Strategic Management
and the Entrepreneur
Chapter 2 Strategic Mgt
Copyright 2006 Prentice Hall Publishing Company
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A Major Shift . . .
. . . From financial capital to
intellectual capital.
 Human
 Structural
 Customer
Chapter 2 Strategic Mgt
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Strategic Management

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Chapter 2 Strategic Mgt
Is crucial to building a successful business.
Involves developing a game plan to guide a
company as it strives to accomplish its
mission, goals , and objectives, and to keep
it on its desired course.
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3
Is Strategic Planning
Really That Important?

Study of 500 small companies:
 One
of the most significant factors in
distinguishing growing companies from
those in decline: use of a written business
plan.

Another study:
 Only
12% of small companies had a longrange plan in writing.
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Strategic Management and
Competitive Edge


Chapter 2 Strategic Mgt
Developing a strategic plan is
crucial to creating a competitive
advantage, the aggregation of
factors that sets a company apart
from its competitors and gives it a
unique position in the market.
Example: In-N-Out Burger
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Key: Core Competencies

Unique set of capabilities a company
develops in key areas, such as superior
quality, customer service, innovation, teambuilding, flexibility, responsiveness, and
others that allow it to vault past
competitors.
They are what a company does best.
 Best to rely on a natural advantage (often
linked to a company’s “smallness”).

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Strategic Management
Process
Step 1: Develop a vision and translate
it into a mission statement.
Step 2: Assess strengths and
weaknesses.
Step 3: Scan environment for
opportunities and threats.
Step 4: Identify key success factors.
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Strategic Management
Process ...
(continued)
Step 5: Analyze competition.
Step 6: Create goals &
objectives.
Step 7: Formulate strategies.
Step 8: Translate plans into
actions.
Step 9: Establish accurate
controls.
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Sun Tzu and the Art
of Business
Principle 1. Capture your market
without destroying it.
 Principle 2. Avoid your competitors’
strengths and attack their weaknesses.
 Principle 3. Use foreknowledge and
deception to maximize the power of
business intelligence.

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Sun Tzu and the Art
of Business
Principle 4. Use speed and preparation
to swiftly overcome the competition.
 Principle 5. Use alliances and strategic
control points in the industry to
“shape” your opponents and make
them conform to your will.
 Principle 6. Develop your character as
a leader to maximize the potential of
your employees.

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Step 1: Develop a Vision and
Create a Mission Statement

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Vision – an expression of what an
entrepreneur stands for and believes in.
Vision is based on an entrepreneur’s
values.
A clearly defined vision:



Chapter 2 Strategic Mgt
Provides direction
Determines decisions
Motivates people
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Step 1: Develop a Vision and
Create a Mission Statement




Mission - addresses question:"What
business are we in?”
A written expression of how the company
will reflect the owner’s values, beliefs, and
vision.
Sets the tone for the entire company and
guides the decisions people make.
Example: Fetzer Vineyards
http://www.fetzer.com/fetzer/wineries/phil
osophy.aspx
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Step 2: Assess Company
Strengths and Weaknesses

Strengths
 Positive
internal factors that
contribute to accomplishing the
mission, goals, and objectives.

Weaknesses
 Negative
internal factors that
inhibit the accomplishment of
the mission, goals, and
objectives.
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Step 3: Scan for
Opportunities and Threats

Opportunities
 Positive
external options the
company can employ to
accomplish its mission, goals, and
objectives.

Threats
 Negative
external forces that
inhibit the firm's ability to
accomplish its mission, goals, and
objectives.
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External Market Forces
Technological
Competitive
Political and
Regulatory
Economic
Social and
Demographic
Step 4: Identify Key
Success Factors


Key success factors:
relationships between a
controllable variable and a
critical factor that influence
a company’s ability to
compete in the market.
The keys to unlocking the
secrets of competing
successfully in a particular
market segment.
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Step 5: Analyze
Competitors
Analyzing key competitors allows an
entrepreneur to:
 Avoid surprises from existing competitors’
new strategies and tactics.
 Identify potential new competitors and the
threats they pose.
 Improve reaction time to competitors’
actions.
 Anticipate rivals’ next strategic moves.
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Step 5: Analyze
Competitors
Techniques do not require
unethical behavior:
 Monitor
industry and trade
publications.
 Talk to customers and suppliers.
 Listen to employees, especially sales
representatives and purchasing
agents.
 Attend trade shows and conferences
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Step 5: Analyze
Competitors
Techniques do not require unethical
behavior:
 Monitor
competitors’ employment ads.
 Conduct searches for patents filed by
competitors.
 Check EPA reports about manufacturing.
 Search databases for types of materials and
equipment competitors are importing.
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Step 5: Analyze
Competitors
Techniques do not require unethical
behavior:
 Study
competitors' literature and "benchmark"
their products and services.
 Get competitors' credit reports and SEC filings.
 Check out the local library.
 Use the World Wide Web to learn more about
competitors.
 Visit competing businesses to observe their
operations.
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Sample Competitive Profile Matrix
Key Success Factors
Your Business
Weighted
(from Step 4)
Weight Rating
Score
Quality
0.25
4
1.00
Customer Retention
0.20
3
0.60
Location
0.15
4
0.60
Perception of Value
0.20
4
0.80
Cost Control
0.20
3
0.60
Total 1.00
3.60
Competitor 1
Competitor 2
Weighted
Weighted
Rating
Score
Rating
Score
2
0.50
2
0.50
2
0.40
3
0.60
3
0.45
4
0.60
2
0.40
3
0.60
1
0.20
4
0.80
1.95
3.10
Key Success Factors Analysis
Quality
4
3
2
Cost Control
1
Customer Retention
My Company
Competitor 1
Competitor 2
0
P erception of Value
Location
Knowledge
Management

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The practice of gathering, organizing, and
disseminating the collective wisdom and
experience of a company’s employees for the
purpose of strengthening its competitive
position.
Knowledge management involves:


Chapter 2 Strategic Mgt
Taking inventory of the special knowledge the
people in the company possess.
Organizing that knowledge and disseminating it to
those who need it.
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Step 6: Create Company
Goals and Objectives

Goals - broad, long-range attributes to be
accomplished.


“BHAGS” – one factor that sets apart successful
companies from unsuccessful ones.
Objectives - more detailed, specific targets
of performance that are S.M.A.R.T.





Chapter 2 Strategic Mgt
Specific
Measurable
Assignable
Realistic (yet challenging)
Timely
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Step 7: Formulate
Strategies

Strategy
A
“road map” that guides a company
through a turbulent environment as it seeks
to fulfill its mission, goals, and objectives.
 Focused on the key success factors
identified in Step 4.
Mission, goals, and objectives = Ends
 Strategy = Means

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Step 7: Formulate
Strategies
Three basic strategies:
Cost leadership
Strategy?
Differentiation
Focus
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Three Strategic Options
Source of Competitive Advantage
Uniqueness Perceived
by the Customer
Industry
Low Cost
Position
Differentiation
Low Cost
Differentiation
Focus
Cost
Focus
Target
Market
Niche
Cost Leadership

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Goal: to be the low-cost producer in the
industry or market segment.
Advantages:



Reaching buyers who buy on the basis of price.
Power to set the industry’s price floor.
Works well when:


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Chapter 2 Strategic Mgt
Buyers are sensitive to price changes.
Competing firms sell the same commodity
products.
A company can benefit from economies of scale.
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Differentiation

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
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Company seeks to build customer loyalty
by positioning its goods or services in a
unique or different fashion.
Idea is to be unique at something
customers value.
Key: Build basis for differentiation on a
core competencies, those things that the
small company is uniquely good at doing
in comparison to its competitors.
Example: Audiophile International
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Focus
Company selects one or more customer
segments in a market, identifies
customers’ special needs, wants, or
interests, and then targets them with a
product or service designed specifically
for them.
 Strategy builds on differences among
market segments.

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Focus
Rather than try to serve the total
market, the company focuses on serving
a niche (or several niches) within that
market.
 Examples

 Frank
J. Zamboni and Company
 Wilson Audio
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Step 8: Strategies into
Action Plans

Create projects by defining:
 Purpose
 Scope
 Contribution
 Resource
requirements
 Timing
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Step 9: Establish Accurate
Controls


The plan establishes the standards against
which actual performance is measured.
Entrepreneur must:
 identify and track key performance
indicators.
 Take corrective action.
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Balanced Scorecard

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Chapter 2 Strategic Mgt
A set of measurements unique to a
company that includes both financial and
operational measures
Gives managers a quick, yet comprehensive,
picture of a company’s overall performance.
Copyright 2006 Prentice Hall Publishing Company
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Balanced Scorecards

Four Perspectives:
 Customer:
How do customers see us?
 Internal Business: At what must we
excel?
 Innovation and Learning: Can we
continue to improve and create value?
 Financial: How do we look to
shareholders?
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The Balanced Scorecard Links Performance Measures.
How do we look
to shareholders?
Financial Perspective
Goals
Measures
How do customers
see us?
At what must
we excel?
Customer Perspective
Goals
Measures
Internal Business Perspective
Goals
Measures
Innovation and Learning Perspective
Goals
Measures
Can we continue to
improve and create
value?