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1.2 Defining strategy

1.2 Defining strategy. A company ’ s strategy is all about how how management intends to grow the business how it will build a loyal clientele and outcompete rivals, how each functional piece of the business will be operated how performance will be boosted.

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1.2 Defining strategy

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  1. 1.2 Defining strategy A company’s strategy is all about how • how management intends to grow the business • how it will build a loyal clientele and outcompete rivals, • how each functional piece of the business will be operated • how performance will be boosted

  2. 1.3 Defining Vision and Mission A strategic vision portrays a company’s future business scope (where we are going), whereas a company’s mission typically describes its present business and purpose (who we are, what we do, and why we are here)

  3. 1.4 Strategy and the quest for Competitive Advantage Four of the most frequently used and dependable strategic approaches : • Low-cost provider • Differentiation • Niche focus • Unique capabilities

  4. 1.5 The Relationship between a Company’s Strategy and Business Model A company’s business model thus explains why its business approach and strategy will generate ample revenues to cover costs and capture a profit.

  5. Figure 1.1

  6. 1.7 The Concept of a Company Value Chain Chapter 4 describes a company’s value chain as two broad categories of activities: • namely the primary activities that are foremost in creating value for customers, and the • requisite support activities that facilitate and enhance the performance of the primary activities.

  7. 1.9 Killers of Strategic Alignment and Fit • Unclear strategy and/or conflicting priorities • An ineffective top management team • A leadership style that is too top-down or, conversely, too laissez-faire • Poor coordination across functions, businesses, or geographic regions • Inadequate leadership skills and development of down-the-line leaders • Poor vertical communication

  8. 1.10 Managing Alignment: Different Views 6 steps to achieve alignment: • Articulate the key strategic drivers of your business and the main areas of focus that will make your organization successful. • Define critical strategic goals that you perceive should be deployed throughout your organization. • Develop performance measures for each of these key goals.

  9. Figure 2.1

  10. 2.2 Developing a Strategic Vision (Part 1) Top management’s views and conclusions about the company’s direction and future product/ market/ customer/ technology focus constitute a strategic vision for the company.

  11. Capsule 2.1: Examples of Strategic Visions - How Well Do They Measure Up? • Vodacom • Coca-Cola Sabco • Basil Read • Peugeot • Atlanta Web Printers • Balanced Scorecard Institute of South Africa

  12. 2.2.2 Strategic Vision Covers Different Ground From the Typical Mission Statement The defining characteristic of a well-conceived strategic vision is what it says about the company’s future strategic course In contrast, the mission statements typically provide a brief overview of the company’s present business purpose and raison d’être, and sometimes its geographic coverage or standing as a market leader

  13. 2.2.3 Communicating the Strategic Vision • Expressing the Essence of the Vision in a Slogan • Breaking Down Resistance to a New Strategic Vision • Understanding the Benefits of a Clear Vision Statement

  14. 2.2.4 Linking the Vision/Mission with Company Values Many companies have developed a statement of values to guide the company’s pursuit of its vision/mission, strategy, and ways of operating. By values (or core values, as they are often called), we mean the beliefs, traits, and ways of doing things.

  15. Illustration Capsule 2.2: The Connection Between Yahoo’s Mission and Core Values • Excellence • Innovation • Customer Fixation • Teamwork • Community • Fun • What Yahoo doesn’t value

  16. 2.3 Setting Objectives (Part 2) 2.3.1 Nature of Objectives The managerial purpose of setting objectives is to convert the strategic vision into specific performance targets—results and outcomes the company’s management wants to achieve. Objectives represent a managerial commitment to achieving particular results and outcomes.

  17. 2.3.2 What Kinds of Objectives to Set: The Need for a Balanced Scorecard Two very distinct types of performance yardsticks are required: those relating to financial performance and those relating to strategic performance—outcomes that indicate a company is strengthening its marketing standing, competitive vitality, and future business prospects.

  18. 2.3 Setting Objectives (Part 2) The Case for a Balanced Scorecard: Improved Strategic Performance Fosters Better Financial Performance The best and most reliable leading indicators of a company’s future financial performance and business prospects are strategic outcomes that indicate whether the company’s competitiveness and market position are stronger or weaker.

  19. 2.3.2 What Kinds of Objectives to Set • The Case for a Balanced Scorecard: Improved Strategic Performance Fosters Better Financial Performance • Both Short-Term and Long-Term Objectives Are Needed • Strategic Intent: Relentless Pursuit of an Ambitious Strategic Objective • The Need for Objectives at All Organizational Levels • Objective Setting Needs to Be Top-Down Rather than Bottom-Up

  20. 2.4 Crafting a Strategy (Phase 3) The task of crafting a strategy entails answering a series of hows: • how to grow the business • how to please customers • how to outcompete rivals • how to respond to changing market conditions • how to manage each functional piece of the business • how to achieve strategic, financial and operational objectives

  21. 2.4.3 A Company’s Strategy-Making Hierarchy The strategy-making task involves four distinct types or levels of strategy: • Corporate strategy • Business strategy • Functional-area strategies • Operating strategies

  22. 2.4.5 A Strategic Vision + Objectives + Strategy = A Strategic Plan Developing a strategic vision and mission, setting objectives, and crafting a strategy are basic direction-setting tasks.

  23. 2.7 Corporate Governance: The Role of the Board of Directors Although senior managers have lead responsibility for crafting and executing a company’s strategy, it is the duty of the board of directors to exercise strong oversight and see that the five tasks of strategic management are done in a manner that benefits shareholders (in the case of investor-owned enterprises) or stakeholders (in the case of not‑for-profit organizations).

  24. Figure 3.1

  25. Figure 3.2

  26. 3.4 What are the Industry’s Dominant Economic Features? An industry’s dominant economic features are defined by such factors as market size and growth rate, the number and sizes of buyers and sellers, the geographic boundaries of the market, the degree to which sellers’ products are differentiated, the pace of product innovation, market supply/demand conditions, the pace of technological change, the extent of vertical integration, and the extent to which costs are affected by scale economies and learning/ experience curve effects

  27. 3.5 What Kinds of Competitive Forces are Industry Members Facing? Competitive pressures operating in five areas of the overall market: • Rival sellers • New entrants • Substitute products • Supplier bargaining power • Buyer bargaining power

  28. 3.5.1 Competitive Pressures Associated with Rival Sellers The strongest of the five competitive forces is nearly always the market manoeuvring and jockeying for buyer patronage that goes on among rival sellers of a product or service. The challenge is to craft a competitive strategy that, at the very least, allows a company to hold its own against rivals and that, ideally, produces a competitive edge over rivals.

  29. 3.5.2 Competitive Pressures Associated with the Threat of New Entrants Several factors determine whether the threat of new companies entering the marketplace poses significant competitive pressure. One factor relates to the size of the pool of likely entry candidates and the resources at their command. A second factor concerns whether the likely entry candidates face high or low entry barriers.

  30. Illustration Capsule 3.1: Can Mango Give Low-Cost Rivals the Pip in Turbulent Times and Prevent Overlapping? An entrant like Mango Airlines (SAA’s low-cost airline) can have second thoughts when financially strong incumbent companies send clear signals that they will give newcomers a hard time and when there is an overlap with its own parent company.

  31. 3.5.2 Competitive Pressures Associated with the Threat of New Entrants Three additional aspects need to be mentioned specifically in the South African context, namely: • the role of competition policy, • the pressure to privatize previously state owned businesses • the onslaught on traditional protection afforded by patent rights These may remove barriers to entry that previously existed.

  32. 3.5.2 Competitive Pressures Associated with the Threat of New Entrants In evaluating whether the threat of additional entry is strong or weak, company managers must look at • how formidable the entry barriers are for each type of potential • how attractive the growth and profit prospects are for new entrants

  33. 3.5.3 Competitive Pressures from the Sellers of Substitute Products Companies in one industry come under competitive pressure from the actions of companies in a closely adjoining industry whenever buyers view the products of the two industries as good substitutes.

  34. 3.5.4 Competitive Pressures Stemming from Supplier Bargaining Power and Supplier-Seller Collaboration Whether supplier–seller relationships represent a weak or strong competitive force depends on • whether the major suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favour • the nature and extent of supplier–seller collaboration in the industry

  35. 3.6 What Factors are Driving Industry Change and What Impacts Will They Have? All industries are characterized by trends and new developments that gradually or speedily produce changes important enough to require a strategic response from participating companies. A popular hypothesis states that industries go through a life cycle of take-off, rapid growth, early maturity and slowing growth, market saturation, and stagnation or decline.

  36. 3.6.1 The Concept of Driving Forces The most powerful of the change agents are called driving forces because they have the biggest influences in reshaping the industry landscape and altering competitive conditions.

  37. 3.6.2 Identifying an Industry’s Driving Forces | Table 3.2

  38. Illustration Capsule 3.2: SABmillers’ BEE Deal Shuns the Fashionable Recipient South African issues that are particular strategic from a government policy-intervention point are broad-based Black Economic Empowerment (BEE) and Employment Equity (EE) or affirmative action. The BEE legislation defines this intervention as the economic empowerment of all black people including women, workers, youth, people with disabilities, and people living in rural areas, through diverse but integrated socio-economic strategies.

  39. 3.9 What are the Key Factors for Future Competitive Success? An industry’s key success factors (KSFs) are those competitive factors that most affect industry members’ ability to prosper in the marketplace.

  40. 3.9 What are the Key Factors for Future Competitive Success? In addition, the answers to three questions help identify an industry’s key success factors: • On what basis do buyers of the industry’s product choose between the competing brands of sellers? • Given the nature of competitive rivalry and the competitive forces prevailing in the marketplace, what resources and competitive capabilities does a company need? • What shortcomings are almost certain to put a company at a significant competitive disadvantage?

  41. 3.10 Does the Outlook for the Industry Present the Company with an Attractive Opportunity? Factors needed to decide whether the outlook for the industry presents the company with a sufficiently attractive business opportunity: • Industry growth potential • Competitive forces • Industry profitability • Degree of risk and uncertainty

  42. 4.1 Introduction The analytical spotlight will focus on the following five questions: • How well is the company’s present strategy working? • What are the company’s resource strengths and weaknesses, and its external opportunities and threats? • Are the company’s prices and costs competitive? • Is the company competitively stronger or weaker than key rivals? • What strategic issues and problems merit front-burner managerial attention?

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