STRATEGY : A View From The Top Chapter 1, What Is Strategy? January 15, 2009 Group 1 Anne Sterling Clay Jones Johnnie Davis Kimberly Smith Nolan Bosworth Shaina Weaver Zane Barnes
What is Strategy? • Strategy is about positioning an organization for a competitive advantage. • It involves making choices about which industries to partake in, what products and services to offer, and how to allocate corporate resources. • Primary goal is to create value for shareholders and other stakeholders by providing customer value.
Strategy in Successful Companies Good Strategies: • Reflect a company’s clear strategic intent • Have a deep understanding of a company’s core competencies Bad Strategies rarely propel a company to a leadership position.
Strategy’s Evolution • Early Industrial Economics- environmental influences were primary determinants of a company’s success. • Resource-based Perspective- focus on building core capabilities that transcend the boundaries of the traditional business unit. • Human and Intellectual Capital- having the right personnel or technology has become the main focus.
Business Concepts & Technologies (Tactics) • Internet Six-sigma • Innovation Quality Management • Total quality Time-based competition • Flexibility Benchmarking • Speed Outsourcing Partnering Reengineering
Result of Initiatives • Although these initiatives create positive results, it is important to remember that enhancing operational effectiveness is crucial, but it is not a substitute for strategic thinking.
Strategy vs. Operational Effectiveness • Operational Effectiveness: • Tactical • Focused on doing things better than the competition • Strategy: • Focuses on doing things differently than the competition • Ultimate goal: To have long-term, sustainable superior performance • Both are important and essential to competitiveness
Trade-Offs • Unique competitive positioning- forces trade-offs in terms of what to and not to do, and creates barriers to imitation • Dell’s direct sales, made-to-order business model • Southwest Airlines’ different activities (no assignments, no meals, 15-minutes turnaround, etc.) deters imitators
Value Creation • The best strategies focus on creating value for all parts, especially the customer. • Customer’s needs are constantly changing, so the value must be constantly evaluated and maintained. • Ex: Dell’s strategy starting to fail due to changes in consumer wants and needs • People now prefer more personalized sales than Dell’s online orders • People prefer style and local customer service (Apple)
Competitive Advantage Cycle • Purposes of competitive strategy: • Slowing down the erosion process by protecting current resources of advantage against the actions of competitors. • Investing in new capabilities that form the basis for the next position of competitive advantage. • Cycle: Shows that at any given point in time, companies with a particular mix of resources.
STRATEGY IS ABOUT CREATING OPTIONS • Position Strategy for Competitive Advantage • Allow flexibility • Offer alternatives • Do not make detailed or specific
STRATEGY IS ABOUT CREATING OPTIONS • Create a Long-term Vision • Expect rapid changes • Continually learn
STRATEGY: AN ECOSYSTEM PERSPECTIVE • Companies Succeed or Fail as a Collective Whole • Interconnected world • Rely on networks of partners, suppliers, and customers • Widespread throughout banking, biotechnology, insurance, and software • Fluid boundaries
STRATEGY: AN ECOSYSTEM PERSPECTIVE • Technology is the Connective Tissue that Lets Ecosystems Function, Grow, and Develop • Share information • Collaborate • Example: Wal-Mart • Vast supply-chain ecosystem stretching from manufacturer to consumer
STRATEGY AS ALIGNMENT • Strategies Align Resources and Capabilities with Goals • Acquiring and allocating resources • Building capabilities • Shaping corporate culture • Support systems
STRATEGY AS ALIGNMENT • Strategic Capability Gap • Disparities in competences, skills, and resources between what consumers demand and what can be delivered • Maintaining Strategic Focus • Ensure what is said is in fact done • Strategies are created and used by humans and thus subject to error, obstruction, or even abuse
Is All Strategy Planned? p. 13 • No. • When a strategy is created, certain outcomes are intended. • Many things can change as the plan is implemented. For example, new laws can be created, or new competitors can emerge. • It is important for us to be open minded in the business world and realize that many factors can influence and change intended strategy.
Multiple Levels of Strategy • Strategic management consists of corporate, business unit, and functional strategies. • All of which are used to guide the future of an organization. • Corporate Strategy • Focused on how to manage the overall portfolio of a business and who they should compete with. • Used in a multibusiness, diversified corporation
Business Unit Strategy • Focused on deciding what product to offer, how to create it, and how to get it to the marketplace. • Used in a single-product, single-service, or in a division of a multibusiness corporation. • Functional Strategy • Used in a smaller, more focused division such as technology or marketing.
The Role of Stakeholders • Stakeholders include partners, suppliers, and even competitors. • Internal stakeholders include employees, managers, top executives, and directors. • Motivating these stakeholders is vital; companies greatly rely on them to supply their customers with value. • A mistake with any stakeholder can affect a company for years.
The amount of influence a stakeholder has over a company depends on the stake they have. • Ownership Stake • Usually shareholders, directors, and others • Economic Stake • Includes creditors, employees, customers, and suppliers • Social Stake • Includes regulatory agencies, charities, the local community, and activist groups • Stakeholders will have formal, economic, or political power.
Vision and Mission pg.14-16 • Vision Statement- Is a road map for upper management’s long run goals for their organization. Inspirational image that will be remembered and become synonymous with your establishment. • Frames a company’s strategic focus of the future • Expresses core competencies used or needed to attain goals • Mission- Purpose for an organization’s existence. • A guide for management to use to reach their goals • important values and ethics that are essential to the company • Credo- A Latin word meaning a statement of fundamental beliefs or a guiding principle. • Ex: Wal-Marts Credo “Three Basic beliefs” • 1. Respect the individual • 2. Service to our customers • 3. Strive for excellence
Tips to a successful Vision and Mission Statement • Focus on relatively few activities and do them extremely well. • Deciding What not to do is as important sometimes as choosing what activities to focus on. • Dream big, think out side the box! • Make it feasible so your company can achieve its goals someday. • Identify important values • Ex: Honesty, integrity, community issues, ethical behaviors, and other key values. • Positive, inspirational, Short, and Sweet • 2 -4 sentences, and do not get carried away with impressive vocabulary.
Texas TechStrategic PlanMission Statement Committed to teaching and the advancement of knowledge, Texas Tech University, a comprehensive public research university, provides the highest standards of excellence in higher education, fosters intellectual and personal development, and stimulates meaningful research and service to humankind. Texas TechVision Statement Texas Tech University will be a national leader in higher education—manifesting excellence, embracing diversity, inspiring confidence, and engaging society. The university aspires to a national recognition of excellence and performance in scholarship through teaching, research, and service.
Strategic Intent and Stretch pg.16-17 • Strategic Intent- Is the combination of an executive summary of strategic goals and a motivational message. • Set future goals and discuss which competencies and resources must be developed or fine tuned to reach them. • Stretch- Is the ability to close the gap between you companies strategic intent and its future opportunities or goals. • If you “fit”, you may not have challenged your company to grow to it’s full potential. • If you “stretch” to far, or over too long of a time frame your company may never reach its goals.
Stretch or Fit? Strategic Intent Stretch NewOpportunities Fit Challenges
Strategy and the Nonprofit Sectorpg.17-19 Three performance metrics used by nonprofits • Measure of it success in mobilizing necessary resources. • Evaluation of the effectiveness of people in doing their assigned jobs. • Assessment of its progress towards fulfilling its chosen mission. This step is the hardest of the three and can be aided by the following steps. • Create narrow scoped mission so progress can be measured directly. • Periodically commission independent statistical studies. • “Micro-level” goals using baseline data and multiple indicators.
The Strategy Formulation Process Steps • Where are we now? • Look at fundamentals, mission, long-term vision, and stakeholders. • Where do we go? • Explore different strategic scenarios based on your answers to the first question. • How do we get there? • Closing the capability gap, identify how your core competences can be used to meet future market needs.
The Strategy Formulation Process Strategy • Reasons for reevaluating strategy: • The need to cope with ever changing social, political, and legal environments. • The need to cope with an ever changing business environments.
The Strategy Formulation Process The Planning Cycle • Review • Top managers look at the competitive environment and determine how to best utilize core competencies to steer the company where they want it to go. • Delegation • The top management relays their plans to divisions and business units and these units realign long-term objectives to meet the new goals of the company. • Refinement • The new, rough plans of the various business units are fine tuned and honed by both upper and middle management until they are ready for implementation.
The Strategy Formulation Process The Planning Cycle cont. • Approval and Implementation • Detailed operating plans to successfully steer the company toward its long-term goals are fully implemented and relayed throughout all divisions and business units. Top management observes and makes final approval of operating plans.
The Strategy Formulation Process Opportunities Threats Environmental Analysis: Economic Sociocultural Technological Political Eval. Current Performance: Mission Goals Objectives Strategies Industry Analysis: Structure Evolution Competition Strategy Options: Business unit Corporate Evaluation: Resource req. Risk/return Implemention Company Analysis: Structure Resources Processes Staffing Culture Strengths Weaknesses How do we get there? Where should we go? Where are we now?
Evaluating Strategic Options Strategy evaluation should focus on a firm’s future competitiveness and ask whether long-term objectives are appropriate. The ultimate test of any strategy is whether it produces a competitive advantage with above average returns. Executives face pressure to forecast corporate performance and strategic outcomes. Return on investment was the most common measure for evaluating a strategy, although today shareholder value is one of the most widely accepted.
Shareholder Value • The Shareholder Value Approach (SVA) to strategy evaluation says that the value of a corporation is determined by the future cash flows that it is likely to generate. • The Shareholder Value approach has implementation problems as well as issues in the relationship between shareholder value and the positioning for sustained competitive advantage.
Shareholder Value pg 22-24 • Shareholder value and strategy formulation are basically the same thing although they have different conceptions of value and view the purpose of strategy from a different point of view. -Strategists focus on creating a sustainable competitive advantage through value delivered to customers. -Shareholder value approach measures value to shareholders. • Shareholder value has not been universally embraced as the preferred method for measuring a strategy’s potential. • Less restrictive evaluation schemes, such as the Balanced Scorecard, have gained acceptance in the last few years.