strategic leadership and change study notes_july 18_2013
TRANSCRIPT
Modules 1 & 2 – Understanding a Company and its Important Relationships
• History and evolution of company strategy
• Mission and major goals of company
• Internal strengths and weaknesses
• External opportunities and threats
• Strategies to pursue• CEO, leadership qualities,
priorities, ability• Major strategic decisions –
past, recent
• Shareholders
• Employees
• Customers
• Suppliers
• Community
• Regulators
• Board of Directors
Modules 3 – Industry Analysis, Opportunities and Threats
• New entrants• Substitutes• Rivalries • Bargaining power of
suppliers• Bargaining power of
buyers
Other• Complementors• Demographics
• PESTLE
• Political, protect national
• Economic, macro:– Economic growth rate
– Interest rates
– Currency exchange rates
– Inflation
• Social
• Technological
• Legal, regulatory
• Environmental
Modules 4 – Competitive Position, Strengths and Weaknesses
• Efficiency
• Quality
• Innovation
• Responsiveness to customers
Allow company to better differentiate their
products or become more efficient in reducing costs
• Core competency – well performed internal capability that is central, not peripheral to a company’s strategy, competitiveness and profitability
• Competitive advantage is derived from an ability to build core competencies cheaper and faster than competitors
• Can only be successfully developed through a co-ordinated effort from the entire company
Modules 4 – Core Competency has the following features:
It takes long-term organizational
commitment to build
It provides access to a wide variety of
markets
It contributes to consumer benefits in the end product
It is difficult to identify or imitate
by competitors
It widens the domain of product
and service innovation
Modules 5 – Functional Level Strategy, ability to achieve competitive advantage
Resources CapabilitiesDistinctive
Competencies
efficiency quality innovationResponsive
-ness to customers
Low Cost
Differentiation
Value Creation
Superior Profitability [email protected] 6
Modules 6 – Business Level Strategy
• Efficiency
• Quality
• Innovation
• Customer responsiveness
• Focused
• Broad
• How it segments
• Focused
• Broad
Product differentiation
Market segmentation
Distinctive competencies
Low Cost
Modules 6 – Business Level Strategy
Strongest competitive defense is to have continuous technology and product improvements that result in a web of patents and/or licensing agreements.
The sustainability lies in invisible or intangible assets:
1. Superior skills of people –information and knowledge with commitment to improving company’s operations
2. Corporate culture
3. Mastery of dominant technology and core competencies
4. Patents and trademarks
5. Brand name and customer loyalty
6. Corporate reputation
7. Relationships with channel members, buyers, suppliers, and stakeholders
8. An organization wide market or consumer orientation
Modules 6 – Business Level Strategy, Competitive Positioning Tools
Investment AnalysisTwo factors are important in determining the potential returns from an investment strategy:
1. Strength of a company’s competitive position• Function of size of company’s market share• Strength of its distinctive competencies (e.g. R&D)
2. Stage of the industry life cycle – nature of opportunities and threats from environment is different at each stage of life cycle• Embryonic stage• Growth stage• Shake out stage• Maturity stage• Decline stage
Modules 6 – Business Level Strategy, Industry Life Cycle
Embryonic Stage• Building market share• Develop a competitive advantage• Require good deal of capital
Growth Stage• Continue to build market share and develop distinctive competencies• If in strong position – segment markets to increase market share, if
weak – became a focuser to lower expenses
Shake Out Stage
• Strong competitive position – increase market share by taking customers from companies exiting industry
• Cost leaders – invest in cost control• Differentiation – enter more market segments
Maturity Stage• Companies reap profits from past investments• Strong companies stop aggressively pursuing new customers and
invest less, weak company’s look to decline strategy
Decline Stage• Starts when demand for industry’s products begin to fall• Companies in strong positions choose market concentration strategy,
and asset reduction strategy, or a turnaround strategy
High tech industries are characterized by fixed costs of product development and low marginal costs. Firms in these industries have to drive prices down to drive volume up, thereby increasing profitability
Modules 7 – Global Expansion Possibilities
Firms that operate internationally have the ability to…..
1. Earn a greater return from transferring their distinctive skills or core competencies
2. Realize location economies by dispersing individual value creation activities to those locations where they can be performed most efficiently, i.e.:
Where economic, political and cultural conditions, including related cost factors, are most conducive to the performance of that activity (transportation and trade barriers permitting)
3. Realize greater experience curve economies, thereby lowering the costs of value creation
Modules 7 – Global Expansion Possibilities
Global Standardization
Strategy
Transnational Strategy
International Strategy Localization
Strategy
(Multi-domestic)
Pressures for local responsiveness
Pre
ssu
res
for
cost
red
uct
ion
s
LOW
HIGH
HIGH
Modules 7 – Global Expansion Possibilities
Pressures for local responsiveness
Pre
ssu
res
for
cost
red
uct
ion
s
LOW
HIGH
HIGH
Global Standardization Strategy Transnational Strategy
• Best use of experience curve and location economies
• Low-cost strategy• Utilize product standardization• Not good where local responsiveness
demand high
• Core competencies can develop in any of the firm’s worldwide operations
• Flow of skills/product offerings occurs throughout the firm not only from home firm to foreign subsidiary (global learning)
• Makes sense where there is pressure from both cost reduction and local responsiveness
International Strategy Multi-Domestic/Localization Strategy
• Maximum local responsiveness• Customize product and market strategy
to national demands• Skill and product transfer• Transfer all value creation activities, no
experience curve rewards• Also good for high local responsiveness
and low-cost reduction pressures
• Locals don’t have your skills• Little adaptation• Product development at home
(centralized)• Manufacturing and marketing in each
location• Makes sense where low costs, skills and
competition exist
Modules 7 – Global Expansion Possibilities
Entry Modes
Exporting
Licensing
FranchisingJoint
Ventures
Wholly-Owned
Subsidiaries
Entry mode depends on nature of core competency:1. Technological knowledge2. Management knowledge3. Pressure for cost reduction
Modules 8 – Corporate Strategy
business areas in which to participate
value creation activities it
should perform
best means for expanding or contracting businesses
Maximize long-run profitability
Diversification
The process of adding new businesses that
are distinct from established operations
Restructuring
The process of reducing the scope of operations by exiting
industries
Internal new venturing
Start business from scratch
Acquisition
Buying an existing business
Joint Ventures
Establish with help of a partner
Modules 8 – Corporate Strategy: Horizontal Integration
• Economies of scale can be realized
• Reduce duplication between the two companies and realize cost savings
• Product bundling-offer a wider range of products that can be sold together for a single price
• Total solution – coordination of purchasing specific goods and services from a single source
• Cross-selling – leverage relationships with customers by acquiring additional product categories that can be sold to them
• Reduces excess capacity in the industry, thereby managing rivalry
• Implement tacit price coordination by reducing the number of players
• Monopoly power over buyers and suppliers
Advantages of
Horizontal Integration
• Difficult to implement successfully
• May destroy value rather than create it
• Antitrust law could potentially block proposed mergers and acquisitions because of concerns about reducing competition and raising prices for consumers
Disadvantages of
Horizontal Integration
1. Involves acquiring or merging with firms within your current industry2. To take advantage of economies of scale and scope3. May take the form of acquisition as when a company purchases another company4. Or a merger – an agreement by which equals pool their operations and create an new entity
Modules 8 – Corporate Strategy: Vertical Integration
Advantages of Vertical Integration
• Builds barriers to new entry
• Investment in specialized assets, which lowers the costs of value creation and provide the basis for achieving a competitive advantage
• More price options are available enabling a company to become a differentiated player in its core business
• Planning, coordination, and scheduling of adjacent processes are much more efficient
Disadvantages of Vertical Integration
• Can raise costs if a company becomes committed to purchasing inputs from company-owned suppliers when external sources of supply may be at a lower cost
• Company –owned suppliers do not have to compete for orders with other suppliers and this reduces their incentive to minimizing operating costs
• May tie a company to an obsolescent technology
• Risky in unstable or unpredictable demand conditions
• Increased bureaucratic costs (the costs or running an organization) – limit on the amount of vertical integration that can be profitably pursued
1. A company that is producing its own inputs (backward or upstream integration) or2. Disposing of its own outputs (forward or downstream integration)3. Backward/upstream integration = intermediate manufacturing and raw material production4. Forward/downstream integration = distribution5. Full integration – produces all of its own inputs or disposes of all its own output6. Taper integration – buys from independent suppliers in addition to company-owned suppliers or
when it disposes of its output through independent outlets in addition to company-owned outlets
Lesson 9 – Corporate Performance and Business Ethics
Sustainability = development that meets the needs of the current generation without undermining the ability of future generations to meet their own needs
The global sustainability challenge is rooted in an environmental burden created by three factors:
1. Overpopulation
2. Waste generated by over-consumption of the affluent
3. Technology – the redesign of technology is the business of business
Three stages of environmental strategy
Pollution prevention
Product stewardship
Development of clean
technology
The emphasis needs to shift
from incremental process
efficiency to innovation and
redesign of technology.
The dedication of resources
to process efficiency in dead-
end technologies detracts
from a firms capacity to
develop radically new, more
sustainable products.
Lesson 9 – Corporate Performance and Business Ethics
Responsibility toward the environment
The three pollutions that are subjects of most anti-pollution efforts by business and governments are air, water, and land
Responsibility toward customers
This falls into two categories: providing quality products and pricing those products fairly
Responsibility toward employees
Fair and equitable practices comply with legal regulations and lead to a more competent, motivated staff. Responsibility toward employees as people means ensuring a safe workplace
and encouraging ethical behaviour
Responsibility toward investors
Irresponsibility can take the form of abusing financial resources or misrepresenting the business’ resources
Companies that strive to be responsible to their stakeholders concentrate on five main groups: customers, employees, investors, suppliers and the local communities in which they do business.
They also focus on four main areas of responsibility:
Lesson 9 – Corporate Performance and Business EthicsAgency theory looks at the problems that can arise in a business relationship when one person
delegates decision-making authority to another. It offers a way to understand why managers do not always act in the best interests of stakeholders.
Stockholders elect a Board of Directors to monitor the senior executives to make sure that they do not engage in on-the-job consumption, excessive pay increases,
empire building or information obfuscation.
Governance mechanisms are put in place by
principals to align agents incentives with their own, and to monitor
and control agents.
There are four main types of governance
mechanisms.
Corporate Board of Directors
- Legally responsible for firm’s actions
- Oversees actions of CEO + top managers
- Makes decisions about hiring, firing, and compensating top execs
- Ensures audited financial statements presents a true picture of organization
Stock-Based Compensation
- Pay for performance system
- In best interests to increase profitability
- Stock options, right to buy shares at a predetermined price at some point in future
Independently Audited Financial Statements
- Publically traded co’s are required to file periodic statements that comply with GAAP
- co’s must hire independent auditors to ensure statements are consistent, detailed and accurate
Threat of Hostile Take-Over
- A takeover constraint limits the types of behaviour that puts the senior managers desires above the stockholders
- Mechanism of last resort, used only when all other forms of corporate governance have failed
Lesson 9 – Corporate Performance and Business EthicsEthics are both personally and culturally defined and vary from person to person.
There are three basic influences on ethics: family, peers and experiences.
When people are determining how to behave in specific situations (and how to behave ethically) they generally follow three steps:
They gather the relevant factual information
Then they determine the most appropriate moral values
Finally, they make an ethical judgement based on the rightness
or wrongness of the proposed activity or policy
Organizational IntegrityOrganizations try to promote ethical behaviour and discourage unethical behaviours in numerous ways:
1. Having top management support ethical behaviour through their own actions
2. Adopting written codes – to formally acknowledge their intent to do business in an ethical manner. Most codes of ethics are designed to perform one or more of four functions:
a. Increase public confidence in a firm or its industryb. Self-regulation (therefore perhaps eliminate government regulations)c. Improve internal operations by standardizing ethical and legal conductd. Help managers respond to problems that arise as a result of unethical or illegal behaviours
3. Teaching ethics – companies are responsible for educating their employees regarding ethics, ethical standards and ethical behaviours
Lesson 9 – Corporate Performance and Business Ethics
The key to successful management of strategic change and the achievement of strategic leadership can be summarized as embracing three capabilities:
Stakeholder integration Continuous learning Continuous innovation
• Recognize org is not an island answerable only to its investors in the short term
• Org has to examine its strategic intent for long-term survival and growth and identify all stakeholders whose support and commitment are required to realize the vision
• An org poised for strategic leadership understands and integrates the objectives of all its constituencies into its organizational growth and objectives
• Org created mechanisms and processes to exchange information from stakeholders and generated learning processes among all departments and layers of managers
• Org responds with agility and finds unique business formula that enhances value for customers, communities, investors, government bodies, employees and all other stakeholders
• Org contributes to development and furthers its economic goals where other orgs and governance/development structures have traditionally failed
Lesson 10 – Strategy Implementation
There are three components to strategy implementation:
• Coordinates and integrates ( direct contact, interdepartmental liaison, team) the work of all employees at the corporate, business and functional levels, and across functions and business units
Organizational structure
• Motivate employees so that the firm achieves its goals and provide performance feedback to managers so that corrective action can be taken if needed , monitor, evaluate , target setting
Organizational control
• Consists of values, norms, beliefs and attitudes that are shared by people in an organization
Organizational culture
Advantages of Decentralization
• Lower-level employees given decision making authority
• Reduces info overload• Grants autonomy• Increases flexibility,
motivation, accountability
Advantages of Centralization
• Senior management make decisions
• Quicker decision making when needed
• Decisions reflect the org’s overall strategy
• Fosters strong leadership
Establishing an effective control system requires four steps:
1. Establish the standards against which performance is to be evaluated2. Create the measuring and monitoring systems that indicate whether
or not the targets are being achieved3. Compare actual performance against established targets4. Initiate corrective action when it is decided that the standards and
targets are not being achieved
Values are beliefs about what kinds of goals members of the company should pursue and the appropriate standards of behaviour of employees
Norms are those expectations that prescribe appropriate behaviour within the firms
Strongly influenced by the values of its founders, top managers, org structure
Inert cultures = more cautious, conservative, do not value innovation Adaptive culture = innovative, encourages initiative taking by its
managers, bias toward action, motivate employees through increased coordination, integration and good reward systems
Lesson 10 – Strategy Implementation
Balanced Scorecard – 1992, Robert Kaplan and
David Norton, to address inadequacies of relying solely on traditional financial measures like ROI and
EPS as measures used by managers of an organization
1. Begins with focus org’s strategy, solidifies strategy with top management and lower level managers, and defines what objectives need to be accomplished as a result
2. Includes a set of traditional financial measures ( to indicate the results of actions already taken), and a set of operational measures (to indicate anticipated future financial performance)
3. Most important, it begins with the organization’s vision and recognizes that the implementation of strategy is about much more than financial measures
4. Operational goals and objectives are established and performance measures are developed in alignment with the strategy
5. Appropriate financial measures are selected to insure that the links between strategy and improvements in the performance being measured translate into achievement of the strategic intent and improved financial performance
It requires and relies on communication of the vision and strategy throughout the
organization, by demanding clarity in (and commitment to) the objectives and
measures being implemented.
Elements required for a comprehensive view at the top level are provided by consolidation
of all the various vital components of the organization into one management report
Facilitates ongoing evaluation of the relationships that link the org’s vision, strategy, objectives, and financial and
operational measures.
Creating alignment and focus
Lesson 10 – Strategy Implementation
Financial Perspective
Profitability of strategy is evaluated, measures: cash flow, sales growth, operating income,
market share, etc.
The focus is on the strategy for growth, profitability, and risk viewed from the
shareholder’s perspective.
Customer Perspective
Target market segments are identified, and measures of success in reaching them are established, measures: % of sales to new
customers, % of sales of new products, etc.
The focus is on the strategy for creating value and differentiation from the perspective of the
customer.
Internal Business Process Perspective
Internal operations that increase customer value are assessed, as well as their impact on
shareholder wealth, measures: cycle time, unit cost, etc.
The focus is on the strategic priorities for various business processes that create customer and
shareholder satisfaction.
Learning and Growth Perspective
Organizational capabilities necessary to achieve internal business process objectives, measures:
product processing time, number of new product introductions, etc.
The focus is on the priorities that support organizational change, innovation and growth.
Internal Business Process Perspective
Internal operations that increase customer value are assessed, as well as their impact on
shareholder wealth, measures: cycle time, unit cost, etc.
The focus is on the strategic priorities for various business processes that create customer and
shareholder satisfaction.
Customer Perspective
Target market segments are identified, and measures of success in reaching them are established, measures: % of sales to new
customers, % of sales of new products, etc.
The focus is on the strategy for creating value and differentiation from the perspective of the
customer.
Lesson 10 – Strategy Implementation
Underpinnings of successful
strategy implementation
Translate strategy to operational terms –
capabilities, resources, communication
Align the organization to the strategy – common themes and objectives
Make the strategy everyone’s everyday job
– way to conduct business
Make strategy a continual process –
integration of management of tactics
and strategy into seamless, continual
process
Mobilize change through executive leadership –ownership and active
participation
Lesson 10 – Strategy Implementation
Stage 1 - Mobilization
Establish a sense of urgency
Create the guiding coalition
Develop a vision and a strategy to create momentum for change
Stage 2 - Governance
Establish a process based on fluid team-based approaches to define, demonstrate, and reinforce the new cultural values of the organization
Stage 3 – Strategic Management System
Institutionalize the new cultural values and new structures into a new system
Three phases of successful adoption of strategic change:
Personal Control -how managers
interact with employees
Output Control – forecasting
and monitoring of performance
goals
Behaviour Control
– rules, procedures,
data governance
Lesson 10 – Strategy Implementation
Functional – Level Strategy Implementation
1. Organizational structure2. Strategic control3. Organizational culture
Business – Level Strategy Implementation
1. Allow firm to be successful in pursuing cost leadership or differentiation strategy
2. If both, must choose from: Product structure Market structure Geographic structure Matrix structure Product team structure
Corporate Level Strategy Implementation
1. In multi-business firm, bureaucratic costs will naturally be higher, requires careful attention to choice of org structure and implementation of strategic control systems
2. Control mechanisms depend on whether: Unrelated diversification - easiest and cheapest,
based on division’s performance Vertical integration – higher costs, HO controls
resources Related diversification – most expensive, increased
linkages between divisions, culture is primary means of controlling firm behaviour through integrating roles and teams
Global Level Strategy Implementation
1. How do we distribute authority between the home country and local operations to maintain effective control?
2. Which organizational structure allows the most efficient allocation of resources and the best service to customers?
3. How do we design control systems and organizational culture to allow the structure to work effectively?
Four strategies to compete globally:1. multi-domestic – max. local responsiveness, customized
products, decentralized authority2. International – R&R and marketing are centralized, all other
functions performed locally3. Global – min. local responsiveness, centralization of all
functions, low costs4. Transnational – centralize some functions, decentralize
others, depends on each product, region [email protected] 28