Definitions

• Strategy:The basic, central direction of the firm.

• Strategic Management (traditional):The comprehensive alignment of a firm’s resources and capabilities with the external environment.

–Operational Effectiveness

Definitions• Strategic Management (modern):

The pursuit of differentiation through–Innovation–Revolution–Hypercompetition

The Strategic Management Process

• Environmental _______ and analysis

• Strategy _________

• Strategy _________

• Evaluation and ________

External Environment:The Macro-Environment

• Demographics

• ______

• Natural

• Political/Legal

• _________

• Global

• _______________

External Environment:The Industry Environment

• _______

• Suppliers

• _______

• Substitutes

• __________

Internal Environment

• Strengths/Weaknesses

• ________ Skills– Marketing, Production, etc.

• Resources– _________: Physical & Financial– _________: Human, Brands, Image,

Copyrights, Cultural

StakeholdersINTERNAL• Stockholders• Employees• Managers• Board Members

EXTERNAL• Customers• Suppliers• Rivals• Substitutes• Governments• Unions• Local Community• General Public

Levels of Strategy

Corporate

Business Business Business

Marketing Production Hum. Res. Accounting Logistics

Facets of Strategy

Strategy is a combination of what you

• ________(external environment)

• ________(internal)

• ________(managerial)

• ________(ethical, social responsibility)

The Strategy Model

________Strategy

_________Strategy

_________Strategy

UnrealizedStrategy

EmergentStrategy

The Strategic Management Process

Scanning Formulation Implement Evaluate& Control

Business Level Strategy

How a firm competes within an industry.

Modified Building Blocks ofCompetitive Advantage

_________ _______

Quality

Innovation/Creativity

EfficiencyCompetitive Advantage:

______________

Where to compete:– Product/Service

– __________

– __________

– Niches/Segments

• Develop _______ in current and future needs of the arena

• Develop ____________to meet needs– Product/Service development

– Marketing

– ________

Strategic Arena

Quality

Product/Service quality

• __________

• __________

• __________

• Design/Features

• Image

An achieved quality advantage often is leveraged through ______________.

Efficiency

Cost to _______• Materials (volume)• Production (scale)• __________• __________

Leveraging an efficiency advantage:• Lower ______ (higher market share)• Market ______ (higher profit margin)

Innovation/Creativity

Organization-wide _________ to innovation and creativity

• Create a new _______________• Create new/improved versions of existing

products• Find new _________ for existing product • Discover _______________ to perform

organizational processes

Innovation/CreativityInnovation approaches:• Prospector

– ______mover, cutting edge, looking for the big hit.

• Analyzer– _______mover, improves upon the efforts of

the prospectors.

• Defender– Not interested in new space. Creative in

protecting its current position.

Modified Building Blocks ofCompetitive Advantage

___________________

Quality EfficiencyCompetitive Advantage:

_____________

Innovation/Creativity

Which Blocks?

Historically, firms chose between Quality and Efficiency as their main source of advantage, then used _______________ accordingly.

Today firms are encouraged to strive for ___________ in all four areas to maintain ____________.

The 7-S Framework

Structure

Strategy

Systems

_____

_____

SharedValues

_____

The Value Chain

Company Infrastructure

Human Resources

Research & Development

SUPPORT ACTIVITIES

PRIMARY ACTIVITIES

MaterialsManagement

_________ Marketing& Sales

_______

Information Systems/technology

Learning Organizations

Skilled at ________, acquiring, and transferring ________

&

at modifying its behavior to reflect the new _________________.

The Culture of Learning

• Information gathering

• Problem solving (opportunity)

• Learn from experience

• _____________: New products/approaches

• Evaluate status quo: Products, methods and approaches

• ____________

• Free flow of _____________

Levers of Learning• Challenge the __________ to learn

• Invest in _________ and training

• Organize to _________ learning (structure)

• Reward _______: success and failure

• Set the ____ level

• Eliminate ____________ competition

• Ensure _________ reaches implementation

• Benchmark

Learning by Benchmarking

• Benchmark the __________at the activity of interest, not just within your industry.

• _____ the benchmark to your organization’s specific needs and abilities.

• Set __________ for your organization in attaining the benchmark.

HypercompetitionHighly _______ industry environment.

– Caused by existing firms or new entrants– ________ is a key block for success

Continual disruption of the status quo, usually for ________________.– Predict _____________ in customer needs– Develop ________ to meet those needs– Speed and _______– Shift the ______ of the game

Design Strategy (Creativity)

Going from Knowledge to _______. Key is to be able to continually do the following:

• Observe _________ using your products and/or related products

• Try out many ______ quickly by __________ (3D printing, models, videos, etc.) to speed product launch

• Place new products within an ___________ that connects with consumers

P&G and GE currently lead the way in this.

Business-level Strategy• Built on _____________ that support core

building blocks that give advantage• _____________________ cause a firm to

need multiple blocks to succeed• __________ in multiple blocks is difficult

and stretches resources and competencies• Learning helps a firm handle ___________• Design Strategy forces learning into the

___________ in the form of creativity

Reasons For Seeking an International Presence

Reasons For Seeking an International Presence

• Growth/seek new markets

• _________________

• Access local natural resources

• _________________

• Follow institutional customers

Three International Strategies

Three International Strategies

• Market

• Entry Mode

• Expansion/Location

Market StrategyDecision based on strategist’s view of

foreign markets compared to their home or existing markets.

• Markets are similar• Pure Global strategy (standardization)

• Markets differ• Multi-domestic strategy (adaptation)

Strategic Decisions of Market Strategy

Global Multi-D

________ Standard Adapted

Strategy (B-level) Standard Adapted

_____________ Central Local

Decision authority Central Local

_____________ Worldwide Local

Marketing & Dist. Coordinated Adapted

The TransnationalGlobalGlobal scale __________scale __________

National-levelNational-level________________________

Cross-market capacityCross-market capacityto leverage _________to leverage _________

BusinessBusinessManagersManagers

CountryCountryManagersManagers

FunctionalFunctionalManagersManagers

Entry ModesEntry Modes

• Wholly-owned subsidiaries

• Joint ________

• Strategic _________

• Licensing/__________

• Exporting

Wholly-owned Subsidiary

• Only one ________ owner (no partner)

• Full ______________ control

• Higher risk: All _______ are from one firm

• Established through ________ or internal development

Joint Venture

Equity __________: Two firms go together to form a third entity.

•Alternate forms: ______, partial acquisition.

•Majority/Minority owned

•Less ____ for each partner, resource commitments are ______.

•Less _______; joint decision making

Strategic Alliance

__________ partnership; Two firms share resources to take advantage of an __________.

•Usually _________

•Joint _____________

•Shared ________________

License/FranchiseLicense:• _________; providing

local firm with know-how, technology, etc.

• Local firm ________ your product; then either sells in local market or ____ to you.

Franchise:• ________; providing

local _____________ with materials, brand name, and process knowledge.

• Local firm sells your product/service in ___________.

• ______ Franchisee

Exporting

• Shipping product across national borders

• _________________: Shipping, tariffs, taxes, warehousing, etc.

• Variable ______________ and resource commitment

Expansion/Location Strategies

• Strategies for ultimately reaching a ___________________ in many countries:– Geographic Diversification—go to many

fast and then ________________ in each

– Geographic Concentration—go to one or a few and __________ before going to others

Diversification versus Concentration Strategies

ConcentrationDiversification

______ growth High Low

_____ stability High Low

Comp. ________ Long Short

________ effects Low High

Product _________ High Low

Constraints High Low

Combining the International Strategies

Combining the International Strategies

Expansion ------------ Market

Concentrate

Diversify

Pure Global

1) Export 2) WOS

1) WOS 2) Maj.

JV (with exporting)

Multi-Domestic

1) JV 2) License

1) License 2) Min JV

Definitions• Corporation

A firm that operates ___________ in more than one industry.

• Corporate-level StrategyThe rationale behind the mix of

___________ held by a corporation.

Corporate Growth Strategies

• Concentration

• Vertical __________

• ________ Diversification

• ________ Diversification

• ________ Diversification

ConcentrationSingle Business: Not diversified.• No ________ from core business.

• Vulnerable to ____________ (economic, competitive, etc.)

ConcentrationHorizontal Expansion: Firm expands into

___________ of its current industry.• Change in degree of _______, product

features, etc.

• Success in one segment does not _________ success in others.

• Hotels, __________, Beer, etc.

ConcentrationDominant Business: A single business

company pursues diversification for the first time.

• Management mindset favors core business.

• Maintain focus in core while expanding growth opportunities.

• Provides buffer against downturns in the core industry.

Vertical Integration

• ______ of one business is the _____ for another business.

• Backward vs. forward integration• Can you _______ all businesses as

well as the industry “specialists”?• Example: Petroleum companies

Wholesale/Logistics

Customer (Retail)

Assembly

Components

Materials

Raw Materials

Related Diversification

Businesses share at least one leveragable link in their core _________________.

• Synergy– Links _____________ one or more of the Building

Blocks of Competitive Advantage

• Marketing, Management, & Operating fit

• Beware of _______ Synergy

Unrelated Diversification

No exploitable links exist between businesses, or potential links are not exploited by choice.

• Spread risks & play business cycles

• Build a stable portfolio for investors

• Seemingly unlimited growth potential

• Management expertise is key

– Allocate resources for health of all businesses

– Know when to sell/buy for overall portfolio health

Hybrid Diversification

Related ____________ grouped into divisions, divisions are not related.

• ________ created within divisions

• ___________ across divisions

• Growth opportunities _________ over pure related diversification

Cooperative Strategies

• Mergers

• Acquisitions

• Alliances

Merger

Two firms permanently ______ to integrate their operations because they have resources and capabilities that together may create a ___________________________.

– Two companies become one.– Typically a ________________, and almost

always horizontal.

AcquisitionOne firm buys an __________ in another.

• Full acquisition – acquired firm becomes a ___________ business or is assimilated.

• Partial acquisition – • ______________– Acquisition for purpose of

working together toward a goal.

• _______________ acquisition - firms remain separate entities, might not work together.

• Friendly & unfriendly.

Alliance/Partnership

• Firms __________ combine resources, capabilities, etc. to pursue __________ mutual interests in developing, manufacturing, or distributing goods or services.

• Usually __________, but could be small equity stake or equity swap.

Reasons to Cooperate• Respond to __________________• Reduce __________

– Partnership between major rivals• Eagle Snacks

• Respond to ___________– Increase market power (size)

• Airlines, petroleum, pharmaceuticals

• Reduce ___________– Telecommunications (regulations)

Effective Partnerships• Deliberate and careful ____________

– Identify “good” partners

• ______________ assets/resources– Synergy, competitive advantage

• Continual emphasis on _________ and R&D investment– Focus is on ____________

Effective Partnerships

• Friendly joining– Less _________, cultural resistance

• Major firm has ____________– Keep debt low

• Ability to manage ________– Flexibility and adaptability skills needed

in both firms

Cooperative Pitfalls

• Misrepresented competencies &/or inadequate ______ evaluation.

• Integration difficulties– Corporate _______– Financial/control systems– Management ______– Status of acquired executives

Cooperative Pitfalls

• Large _____– Acquired/partner firm

– Acquiring/merging process

• Firm becomes ________

Causes of Corporate Decline

• Poor __________

• Overexpansion

• Poor financial controls

• High _____

• New _________

• Organizational ______

Corporate Decline Strategies• Turnaround

• restore ________________ business(es) to health

• Invest/Diversify• go into new, hopefully profitable areas

• Retrenchment• reducing the scope of ____________

• Restructuring• structural changes only

• Divestiture• selling or spinning off a ___________

Steps of Turnaround & Retrenchment

• Proper leadership mindset

• Reduce cash expenditures

• Redefine the strategic focus

• Sell unwanted assets

• Improve profitability of remaining units

• Strengthen competitive position

Proper Leadership Mindset

Must view the situation objectively• ________________ are not working• No ____________________ to old strategies,

businesses, brands, traditions, etc.

Must be able to _____________• Make tough cuts in assets, personnel, etc.• Represent a __________, hope to the company• Build ___________ for the new direction

Leadership Possibilities

• _______ Managers– Stigma of failure, can they gain buy-in?– Industry/company knowledge and experience

• _____ Managers– Fresh views and ________ strategic knowledge– Need to learn _____________ of firm– Likely to bring ___________

Reduce Cash Expenditures• “Stop the bleeding”• Identify sources of cash loss and

control immediately (happens prior to the creation of a clear strategic focus).

• Plant closings, reduce duplication, layoffs, etc.

• Temporary measuresShould be reversible later if strategy dictates.

Redefine Strategic Focus• Diagnosis: What went wrong?

– __________ treatment plan

• Prognosis: What should the new firm look like?– Identify ____________, markets, and/or regions. – Building Blocks of Advantage

• Avoid ________________ to business units, markets, etc.

Sell Unwanted Assets• Businesses and/or assets not fitting the

new focus • __________ businesses that do not fit

the focus will bring the best price• Liquidate (close down and write off)

anything _______________ that will not sell

• KEEP _______ ASSETS!

Improve Profitability• ________ in labor saving

equipment/processes

• Strategic layoffs of __________ white and blue collar workers• Done according to new strategic focus

• Assign _______ responsibility to appropriate levels

• _______ financial controls

• Cut back on _________ products

Strengthen Competitive Position

• Use _____ generated from previous two steps

• Acquire businesses and make alliances that fit the ___________________

• Acquisitions/alliances that offer ________ with remaining businesses

• ______ acquisitions/alliances will put you back where you started