BUS 189 STRATEGIC MANAGEMENT

1. BUS 189STRATEGIC MANAGEMENT CHAPTER 1, 8TH EDITION HILL & JONES, STRATEGIC MANAGEMENT DR. MARK FRUIN FALL 2009

2. 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

3. 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

4. TERMS • STRATEGIC LEADERSHIP • STRATEGY-MAKING PROCESS • STRATEGY FORMULATION • STRATEGY IMPLEMENTATION • STRATEGY MEASURING, MONITORING & MANAGEMENT (not in textbook)

5. 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

6. 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)

7. 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

8. 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

9. 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

10. 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

11. 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)

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

13. 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

14. SWOT ANALYSIS • STRENGTHS • WEAKNESSES • OPPORTUNITIES • STRENGTHS • GIVE DIRECTION TO SELECTION & IMPLEMENTATION OF STRATEGIES • BUT IT’S ONLY A START

15. 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

16. 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

17. 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

18. 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

19. 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