Midterm Exam

Midterm Exam
Strategic Management
25.06.2012
1 | 2
Why do some organizations succeed
while others fail?
Strategic Leadership
Task of most effectively managing a companys
strategy-making process
Strategy Formulation
Task of determining and selecting strategies
Strategy Implementation
Task of putting strategies into action to improve a companys efficiency
and effectiveness
Competitive Advantage
Results when a companys strategies lead to
superior performance compared to competitors
Strategy is a set of related actions that managers
take to increase their companys performance.
1 | 3
Superior Performance and Sustainable
Superior Performance
One companys profitability relative to that of other companies in the
same or similar business or industry
Maximizing shareholder value is the ultimate goal of profit making
companies
ROIC (Profitability) = Return On Invested Capital
Net profit Net income after tax
Capital invested Equity + Debt to creditors
When a companys profitability is greater than the average of all other
companies in the same industry & competing for the same customers

=
ROIC
=
Sustainable Competitive Advantage
When a companys strategies enable it to maintain
above average profitability for a number of years
Copyright Houghton Mifflin
Company. All rights reserved.
1 | 4
Determinants of Shareholder Value
To increase shareholder value, managers must
pursue strategies that increase the profitability
of the company and grow the profits.
Figure 1.1
1 | 5
The Five Steps of the Strategy Making
Process
Select the corporate vision, mission, and values and the
major corporate goals and objectives.
Analyze the external competitive environment to identify
opportunities and threats.
Analyze the organizations internal environment to identify
its strengths and weaknesses.
C Select strategies that:
Build on the organizations strengths and correct its weaknesses in
order to take advantage of external opportunities and counter external
threats
Are consistent with organizations vision, mission, and values and major
goals and objectives
Are congruent and constitute a viable business model
C Implement the strategies.
2 | 6
External Analysis requires an assessment of:
Industry environment in which company operates
Competitive structure of industry
Competitive position of the company
Competitiveness and position of major rivals
The country or national environments in
which company competes
The wider socioeconomic or macroenvironment that may
affect the company and its industry
Social
Government
-- Legal
-- International
--Technological

External Analysis
The purpose of external analysis is to identify
the strategic opportunities and threats in the
organizations operating environment that
will affect how it pursues its mission.
2 | 7
External Analysis:
Opportunities and Threats
Analyzing the dynamics of the industry in which
an organization competes to help identify:
Opportunities

Conditions in the
environment that a
company can take
advantage of to
become more
profitable
Threats

Conditions in the
environment that
endanger the integrity
and profitability of
the companys
business
2 | 8
Industry Analysis:
Defining an Industry
Industry
A group of companies offering products or services that are close substitutes
for each other and that satisfy the same basic customer needs
Industry boundaries may change as customer needs evolve and technology
changes
Sector
A group of closely related industries
Market Segments
Distinct groups of customers within an industry
Can be differentiated from each other with distinct attributes and specific
demands
Industry analysis begins by focusing on
the overall industry
before considering market segment or sector-level issues
RMG/Jute/Real state
2 | 9
Porters Five Forces Model
Figure 2.2
2 | 10
The Role of the
Macro environment
Changes in the
forces in the macro-
environment can
directly impact:
The Five Forces
Relative Strengths
Industry
Attractiveness
3 | 11
Internal Analysis includes an assessment of:
Quantity and quality of a companys resources and capabilities
Ways of building unique skills and company-specific or
distinctive competencies

Internal Analysis
The purpose of internal analysis is to pinpoint the
strengths and weaknesses of the organization.
Strengths lead to superior performance.
Weaknesses lead to inferior performance.
Building and sustaining a competitive advantage
requires a company to achieve superior:

Efficiency
Quality
Innovations
Responsiveness to customers
3 | 12
Internal Analysis: Strengths and
Weaknesses
Internal analysis - along with the external analysis of the
companys environment - gives managers the
information to choose the strategies and business
model to attain a sustained competitive advantage.
Strengths

Of the enterprise
are assets that
boost
profitability
Weaknesses

Of the enterprise
are liabilities that
lead to lower
profitability
3 | 13
Internal Analysis:
A Three-Step Process
1. Understand the process by which companies create value
for customers and profit for themselves.
+Resources
+Capabilities
+Distinctive competencies
2. Understand the importance of superiority in creating
value and generating high profitability.
+Efficiency
+Quality

3. Analyze the sources of the companys competitive
advantage.
+Strengths that are driving profitability
+Weaknesses opportunities for improvement
+ Innovation
+ Responsiveness to Customers
3 | 14
A firms profitability is greater than the average profitability
for all firms in its industry.
Sustained Competitive Advantage
A firm maintains above average and superior profitability
and profit growth for a number of years.
The Primary Objective of Strategy
is to achieve a
Sustained Competitive Advantage
which in turn results in
Superior Profit and Profit Growth.
3 | 15
Strategy, Resources, Capabilities, and
Competencies
3 | 16
The Value Chain
A company is a chain of activities for transforming
inputs into outputs that customers value
including the primary and support activities.
3 | 17
Competitive Advantage: The Value
Creation Cycle
3 | 18
Analyzing Competitive
Advantage and Profitability
+ Competitive Advantage
When a companies profitability is greater than the average of all
other companies in the same industry that compete for the same
customers
+ Benchmarking
Comparing company performance against that of competitors and
the companys historic performance

+ Measures of Profitability

Return On Invested Capital (ROIC)
Net profit Net income after tax
Capital invested Equity + Debt to creditors

Net Profit
Net Profit = Total revenues Total costs

=
ROIC
=
4 | 19
Functional-Level Strategies
Functional-level strategies
are strategies aimed at improving the
effectiveness of a companys operations.
Improves companys ability to attain superior:
1. Efficiency 2. Quality
3. Innovation 4. Customer responsiveness
+ Increases the utility that customers receive:
Through differentiation Creating more value
Lower cost structure than rivals
This leads to a competitive advantage
and superior profitability and profit growth.
4 | 20
The Roots of Competitive Advantage
Distinctive competencies shape
the functional-level strategies that
a company can pursue.
Function-level strategies can build
resources and capabilities to enhance a
companys distinctive competencies.
4 | 21
Achieving Superior Efficiency
Functional steps to increasing efficiency:
C Economies of Scale
C Learning Effects
C Experience Curve
C Flexible Manufacturing and Mass Customization
C Marketing
Materials Management and Supply Chain
C R&D Strategy
Human Resource Strategy
Information Systems
1 Infrastructure
4 | 22
C Economies of Scale
Economies of scale
Unit cost reductions associated with a large scale of output
Ability to spread fixed costs over a large production volume
Ability of companies producing in large volumes to achieve a
greater division of labor and specialization
Specialization has favorable impact on productivity by enabling
employees to become very skilled at performing a particular task
Diseconomies of scale
Unit cost increases associated with a large scale of output
Increased bureaucracy associated with large-scale enterprises
Resulting managerial inefficiencies
4 | 23
Materials Management
The activities necessary to get inputs and components to a production facility,
through the production process, and through the distribution system to the end-
user
Many sources of cost in this process
Significant opportunities for cost reduction through more efficient
materials management
Just-in-Time (JIT) Inventory System
System designed to economize on inventory holding costs:
Have components arrive to manufacturing just prior to need in production
process
Have finished goods arrive at retail just prior to stock out
Supply Chain Management
Task of managing the flow of inputs to a companys processes to minimize inventory
holding and maximize inventory turnover
Materials Management and
Supply Chain
4 | 24
Research and Development (R&D)
Roles of R&D in helping a company achieve greater efficiency
and lower cost structure:
1. Boost efficiency by designing products that are easy to
manufacture
Reduce the number of parts that make up a product reduces
assembly time
Design for manufacturing requires close coordination with
production and R&D
2. Help a company have a lower cost structure by
pioneering process innovations
Reduce process setup times
Flexible manufacturing
An important source of competitive advantage
C R&D Strategy
4 | 25
Human Resource Strategy
Hiring strategy
Assures that the people a company hires have the attributes that match
the strategic objectives of the company
Employee training
Upgrades employee skills to perform tasks faster and more accurately
Self-managing teams
Members coordinate their own activities and make their own hiring,
training, work, and reward decisions.
Pay for performance
Linking pay to individual and team performance can help to increase
employee productivity
The key challenge of the Human Resource
function: improve employee productivity.
5 | 26
Business-Level Strategy
They must decide on:
1. Customer needs
WHAT is to be satisfied
2. Customer groups
WHO is to be satisfied
3. Distinctive competencies
HOW customers are to be satisfied
A successful business model results from
business level strategies that create a
competitive advantage over its rivals.
These decisions determine
which strategies are formulated & implemented
to put a business model into action.
5 | 27
Three Approaches to Market
Segmentation
Figure 5.2
5 | 28
Generic Business-Level Strategies
Specific business-level strategies that give a
company a specific competitive position
and advantage vis--vis its rivals
Characteristics of Generic Strategies
Can be pursued by all businesses regardless of
whether they are manufacturing, service, or
nonprofit
Can be pursued in different kinds of industry
environments
Results from a companys consistent choices on
product, market, and distinctive competencies

Midterm Exam

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Midterm Exam

Uploaded by

Copyright:

Available Formats

Midterm Exam

You might also like