Business Policy

Front 1

Strategic Mission

Back 1

Who are we and what do we do?

Front 2

Strategic Vision

Back 2

Where are we going?

Front 3

Strategic Objectives

Back 3

Performance targets that relate to strengthening business position and competitive vitality.

Front 4

Five tasks of strategic management

Back 4

•Develop a vision / mission
•Set objectives
•Craft a strategy to achieve the objectives
•Implement and execute the strategy
•Evaluate performance, monitor, adjust

Front 5

#1 Developing a vision / mission

Back 5

 Come up with a mission statement (what do we do and how?)
 Use the mission statement as basis for deciding on a specific long term vision (where are we going?)
 Communicate the vision to the organization

Front 6

#2 Setting Objectives

Back 6

 Strategic Intent
 Long range objectives
 Short range objectives
 Stretch targets

Front 7

Strategic Intent:

Back 7

Relentless pursuance of an ambitious strategic objective.

*Often call “big, hairy, audacious goals” or BHAGs.

Front 8

#3 Crafting a Strategy (strategy pyramid)

Back 8

Strategy pyramid:

 Corporate strategy (strategy for the entire corporation
 Business strategy (strategy for each separate business in the corporation
 Functional strategy (production strategy, finance strategy, etc.
 Operating strategy (functional departments)

(know what this diagram looks like)

Front 9

Who crafts the strategy and how?

Back 9

• The Chief Architect Approach – single person approach
• The Delegation Approach – manager delegates to trusted subordinates
• The Collaborative or Team Approach – manager enlists key peers and subordinates / works together
• The Corporate Intrapreneur Approach – management encourages individuals to come up with proposals and ideas

Front 10

#3 Crafting a Strategy

(Things that shape strategy internally and externally)

Back 10

 Society, Politics, Regulations
 Competitive conditions
 Opportunities and threats
 Company strengths, competencies and competitive capabilities
 Ambitions, philosophies and ethics of managers
 Company culture

Front 11

#3 Crafting a Strategy

(Three tests of a winning strategy)

Back 11

 Goodness of fit test
 Competitive advantage test
~ A good strategy should lead to a competitive advantage
 The Performance test
~ A good strategy should boost performance resulting in better profitability and better competitive strength

Front 12

#4 Implement and execute the strategy

Back 12

Strategy is pointless without execution.

Front 13

#5 Evaluate performance, monitor, adjust

Back 13

Constant evaluation and adjustment is essential to a successful strategy.

Front 14

Questions to ask about the industry:

Back 14

1. What are the industry’s dominant economic features?
2. What is competition like and how strong are the competitors?
3. What is causing the competitive structure to change?
4. Which companies are in the strongest and weakest positions?
5. What strategic moves are rivals likely to make next?
6. What are the key factors for competitive success?
7. Is the industry attractive for above average profits?

Front 15

1. What are the industry’s dominant economic features?

Back 15

• Market size
• Scope of competitive rivalry
• Market growth rate
• Stage in life cycle
• Number of rivals and relative sizes
• Consumers
• Integration of rivals
• Ease of entry/exit
• Distribution channels
• Technology/innovation
• Product characteristics
• Scale economics
• Capacity utilization
• Industry profitability

Front 16

The Product Life Cycle:

Back 16

• New product development stage
• Market introduction stage
• Growth stage
• Mature stage
• Decline stage

Front 17

Market Evolution (parallels the product life cycle):

Back 17

• Market Crystallization
• Market Expansion
• Market Fragmentation
• Market Consolidation
• Market Termination

Front 18

What is competition like and how strong are the competitors?

Back 18

Five Forces of Competition
(Professor Michael Porter, Harvard Business School)

1. Rivalry among competing sellers in the industry.
2. Potential entry of competitors.
3. Competitive pressure from substitute products.
4. Competitive pressure from supplier-seller collaboration / bargaining.
5. Competitive pressure from buyer-seller collaboration / bargaining

Know what this diagram looks like!

Front 19

What is causing the competitive structure to change? What are the driving forces?

Back 19

 Internet
 Increasing globalization
 Changes in the long-term industry growth rate
 Changes in customers and product use
 Product innovation
 Technological change
 Marketing innovation
 Entry or exit of major firms
 Diffusion of technical expertise across companies and countries
 Changes in cost and efficiency
 Buyer preferences for differentiated products instead of a commodity product
 Regulatory influences and government policy changes
 Changing societal concerns, attitudes, and lifestyles

Front 20

Driving Force:

Back 20

The major underlying causes of change in industry and competitive conditions

Front 21

Environmental Scanning:

Back 21

The study and interpretation of social, political, economic, ecological, and technological events in an effort to spot budding trends and conditions that could develop into driving forces.

Front 22

4. Which companies are in the strongest and weakest positions?

Back 22

Strategic Group Mapping:

• Identify the competitive characteristics of different firms
• Plot the firms on a 2 variable map
• Assign firms that fall in about the same strategy space to the same strategic group
Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.

(know what this diagram looks like in the book)

Front 23

5. What strategic moves are rivals likely to make next?

Back 23

• It is advantageous to know more about your competitors than they know about you.
• The company that consistently has more and better information about its competitors is better positioned to prevail, other things being equal.
Managers who fail to study competitors closely risk being blindsided by surprise actions on the part of rivals.

Front 24

Competitive intelligence:

Back 24

Information about competitors’ strategies,
monitoring their actions, sizing up their
strengths and weaknesses, and using this information to anticipate what moves
rivals are likely to make next.

Front 25

6. What are the key factors for competitive success (KSFs)?

Back 25

Three questions to ask to identify KSFs:

• On what basis do customers choose between the competing brands of sellers?
• What resources and competitive capabilities does a seller need, to be successful?
• What does it take for sellers to achieve a sustainable competitive advantage?

Front 26

Key Success Factors:

Back 26

The product attributes, competencies, competitive capabilities, and market achievements that have the greatest direct bearing on company profitability.

Front 27

7. Is the industry attractive for above average profits?

Back 27

Considerations:

• The industry’s growth potential.
• Competitive forces.
• Driving forces.
• Company’s competitive position.
• Company’s potential to capitalize on the vulnerabilities of weaker rivals.
• Ability to defend against the factors that make the industry unattractive.
• Degrees of risk and uncertainty in the industry’s future.
• Severity of problems confronting the industry as a whole.
• How participation in the industry effects business interests in other industries.

Front 28

Commonly Encountered Strategy Situations:

Back 28

Companies competing in:
1. Emerging industries of the future.
2. Turbulent, high-velocity markets.
3. Mature, slow-growth industries.
4. Stagnant or declining industries.
5. Fragmented industries.
6. Pursuing rapid growth.
7. Leadership positions.
8. Runner-up positions.
9. Competitively weak positions.

Front 29

1. Companies competing in emerging industries of the future.

Back 29

• Market is new and unproven.
• Success calls for:
– bold entrepreneurship,
– a willingness to pioneer and take risks,
– an intuitive feel for what buyers will like,
– quick response to new developments, and
– opportunistic strategy making.
• Two key questions:
– How will we finance initial operations until sales and revenues take off?
– What market segments and competitive advantages will we seek in order to secure a front-runner position?

Front 30

2. Companies competing in turbulent, high-velocity markets.

Back 30

• Industry leaders are proactive agents of change, not reactive followers and analyzers.
• Three Strategic Positions:
– A company can react to change.
– It can anticipate change.
– It can lead change.
• The strongest position incorporates aspects of all three positions.

Front 31

3a. Companies competing in maturing industries.

Back 31

Changes effecting an industry in as it transitions to maturity:
 Slowing growth in buyer demand generates more head-to-head competition for market share.
 Buyers become more sophisticated, often driving a harder bargain on repeat purchases.
 Competition often produces a greater emphasis on cost and service.
 Firms have a “topping-out” problem in adding new facilities.
 Product innovation and new end-use applications are harder to come by.
 International competition increases.
 Industry profitability falls temporarily or permanently.
 Stiffening competition induces a number of mergers and acquisitions among former competitors, drives the weakest firms out of the industry, and produces industry consolidation in general.

Front 32

3b. Companies competing in maturing industries.

Back 32

• Strategic moves in maturing industries:
– Pruning marginal products and models
– More emphasis on value chain innovation
– A stronger focus on cost reduction
– Increasing sales to present customers
– Purchasing rival firms at bargain prices
– Expanding internationally
– Building new or more flexible capabilities
• Pitfalls:
– One of the greatest pitfalls a company can make in a maturing market is to compromise between low-cost, differentiation and focusing such that it ends up “stuck in the middle,” with a fuzzy strategy, and average image, and ill defined market identity, no competitive advantage, and little prospect for becoming market leader.

Front 33

4. Companies competing in stagnant or declining industries.

Back 33

• Three Strategic Themes:
– Pursue a focused strategy aimed at the fastest-growing market segments within the industry.
– Stress differentiation based on quality improvement and product innovation.
– Strive to drive costs down and become the industry’s low-cost leader.

Front 34

5. Companies competing in fragmented industries.

Back 34

• The best a firm can expect is the cultivate a loyal customer base and grow a bit faster than the industry average.
• Competitive Strategy Options:
– Constructing and and operating “formula” facilities
• Involves constructing standardized outlets in favorable locations at minimum cost and then operating them superefficiently.
– Becoming a low-cost operator.
– Specializing by product type.
– Specialization by customer type.
– Focusing on a limited geographic area.

Front 35

6. Companies pursuing sustained rapid growth.

Back 35

• Strategic Initiatives for expansion/franchising must cover three areas:
– Strategic initiatives to fortify and extend their position in existing businesses.
– Strategic initiatives to leverage existing resources and capabilities by entering new businesses with promising growth potential.
– Strategic initiatives to plant the seeds for ventures in businesses that do not yet exist.

Front 36

7. Companies in leadership positions.

Back 36

• Main concern:
– Revolves around how to defend and strengthen its leadership position, perhaps becoming the dominant leader as opposed to just a leader.
• Three contrasting strategic postures:
– “Stay on the offensive”
• Goal is to be a “first mover”
– “Fortify and defend”
• Make it harder for challengers to gain ground and for new firms to enter the market
– “Muscle flexing”
• Play competitive hardball.

Front 37

8. Companies in runner-up positions.

Back 37

• Strategies for challenger companies:
– Offensive strategies to build market share.
– Growth-via-Acquisition
– Vacant-Niche Strategy
– Specialist Strategy
– Superior Product Strategy
– Distinctive Image Strategy
– Content Follower Strategy

Front 38

9. Companies in weak or crisis-ridden positions.

Back 38

• Turnaround Strategies for Businesses in Crisis:
– Selling off assets
– Strategy revision
– Boosting revenues
– Cutting costs
– Combination efforts
• Liquidation--the strategy of last resort
– Sometimes it must be done… The problem is differentiating when a company can be turned around and when it can’t.

Front 39

Company situation analysis (Five Questions):

Back 39

1. How well is the company’s present strategy working?
2. What are the company’s strengths, weaknesses, opportunities and threats?
3. Are the company’s prices and costs competitive?
4. How strong is the company’s competitive position relative to its rivals?
5. What strategic issues does the company face?

Front 40

The SWOT analysis - How healthy is the firm?

Back 40

• Strengths
– Skilled employees, low cost manufacturing capabilities…
• Core competence - what the company does best of all
• Distinctive competence - what the company does better then competitors
• Weaknesses
– Weak competitive capabilities, lack of key assets…
• Opportunities
– Based on resources, strengths and competitive advantage…
• Threats
– New technology, competitors new products, low cost foreign competitors…

Front 41

Strategic Cost Analysis:

Back 41

Comparing how a company’s unit costs stack
up against the unit costs of key competitors activity by activity, thereby pinpointing which internal activities are a source of cost advantage or disadvantage.

Front 42

Value Chain:

Back 42

Identifies the primary activities that create value for customers and the related support activities.

Front 43

Benchmarking:

Back 43

Cross-company comparisons of how basic functions and processes in the value chain are preformed and the cost of these activities

Front 44

Strategic Options for Achieving Cost Competitiveness:

Back 44

 Attack the high costs of items purchased from suppliers
 Attack cost disadvantage in the forward portion of the value chain
 Attack the high costs of internally performed activities

Front 45

Specific Ways to Achieve a Cost Advantage:

Back 45

Controlling the Cost Drivers:
– Economies of scale
– Bargaining power with suppliers
– Location variables
Cooperation between links in value chain
– Vertical integration
• right balance with outsourcing
– First mover advantages
Revamping the value chain
– Shifting to e-business,
– direct to end user sales,
– simplifying product design to simplify manufacture,
– implementation of new technologies,
– finding cheaper raw materials,
– moving plants closer to suppliers and customers,
– cut out low valued adding activities from the value chain

Front 46

How strong is the company’s competitive position relative to its rivals?

Back 46

• Competitive strength assessments
– Unweighted rating scale
• Everything is given equal weight
– Weighted scale
• Everything is given a weight (i.e. Quality = 0.1) and multiplied by strength.

Front 47

Five Generic Competitive Strategies:

Back 47

1. Low cost provider strategy
~ lowest cost, appeal to broad spectrum of buyers

2. Broad differentiation strategy
~ differentiation better appeal to broad spectrum of buyers

3. Best cost provider strategy
~ best value - more value for their money

4. Focused (or market niche) strategy based on low cost
~ focus on a narrow segment and compete with lowest cost

5. Focused (or market niche) strategy based on differentiation
~ customized attributes, usually higher cost, quality

Front 48

International / Multinational Corporation:

Back 48

A company that competes in select
foreign markets.

Front 49

Global Corporation:

Back 49

A company that has or is pursuing a market presence on most continents and in virtually all of the world’s major countries.

Front 50

Multicountry / Multidomestic Competition:

Back 50

Exists when competition in one national market is independent of competition in another national market.

(i.e. There is no “international market,”
just a collection of self-contained country markets.)

Front 51

Global Competition:

Back 51

Exists when competitive conditions across
national markets are linked strongly
enough to form a true international market
and when leading competitors compete head
to head in many different countries.

Front 52

Why companies expand into global markets:

Back 52

• To gain access to new customers
• To achieve lower costs and enhance the firm’s competitiveness
• To capitalize on its core competencies
• To spread its business risk across a wider base

Front 53

Characteristics of a good manager in defining Corporate Culture:

Back 53

 Attentive—knows what is happening
 Optimistic—energizes employees
 Responsive—adjusts to conditions
 Ethical—leads by example
 Decisive—makes needed changes

Front 54

Total Quality Management (TQM):

Back 54

A philosophy of managing a set of business
practices that emphasizes:

• continuous improvement in all phases of operations,
• 100 percent accuracy in performing activities,
• involvement and empowerment of employees at all levels,
• team-based work design,
• benchmarking, and
• fully satisfying customer expectations.

Front 55

Crafting corporate strategy for a diversified company encompasses four areas:

Back 55

• Picking the new industries to enter and deciding on the means of entry.
• Initiating actions to boost the combined performance of the businesses the firm has entered.
• Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage.
• Establishing investment priorities and steering corporate resources into the most attractive business units.

Front 56

When to diversify?

Back 56

• When there are diminishing growth prospects in its present business.
• When there are opportunities to add value for its customers or gain competitive advantage by broadening its present business to include complementary products or technologies.
• When there are attractive opportunities to transfer existing competencies and capabilities to new business arenas.
• When cost-saving opportunities can be exploited by diversifying into closely related businesses.
• When the financial and organizational resources can support a diversification effort.

Front 57

Three Tests for Judging a Diversification:

Back 57

– The industry attractiveness test:
• Is the chosen industry attractive enough to consistently yield good returns on investment?
– The cost-of-entry test:
• Does the cost to enter the market erode the potential for good profitability?
– The better-off test:
• Does diversifying into a new business offer potential for all the company’s businesses to perform better together than apart? 1 + 1 = 3

Front 58

Related Business Diversification:

Back 58

When there are competitively valuable relationships among the activities comprising their respective value chains.

Front 59

Unrelated Business Diversification:

Back 59

When the activities comprising their respective value chains are so dissimilar that no real potential exists--
• to transfer skills or technology from one business to another
• to combine similar activities and reduce costs
• to otherwise produce competitively valuable benefits from operating under a common corporate umbrella.

Front 60

Strategic Fit:

Back 60

Exists whenever one or more activities
comprising the value chains of different
businesses are sufficiently similar as to present opportunities for--
• Transferring competitively valuable expertise or technological know-how or capabilities from one business to another.
• Combining the related activities of separate businesses into a single operation to achieve lower costs.
• Exploiting common use of a well-known brand name.
• Cross-business collaboration to create competitively valuable resource strengths and capabilities.

Front 61

Economies of Scope:

Back 61

Arises from the ability to eliminate costs
by operating two or more businesses under the same corporate umbrella.

(The cost-saving opportunities can stem from strategic fit relationships anywhere along the businesses’ value chains.)

Front 62

Strategies for Diversifying:

Back 62

• Acquisition of an existing business
• Internal Start-Up
• Joint Ventures and Strategic Partnerships

Front 63

Strategies for Already Diversified Companies:

Back 63

 Make new acquisitions and/or enter into additional strategic partnerships
 Divest some of the company’s existing business
 Restructure the company’s portfolio of businesses
 Become a multinational, multi-industry enterprise

Front 64

Quote by Abraham Lincoln, Sun Tzu, & Winston Churchhill

Back 64

“If we can know where we are and something about how we got there, we might see where we are trending--and if the outcomes which lie naturally in our course are unacceptable, to make timely change.”

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

“However beautiful the strategy, you should occasionally look at the results.”

Front 65

10 Commandments for Successful Strategy:

Back 65

1. Place top priority on crafting and executing strategic moves that enhance the company’s competitive position for the long term.
2. Be prompt in adapting to changing market conditions, unmet customer needs, buyer wishes for something better, emerging technological alternatives, and new initiatives of competitors.
3. Invest in creating a sustainable competitive advantage.
4. Avoid strategies capable of succeeding only in the most optimistic circumstances.
5. Don’t underestimate the reactions and the commitment of rival firms.
6. Consider that attacking competitive weakness is usually more profitable and less risky than attacking competitive strength.
7. Be judicious in cutting prices without an established cost advantage
8. Strive to open up very meaningful gaps in quality or service or performance features when pursuing a differentiation strategy.
9. Avoid “stuck in the middle” strategies that represent compromises between lower costs and greater differentiation and between broad and narrow market appeal.
10. Be aware that aggressive moves to wrest market share away from rivals often provoke retaliation in the form of a marketing “arms race” or price war--to the detriment of everyone’s profits.