mba--- financial managrment

8/7/2019 MBA--- FINANCIAL MANAGRMENT

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BBA 473

Strategic Planning andPolicy Analysis


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Course Objective

To look at an organization from the CEOs

perspective and to understand the necessity

of leadership and entrepreneurship in an

organization. The organizations strengths,

weaknesses, opportunities and threats must

be analyzed in order to formulate a strategicplan of action, goals, and controls to meet

those goals.


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Course Outcomes

Develop the students capacity to think

strategically about a company, its business

position, and how it can gain sustainable

competitive advantage.

Build skills in conducting strategic analysis

in a variety of industries, especially toprovide the student with a stronger

understanding of competitive challenges.


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Course Outcomes

Give students hands on experience in

crafting business strategy, reasoning

carefully about strategic options, using

what-if analysis to evaluate alternatives, and

making strategic decisions.

Improve students ability to manage theorganizational process by which strategies

get formed and executed.


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Course Outcomes

Integrate the knowledge gained in earliercore courses in the business school

curriculum. Develop powers of managerial judgment

and improve ability to create resultsoriented action plans.

Elevate importance of ethical principles,personal and company values.


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What is Strategic Management?


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If you dont know where youre

going, youre liable to wind upsomeplace else!

-- Yogi Berra


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Plans are nothing;

planning is everything!

-- Dwight D. Eisenhower


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What do we mean by strategy?

Strategy is grounded in the array of

competitive moves and business approaches

management depends on to produce

successful performance.

Strategy is managements game plan for

strengthening the organizations position,pleasing customers, and achieving

performance targets.


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Without a strategy,

managers have:

No thought-out course to follow

No roadmap to manage by

No action program to produce the

intended result


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Good strategy and

good strategy execution

are the most trustworthy signsof good management.


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Three Fundamental

Strategic Questions

Where are we currently?

Where do we want to be in the future?

How will we get there?


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Strategic planning is adisciplined effort to produce

fundamental decisions and

actions that shape and guidewhat an organization is,

what it does, andwhy it does it.


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Benefits of Strategic Planning Increased effectiveness

Increased efficiency

Improved understanding and better learning

Better decision making

Enhanced organizational capabilities

Improved communications and public relations Increased political support


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What does a companys

strategy consist of?

How to satisfy customers

Broad or narrow product line?

Amount of customer service provided?

How to grow the business

Concentrate on a single business strategy?

Diversify into related or unrelated industries?

Expand globally?

Company strategies concern:


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How to respond to changing industry andmarket conditions

How best to capitalize on new opportunities

How to manage each functional piece of thebusiness

How to achieve strategic and financial

objectives


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Sustained Competitive AdvantageSustained Competitive Advantage

AboveAbove--Average ReturnsAverage ReturnsReturns in excess of what an investor expects toReturns in excess of what an investor expects to

earn from other investments with similar riskearn from other investments with similar risk

Occurs when a firm develops a strategy thatOccurs when a firm develops a strategy thatcompetitors are not simultaneously implementingcompetitors are not simultaneously implementing

Provides benefits which current and potentialProvides benefits which current and potentialcompetitors are unable to duplicatecompetitors are unable to duplicate

Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulatesAchieved when a firm successfully formulates

and implements a valueand implements a value--creating strategycreating strategy


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which are required for firms to achieve:which are required for firms to achieve:

AboveAbove--Average ReturnsAverage Returns

Strategic CompetitivenessStrategic Competitiveness

Sustained Competitive AdvantageSustained Competitive Advantage

The Strategic Management ProcessThe Strategic Management Process

Involves the full set of:Involves the full set of:

ActionsActionsCommitmentsCommitments DecisionsDecisions


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Components of

Strategic Management Process Recognizing and evaluating external and

internal environment.

Development of strategic mission.

Strategy Formulation

Strategy Implementation

Evaluation of performance


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Rapid technological changes Rapid technological changes

Rapid technology diffusions Rapid technology diffusions

Dramatic changes in

information and

communication technologies

Dramatic changes in

information and

communication technologies

Increasing importance of

knowledge

Increasing importance of

knowledge

Fundamental nature of

competition is changing

Fundamental nature of

competition is changingThe pace of change

is relentless....

and increasing

The pace of change

is relentless....

and increasing

Traditional industry

boundaries are

blurring, such as...

Traditional industry

boundaries are

blurring, such as... Computers

Telecommunications

Computers

Telecommunications

21st Century Competitive Landscape21st Century Competitive Landscape


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The global economy is

changing

The global economy is

changing

People, goods, services andideas move freely across

geographic boundaries

New opportunities emerge

in multiple global markets

Markets and industries

become more

internationalized

People, goods, services andideas move freely across

geographic boundaries

New opportunities emerge

in multiple global markets

Markets and industries

become more

internationalized

Traditional sources of

competitive advantage

no longer guarantee

success

Traditional sources of

competitive advantage

no longer guarantee

success

New keys to success

include:

New keys to success

include:

Flexibility Innovation

Speed

Integration

Flexibility Innovation

Speed

Integration

21st Century Competitive Landscape21st Century Competitive Landscape


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Stakeholders:Stakeholders: Groups who are affected by a firmsGroups who are affected by a firmsperformance and who have claims on itsperformance and who have claims on itswealthwealth

The firm must maintainThe firm must maintainperformance at an adequate level inperformance at an adequate level inorder to maintain the participationorder to maintain the participationof key stakeholdersof key stakeholders

OrganizationalOrganizationalOrganizationalOrganizational

EmployeesEmployeesManagersManagers

NonNon--ManagersManagers

EmployeesEmployeesManagersManagers

NonNon--ManagersManagers

FirmFirmFirmFirm

Capital MarketCapital MarketCapital MarketCapital Market

Stock market/InvestorsStock market/InvestorsStock market/InvestorsStock market/Investors

Debt suppliers/BanksDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/Banks

Product MarketProduct MarketProduct MarketProduct Market

Primary CustomersPrimary CustomersSuppliersSuppliersPrimary CustomersPrimary CustomersSuppliersSuppliers


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Stakeholder Involvement

Two issues affect theTwo issues affect the

extent of stakeholderextent of stakeholder

involvement in the firminvolvement in the firm

How do you divide theHow do you divide thereturns to keepreturns to keep

stakeholders involved?stakeholders involved?

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CapitalCapital

MarketMarket

ProductProductMarketMarket

OrganizationalOrganizational


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Stakeholder Involvement

Two issues affect theTwo issues affect the

extent of stakeholderextent of stakeholder

involvement in the firminvolvement in the firm

How do you increase theHow do you increase thereturns so everyone hasreturns so everyone has

more to share?more to share?

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CapitalCapital

MarketMarket

ProductProductMarketMarket

OrganizationalOrganizational


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Political/

Legal

Political/

Legal

EconomicEconomic

TechnologicalTechnological

GlobalGlobal

DemographicDemographicSocioculturalSociocultural

CompetitiveCompetitive

EnvironmentEnvironment

IndustryEnvironmentIndustryEnvironment

Components of the General EnvironmentComponents of the General Environment


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GeneralE

nvironment Demographic SegmentDemographic Segment Population sizePopulation size

Age structureAge structure

GeographicGeographicdistributiondistribution

Ethnic mixEthnic mix

Income distributionIncome distribution


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Economic segmentEconomic segmentGeneralE

nvironment Inflation ratesInflation rates

Interest ratesInterest rates

Trade deficits or surplusesTrade deficits or surpluses Budget deficits or surplusesBudget deficits or surpluses

Personal savings ratePersonal savings rate

Business savings ratesBusiness savings rates

Gross domestic productGross domestic product


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GeneralE

nvironment Political/Legal SegmentPolitical/Legal Segment

Antitrust lawsAntitrust laws Taxation lawsTaxation laws

Deregulation philosophiesDeregulation philosophies

Labor training lawsLabor training laws

Educational philosophies and policiesEducational philosophies and policies


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GeneralE

nvironment Sociocultural segmentSociocultural segment

Women in the workplaceWomen in the workplace

Workforce diversityWorkforce diversity

Attitudes about quality of worklifeAttitudes about quality of worklife

Concerns about environmentConcerns about environment

Shifts in work and career preferencesShifts in work and career preferences

Shifts in product and service preferencesShifts in product and service preferences


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GeneralE

nvironment Technological SegmentTechnological Segment Product innovationsProduct innovations

Applications of knowledgeApplications of knowledge

Focus of private and governmentFocus of private and government--supportedsupported

R&D expendituresR&D expenditures

New communication technologiesNew communication technologies


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GeneralE

nvironment Global SegmentGlobal Segment

Important political eventsImportant political events Critical global marketsCritical global markets

Newly industrialize countriesNewly industrialize countries

Different cultural and institutional attributesDifferent cultural and institutional attributes


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External

Environmental AnalysisA continuous process which includesA continuous process which includes

Scanning: Identifying early signals of environmental

changes and trends

Monitoring: Detecting meaning through ongoing observationsof environmental changes and trends

Forecasting: Developing projections of anticipated outcomes

based on monitored changes and trends

Assessing: Determining the timing and importance ofenvironmental changes and trends for firms strategies and

their management


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IndustryE

nvironment A set of factors that directly influences aA set of factors that directly influences acompany and its competitive actions andcompany and its competitive actions andresponses.responses.

Interaction among these factors determine anInteraction among these factors determine anindustrys profit potential.industrys profit potential.

Threat of new entrantsThreat of new entrants

Power of suppliersPower of suppliers Power of buyersPower of buyers

Product substitutesProduct substitutes

Intensity of rivalryIntensity of rivalry


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Threat of

Substitute

Products

Threat of

Substitute

Products

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Bargaining

Power of

Suppliers

Porters Five Forces

Model of Competition

Porters Five Forces

Model of Competition


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Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic position

Using price competitionUsing price competition

Staging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductions

Increasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, butAdvertising battles may increase total industry demand, but

may be costly to smaller competitorsmay be costly to smaller competitors


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CutthroatCutthroat competitioncompetition is more likely to occur when:is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally balanced competitorsNumerous or equally balanced competitors

Slow growth industrySlow growth industry

High fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakes

High exit barriersHigh exit barriers

Diverse competitorsDiverse competitors


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Competitor AnalysisCompetitor Analysis

The followThe follow--up to Industry Analysis isup to Industry Analysis iseffective analysis of a firmseffective analysis of a firms CompetitorsCompetitors


EnvironmentEnvironment

Industry

Environment

Industry

Environment


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Competitor AnalysisCompetitor Analysis

AssumptionsAssumptions

What assumptions do ourcompetitors hold about the futureof industry and themselves?

Current StrategyCurrent Strategy

Does our current strategy supportchanges in the competitiveenvironment?

Future ObjectivesFuture Objectives

How do our goals compare to ourcompetitors goals?

CapabilitiesCapabilities

How do our capabilities compare

to our competitors?

ResponseResponse

What will ourcompetitors do in the

future?

What will ourcompetitors do in the

future?Where do we have acompetitiveadvantage?

Where do we have acompetitiveadvantage?

How will this changeour relationship withour competition?

How will this changeour relationship withour competition?


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Chapter 2Chapter 2

External EnvironmentExternal EnvironmentWhat the Firm MightDoWhat the Firm MightDo

Chapter 3Chapter 3

Internal EnvironmentInternal EnvironmentWhat the Firm Can DoWhat the Firm Can Do

SustainableSustainable


AdvantageAdvantage


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C

hallenge of Internal Analysis How do we effectively manage current coreHow do we effectively manage current core

competencies while simultaneously developing newcompetencies while simultaneously developing new

ones?ones?

How do we assemble bundles of resources,How do we assemble bundles of resources,

capabilities and core competencies to create valuecapabilities and core competencies to create value

for customers?for customers?

How do we learn to change rapidly?How do we learn to change rapidly?


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Tangible ResourcesTangible Resources

FinancialFinancial**

PhysicalPhysical**

Human ResourcesHuman Resources**OrganizationalOrganizational**

What a firm Has...

What a firm has to work with:

its assets, including its people

and the value of its brand name

Resources represent inputs into a

firms production process...

such as capital equipment, skills

of employees, brand names,

finances and talented managersIntangible ResourcesIntangible Resources

TechnologicalTechnological**

InnovationInnovation**

ReputationReputation**

Some genius invented the Oreo.

Were just living off the inheritance.

F. Ross Johnson,Former President & CEO, RJR Nabisco

ResourcesResources


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What a firm Does...

Capabilities represent:the firms capacity or ability to integrate individual

firm resources to achieve a desired objective.

Capabilities develop over time as a result of complex

interactions that take advantage of the interrelationships

between a firms tangible and intangible resources that are

based on the development, transmission and exchange or

sharing of information and knowledge as carried out by the

firm's employees.

Capabilities become important when they are combinedCapabilities become important when they are combinedinin unique combinationsunique combinations which create core competencieswhich create core competencies

which havewhich have strategic valuestrategic value and can lead toand can lead to competitivecompetitive

advantageadvantage..

CapabilitiesCapabilities


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For a strategic capability to be aFor a strategic capability to be a

Core Competency, it must be:Core Competency, it must be:

Core CompetenciesCore Competencies

ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

NonsubstitutableNonsubstitutable

What a firm Does...that is Strategically

Valuable

C C iC C i


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Core Competencies must be:

NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-

specific knowledge or trust-based relationships

Capabilities that do not have strategic equivalents, such as firm-

specific knowledge or trust-based relationships

What a firm Does...that is Strategically

Valuable

Core CompetenciesCore Competencies

ValuableValuable

RareRare

Costly to ImitateCostly to ImitateC

apabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexityC

apabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potentialcompetitorsCapabilities that are possessed by few, if any, current or potentialcompetitors

Capabilities that either help a firm to exploit opportunities to createvalue for customers or to neutralize threats in the environmentCapabilities that either help a firm to exploit opportunities to createvalue for customers or to neutralize threats in the environment

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