Entrepreneurial Ventures Systems Technology oManual oComputer based Types of Information System oTransaction processing system oOffice automation system oKnowledge work system oManagement information system oDecision support system oExecutive support system

Chapter 3: Strategic Management36 Copyright 2002 Prentice Hall Publishing Company Step 9: Translate Strategies into Action Plans n Create projects by defining:  Purpose  Scope  Contribution  Resource requirements  Timing

Chapter 3: Strategic Management37 Copyright 2002 Prentice Hall Publishing Company Step 10: Establish Accurate Controls n The plan establishes the standards against which actual performance is measured. n Entrepreneur must:  identify and track key performance indicators.  Take corrective action.

Chapter 3: Strategic Management38 Copyright 2002 Prentice Hall Publishing Company Balanced Scorecards n A set of measurements unique to a company that includes both financial and operational measures n Gives managers a quick, yet comprehensive, picture of a company’s overall performance.

Chapter 3: Strategic Management39 Copyright 2002 Prentice Hall Publishing Company Balanced Scorecards n 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 3: Strategic Management40 Copyright 2002 Prentice Hall Publishing Company Dimensions of Organizational Culture Attention to Detail Outcome Orientation Team Orientation Aggressiveness StabilityPeople Orientation Innovation and Risk-Taking

Chapter 3: Strategic Management41 Copyright 2002 Prentice Hall Publishing Company Organizational Culture How Organizational Culture Is Learned: p Stories p Rituals p Material Symbols p Language p Role of Physical Surroundings

Chapter 3: Strategic Management42 Copyright 2002 Prentice Hall Publishing Company Building a Healthy Culture Guidelines: 1. Change has to start at the top. 2. Think about your culture when hiring. 3. Two-way communication is important. 4. If you don’t believe in it, don’t fake it.

Chapter 3: Strategic Management43 Copyright 2002 Prentice Hall Publishing Company