BUS 590 STRATEGIC MANAGEMENT
ABDU LATIF SALLEH, PhD
College of Business Administration
Prince Sultan University
Thinking Strategically:
Three Big Central Questions
1.
What’s the company’s present situation?
- industry conditions and competitive pressure
- current performance and market standing
- resource strength and capabilities and competitive weaknesses
2. Where does the company need to go from here?
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Business(es) to be in and market positions to stake out
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Buyer needs and groups to serve
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Direction to head
3. How should it get there?
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A company’s answer to “how
will we get there?” is its strategy
Core Concepts
• Strategy
• Sustainable competitive advantage
• Business model
• Strategic management process
• Company’s vision, mission and objectives
• Strategy-making hierarchy
Strategy
• Strategy consists of competitive moves and business
approaches used by managers to run the company
• Strategy involves making analysis and choices
• The hows that define a firm's strategy
− How to grow the business
− How to please customers
− How to outcompete rivals
− How to manage each functional piece of the business (R&D,
production, marketing, HR, finance, and so on)
− How to respond to changing market conditions
− How to achieve targeted levels of performance
Choosing a Strategy
• Strategic choices about “how” are based on
− Trial-and-error organizational learning about what has worked and
what has not worked
− Management’s appetite for taking risks
− Managerial analysis and strategic thinking about how best to
proceed, given market conditions and the company’s circumstances
• In choosing a strategy, management is in effect saying,
“Among all the many different business approaches and
ways of competing we could have chosen, we have decided
to employ this particular combination of competitive and
operating approaches in moving the company in the
intended direction, strengthening its market position, and
competitiveness, and boosting performance.”
Key Elements of a Successful Strategy
• Developing a successful strategy hinges on making
competitive moves aimed at
− Appealing to buyers in ways to set the enterprise apart
from rivals and
− Carving out its own market position
• Involves developing a distinctive “aha”
element to
− Attract customers and
− Produce a competitive edge
• Copying competitive moves of other successful
companies rarely works
Sustainable Competitive Advantage
• A company has a competitive advantage when sizeable
number of buyers prefer its products or services over
the offerings of competitors
− The company achieves sustainable competitive
advantage when the basis for this preference is
durable
• What separates a powerful strategy from an
ordinary strategy is management’s ability to
forge a series of moves, both in the
marketplace and internally, that produces
sustainable competitive advantage!
Four possible strategic approaches to achieve
sustainable competitive advantage
• Being the industry’s low-cost provider (a cost-based
competitive advantage)
• Incorporate differentiating features (a “superior product”
type of competitive advantage keyed to higher quality, better
performance, wider selection, value-added services, or some
other attribute)
• Focusing on a narrow market niche (winning a competitive
edge by doing a better job than rivals of serving the needs and
preferences of buyers comprising the niche)
• Developing expertise and resource
strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)
Examples of Competitive Advantage
• Strive to be the industry’s low-cost provider
− Wal-Mart
− Southwest Airlines
• Outcompete rivals on a key differentiating feature
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Johnson & Johnson – Reliability in baby products
Harley-Davidson – King-of-the-road styling
Rolex – Top-of-the-line prestige
Mercedes-Benz – Engineering design and performance
L.L. Bean – Good value
Amazon.com – Wide selection and convenience
Examples of Competitive Advantage
(contd)
• Focus on a narrow market niche
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eBay – Online auctions
Jiffy Lube International – Quick oil changes
McAfee – Virus protection auctions
Starbucks – Premium coffees and coffee drinks
The Weather Channel – Cable TV
• Develop expertise, resource strengths, and
capabilities not easily imitated by rivals
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FedEx – Next-day delivery of small packages
Walt Disney – Theme park management and family entertainment
Toyota – Sophisticated production system
Ritz-Carlton – Personalized customer service
STRATEGY EXAMPLE: McDONALD’S
• Strategic & financial objectives
− Continued growth
− Providing exceptional customer care
− Remaining an efficient & quality producer
− Offering high value
− Effectively marketing McDonald’s brand on a
global scale
KEY ELEMENTS OF
McDONALD’S STRATEGY
• Adding 700-900 restaurants annually
• Using new menu items, low price specials, Extra Value
Meals to promote frequent customer visits
• Being highly selective in granting franchises
• Choosing sites convenient to customers
• Focusing on limited product line & consistent quality
• Careful attention to store efficiency
• Extensive advertising & use of Mc prefix
• Hiring courteous personnel; paying an equitable wage;
& providing good training
Why Do Strategies Evolve?
• A company’s strategy is a work in progress
• Changes may be necessary to react to
− Shifting market conditions
− Technological breakthroughs
− Fresh moves of competitors
− Evolving customer preferences
− Emerging market opportunities
− New ideas to improve strategy
− Crisis situations
A Company’s Strategy Is
Partly Proactive and Partly Reactive
Crafting Strategy Is an
Exercise in Entrepreneurship
• Strategy-making is a market-driven activity involving
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Studying market trends and competitors’ actions
Keen observation of customer needs
Scrutinizing business possibilities based on new technologies
Building firm’s market position via acquisitions or new
product introductions
− Pursuing ways to strengthen firm’s competitive capabilities
− Proactively searching out opportunities to
• Do new things or
• Do existing things in new or better ways
Linking Strategy With Ethics
• Ethical and moral standards go beyond
− Prohibitions of law and the language of “thou shalt not”
to issues of
− Duty and “right” vs. “wrong”
• Ethical and moral standards address
“What is the right thing to do?”
• Two criteria of an ethical strategy:
− Does not entail actions and behaviors that cross the line from
“should do” to “should not do” and “unsavory” or “shady”
and
− Allows management to fulfill its ethical duties to all
stakeholders
A Firm’s Ethical
Responsibilities to Its Stakeholders
Owners/shareholders – Rightfully expect some form of return on their investment
Employees - Rightfully expect to be treated with dignity and respect for
devoting their energies to the enterprise
Customers - Rightfully expect a seller to provide them with a reliable, safe product o
service
Suppliers - Rightfully expect to have an equitable relationship with firms they
supply and be treated fairly
Community - Rightfully expect businesses to be good citizens in their community
Role of Senior Executives:
Linking Strategy with Ethics
• Forbid pursuit of ethically questionable business
opportunities
• Insist all aspects of company strategy
reflect high ethical standards
• Make it clear all employees are
expected to act with integrity
• Install organizational checks and balances to
− Monitor behavior
− Enforce ethical codes of conduct
− Provide guidance to employees in gray areas
• Display genuine commitment to conduct business
activities ethically
Business Model
• A company’s business model describes the economic logic of how
its strategy can deliver value to customers at a price and cost
that yields acceptable profitability
• Business model deals with whether the revenues and costs
flowing from the strategy show business viability
• It is about the “bottom line”
• A company should have a business model that promises
acceptable profit, regardless of whether there are competitors or
not.
Relationship Between
Strategy and Business Model
Strategy . . .
Deals with a company’s competitive initiatives
and business approaches
Business Model . . . Concerns whether
revenues and costs flowing from the strategy
demonstrate a business can be amply
profitable and viable
Strategy-Making Hierarchy
• A company’s overall strategy is a collection of
strategic initiatives and actions devised by managers
and key employees up and down the whole
organizational hierarchy
• It comprises four distinct levels of strategy
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Corporate strategy
Business/competitive strategy
Functional strategy
Operating strategy
A Company’s Strategy-Making Hierarchy
Tasks of Corporate Strategy
• Moves to achieve diversification
• Actions to boost performance of individual businesses
• Capturing valuable cross-business synergies to provide 1
+ 1 = 3 effects!
• Establishing investment
priorities and steering
corporate resources into the
most attractive businesses
Tasks of Business Strategy
• Initiating approaches to produce successful
performance in a specific business
• Crafting competitive moves to build
sustainable competitive advantage
• Developing competitively valuable
competencies and capabilities
• Uniting strategic activities of functional areas
• Gaining approval of business strategies by corporatelevel officers and directors
Tasks of Functional Strategies
• Game plan for a strategically-relevant
function, activity, or business process
• Detail how key activities
will be managed
• Provide support for
business strategy
• Specify how functional objectives
are to be achieved
Tasks of Operating Strategies
• Concern narrow strategic approaches to manage key
operating units and strategically-relevant operating
activities
• Add detail to business
and functional strategies
• Delegation of responsibility
to frontline managers
Strategic Management Process
• The steps by which management converts a firm’s vision,
mission, and goals/objectives into a workable strategy
FIVE TASKS OF STRATEGIC MANAGEMENT
 1. Defining business, stating a mission, & forming a strategic vision
2. Setting measurable objectives
3. Crafting a strategy to achieve objectives
4. Implementing & executing strategy
5. Evaluating performance, reviewing new developments, & initiating
corrective adjustments
DEVELOPING A VISION & MISSION
• Begins with thinking strategically
− About firm’s future makeup &
− Forming vision of firm’s future in 5-10 years
− Task is to
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•
•
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Inject sense of purpose into firm’s activities
Provide LONG-TERM DIRECTION
Give firm STRONG IDENTITY
Decide “WHO we are, WHAT we do, & WHERE we are
headed”
Developing Company’s Vision
• Involves thinking strategically about
− Future direction of company
− Changes in company’s product/market/customer technology to
improve
• Current market position
• Future prospects
• A strategic vision is a road map showing the route a
company intends to take in developing and
strengthening its business
• It paints a picture of a company’s destination and provides a
rationale for going there
• It portrays a company’s future business scope (“where we are
going”)
Role of a Strategic Vision
• A well-conceived and well-communicated vision functions as a
valuable managerial tool to
− Give the organization a sense of direction, mold organizational identity,
and create a committed enterprise
− Inform company personnel and other stakeholders what management
wants its business to look like and “where we are going”
− Spur company personnel to action
− Provide managers with a reference point to
• Make strategic decisions
• Translate the vision into hard-edged objectives
and strategies
• Prepare the company for the future
 A strategic vision exists only as words and has no organizational
impact unless and until it wins the commitment of company
personnel and energizes them to act in ways that move the
company along the intended strategic path!
Examples of Strategic Visions
Wells Fargo
We want to satisfy all of our customers’ financial needs, help them
success financially, be the premier provider of financial services in
every one of our markets, and be known as one of America’s great
companies
Caterpillar
Be the global leader in customer value
AVIS RENT-A-CAR
Our business is renting cars. Our mission is total customer satisfaction
eBay
Provide a global trading platform where practically anyone can trade
practically anything.
AMERICAN RED CROSS
The mission is to improve the quality of human life; to enhance selfreliance and concern for others; and to help people avoid, prepare for,
and cope with emergencies
Examples of Strategic Visions
H. J. Heinz Company
Be the world’s premier food company, offering nutritious, superior tasting
foods to people everywhere. Being the premier food company does not
mean being the biggest but it does mean being the best in terms of
consumer value, customer service, employee talent, and consistent and
predictable growth.
Hilton Hotels Corporation
Our vision is to be the first choice of the world’s travelers. Hilton intends
to build on the rich heritage and strength of our brands by:
• Consistently delighting our customers
• Investing in our team members
• Delivering innovative products and services
• Continuously improving performance
• Increasing shareholder value
• Creating a culture of pride
• Strengthening the loyalty of our constituents.
SABIC: Our Vision
Our aim
• Our aim is to become the world’s preferred manufacturer and marketer of
chemical and metal products. We are ambitious and competitive, and we will
achieve our aim by supplying high-quality industrial products and services to our
customers, and by satisfying the expectations of our shareholders.
Our values
• One of the reasons for SABIC’s creation in 1976 was to contribute to Saudi
Arabia’s development. We are still committed to developing the country’s
natural resources and to improving the skills and education of its people. We
respect Saudi cultural values – as we respect the values of every country in
which we work.
Our standards
• We will use our natural resources and human talent to their best advantage by
innovating, educating and using the latest technology. This care for people and
natural resources is reflective of our standards. SABIC prides itself on its
integrity, and we set ourselves the highest standards in relation to business
practices, safety and the care of the environment. We will not compromise
these standards.
AL-HAMMADI HOSPITAL
OUR VISION
Al-Hammadi Hospital will be recognized as the best
private healthcare provider in the Kingdom of Saudi
Arabia
OUR MISSION
We are dedicated to continuously the quality of our
services to meet the healthcare needs of our clients
through committed leadership, qualified staff and
state-of-the-art medical technology.
SAUDI ARAMCO – OUR VALUES
EXCELLENCE
• We pursue excellence in everything we
do.
HUMAN RESOURCES
RESPONSIVENESS
• We are responsive to the expectations
of the government and our customers.
STEWARDSHIP
• We encourage continuous learning and
strive to develop our people to their
highest potential.
FAIRNESS AND INTEGRITY
• We strive for fairness and adhere to the
highest ethical standards.
TEAMWORK
• We support each other and work
together to achieve our business
objectives successfully.
• We are proud of our company and are
committed to preserving its assets and
resources.
TRUST
• We place authority where
responsibility lies.
ACCOUNTABILITY
• We are accountable for our actions.
CITIZENSHIP
SAFETY
• We strive to maintain the highest levels
of safety, security, health and
environmental standards.
• We support our communities and serve
as a role model for others.
SPECIFIC QUESTIONS THAT HELP FORM
STRATEGIC VISIONS
• What business are we in now?
• What business do we want to be in?
• What will our customers want in future?
• What are expectations of our stakeholders?
• Who will be our future competitors? suppliers?
partners?
• What should our competitive scope be?
• How will technology impact our industry?
• What environmental scenarios are possible?
Strategic Vision vs. Mission
•A strategic vision
concerns a firm’s future
business path - “where
we are going”
−Markets to be pursued
−Future product/market/
customer/technology focus
−Kind of company
management is
trying to create
•The mission statement
of a firm focuses on its
present business purpose “who we are and what we
do”
−Current product and service
offerings
−Customer needs being
served
−Technological
and business
capabilities
Characteristics of a Mission Statement
• Identifies the boundaries of the current business and
highlights
− Present products and services
− Types of customers served
− Geographic coverage
• Conveys
− Who we are,
− What we do, and
− Why we are here
A well-conceived mission statement distinguishes a
company’s business makeup from that of other profitseeking enterprises in language specific enough to
give the company its own identify!
Key Elements of a Mission Statement
• Three factors need to be identified
for completeness
− Customer needs being met
What is being satisfied
− Customer groups or markets being served
Who is being satisfied
− What the organization does (in terms of business approaches,
technologies used, and activities performed) to satisfy the target
needs of the target customer groups
How customer needs are satisfied
A company’s mission is not to make a profit! Its true mission is its
answer to “What will we do to make a profit?” Making is profit is
an objective or intended outcome!
SAMPLE MISSION STATEMENTS
Otis Elevator
• Key Market: To provide any customer
• Contribution: a means of moving people and things up, down and
sideways over short distances
• Distinction: with higher reliability than any similar enterprise in the
world.
Courtyard by Marriott
• Key Market: To provide economy and quality minded travelers
• Contribution: with a premier, moderate priced lodging facility
• Distinction: which is consistently perceived as clean, comfortable,
well maintained, and attractive, staffed by friendly, attentive and
efficient people.
SAMPLE MISSION STATEMENTS
McDonald’s
• Key Market: To offer the fast food customer
• Contribution: food prepared in the same high-quality manner
world-wide, tasty and reasonably priced,
• Distinction: delivered in a consistent, low-key decor and
friendly atmosphere.
Wal-Mart
• Key Market: To offer all of the fine customers in our territories
• Contribution: all of their household needs
• Distinction: in a manner in which they continue to think of us
fondly.
WHY BOTHER TO DEFINE
“WHO,” “WHAT,” & “WHERE?
• Helps managers avoid trap of
− Trying to move in too many directions
− Being so confused about firm’s direction that
effective actions are NOT taken to move in
ANY direction
• To successfully chart firm’s future, managers
must
− Know where firm is now
− Have view of where it ought to be headed
− Recognize time to shift to a new direction
SETTING OBJECTIVES
• Objectives are an organization’s performance targets, i.e. results
and outcomes it wants to achieve
• Objectives function as yardsticks for tracking an organization’s
performance and progress
• Purpose of setting OBJECTIVES is to
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Convert mission into performance targets
Create yardsticks to track performance
Establish performance goals requiring stretch
Push firm to be inventive, intentional, focused
• Setting CHALLENGING but ACHIEVABLE objectives guards against
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Complacency
Drift
Internal confusion
Status quo performance
Company’s objectives
• Two distinct types of objectives are needed:
• Financial:
− Outcomes that relate to improving firm’s financial
performance
− e.g. Increase earnings growth from 10 to 15% per year;
achieve & maintain a AA bond rating; up firm’s market
share from 18 to 22%
• Strategic
− Outcomes that will result in greater competitiveness
& stronger long-term market position
− e.g. attain lower overall costs than rivals; overtake
rivals on quality or customer service; become leader in
new product introductions
EXAMPLES OF CORPORATE OBJECTIVES
QUAKER OATS COMPANY
•
To achieve return on equity at 20% or above, “real” earnings growth averaging
5% or better over time, be a leading marketer of strong consumer brands, and
improve the profitability of low-return businesses or divest them.
EXXON
•
Provide shareholders a secure investment with a superior return.
ALCAN ALUMINUM
•
To be the lowest cost producer of aluminum & to outperform the average return
on equity of the Standard and Poor’s industrial stock index.
GENERAL ELECTRIC
•
To become the most competitive enterprise in the world by being number one or
number two in market share in every business the company is in.
APPLE COMPUTER
•
To offer the best possible personal computing technology, and to put that
technology in the hands of as many people as possible.
Nike’s
CORPORATE OBJECTIVES
• Protect & improve Nike’s position as the number one athletic brand
in America.
• Build a strong momentum in growing fitness market.
• Intensify the company’s effort to develop products that women
need and want.
• Explore the market for products specifically designed for the
requirements of maturing Americans.
• Direct & manage the company’s international business as it
continues to develop.
• Continue the drive for increased margins through proper inventory
management and fewer, better products.