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BUS 189 STRATEGIC MANAGEMENT. CHAPTER 1, 8TH EDITION HILL & JONES, STRATEGIC MANAGEMENT DR. MARK FRUIN FALL 2009. INTRO BEFORE CHAPTER 1. REVIEW VALUE ADDING ACTIVITY SEQUENCE/STREAM INDUSTRIES & SECTORS FIRMS & FIRM BOUNDARIES VALUE CHAINS STRATEGY STACK

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Bus 189 strategic management

BUS 189STRATEGIC MANAGEMENT

CHAPTER 1, 8TH EDITION

HILL & JONES, STRATEGIC MANAGEMENT

DR. MARK FRUIN

FALL 2009


Intro before chapter 1
INTRO BEFORE CHAPTER 1

  • REVIEW

    • VALUE ADDING ACTIVITY SEQUENCE/STREAM

    • INDUSTRIES & SECTORS

    • FIRMS & FIRM BOUNDARIES

    • VALUE CHAINS

    • STRATEGY STACK

    • ENVIRONMENTS SHAPE FIRMS, EXCEPT IN SPECIAL CASES, WHICH ARE?

    • WHAT IS STRATEGY

    • 2.5 MODELS OF STRATEGY


Why do some firms succeed while others fail
WHY DO SOME FIRMS SUCCEED WHILE OTHERS FAIL?

  • STRATEGIES HAVE MAJOR IMPACTS ON PERFORMANCE (THE HYPOTHESIS)

  • A STRATEGY IS A SET OF RELATED ACTIONS THAT MANAGERS TAKE TO INCREASE THEIR COMPANY’S PERFORMANCE (p. 3)

    • STRATEGIC LEADERSHIP (p. 3) INCLUDES

      • STRATEGY FORMULATION

      • STRATEGY IMPLEMENTATION

      • STRATEGY ASSESSMENT (not on p. 3)

      • STRATEGY RE-FORMULATION & IMPLEMENTATION (not p.3)

  • IF A FIRM’S STRATEGIES RESULT IN SUPERIOR PERFORMANCE, IT IS SAID TO HAVE A COMPETITIVE ADVANTAGE


Terms
TERMS

  • STRATEGIC LEADERSHIP

  • STRATEGY-MAKING PROCESS

  • STRATEGY FORMULATION

  • STRATEGY IMPLEMENTATION

  • STRATEGY MEASURING, MONITORING & MANAGEMENT (not in textbook)


Measuring performance
MEASURING PERFORMANCE

  • MAXIMIZING SHAREHOLDER VALUE

    • FIRST, SHAREHOLDERS PROVIDE RISK CAPITAL; MANAGERS PURSUE STRATEGIES AS THEIR AGENTS

    • SECOND, SHAREHOLDERS ARE OWNERS, AND OWNERS HAVE PROPERTY RIGHTS

  • MEASURING PROFITABILITY

    • RETURN ON INVESTED CAPITAL

    • SHORT-TERM OR LONG-TERM?

  • PROFIT GROWTH

    • INCREASE IN NET PROFITS OVER TIME

  • PROFITABILITY AND PROFIT GROWTH ARE KEY MEASURES OF STRATEGY PERFORMANCE


Profitability
PROFITABILITY

  • PROFITABILITY IS THE MOST COMMON MEASURE OF STRATEGIC SUCCESS

  • PROFITABILITY MEASURES RETURNS ON INVESTED CAPITAL

  • PROFIT USUALLY MEANS BEFORE-TAX PROFITS

  • INVESTED CAPITAL = STOCKHOLDERS’ EQUITY + DEBT (LIABILITIES)


More terms
MORE TERMS

  • SUSTAINABLE COMPETITIVE ADVANTAGE

    • A COMPETITIVE ADVANTAGE IN A PARTICULAR LINE OF BUSINESS THAT LASTS & LASTS

  • STRATEGY = HOW ENABLE A BUSINESS MODEL

  • BUSINESS MODEL

    • HOW DO WE MAKE MONEY

      • SELECT CUSTOMERS

      • PRODUCT OFFERINGS (DEFINE & DIFFERENTIATE)

      • CREATE VALUE

      • ORGANIZE ACTIVITIES

      • CONFIGURE RESOURCES


Choice of industry
CHOICE OF INDUSTRY

  • IN ADDITION TO BUSINESS MODEL AND ASSOCIATED STRATEGIES, CHOICE OF INDUSTRY IS HUGE

    • INDUSTRIES VARY SIGNIFICANTLY IN TERMS OF GROWTH RATES & AVE PROFITS

      • TYPICAL LOW PROFIT INDUSTRY?

        • WHY ARE PROFITS LOW IN RETAIL?

      • TYPICAL HIGH PROFIT INDUSTRY?

        • WHY ARE PROFITS HIGH IN COMPUTER SOFTWARE?

    • A FIRM’S SUCCESS DEPENDS ON

      • IN WHICH INDUSTRY/IES DOES IT COMPETE?

      • WHICH STRATEGIES IT PURSUES IN INDUSTRY


Strategy stack levels of strategic management
STRATEGY STACK = LEVELS OF STRATEGIC MANAGEMENT

  • FUNCTIONAL LEVEL

    • BUSINESS FUNCTIONS COMPANYWIDE

  • BUSINESS LEVEL

    • OR BU/DIVISIONAL MANAGEMENT

      • INCLUDES BOTH PRODUCT-LEVEL AND INDUSTRY-LEVEL STRATEGIES

  • CORPORATE LEVEL

    • CEO, BOARDS, AND CORPORATE STAFF


Strategy making process
STRATEGY-MAKING PROCESS

  • FORMAL PROCESS HAS 5 STEPS

    • SELECT FIRM MISSION & GOALS

    • ANALYZE EXTERNAL ENVIRONMENT

    • ANALYZE INTERNAL ENVRIRONMENT

    • SELECT STRATEGIES BASED ON ANALYSES

    • IMPLEMENT STRATEGIES


Vision mission goals
VISION, MISSION & GOALS

  • VISION IS LONG-TERM

  • MISSION IS MID-TERM

  • GOALS ARE SHORT-TERM

  • RECOGNIZE THAT THESE TARGETS ARE INFLUENCED BY

    • EXTERNAL ENVIRONMENT (NATIONAL CULTURE & INSTITUTIONS)

    • CORPORATE GOVERNANCE MODELS

    • INTERNAL ENVIRONMENT (ORG. CULTURE)


Figure 1 5 on p 12
FIGURE 1.5 on p. 12

  • LAYS OUT THE PLAN FOR THE BOOK AND THE COURSE

  • CHAPTERS 1-3 ARE INTERRELATED; WE GO THROUGH THEM QUICKLY

  • SEE NEW SYLLABUS; TODAY’S HANDOUT

  • CHAPTERS 4-12 ARE THE BEEF OF THE COURSE


Goals
GOALS

  • PRECISE & MEASURABLE

  • ADDRESS KEY/CRITICAL ISSUES

  • CHALLENGING BUT REALISTIC

  • SPECIFY TIME PERIODS WITHIN WHICH GOALS ARE REALIZED OR, AT LEAST, MEASURED

  • STRETCH GOALS AS OPPOSED TO GOALS THAT DO NOT REQUIRE MUCH EFFORT


Swot analysis
SWOT ANALYSIS

  • STRENGTHS

  • WEAKNESSES

  • OPPORTUNITIES

  • STRENGTHS

  • GIVE DIRECTION TO SELECTION & IMPLEMENTATION OF STRATEGIES

  • BUT IT’S ONLY A START


Strategy as emergent process
STRATEGY AS EMERGENT PROCESS

  • STRATEGIC PLANNING & IMPLEMENTATION ARE ONGOING, NEVER ENDING

    • CONFLICT WITH FORMAL PLANNING PROCESSES?

  • UNCERTAINTY MEANS FLEXIBILITY & ADAPTABILITY ARE KEY

  • LOWER LEVEL ORGANIZATIONAL MEMBERS, MORE NUMEROUS THAN ANY, ARE THE KEY TO STRATEGIC SUCCESS

    • AUTONOMOUS ACTIONS

    • UNPLANNED RESPONSES TO UNFORESEEN CIRCUMSTANCES

    • HONDA & FORTUITOUS CIRCUMSTANCES (LUCK), 22-24


To cope with uncertainty
TO COPE WITH UNCERTAINTY

  • STRATEGY AS SCENARIO PLANNING

  • STRATEGY AND DECENTRALIZATION

    • CHAN KIM & RENEE MAUBORGNE’S PROCEDURAL JUSTICE (DISTRIBUTIVE JUSTICE)

  • STRATEGIC INTENT

    • PRAHALAD AND HAMEL’S NOTION

    • AMBITIOUS GOALS HELD BY THE ORGANIZATIONAL MAJORITY


Strategic decision making
STRATEGIC DECISION MAKING

  • COGNITIVE BIASES

    • PRIOR HYPOTHESIS BIAS

    • ESCALATING COMMITMENT

    • REASONING BY ANALOGY

    • REPRESENTATIVENESS

    • ILLUSION OF CONTROL (HUBRIS)

  • GROUPTHINK

    • DEVIL’S ADVOCACY

    • DIALECTIC INQUIRY

    • ANALOGOUS PAST INITIATIVES


Strategic leadership
STRATEGIC LEADERSHIP

  • VISION, ELOQUENCE & CONSISTENCY

  • ARTICULATION OF BUSINESS MODEL

  • COMMITMENT

  • BEING WELL INFORMED

  • WILLINGNESS TO DELEGATE/EMPOWER

  • ASTUTE USE OF POWER (OVER RESOURCES)

  • EMOTIONAL INTELLIGENCE

    • SELF-AWARE, SELF-REGULATE, EMPATHY, SOCIAL SKILLS, MOTIVATION BEYOND MONEY


Appendix to chapt 1 enterprise valuation
APPENDIX TO CHAPT. 1ENTERPRISE VALUATION

  • ROIC

    • ROIC = NOPLAT/IC

    • NOPLAT = ?

    • IC = ?

  • GROWTH RATE OF PROFITS

    • % INCREASE IN NET OPERATING PROFITS OVER A TIME PERIOD, USUALLY YEAR-BY-YEAR


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