1. PowerPoint Presentation by Charlie Cook Copyright © 2005 South-Western. All rights reserved. Chapter 5 StrategyStrategy

2. Copyright © 2005 South-Western. All rights reserved.5–2 Strategic Planning Strategic planning  Developing a strategic orientation for an organization that culminates in the formulation and implementation of a multilevel strategy for achieving organizational goals.  The process of examining the organization’s environment, establishing a mission, setting goals and objectives, and developing an operating plan.  A cyclical process governed by competitiveness, analysis, and innovation.

3. Copyright © 2005 South-Western. All rights reserved.5–3 Strategic Planning (cont’d) Exhibit 5. 1 Strategic Planning Process

4. Copyright © 2005 South-Western. All rights reserved.5–4 Strategic Planning (cont’d) Developing a mission statement  Mission statement answers question: “What is this organization’s purpose?”  Incorporates the “vision”: values, competencies of the organization, and future opportunities that create value for the firm. An effective mission statement is:  Customer-focused  Challenging and achievable  Motivational and inspirational  Specific

5. Copyright © 2005 South-Western. All rights reserved.5–5 Strategic Planning (cont’d) Mission (Strategic Intent) Long-term Goals Short-term Objectives Specific Actions Establishing Goals and Objectives

6. Copyright © 2005 South-Western. All rights reserved.5–6 Strategic Planning (cont’d) Strategic terminology  Core competencies: activities done well, or skills that the organization possesses; sources of competitive advantage.  Distinctive competence: a unique strength that allows a company to achieve superior efficiency, quality, innovation, or customer responsiveness.  Competitive advantage: attaining greater profits than competitors through:  Greater efficiencies—input and process cost savings.  Differentiation—superior, different products/services.

7. Copyright © 2005 South-Western. All rights reserved.5–7 Management Highlight Strategic Terminology Source: Adapted from: Joan Magretta, “Why Business Models Matter” Harvard Business Review, May 2002, pp. 3–8; Richard Hammermesh, “Making Planning Strategic,” Harvard Business Review, July–August 1986, pp. 3–9; and Henry Mintzberg, “The Rise and Fall of Strategic Planning,” Harvard Business Review, January–February 1994, pp. 107–14. Strategic Planning (cont’d)

8. Copyright © 2005 South-Western. All rights reserved.5–8 Strategic Planning (cont’d) Competitive Advantage QualityQualityInnovativenessInnovativeness EfficiencyEfficiency Customer Responsiveness Building Blocks of Competitive Advantage

9. Copyright © 2005 South-Western. All rights reserved.5–9 Strategic Planning (cont’d) Strategic terminology (cont’d)  Industry environment: the competition, products, customers, and any unique characteristics of a particular industry  Strategic intent: The overall meaning or interpretation of actions, behaviors, formal communications, and decisions of an organization’s decision makers  Strategic thinking: The mental ability of a strategic manager to synthesize competitive implications of diverse information

10. Copyright © 2005 South-Western. All rights reserved.5–10 Strategic Planning (cont’d) Strategic terminology (cont’d)  Business model: a description of the organizational processes an organization intends to use in conducting a viable business  Business model components:  A narrative test that sensibly describes what the organization hopes to accomplish.  A numbers test that projects financial information based on assumptions about demand and costs that indicate profitability.

11. Copyright © 2005 South-Western. All rights reserved.5–11 Environmental Analysis Process Managerial responsibilities:  Providing information and suggestions relating to their particular areas of responsibility.  Monitoring the process and responding to strategic planning documents to accomplish their department’s role in the strategy.  Ensuring that their departments have resources to support the strategy.

12. Copyright © 2005 South-Western. All rights reserved.5–12 Environmental Analysis Process (cont’d) SWOT analysis  Strengths—internal resources (core competencies) that can be used to gain competitive advantage.  Weaknesses—internal resources that are insufficient to support the firm’s strategy.  Opportunities—external matters that offer the potential for increased competitive advantage.  Threats—external events that endanger the firm or its competitive position.

13. Copyright © 2005 South-Western. All rights reserved.5–13 Exhibit 5. 2 Environmental Analysis Process (cont’d) SWOT Analysis for Starbucks Corporation

14. Copyright © 2005 South-Western. All rights reserved.5–14 Environmental Analysis Process (cont’d) Political Climate Sociocultural Environment Technological Developments Economic Conditions External Environment Competitive Environment Analyzing the External Environment

15. Copyright © 2005 South-Western. All rights reserved.5–15 Environmental Analysis Process (cont’d) Analyzing the external environment  Sociocultural environment  Environmental scanning: acquiring and using information about events and trends in an organization’s external environment.  Issues management: focusing on a single issue of strategic importance.  Technological developments  Anticipating technological changes  Adapting to their implementation in the workplace  Exploiting them for competitive advantage

16. Copyright © 2005 South-Western. All rights reserved.5–16 Environmental Analysis Process (cont’d) Analyzing the external environment (cont’d)  Economic conditions  The dynamic economic environment includes: –Global economic considerations. –Downward cost pressures. –Specialization of resources, location, or knowledge.  Political climate  Instability in governments and laws.  Competitive environment  The mix of opportunities, constraints, and threats.

17. Copyright © 2005 South-Western. All rights reserved.5–17 Environmental Analysis Process (cont’d) Stockholders Employees Customers Suppliers StakeholdersCommunity Stakeholder Analysis

18. Copyright © 2005 South-Western. All rights reserved.5–18 Corporate-Level Strategy Vertical Integration Concentration on a Single Business Diversification Corporate-Level Strategy The Big Picture

19. Copyright © 2005 South-Western. All rights reserved.5–19 Corporate-Level Strategy (cont’d) The Portfolio Matrix Model  Developed to help large diversified organizations strategically manage their holdings.  First step in this approach is to identify strategic business units (SBUs).

20. Copyright © 2005 South-Western. All rights reserved.5–20 Corporate-Level Strategy (cont’d) Strategic business unit (SBU)  Product or service division within a company that establishes goals and objectives in harmony with the firm’s overall mission and is responsible for its own profits and losses.  Each SBU:  Has a distinct mission.  Has its own competitors.  Is a single business or collection of businesses.  Can be planned for independently of the other businesses of the total organization.

21. Copyright © 2005 South-Western. All rights reserved.5–21 Corporate-Level Strategy (cont’d) SBU classifications  Star—has a high share of a high-growth market.  Cash cow—has a high share of a low-growth market.  Question mark—has a low share of a high-growth market.  Dog—has a low share of a low-growth market.

22. Copyright © 2005 South-Western. All rights reserved.5–22 Corporate-Level Strategy (cont’d) Exhibit 5. 3 BCG Portfolio Matrix

23. Copyright © 2005 South-Western. All rights reserved.5–23 Corporate-Level Strategy (cont’d) Strategic SBU choices:  Build—for stars or potential stars, invest financial resources.  Hold—for cash cows, hold or preserve market share to take advantage of their positive cash flows.  Harvest—use when increasing short-term cash returns is needed for investment in other businesses.  Divest—clearing the portfolio of SBUs with low shares in low-growth markets is often a good move.

24. Copyright © 2005 South-Western. All rights reserved.5–24 Business-Level Strategy Porter’s five competitive forces  Threat of new entrants  Threat of substitute products or services,  Bargaining power of suppliers  Bargaining power of buyers  Rivalry among existing competitors.

25. Copyright © 2005 South-Western. All rights reserved.5–25 Business-Level Strategy (cont’d) Exhibit 5. 4 Adapted from: Michael E. Porter. Competitive Strategy, New York: Free Press, 1980. Porter’s Five Forces Model

26. Copyright © 2005 South-Western. All rights reserved.5–26 Business-Level Strategy (cont’d) Porter’s generic competitive strategies  Cost leadership: creating value while maintaining the competitive advantage of a lower than average cost structure.  Differentiation: offering a higher-priced product with more product-enhancing features than competitors’ products to gain and maintain high levels of customer loyalty.  Focus: creating a niche or target market for products or services by either cost leadership or differentiation.

27. Copyright © 2005 South-Western. All rights reserved.5–27 Business-Level Strategy (cont’d) Exhibit 5. 5 Porter’s Competitive Strategies

28. Copyright © 2005 South-Western. All rights reserved.5–28 Functional-Level Strategy Value Chain Analysis Exhibit 5. 6

29. Copyright © 2005 South-Western. All rights reserved.5–29 Strategy Implementation: McKinsey’s 7-S Model Exhibit 5. 7

30. Copyright © 2005 South-Western. All rights reserved.5–30 Strategic Planning for the Internet Organizations use the Internet in two ways:  To support ongoing (current) business activities.  To conduct a core business activity entirely and solely on the Internet. Criteria for successful e-commerce:  Reach means access—who can access your site?  Richness is a measure of the depth of information available on the site.  Affiliation concerns who benefits from the site.