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1
Management Policy
Lecture 1 Part 2
• Components of a Strategy• Intro to Diamond E• Value Chain and PEST
Strategy and Critical Thinking
StrategyMeet Goals subject to Constraints
Logical or Rational ThinkingUnbiasedDeductiveIdentity of person not an issue
Strategy versus Tactics
Goal: Dominant FirmStrategy: Low CostTactics
Low PriceBulk discountcoupons or “2 for 1”Free delivery
2
THE ROLE OF STRATEGY
Hub for AnalysisRetrospectiveProspective
Link to ActionGoals – Value Proposition – Core Activities - PMF
5
Business Strategy Components
PRODUCT-MKTFOCUS
GOALS
COREACTIVITIES
Value
Proposition
The Wal-Mart Business Strategy
6
PRODUCT-MKTFOCUS
GOALS
CORE ACTIVITIES
• Dominate Markets•Lowest cost System•High Growth•Do it the Wal-Mart way
Value Proposition
3
The Wal-Mart Business Strategy
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PRODUCT-MKTFOCUS
GOA:LS
CORE ACTIVITIES
Value Proposition
• Everyday low prices•Always in stock•Courteous•Reliable
8
PRODUCT-MKTFOCUS
GOA:LS
CORE ACTIVITIES
Value Proposition
• Integrated Logistics: Supplier to checkout•Intensely managed•Local Tailoring
The Wal-Mart Business Strategy
9
PRODUCT-MKTFOCUS
GOA:LS
CORE ACTIVITIES
Value Proposition
• Branded general merchandise•Value-oriented customers•Develop easier markets first: •work from regional hubs
The Wal-Mart Business Strategy
4
10
PRODUCT-MKTFOCUS
GOA:LS
CORE ACTIVITIES
• Dominate Markets•Lowest cost System•High Growth•Do it the Wal-Mart way
Value Proposition
• Branded general merchandise•Value-oriented customers•Develop easier markets first: •work from regional hubs
• Everyday low prices•Always in stock•Courteous•Reliable
• Integrated Logistics: Supplier to checkout•Intensely managed•Local Tailoring
The Wal-Mart Business Strategy
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ManagementPreferences
Organization Strategy Environment
Capabilities & Resources
Goals
Product/Mkt
Competitive Premise
Business System
The Diamond E Framework
The ability toAnalyze thisIs Key
ManagementPreferences
Organization Strategy Environment
Capabilities & Resources
Diamond E Framework: Tensions
CAN DO
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ManagementPreferences
Organization Strategy Environment
Capabilities & Resources
Diamond E Framework: Tensions
WANT TO DO
ManagementPreferences
Organization Strategy Environment
Capabilities & Resources
Diamond E Framework: Tensions
NEED TO DO
ManagementPreferences
Organization Strategy Environment
Capabilities & Resources
Diamond E Framework: Tensions
NEED TO DO
WANT TO DO
CAN DO
6
Strategic Tension & The Business Model
WANT
NEEDCAN
Value Proposition
Goals
Core Activities
Product/Market
17
Strategic Risks
Errors in reading the enviro
cause failure
RIS
KS
TIME HORIZON
Enviro
Capability
Long-TermShort-Term
18
Strategic Risks
Enviro changesMake the Strategy obsolete
RIS
KS
TIME HORIZON
Enviro
Capability
Long-TermShort-Term
7
19
Strategic Risks
Strategic demandsExceed the Capacity to
execute
RIS
KS
TIME HORIZON
Enviro
Capability
Long-TermShort-Term
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Strategic Risks
Internal cap’yDevelop inconsit’y
With strategy
RIS
KS
TIME HORIZON
Enviro
Capability
Long-TermShort-Term
21
Strategic Risks
Errors in reading the enviro
cause failure
Internal cap’yDevelop inconsit’y
With strategy
Strategic demandsExceed the Capacity to
execute
Enviro changesMake the Strategy obsolete
RIS
KS
TIME HORIZON
Enviro
Capability
Long-TermShort-Term
8
Strategic Tension
Strategy
Management Preferences
EnvironmentOrg’n, Res. & Cap’s
Strategic Tension
Strategic
Tension
Management PreferencesIndividual
EnvironmentIndustryOrg’n, Res. & Cap’s
Firm
Strategic Tension
Strategic
Tension
WANTManagement Preferences
Individual
NEEDEnvironment
Industry
CANOrg’n, Res. & Cap’s
Firm
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The Process of Strategic Analysis
Step 1: Base Case Analysis
Assess the strategic position of the bus and the urgency for action
1. Identify and evaluate the current strategy
2. Forecast future performance under current strategy
3. Assess past performance
4. Decide on the need, nature, and speed of change
The Process of Strategic Analysis
Step 2: Strategy Formulation and Testing
Develop and evaluate proposals to address business opp’y and challenges
1. Work from the enviro and capabilities to generate new proposals
2. Use the drill to shape and short-list proposals
3. Prepare performance forecasts
The Process of Strategic Analysis
Step 3: Decision and Implementation
Commit, implement, and review
1. Decide on Proposals to implement
2. Move to build commitment and develop required capabilities
3. Implement
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The Process of Strategic Analysis
Step 1: Base Case Analysis
Assess the strategic position of the bus and the urgency for action
1. Assess past performance
2. Identify and evaluate the current strategy
3. Forecast future performance under current strategy
4. Decide on the need, nature, and speed of change
Step 2: Strategy Formulation and Testing
Develop and evaluate proposals to address business opp’y and challenges
1. Work from the enviro and capabilities to generate new proposals
2. Use the drill to shape and short-list proposals
3. Prepare performance forecasts
Step 3: Decision and Implementation
Commit, implement, and review
1. Decide on Proposals to implement
2. Move to build commitment and develop required capabilities
3. Implement
Value Chain
SUPPORTACTIVITIES
FIRM INFRASTRUCTURE(e.g., Finance, Planning)
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
Value Chain
INBOUNDLOGISTICS
OPERATIONS(Manufacturing)
OUTBOUNDLOGISTICS
MARKETINGAND SALES
AFTER-SALESERVICE
PRIMARYACTIVITIES
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Value Chain
SUPPORTACTIVITIES M
ARG
IN
FIRM INFRASTRUCTURE(e.g., Finance, Planning)
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUNDLOGISTICS
OPERATIONS(Manufacturing)
OUTBOUNDLOGISTICS
MARKETINGAND SALES
AFTER-SALESERVICE
PRIMARYACTIVITIES
Supply Chain for Soft Drink Industry
Concentrate Producer
Bottler DistributorsInputs
The Soft Drink Industry Value Chain
CP Bottler Distributors
FoodstoresFountainVending MachinesConvenience Stores
Company owned
Independent- exclusive
franchise
CokePepsiDr. Pepper7-upRC
Inputs
Operations
Players:
Valueadded:
Secret formulaBrand identity
Marketing & Sales- Distribution
PackagingSweeteners
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Assessing the Environment
Macro Forces - PEST
Political Social TechnologicalEconomic
Assessing the Environment
Micro Forces -
Supply DemandCompetition
Assessing the Environment
Macro Forces - PEST
Micro Forces -
Political Social TechnologicalEconomic
Supply DemandCompetition
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MANAGEMENTPREFERENCES
ORGANIZATIONSTRATEGIC
CHOICESENVIRONMENT
RESOURCES &CAPABILITIES
Strategy and Environment Linkage
New StrategyMust Fit
MANAGEMENTPREFERENCES
ORGANIZATIONSTRATEGIC
CHOICESENVIRONMENT
RESOURCES &CAPABILITIES
Strategic ChoicesRepeatedly Reviewed
Strategy and Environment Linkage
New StrategyMust Fit
MANAGEMENTPREFERENCES
ORGANIZATIONSTRATEGIC
CHOICESENVIRONMENT
RESOURCES &CAPABILITIES
Need to understand Industry economics
and competitive environment
Strategy and Environment Linkage
New StrategyMust Fit