Mbam619 Strategy Management

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Envisioning Strategy Business Models Visualized (created for and by students)

© Sunil Mehrotra

Strategic Management Process •

• •



Envisioning Strategy – Definition – Framework – Visual Models External Analysis – PEST – PEST Impact Analysis Industry Analysis – Industry Structure – Evolution of Industries – Industry Supply Chain – Potential Industry Earnings – Porter’s 5 Forces Analysis – Competitive Intensity – Strategies for minimizing competitive forces – Perceptual Map – Barriers to Entry/Incumbency advantages – DSIR effect Company Internal Analysis – Value Creating Processes – Core Competencies – Growth Strategies – SWOT Analysis – Mckinsey 7-S Framework – Change Management – Risk Assessment – Balanced Scorecard – GE Mckinsey Matrix

Envisioning Strategy: Visual Models 3 1

2 5

4 1. 2. 3. 4. 5. 6.

Visualize Think Clearly Communicate Effectively Understand Deeply Share the Vision Act Coherently

www.idiagram.com

Visual Model A Business Ecosystem The The environment environment Governments Governments Standards Standards bodies bodies New New entrants entrants Competitors Competitors Supplier’ ’s suppliers Supplier Supplier’s suppliers

Suppliers Suppliers

Organisation Organisation

Customers Customers

Customer’ ’s customers Customer Customer’s customers

Substitutes Substitutes

Stakeholders Stakeholders International International law law New Paradigm Consulting

Visual Model Comprehensive View

Strategic Management • Is the process by which an organization – Establishes its goals and objectives both short and long-term – Formulates plans and charts a course of action for meeting these goals and objectives in the desired time-frame. – Implements the actions – And analyzes progress and results

Strategic Management • Deals with – – – – – –

How to grow the business How to satisfy customers How to compete with rivals How to respond to changing environment How to manage each functional piece of the business How to build organizational capabilities and align organization to achieve desired goals – How to achieve strategic and financial objectives

Mission, Vision and Values • Vision articulates a view of a realistic, credible, attractive future for the organization…it is the all-important bridge from the present to the future of the organization. • Mission describes the purpose of the organization. It represents the present. • Values reflect the organization’s culture and norms of corporate behavior.

Goal, Scope and Objectives • Goal articulates a desired outcome for the business over a specific time period • Scope describes the focus of the business– geography, product lines and customer segments. • Objectives are the measurable and tangible results to be achieved over a specified time period

Strategic Planning • Planning is not about predicting the future • Planning is not about writing a detailed road map into the future • Planning is not about a few people writing a vision statement & then getting ‘buy-in’ from everyone else

Strategic Planning • Planning is about learning • Planning is about increasing the possibilities for the organisation • Planning is about discovering how fit the organisation is for its environment • Planning is about discovering and telling compelling stories about the future

Strategic Planning Framework External Factors

Analyzing the Environment

Analyzing the Industry

Internal Factors

Analyzing the Competition

Market Opportunities

Analyzing the firm’s Strengths & Weaknesses

Matching Market Opportunities to firm’s resources and capabilities

Analyzing the firm’s Architecture, Routines & Culture

Firm’s Resources & Capabilities

•What strategic options does the firm realistically have? •What is the best strategy for maximizing Shareholder value?

Shareholder Returns

Strategic Planning Framework External Factors Market Economics And Opportunities

Analyzing the Environment

•Direct Competition from Rivals •Bargaining Power of Suppliers •Bargaining Power of Customers •Threat from new entrants •Competition from Substitutes

Analyzing the Industry

Internal Factors

Market Attractiveness

Cost Position in Served Market Benefit Position in Served Market

Analyzing the Competition

Market Opportunities

Analyzing the firm’s Strengths & Weaknesses

Matching Market Opportunities to firm’s resources and capabilities

Analyzing the firm’s Architecture, Routines & Culture

Firm’s Resources & Capabilities

•What strategic options does the firm realistically have? •What is the best strategy for maximizing Shareholder value?

•Profit •Sales •Market Share •ROI •Market Value

Competitive Advantage Or Disadvantage

Shareholder Returns

Strategic Analysis Framework External Factors •Week 3 •Week 4 •Week 5

•Week 1 •Week 2

Analyzing the Environment

Analyzing the Industry

Internal Factors

• Week 6 • Week 7

•Week 8 •Week 9 •Week 10

Analyzing the Competition

Market Opportunities

Analyzing the firm’s Strengths & Weaknesses

Matching Market Opportunities to firm’s resources and capabilities •What strategic options does the firm realistically have? •What is the best strategy for maximizing Shareholder value?

•Profit •Sales •Market Share •ROI •Market Value

•Week 11 •Week 12

Analyzing the firm’s Architecture, Routines & Culture

Firm’s Resources & Capabilities

•Week 13 •Week 14

Shareholder Returns

Three Tests of Best Strategy Future: To here

The Goodness of Fit Test

The Competitive Advantage Test

The Performance Test

• A good strategy has to be well matched to Industry and competitive conditions, market opportunities and threats, and other aspects of a firm’s external environment • At the same time, it has to be tailored to the company’s resource and strengths and competitive capabilities •A good strategy leads to sustainable competitive advantage •The bigger the competitive edge the strategy helps build the more powerful and effective it is

•A good strategy boosts company performance -Gains in profitability -Gains In competitive strength and long-term market position

Present : From here

www.studymarketing.org

16

DEFINITION

Strategy (n) – An integrated set of actions designed to achieve a sustainable competitive advantage

2

17

PURPOSE OF STRATEGY •

Focus execution efforts •



Make choices • • •



Always requires good execution

Investments Acquisitions People

Create value

WHAT ARE THE COMPONENTS OF A STRATEGY? 18



Mission



Goals



Where to compete/grow



Customers/geographies



What to offer



Products/services



How to win vs competition



Actions and initiatives required

WHAT MAKES FOR A GOOD STRATEGY? 19



Clear and compelling



Integrated and complete



Grounded in facts



Clear short and long term priorities



Identification of specific actions and resources required

20

AGENDA •

What is strategy?

• What is Lulu’s strategy? •

How do we make it better?





Mission:

Target Markets:



Offerings:



By 2011: over $2B valuation + Gross margin 50%+ #1 in our business

Goals:





Establish the marketplace for digital content where authors make money from their written works

Global unserved and underserved profit-motivated book creators, Licensed/tier-one rights holders

Book creation and publishing tools and services, Social Network marketing and commerce, Ebook tools, Marketplace for any content “Free” business model Most $ to authors Engaged reader-writer community, Open Marketplace Reader device ubiquity, Global reach

Differentiator:

Actions and initiatives:

• • • •

International expansion Social Network integration (weRead) 3rd party book marketplace eBook wizard

5. 6. 7. 8.

Share financial success with those who create it Make Lulu platform an ecosystem Mobile cart and customer acquisition Increase licensed content partnerships

Strategy and Performance: “There are three kinds of companies— those that make things happen, those that watch things happen, and those that wonder what happened.” Anonymous .

Envisioning Strategy Business Models Visualized (created for and by students)

© Sunil Mehrotra

Strategic Management Process •

• •



Envisioning Strategy – Definition – Framework – Visual Models External Analysis – PEST – PEST Impact Analysis Industry Analysis – Industry Structure – Evolution of Industries – Industry Supply Chain – Potential Industry Earnings – Porter’s 5 Forces Analysis – Competitive Intensity – Strategies for minimizing competitive forces – Perceptual Map – Barriers to Entry/Incumbency advantages – DSIR effect Company Internal Analysis – Value Creating Processes – Core Competencies – Growth Strategies – SWOT Analysis – Mckinsey 7-S Framework – Change Management – Risk Assessment – Balanced Scorecard – GE Mckinsey Matrix

© Sunil Mehrotra

PEST Analysis Fiscal Policy Monetary Policy Tax laws Intellectual Property protection Copyright laws Poli Securities Laws tica Business climate l

Cha ng

ic m no ge o Ec han C

e

GDP GDP growth Exchange rate Unemployment rate Skilled labor Education levels Trade unions Infrastructure Healthcare costs Raw materials

Opportunities Opportunities

al New technologies c i Materials technologies log e o Process technologies hn ang c Information technologies Te Ch Communication technologies Government incentives Energy costs Broadband penetration Technology incubation

Threats Threats So c Ch ial ang e

Demographics Income Distribution Social stability Ethnic patterns Consumerism Discretionary income Fashions/fads Consumer trends

© Sunil Mehrotra

It is crucial to describe the subject for the PEST analysis clearly so that people, contributing to the analysis, and those interpreting the results from PEST analysis, could understand the purpose of the PEST assessment and its implications

PEST Impact Matrix Nature of change

Impact of change

Opportunities

Threats Threats

Strategic response

Political Change Economic Change Social Change Technological Change © Sunil Mehrotra

PEST Impact example: Nature of change

Impact of change

Opportunities

Threats Threats

Strategic response

Political Change Economic Change Social Change Technological Change © Sunil Mehrotra

PEST Analysis Example: Poli tica

l Ch ang

e

Emerging Markets

Infrastructure Technologies

ic m no ge o Ec han C

Digital Connections

Originations

Opportunities Opportunities Environmental Solutions

al c i g o l o hn ange c Te Ch

Demographics

So c Ch ial ang e © Sunil Mehrotra

PEST Impact example: Nature of change

Impact of change

Opportunities

Threats Threats

Strategic response

Political Change Economic Change Social Change Technological Change © Sunil Mehrotra

PEST Impact example: Demographics

© Sunil Mehrotra

PEST Impact example:

© Sunil Mehrotra

Scenario Planning

http://strategicframing.com/strategic-planning-workshop/

Contemplating the Future

Student Examples: Pest Analysis Breanne Hayes April 2008 MBA Graziadio School of Business and Management Pepperdine University

Elizabeth Passeretti April 2008 MBA Candidate Graziadio School of Business and Management Pepperdine University

PEST Analysis Impact on J&J

Political Change – The FDA must approve new products before they can be sold in the market, adding to the costly time-lag within the product pipeline.

high

Economic Change – Demand for many consumer health products is inelastic as changes in price do not tend to affect sales (consumer health products are used on a daily basis). In times of economic uncertainty, however, it is less likely that consumers will experiment with new product offerings

medium

Breanne Hayes, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

PEST Analysis Social Change – Increased consumer awareness regarding health issues in recent years has contributed to increased spending on health related products. Increased health awareness is what will drive J&J’s expansion into global markets

Impact on J&J high

Technological Change – The consumer health industry is marked by rapid advances in scientific knowledge. Product offerings are subject to constant improvements in chemistry and industrial technology that allow scientists and engineers to create new products and modify existing ones

high

Breanne Hayes, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

PEST example: Nature of change

Political Change Economic Change Social Change Technological Change

Impact of change

Opportunities

More FDA approval process conservative

US economic downturn

Aging Population

New materials for joint replacement

Longer time to market

Generic drugs more accepted

Consumer spending down Caring for the elderly

New cost/quality frontier

Threats Threats

Shorten Product Development Cycle Evaluate acquisitions Identify product/market needs to serve the elderly

New growth opportunities

New products

Strategic response

Potential new competitors

Invest in promising start-ups

© Sunil Mehrotra

Political Change Economic Change

Biotech firms are highly sensitive to changes in political power. A Liberal political party will likely reform healthcare so that the government bears more of the costs. The upcoming elections will have a significant impact on the industry. In addition, the industry if highly regulated by government agencies such as the FDA.

Impact

High

As most of the costs of drugs are subsidized by third-party payers (Medicare, Health Insurance), people will continue to purchase drugs even in an economic downturn. In addition, many of these drugs are taken out of necessity, not choice so demand is inelastic. However, third-party payers certainly feel the pain of an economic downturn and may impose cost cutting measures which reduce patient reimbursement and put more of an economic burden on patients. And Biotech firms often depend on single-source suppliers for raw materials and are therefore sensitive to increasing costs.

Medium

Elizabeth Passeretti April 2008 MBA Candidate Graziadio School of Business and Management,Pepperdine University

Technological Change

Social Change

Impact The aging population greatly increases the patient population which is beneficial for Biotech firms. The unfortunate reality is that more people are suffering from serious illness and need life saving therapeutics.

As evident by the very name of the industry, Biotech firms are highly influenced by advances in technology. Technology can greatly improve the likelihood of discovering new treatments as well as improving the manufacturing process.

High

High

Elizabeth Passeretti April 2008 MBA Candidate Graziadio School of Business and Management,Pepperdine University

PEST Impact example: Nature of change

Political Change Economic Change Social Change Technological Change

Impact of change

Opportunities

Democratic party More in power government control $100+ crude oil price

Aging Population Breakthrough in science. Process improvement technologies

Commodity prices increasing Caring for the elderly

New growth opportunities

New science and new technologies imminent

New startups. Disruptive technologies

Threats Threats

Strategic response

Pressure on prices

Operational Efficiency to reduce costs

Pressure on costs

Focus on Operational Efficiency Identify product/market needs to serve the elderly

Potential new competitors

Invest in/acquire promising start-ups

© Sunil Mehrotra

Envisioning Strategy Business Models Visualized (created for and by students)

© Sunil Mehrotra

Strategic Management Process •

• •



Envisioning Strategy – Definition – Framework – Visual Models External Analysis – PEST – PEST Impact Analysis Industry Analysis – Industry Structure – Evolution of Industries – Industry Supply Chain – Potential Industry Earnings – Porter’s 5 Forces Analysis – Competitive Intensity – Strategies for minimizing competitive forces – Perceptual Map – Barriers to Entry/Incumbency advantages – DSIR effect Company Internal Analysis – Value Creating Processes – Core Competencies – Growth Strategies – SWOT Analysis – Mckinsey 7-S Framework – Change Management – Risk Assessment – Balanced Scorecard – GE Mckinsey Matrix

© Sunil Mehrotra

Industry Analysis Understand Deeply

Suppliers

Competitors

Customers

Industry Analysis •Porter’s 5 Forces Analysis •Competitive Intensity •Strategies for minimizing competitive forces •Incumbency advantages •Value Chain •Potential Industry Earnings •Evolution of Industries •DSIR effects

© Sunil Mehrotra

Low

Spectrum of Competition Competitive Intensity

High

Perfect Competition Niche Market •Product Differentiation •Localized competition •Few Firms Clothing Stores •Strategic Interdependence Gas Stations •Profitability determined by behavior

Oligopoly

•Many firms •No product differentiation •Price based competition Commodities

Dominant Firm

Monopoly Single Firm Utilities

•Few large firms •More small firms •Pricing leadership •Protected Niches

Automobiles Commercial Aircrafts

Computer OS

Industry Profitability Adapted from: Saloner, Shepard, & Podolny: Strategic Management, Wiley and Sons, 2001

© Sunil Mehrotra

Industry Evolution: Traditional View Introduction

Growth

Maturity

Decline

Revenue

Operating Income

Losses Few competitors

Increasing sales and profits

Saturation

New competitors appear

Declining profits

Displaced by substitute products Profitability falls

Standardized features

Only a few large scale players survive

Industry shakeout

Most industries evolve towards © Sunil Mehrotra Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm

Oligopoly •Few Firms •Strategic Interdependence •Profitability determined by behavior of incumbents

The New View: The Cycle of Industry Creative Destruction 1

Mature/Vertically Integrated  Three major phases of industry evolution  “Cycle time” of evolution is driven by the pace and magnitude of marketplace discontinuities

3 Recombinant Market Leaders

2

 Cycle-driving discontinuities include deregulation, technology, shifts in consumer preferences, globalization of markets, etc.

Focused New Entrants http://www.manyworlds.com/

The New View: The Cycle of Industry Creative Destruction Sales and Distribution

Superstores

Application Software

Word

Operating System

Windows

Computer

IBM

Direct

Retail

Wordperfect Others

HP

Apple

Apple

Linux

Dell

Chips

INTEL IBM

DEC

Sperry Univac

AMD

Wang

The “mature” Computer Industry Adapted from: Saloner, Shepard, & Podolny: Strategic Management, Wiley and Sons, 2001

The “recombinant” Computer Industry

Industry Supply/Value Chain Suppliers

Manufacturers

Distributors

Retailers

Consumers © Sunil Mehrotra

Student Examples: Supply Chain Breanne Hayes April 2008 MBA Graziadio School of Business and Management Pepperdine University

Elizabeth Passeretti April 2008 MBA Graziadio School of Business and Management Pepperdine University

Overview of Industry Value Chain: Consumer Health Products Cotton, Plastics, Chemicals, etc.

Incumbent Firms engage in R&D and Mfg to produce consumer health products and OTC pharmaceuticals

NOTE: Incumbent firms compete fiercely for retailer shelf space!

Market size: $480B Wholesalers

Retailers: Pharmacies, Drug Stores, Supermarkets

Consumers Breanne Hayes, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Industry Analysis

Legend Value = Product Value = Knowledge Regulators/Gatekeepers

Industry Supply Chain Raw materials, Lab equipment, Chemicals

Biotech Companies

$52 billion market

FDA Drug Wholesalers (61%)

Physicians (Customers) Payers (Insurance)

$67 billion market

Hospitals / Pharmacies (39%)

Patients (Consumers) Elizabeth Passeretti April 2008 MBA Candidate Graziadio School of Business and Management,Pepperdine University

Supply Chain: Value Added Profit

Value Added

PRICE

Value Added

Value Added

Consumers

Retailers

Distributors

Manufacturers

Suppliers

Material cosls

© Sunil Mehrotra

Consumers

Retailers

Distributors

Manufacturers

Suppliers

Value Added Template

Value Added

Profitability Asset Intensity ROI

Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm

Potential Industry Earnings (PIE) Analysis Factors effecting demand: •Customer habits •Customer expenditures •Number of substitutes •Number of complementary products •Price reduction by incumbents Industry Demand

Factors effecting costs

PIE

•Cost reductions by suppliers •Cost reductions by incumbents •Process improvements •Technology advances Opportunity Cost of Resources

Quantity Produced by the Industry

Adapted from: Saloner, Shepard, & Podolny: Strategic Management, Wiley and Sons, 2001

PIE Analysis Price

J&J is in a position to capture more potential industry earnings as a result of increased consumer demand

Demand shifting outward

Cost to J&J

Quantity

Breanne Hayes, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Porter’s 5 Forces Impact on PIE • •Intensity of Competition •Availability of Substitutes •Threat of new entrants •Bargaining power of Buyers

Industry Demand

Porter’s insight recognizes that the following characteristics are important to profitability of the incumbent: – The intensity of competition – The ability of suppliers or buyers of industry products to restrain industry profits – The behavior of firms producing closely related goods not included in the industry – Potential for entry into the market by new firms

PIE •Bargaining Power of Suppliers

Quantity Produced by the Industry

Adapted from: Saloner, Shepard, & Podolny: Strategic Management, Wiley and Sons, 2001

Opportunity Cost of Resources

Porter’s 5 Forces Framework Concentration of buyers Incumbents are fragmented Product is undifferentiated Switching to another supplier is simple Product is not strategic to the customer Customers can produce the product themselves Customer knows the production costs Customers can integrate back-words

Economies of scale High initial investments and fixed costs Learning economies Depreciated assets Brand loyalty Protected intellectual property Scarcity of qualified resources Access to raw material controlled by existing players Distribution channels controlled by existing players Existing players have close customer relations

Better prices Better performance Similar functionality

Few large suppliers No substitutes Customers are fragmented Switching costs to another supplier are high Supplier integrating forward Economies of scale Downstream more profitable Low barriers to entry downstream

Many small players High cost to exit Undifferentiated products Compete on price Low brand loyalty Low switching costs Slow/no growth market

www.themanager.org © Sunil Mehrotra

Impact on Profitability Threat/Power

High

Industry A

Moderate

Industry B

Low

Competitive Intensity Bargaining power of Suppliers Bargaining power of Customers Threat of New Entrants

Threat from Substitutes

Profits

© Sunil Mehrotra

Student Examples: Porter’s 5 Forces Analysis Breanne Hayes April 2008 MBA Graziadio School of Business and Management Pepperdine University

Nicholas Merriam April 2008 MBA Graziadio School of Business and Management Pepperdine University

Matt Kemp April 2008 MBA Graziadio School of Business and Management Pepperdine University

Thomas Weisel Partners

Porters 5 Forces:

• Coffee Growers • Pastry makers

Consumers

• Coffee machine makers

• Teas • Juices • Regular coffee

Nicholas Merriam, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Porter’s 5 Forces: Similarity of products enables easy switching

MODERATE

Barriers to entry: Small firms generally specialize in R&D and cannot realize manufacturing efficiencies that large incumbents benefit from

WEAK

MODERATE INTENSE Generic products capture value from consumers who are not willing to pay a premium for brand name products

INTENSE Breanne Hayes, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Porter’s 5 Forces: Customer’s Customer’s Power Power

MODERATE

Companies Companies are are able able to to choose choose who who they they partner partner with, with, but but are are limited limited by by their their ability ability to to run run aa business business and and shop shop aa deal deal to to investors. investors.

Thomas Weisel Partners

Threat Threat of of New New Entry Entry Bulge Bulge Bracket Bracket Banks Banks encroaching encroaching into into Middle Middle Market Market

High

MODERATE WEAK Supplier’s Supplier’s Power Power Investors Investors have have power power to to choose where they choose where they place place there there money, money, but but don’t don’t have have ability to organize ability to organize or or know know of of new new opportunities. opportunities.

Competitive Competitive Intensity Intensity

INTENSE

Industry Industry isis highly highly competitive Mathew Kemp, April 2008 MBA, competitive Graziadio School of Business and Management Pepperdine University

Impact on Profitability Threat/Power High

Moderate

Low

Competitive Intensity Bargaining power of Suppliers Bargaining power of Customers Threat of New Entrants

Threat from Substitutes

Profits

© Sunil Mehrotra

Impact on Profitability Threat/Power High

Moderate

Low

Competitive Intensity Bargaining power of Suppliers Bargaining power of Customers Threat of New Entrants

Threat from Substitutes

Profits

© Sunil Mehrotra

Strategies for minimizing the power of competitive forces Reducing the Bargaining Power of Customers Partnering Increase loyalty Increase incentives and value added Increase switching costs Cut out intermediaries

Reducing the threat of New Entrants Increasing minimum efficient scales of operations Creating brand image/loyalty Protection of intellectual property Alliances with linked products/services Tie up with suppliers Tie up with distributors Retaliation tactics Cut out intermediaries

Reducing threat of substitutes Increase switching costs Form alliances Enter substitute market Accentuate differences

Reducing the Bargaining Power of Suppliers Partnering Supply Chain Management Increase mutual dependency Build knowledge of supplier costs/methods Take-over supplier

Reducing competitive rivalry within Differentiate your product Avoid price competition Reduce industry over capacity Focus on different customer segments

Adapted from: www.themanager.org

Porter’s 5 Forces and Generic Strategies Cost Leadership

Differentiation

Focus

Competitive Intensity

Better able to compete on price

Brand loyalty to keep customers from switching

Rivals cannot meet focused customer needs

Bargaining power of Suppliers

Better insulated from suppliers

Better able to pass on supplier price increases to customers

Better able to pass on supplier price increases to customers

Bargaining power of Customers

Better positioned to offer lower prices

Fewer alternatives available to switch to

Fewer alternatives available to switch to

Threat of New Entrants

Ability to deter new entrants by offering lower prices

Customer loyalty can deter new entrants

Specialization develops unique competencies difficult for new entrants to match

Can use lower prices to defend against substitutes

Customers less willing to accept substitutes

Customers less willing to switch to substitutes

Threat from Substitutes Examples:

www.studymarketing.org

Product Differentiation minimizes competitive intensity Perceptual Map of Automobile Brands





• •

Perceptual Maps are a visual display (usually on two dimensions) of how brands are perceived by customers. The closer the brands are positioned in this space the more competitive they are to each other. Perceptual Maps identify “open spaces” or unmet customer needs. Perceptual Maps identify salient attributes of the products on which consumers differentiate brands.

Adapted from: http://en.wikipedia.org/wiki/Perceptual_mapping

Perceptual Map of the Beer Market Heavy

Heavy

Full Bodied



Old Milwaukee

Budweiser



Meister Brau



Good Value

Popular with Men

Miller Blue Collar



Beck’s





Stroh’s

Budget

• Heineken

Special Occasions Coors



Dining Out

Premium

Premium

• Michelob •

On a Budget



Pale Color

Old Milwaukee Light

Light

Miller Lite Light



Coors Light

Popular with Women

Less Filling Adapted from: Prof. Ganesh Iyer, UC Berkeley

Perceptual Map of 2000 Presidential Candidates Leader

Colin Powell John McCain George W. Bush

Traditional Liberal

Religious Conservative

Bill Bradley Alan Keyes Elizabeth Dole Steve Forbes

Al Gore

Pat Buchanan Donald Trump Jesse Jackson

Republican Democrat Independent

Opportunistic Source: 12Americans.com, 2000 www.populus.com

Student Examples: Perceptual Mapping

Nina Tooley April 2008 MBA Graziadio School of Business and Management Pepperdine University

Perceptual Map Example: Contemporary

Zara

Discount

Expensive

Classic Nina Tooley, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Perceptual Map Example: Contemporary

Zara

Young

Mature

Classic Nina Tooley, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Barriers to Entry/ Incumbency Advantage • • • • • • • •

© Sunil Mehrotra

Economies of Scale Cumulative Investments Learning economies Innovation advantage Promotional advantage Customer loyalty advantage Switching costs advantage Demand Side increasing returns advantage

Adapted from: Saloner, Shepard, & Podolny: Strategic Management, Wiley and Sons, 2001

Economies of scale occur when increased output leads to lower unit costs (lower average costs) Wal-Mart can sell products more cheaply because its huge buying power gives it economies of scale.

Demand Side Increasing Returns Network Effect Network Effects occur when the benefits of a product increase to each user as the number of users increases. An example of network effects is telephone service. The more people who use them the more valuable they are to each user. The Web is an example with even more rapidly increasing DSIR than telephones or fax machines. Industries with Demand Side Increasing Returns have the characteristics of “winner takes all”. Many of the Web based industry exhibit this characteristic, example: eBay and more recently the social networking sites such as Facebook.

Source: www.wikipedia.com

Positive Feedback loop creates “winner takes all” Base of users

Installed base grows

Attracts new users

Gets a larger share of new purchases

Strategic Management Process •

• •



Envisioning Strategy – Definition – Framework – Visual Models External Analysis – PEST – PEST Impact Analysis Industry Analysis – Industry Structure – Evolution of Industries – Industry Supply Chain – Potential Industry Earnings – Porter’s 5 Forces Analysis – Competitive Intensity – Strategies for minimizing competitive forces – Perceptual Map – Barriers to Entry/Incumbency advantages – DSIR effect Company Internal Analysis – Value Creating Processes – Core Competencies – Growth Strategies – SWOT Analysis – Mckinsey 7-S Framework – Change Management – Risk Assessment – Balanced Scorecard – GE Mckinsey Matrix

© Sunil Mehrotra

Key Operational Issues

Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm

Consumers

Retailers

Distributors

Manufacturers

Suppliers

Value Creation Processes

Activity Based View of Value Creation Process Infrastructure

Support Activities

Human Resources

it of in r P rg a M

Technology Development Procurement

Primary Activities

Inbound Logistics

Operations

Outbound Logistics

Sequence of Activities

Marketing and Sales

Service

P M rofit ar gin

Student Examples: Value Disciplines/Value Creation Processes

Nicholas Merriam April 2008 MBA Graziadio School of Business and Management Pepperdine University Alana Turoff April 2008 MBA Candidate Graziadio School of Business and Management Pepperdine University

Alana Turoff, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Starbuck’s Value Chain Firm Infrastructure

- Financial Policy

Human Resource Management Technology Development

- Legal - Accounting

- Organizational Form - Incentive Systems

- Barista Training

- Superior Rewards

- New Espresso Machines

- Better Espresso Machines - New Clover Method

- Only the Procurement best 3% of coffee - Buying Coffee - Roasting Coffee - Other - Operating Purchasing Stores

- Maintaining Stores

- Desirable store settings (3rd Place)

- CPG’s in retailers

- Excellent Customer Service - Limited Advertising

Inbound Logistics

Operations

Outbound Logistics

Marketing And Sales

Nicholas Merriam, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

M A R G I N

Activities aligned to build unique Core Competencies Infrastructure Human Resources Technology Development

it of in r P rg a M

Procurement Marketing Inbound Outbound Operations and ServiceP Logistics Logistics M rofit Sales ar gin

Product Leadership Infrastructure Human Resources Technology Development

it of in r P rg a M

Sequence of Activities Marketing Inbound Outbound Operations and ServiceP Logistics Logistics M rofit Sales ar gin

Infrastructure Human Resources Technology Development

it of in r P rg a M

Marketing Inbound Outbound Operations and ServiceP Logistics Logistics M rofit Sales ar gin

Customer Intimacy

Operational Effectiveness

Strategic Options and the Plays Market Orientation

Innovate

Product Leadership

Conform

Basis of Competition

Micro

Customer Intimacy

Macro

Operational Effectiveness

Options: •Niche or Mass? •Conform or Innovate?

http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm

Plays: •Product Leadership •Customer Intimacy •Operational Effectiveness •Change the rules of the game

Core value drivers Process Orientation

Operational Effectiveness

Customer Intimacy “Work Backwards from the Customer”

Value Network Architect

Relationship Owner

Core Value Drivers 1. Customer relationships 2. Demand chain mgmt 3. Optimizing scope

Degree of Differentiation Through Processes

Product Innovator

Product Leadership

“Dominate the Eco-System”

Core Value Drivers 1. Network positioning 2. Process leadership 3. Optimizing efficiency

Core Value Drivers 1. Product development 2. Branding 3. Distribution channels

“Creative Destruction”

Adapted from: http://www.manyworlds.com/

Example business model paths over time

and sometimes move here . . .

or here . . .

Value Network Architect

Relationship Owner

2000

1985 2000

1996

Product Innovator

businesses start here . . .

1962 1990 http://www.manyworlds.com/ Copyright ManyWorlds, Inc. 1998 - 2008.

Lessons from Retail Amazon versus WalMart round 1 . .

.

Process Orientation Value Network Architect

Relationship Owner

Core 1. 2. 3.

Value Drivers Customer relationships Demand chain mgmt Optimizing scope

Degree of differentiation through process

Stalemate!

Core 1. 2. 3.

Value Drivers Network positioning Process leadership Optimizing efficiency

Product Innovator

http://www.manyworlds.com/ Copyright ManyWorlds, Inc. 1998 - 2008.

Strategies for Growing a Business

•Product Development •Customer Penetration •Market Development •Diversification

http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm

Strategy Analysis Framework Root conditions

Firm’s Strategy for Creating Economic Value

Firm’s Resources And Capabilities

•Direct Competition from Rivals •Bargaining Power of Suppliers •Bargaining Power of Customers •Threat from new entrants •Competition from Substitutes

Market Attractiveness

Matching firm’s resources and capabilities to market opportunities

Cost Position in Served Market Benefit Position in Served Market

Competitive Advantage Or Disadvantage

Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm

Shareholder Returns

Internal Factors

The Firm and Its position In the Market

Explanation for profitability

External Factors

The Market

Market Economics And Opportunities

Measurable indicators or causes

Visual Model Think Clearly

External Environment

Understand Deeply Communicate Effectively

Industry Structure

Suppliers, Customers, and Competitors

Company

© Sunil Mehrotra

Goals, Objectives, and Action Plans

Strategic Management Process •

• •



Envisioning Strategy – Definition – Framework – Visual Models External Analysis – PEST – PEST Impact Analysis Industry Analysis – Industry Structure – Evolution of Industries – Industry Supply Chain – Potential Industry Earnings – Porter’s 5 Forces Analysis – Competitive Intensity – Strategies for minimizing competitive forces – Perceptual Map – Barriers to Entry/Incumbency advantages – DSIR effect Company Internal Analysis – Value Creating Processes – Core Competencies – Growth Strategies – SWOT Analysis – Mckinsey 7-S Framework – Change Management – Risk Assessment – Balanced Scorecard – GE Mckinsey Matrix

© Sunil Mehrotra

Matching Resources and Capabilities to Market Opportunities

Alana Turoff, April 2008 MBA, Graziadio School of Business and Management Pepperdine University

Four Steps to an Actionable SWOT Analysis

Internal Issues

Step1: Establishing the SWOT team

Internal Team/ Internal Issues Executive Management Product Management Marketing

Step2: Creating the SWOT framework

Internal Factors Financial situation Brand perceptions Competencies and skills Client relationship Supplier relationships Leadership and culture Price and performance

Step3: Leveraging strategy framework

Step4: Turning SWOT outcomes into actionable results

Product life cycle Mckinsey 7-S Framework Learning economies

External Issues

Balanced Scorecard Internal Team/ External Issues Sales Management Supply Chain Management

External stakeholders Clients Partners Industry analysts

External Factors Economic conditions Market maturity Technology adoption Customer buying patterns Competitive situation Regulatory environment

PEST analysis

Porter’s 5 Forces analysis

Key Questions for Internal and External Issues

STRENGTHS

WEAKNESSES

FINANCIAL

financial strengths

financial weaknesses

financial opportunities

financial threats

CUSTOMER

customer strengths

customer weaknesses

customer opportunities

customer threats

INTERNAL PROCESSES

internal strengths

internal weaknesses

internal opportunities

internal threats

people strengths

people weaknesses

people opportunities

people threats

PEOPLE

1

OPPORTUNITIES

THREATS

"BSC SWOT." Wikipedia, The Free Encyclopedia. 22 Mar 2008, 02:33 UTC. Wikimedia Foundation, Inc. 23 Apr 2008 .

Sustainable Competitive Advantage Types of Positional Advantage Brand name Customer relationships Government protections Status Distribution channels Geographic incumbency Installed base and de facto standards Gatekeeper in the flow of goods and services

Types of Capabilities Advantage Manufacturing Engineering Product development Customer service R&D M&A Sourcing Organization Culture

Adapted from: Saloner, Shepard, & Podolny: Strategic Management, Wiley and Sons, 2001

Aligning Organization, Systems and Processes to Goals and Strategy to create sustainable Competitive Advantage Mckinsey 7-S Framework

Structure: The basic organization of the company, its departments, reporting lines, areas of expertise, and responsibility (and how they inter-relate Systems: Formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call centre systems, online systems, etc).



Strategy: The direction and scope of the company over the long term.

Shared values: The values and beliefs of the company. Ultimately they guide employees towards 'valued' behavior. Skills: The capabilities and competencies that exist within the company. What it does best.

Style: The leadership approach of top management and the company's overall operating approach.

Staff: The company's people resources and how they are developed, trained, and motivated.

Adapted from: www.buildingbrands.com/didyouknow/14_7s_mckinsey

Strategic Management Process •

• •



Envisioning Strategy – Definition – Framework – Visual Models External Analysis – PEST – PEST Impact Analysis Industry Analysis – Industry Structure – Evolution of Industries – Industry Supply Chain – Potential Industry Earnings – Porter’s 5 Forces Analysis – Competitive Intensity – Strategies for minimizing competitive forces – Perceptual Map – Barriers to Entry/Incumbency advantages – DSIR effect Company Internal Analysis – Value Creating Processes – Core Competencies – Growth Strategies – SWOT Analysis – Mckinsey 7-S Framework – Change Management – Risk Assessment – Balanced Scorecard – GE Mckinsey Matrix

© Sunil Mehrotra

Translating Strategy into Action Strategic Map • •

A strategy map provides a visual framework for a firm’s strategy. Strategy map links together: 1. The desired productivity and growth outcomes 2. The customer value proposition 3. Internal process for creating value 4. The capabilities required from intangible assets Simplified Strategic Map

Financial perspective

Long term shareholder value Productivity

Internal perspective

Learning & growing perspective

Growth

Customer

Customer perspective Operations Management

Human Capital

Long-term value

Customer Management

Product Innovations

Information Capital

Customer Value Proposition Regulatory & Social

Organizational Capital

Adapted from

Value-creating processes

Intangible assets

and www.summaries.com

Strategy Map Template Long-term shareholder Value Productivity Strategy Financial perspective

Improve Cost Structure

Growth Strategy

Improve Asset Utilization

Expand Revenue Opportunities

Enhance Customer Value

Customer Value Proposition Customer perspective

Product / Service Attributes Price

Internal perspective

Quality

Availability

Selection

Functionality

Operations Customer Management Process Management Process •Supply •Production •Distribution •Risk management

•Selection •Acquisition •Retention •Growth

Learning & growing perspective

Image

Relationship Service

Innovation Process •Identify opportunity •R&D portfolio •Design/Develop •Deploy

Partnership

Brand

Regulatory & Social Processes •Environment •Safety and Health •Community

Intangible Assets Human Capital •Employee skills •Employee talent •Know-how •Information

Information Capital •Infrastructure •Network •Databases •Information systems

Adapted from

Organizational Capital •Culture •Leadership •Alignment •Teamwork

and www.summaries.com

Student Example

Translating Strategy to Action Balanced Scorecard Approach

From Strategy to Plans to Budgets

The Process

Drilling down on the process

Translating Strategy into Action “50,000’ view”

“Ground Level”

Change Management External Factors

Forces of Change

Internal Factors

•PEST changes

•Need to improve productivity

•Response to:

•Grow the business

-Competition

•Change culture

-New entrants

•Merger or acquisition

-Substitutes -Suppliers

Eight steps to making change stick SET THE STAGE 1. Create a Sense of Urgency. Help others see the need for change and the importance of acting immediately. 2. Pull Together the Guiding Team. Make sure there is a powerful group guiding the change—one with leadership skills, bias for action, credibility, communications ability, authority, analytical skills. DECIDE WHAT TO DO 3. Develop the Change Vision and Strategy. Clarify how the future will be different from the past, and how you can make that future a reality. MAKE IT HAPPEN 4. Communicate for Understanding and Buy-in. Make sure as many others as possible understand and accept the vision and the strategy. 5. Empower Others to Act. Remove as many barriers as possible so that those who want to make the vision a reality can do so. 6. Produce Short-Term Wins. Create some visible, unambiguous successes as soon as possible. 7. Don’t Let Up. Press harder and faster after the first successes. Be relentless with instituting change after change until the vision becomes a reality. MAKE IT STICK 8. Create a New Culture. Hold on to the new ways of behaving, and make sure they succeed, until they become a part of the very culture of the group.

Source: John Kotter, HBS

Eight Steps…continued Stage

Actions Needed

Pitfalls

Eight Steps…continued Stage

Actions Needed

Pitfalls

Eight reasons for failure 1. 2. 3. 4. 5. 6.

Allowing too much complexity Failing to build a substantial coalition Failing to understand the need for clear vision Failure to clearly communicate that vision Permitting roadblocks against that vision Not planning for short-term results and not realizing them 7. Declaring victory too soon 8. Failure to anchor changes in corporate culture Source: John Kotter, HBS

a rn e t Ex

The Market

l

rs o t c Fa

Strategy Analysis Framework Root conditions

Market Economics And Opportunities

Firm’s Strategy for Creating Economic Value

In te r

Firm’s Resources And Capabilities

Explanation for profitability

•Direct Competition from Rivals •Bargaining Power of Suppliers •Bargaining Power of Customers •Threat from new entrants •Competition from Substitutes

Market Attractiveness

Matching firm’s resources and capabilities to market opportunities

Cost Position in Served Market Benefit Position in Served Market

Competitive Advantage Or Disadvantage

na lF ac Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm to rs

Shareholder Returns

Internal Factors

The Firm and Its position In the Market

Measurable indicators or causes

a rn e t Ex

The Market

l

rs o t c Fa

Strategy Analysis Framework Root conditions

Market Economics And Opportunities

Firm’s Strategy for Creating Economic Value

In te r

Firm’s Resources And Capabilities

Explanation for profitability

•Direct Competition from Rivals •Bargaining Power of Suppliers •Bargaining Power of Customers •Threat from new entrants •Competition from Substitutes

Market Attractiveness

Matching firm’s resources and capabilities to market opportunities

Cost Position in Served Market Benefit Position in Served Market

Competitive Advantage Or Disadvantage

na lF ac Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm to rs

Shareholder Returns

Internal Factors

The Firm and Its position In the Market

Measurable indicators or causes

Framework for Corporate Strategy in a multi-unit business • The focus thus far has been on Strategic Management in a single business. • A general manager in a multi-business enterprise such as GE, Citi, or Hewlett-Packard has the additional challenge of adding value by extracting synergies across business units. • Synergy implies that the “whole” is greater than just the sum of the parts--the portfolio of business units under a corporate umbrella would do better than as stand alone businesses.

Framework for Corporate Strategy in a multi-business unit •

Corporate managers add value in two primary ways: 1. Allocating Resources 2. Managing Intangible Assets: – Human Capital – Information Capital – Organization Capital

GE-Mckinsey Portfolio Matrix for allocating resources

Market Attractiveness

Business Strength

Protect Position

Invest to Build

Build Selectively

Build Selectively

Manage for Earnings

Limited expansion/ Harvest

Protect Refocus

Manage for Earnings

Divest

Resource Allocation Strategies

Adding Value by managing Intangible Assets •Shared values/culture •Diffusing best practices •Imposing standardization •Skills development •Information systems •Management development

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