BA 469

Strategic Management

& Business Policy

Manolete V. Gonzalez, Phd

BA 469

Course Introductions;

Ch 1: What Is Strategy

and Why Is

It Important?

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Introductions

Name Major What do you expect/hope(?) to be doing 5

years from now? where?

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Focus: General Management of an organization

An organization is “a system of consciously coordinated activities or

forces of two or more persons.”

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General management perspective

Strategic decisions: strategy comes from “strategos,” used in ancient times to refer to administrator of conquered regions, therefore the whole “enterprise”

Beyond functional areas: for example, a company’s policy on what type of customers to go after affects marketing, production, finance, etc.

Long-term implications, affect different functional areas

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Learning Outcomes

develop skills in using strategic assessment tools to identify company wide problems,

develop skills in determining company wide strategy

develop an awareness of the impact of external factors on business strategy

understand the strategic challenges a business organization must address

understand the difficulties/realities associated with formulating and implementing appropriate responses to these challenges

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Text and Course Information

Crafting and Executing Strategy: The Quest for Competitive Advantage, by Thompson, Strickland, Gamble. 15th edition, Mc-Graw Hill/Irwin (2007)

Information about the course, including the course description, requirements, and schedules, are in the BA 469 page of the COB website

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Requirements

Case Briefs and Reports 7 Case Briefs – 2 pages 1 Group Case Report – 8 pages See Report Instructions file for details

Quizzes – 4 throughout term Multiple choice and possibly essay Based on concepts covered in chapters assigned after

last quiz. 4 chapters for first quiz, 3 chapters for other three

quizzes Participation – 10% of final grade

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Requirements: case briefs and reports

Case briefs and reports are due beginning of class case is assigned (see Schedule)

READ instructions for Case briefs and reports on Report Instructions file carefully. There are specific instructions for particular cases Typed and write for an audience consisting of

business professionals Submit these on time, penalties otherwise

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Requirements – restating the obvious

Come to class prepared Read Chapters assigned for the day Case assignments, whether briefs or reports, are

also intended to get students prepared for discussion

Participation grades are based on judgment as to active and meaningful contribution to class. In class writing.

Speak up (clarification, disagreement, etc.)

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House Rules

Keep distractions to a minimum, respect your peers Shut off cell phones or place them in silent mode (note an

unattended vibrating cell phone is distracting) Using laptops are ok for note taking or reference to notes. Avoid side discussions with your neighbor. Come to class on time; if you do arrive late, enter quietly

and unobtrusively, e.g. do not walk in front of the instructor. If you have to leave early, let the instructor know and sit

where you can leave without disturbing too many students. “Multi-tasking” during class is not appreciated, for

example reading the newspaper, working on a paper for another class, sleeping, etc.

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House Rules

Respect each other: tolerate differences of opinion and manner of participating.

If you have strong opinions, voice it and be heard, listen to responses, engage in an exchange of opinions, and then allow the class to move on.

Humor, informal, ok. But do remember why we are in class.

Other suggestions?

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“Without a strategy

the organization is

like a ship without a

rudder.”Joel Ross and Michael Kami

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Chapter 1 Roadmap What Do We Mean By Strategy?

Strategy and the Quest for Competitive Advantage

Identifying a Company’s Strategy

Why a Company’s Strategy Evolves Over Time

A Company’s Strategy Is Partly Proactive and Partly Reactive

Strategy and Ethics: Passing the Test of Moral Scrutiny

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Chapter Roadmap The Relationship Between a Company’s Strategy

and Its Business Model

What Makes a Strategy a Winner?

Why Are Crafting and Executing Strategy Important?

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Thinking Strategically: The Three Big Strategic Questions

1. What’s the company’s present situation?

2. Where does the company need to go from here?

What business(es) to be in?

What market positions to stake out?

What buyer needs and groups to serve?

3. How should it get there?

A company’s answer to “how will we get there?” is its strategy

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What Do We Mean By “Strategy”? Consists of competitive moves and business approaches used

by managers to run the company

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A Firm's Strategy Answers the questions . . .

How to grow the business

How to please customers

How to outcompete rivals

How to manage each functionalpiece of the business (R&D, production, marketing, HR, finance, and so on)

Strategy is HOW

to . . .

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A Firm's Strategy Answers the questions . . .

And as the industry environment evolves . .

How to respond to changing market conditions

How to achieve targeted levels of performance

Strategy is HOW

o . . .

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Choosing the “Hows” of Strategy

Strategic choices about “how” are based on Trial-and-error organizational learning about what has

worked and what has not worked Management’s appetite for taking risks Managerial analysis and strategic thinking about how best

to proceed, given market conditions and the company’s circumstances

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Key Elements of a Successful Strategy Developing a successful strategy hinges on making competitive

moves aimed at Appealing to buyers in ways to set the enterprise apart from

rivals and Carving out its own market position

Involves developing a distinctive “aha”element to Attract customers and Produce a competitive edge

Copying competitive moves of other successful companies rarely works!

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A Powerful Strategy Leads to Sustainable Competitive Advantage

A company achieves sustainable competitive advantage when an attractive number or buyers prefer its products/services over those of rivals and when the basis for this preference can be maintained over time

Its nice when a strategy produces a temporary competitive edge but a durable edge over rivals greatly enhances a company’s prospects for winning in the marketplace and realizing above-average profits

What separates a powerful strategy from an ordinarystrategy is management’s ability to forge a series ofmoves, both in the marketplace and internally, that

produces sustainable competitive advantage!

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Three Strategic Approaches to Building Sustainable Competitive Advantage

Be the industry’s low-cost provider a cost-based competitive advantage)

Incorporate differentiating features a “superior product” type of competitive advantage

keyed to higher quality, better performance, wider selection, value-added services, or some other attribute

Focus on a narrow market niche win a competitive edge by doing a better job than rivals

of serving the needs and preferences of buyers comprising a niche)

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A Fourth Strategic Approach to Building Sustainable Competitive Advantage

Developing expertise and resource strengths not easily imitated or matched by rivals

(a capabilities-based competitive advantage)

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Competitive Advantage Examples

The text gives the following as striving to be the industry’s low-cost provider Wal-Mart

Southwest Airlines

Discussion Wal-Mart – perceptions of low price

Southwest – low ticket prices, low cost provider

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Competitive Advantage Examples

Outcompete rivals on a key differentiating feature Johnson & Johnson – Reliability in baby products

Harley-Davidson – King-of-the-road styling

Rolex – Top-of-the-line prestige

Mercedes-Benz – Engineering design and performance

L.L. Bean – Good value

Amazon.com – Wide selection and convenience

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Competitive Advantage Examples (cont)

The text suggests the following as focusing on a narrow market niche eBay – Online auctions

Jiffy Lube International – Quick oil changes

McAfee – Virus protection auctions

Starbucks – Premium coffees and coffee drinks

The Weather Channel – Cable TV

Ritz-Carlton – Personalized customer service

Discussion: depends on how one defines industry

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Competitive Advantage Examples (cont)

Develop expertise, resource strengths, andcapabilities not easily imitated by rivals FedEx – Next-day delivery of small packages

Walt Disney – Theme park management and family entertainment

Toyota – Sophisticated production system

Ritz-Carlton – Personalized customer service

Discussion: technically Toyota may be described as outcompeting rivals based on differentiating features

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Day 2

Questions on course requirements? Peer Evaluation of Case Brief: Whole Foods

and Monsanto case briefs for ungraded peer review and option to revise/resubmit

Finish Ch 1 Ch 2

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Fig. 1.1: Identifying a Company’s Strategy

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Why Do Strategies Evolve?

Changes may be necessary to react to Shifting market conditions

Technological breakthroughs

Fresh moves of competitors

Evolving customer preferences

Emerging market opportunities

New ideas to improve strategy

Crisis situations

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Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive

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Linking Strategy With Ethics

Ethical and moral standards go beyond Prohibitions of law and the language of “thou shalt

not” to issues of

Duty and “right” vs. “wrong” Ethical and moral standards address

“What is the right thing to do?”

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Linking Strategy With Ethics

Two criteria of an ethical strategy: Does not entail actions and behaviors that cross

the line from “should do” to “should not do” and “unsavory” or “shady” and

Allows management to fulfill its ethical duties to all stakeholders

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A Firm’s Ethical Responsibilities to Its Stakeholders

Owners/shareholders – Rightfully expect some form of return on their investmentOwners/shareholders – Rightfully expect some form of return on their investment

Employees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterpriseEmployees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise

Customers - Rightfully expect a seller to provide them with a reliable, safe product or serviceCustomers - Rightfully expect a seller to provide them with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairlySuppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairly

Community - Rightfully expect businesses to be good citizens in their communityCommunity - Rightfully expect businesses to be good citizens in their community

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Role of Senior Executives:Linking Strategy with Ethics

Forbid pursuit of ethically questionable business opportunities

Insist all aspects of company strategyreflect high ethical standards

Make it clear all employees areexpected to act with integrity

Install organizational checks and balances to Monitor behavior Enforce ethical codes of conduct Provide guidance to employees in gray areas

Display genuine commitment to conduct business activities ethically

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What Is a Business Model?

A business model addresses “How do we make money in this business?” Is the strategy capable of delivering

good bottom-line results? Do the revenue-cost-profit economics

of the strategy make good business sense? expected revenue streams associated cost structure and potential profit

margins Do resulting earnings streams and ROI indicate the

strategy makes sense?

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Relationship Between Strategy and Business Model

Strategy . . . Deals with a company’s

competitive initiatives and business approaches

Business Model . . . Concerns whether

revenues and costs flowing from the strategy demonstrate a business can be amply profitable

and viable

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For Discussion: Write your opinion and discuss

Who has the better business model –

Microsoft or Red Hat?

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Microsoft’s Business ModelEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from usersEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users

Sell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market shareSell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market share

Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit

Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit

Provide modest level of technical support to users at no costProvide modest level of technical support to users at no cost

Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

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Red Hat’s Business ModelRely on collaborative efforts of volunteer programmers to create the softwareRely on collaborative efforts of volunteer programmers to create the software

Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux

Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux

Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages

Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages

Make source code open and available to all usersMake source code open and available to all users

Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users

Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users

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Tests of a Winning Strategy

GOODNESS OF FIT TEST

How well does strategy fitthe firm’s situation?

COMPETITIVE ADVANTAGE TEST

Does strategy lead to sustainablecompetitive advantage?

PERFORMANCE TEST

Does strategy boost firm performance?

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Other Criteria for Judgingthe Merits of a Strategy

Internal consistency and unity among all pieces of the strategy

Degree of risk the strategy poses as compared to alternative strategies

Degree to which the strategy is flexible and adaptable to changing circumstances

While these criteria are relevant, they seldom override the importance of the three tests of a winning strategy!

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Why Is Strategy Important?

A compelling need exists for managersto proactively shape how a firm’sbusiness will be conducted

A strategy-focused firm is more likelyto be a strong bottom-line performerthan one that views strategy as secondary

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Good Strategy + Good Strategy Execution= Good Management

Crafting and executing strategy are core management functions

Among all things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team Charts a company’s direction, Develops competitively effective strategic moves and

business approaches, and Pursues what needs to be done internally to produce

good day-in/day-out strategy execution

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Good Strategy + Good Strategy Execution= Good Management

Excellent execution of an excellent strategy is thebest test of managerial excellence – and the

most reliable recipe for winning in the marketplace!