Professional Documents
Culture Documents
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
Important Definitions
Strategic Management Process
The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn aboveabove-average returns
Important Definitions
Strategic Competitiveness
Achieved when a firm successfully formulates and implements a value-creating strategy value-
AboveAbove-Average Returns
Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate
4
Important Definitions
Risk
An investors uncertainty about the economic gains or losses that will result from a particular investment
Average Returns
Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk
Competitive Landscape
Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new knowhow, first mover Hypercompetitive environments Fundamental nature of competition is changing Protect or invade established product or geographic markets
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Competitive Landscape
Emergence of global economy Goods, services, people, skills, and ideas move freely across geographic borders. Spread of economic innovations around the world. Hypercompetitive environments Fundamental nature of competition is changing Political and cultural adjustments are required.
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Competitive Landscape
Emergence of global economy Rapid technological change Increasing rate of technological change and diffusion The information age Increasing knowledge intensity Hypercompetitive environments Fundamental nature of competition is changing
Strategic Flexibility
A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks
Strategic Flexibility
Organizational slack
Strategic reorientation
Capacity to learn
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Industry Environment
1. Strategy dictated by the external environments of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?)
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Competitor Environment
Technological
Environment
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1. Strategy dictated by unique resources and capabilities of the firm (what can the firm do best?) 2. Find an environment in which to exploit these assets (where are the best opportunities?)
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Core Competencies
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Core Competencies
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Strategic Intent
Winning competitive battles through deciding how to leverage internal resources, capabilities, and core competencies An application of strategic intent in terms of products to be offered and markets to be served
Strategic Mission
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Organizational Stakeholders
Stakeholder Involvement
Two issues affect the extent of stakeholder involvement in the firm
Organizational
Capital Market
1
How do you divide the returns to keep stakeholders involved? Product Market
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Stakeholder Involvement
Two issues affect the extent of stakeholder involvement in the firm
Organizational
Capital Market
2
How do you increase the returns so everyone has more to share? Product Market
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Chapter 2
The External Environment: Opportunities, Threats, and Industry Competition, and Competitor Analysis
Michael A. Hitt R. Duane Ireland Robert E. Hoskisson
2003 Southwestern Publishing Company
37
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
38
Technological
General
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Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends Assessing: Determining the timing and importance of environmental changes and trends for firms strategies and their management
40
General Environment
Sociocultural segment
Women in the workplace Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences
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General Environment
Economic segment
Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product
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General Environment
Political/Legal Segment
Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies
44
General Environment
Technological Segment
Product innovations Applications of knowledge Focus of private and government-supported governmentR&D expenditures New communication technologies
45
General Environment
Important political events Global Segment
Critical global markets Newly industrialize countries Different cultural and institutional attributes
46
General Environment
Demographic Segment
Population size Age structure Geographic distribution Ethnic mix Income distribution
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Industry Environment
A set of factors that directly influences a company and its competitive actions and responses. Interaction among these factors determine an industrys profit potential.
Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry
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Identify current and potential competitors and determine which firms serve them. Conduct competitive analysis. Recognize that suppliers and buyers can become competitors. Recognize that producers of potential substitutes may become competitors.
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Barriers to entry
Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation
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satisfactory substitute products are not available to industry firms industry firms are not a significant customer for the supplier group suppliers goods are critical to buyers marketplace success effectiveness of suppliers products has created high switching costs suppliers are a credible threat to integrate forward into the buyers industry 52
Buyers (customers) are powerful when: they purchase a large portion of an industrys
total output the sales of the product being purchased account for a significant portion of the sellers annual revenues they could easily switch to another product the industrys products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the sellers industry 53
Product substitutes are strong threat when: customers face few switching costs
substitute products price is lower substitute products quality and performance capabilities are equal to or greater than those of the competing product
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Intensity of Rivalry
experience slow industry growth have high fixed costs or high storage costs lack differentiation or low switching costs experience high strategic stakes have high exit barriers
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a particular business or location) fixed costs of exit such as labor agreements strategic interrelationships (relationships of mutual dependence between one business and other parts of a companys operation, such as shared facilities and access to financial markets) emotional barriers (career concerns, loyalty to employees, etc.) government and social restrictions
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Strategic Groups
Strategic group: a group of firms in an industry following the same or similar strategy along the same strategic dimensions. The strategy followed by a strategic group differs from strategies being implemented by other companies in the industry.
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Competitor Environment
Competitor intelligence is the ethical gathering of needed information and data about competitors objectives, strategies, assumptions, and capabilities
what drives the competitor as shown by its future objectives what the competitor is doing and can do as revealed by its current strategy What the competitor believes about itself and the industry, as shown by its assumptions What the the competitor may be able to do, as 58 shown by its capabilities
Competitor Analysis
Future objectives
with our competitors goals? Where will the emphasis be placed in the future? What is the attitude toward risk?
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Competitor Analysis
Future objectives
Current strategy
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Competitor Analysis
Future objectives
Current strategy
Assumptions
will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves?
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Competitor Analysis
Future objectives
Current strategy
Assumptions
Capabilities
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Competitor Analysis
Future objectives Response
Current strategy
Response:
What will our competitors do in the future? Where do we hold an advantage over our competitors? How will this change our relationship with our competitors? 63
Assumptions
Capabilities
Chapter 3
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
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By studying the external environment, firms identify what they might choose to do
How do we effectively manage current core competencies while simultaneously developing new ones? How do we assemble bundles of resources, capabilities and core competencies to create value for customers? How do we learn to change rapidly?
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Three Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competencies
Outsource
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Resources are what a firm has to work with--its assets-with--its assets-including its people and the value of its brand name
Resources represent inputs into a firms production process... such as capital equipment, skills of employees, brand names, finances and talented managers
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Capabilities
Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage
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Capabilities
Capabilities are what a firm does, and represent the firms capacity or ability to integrate individual firm resources to achieve a desired objective
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Core Competencies
Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals Core competencies distinguish a company competitively and make it distinctive McKinsey and Co. recommends using three to four competencies when framing strategic actions
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Discovering Core Competencies Four Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Nonsubstitutable
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Discovering Core Competencies Four Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Nonsubstitutable
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Discovering Core Competencies Four Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Nonsubstitutable
Costly to imitate: capabilities that other firms cannot develop easily, usually due to Unique historical conditions Causal ambiguity Social complexity
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Discovering Core Competencies Four Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Nonsubstitutable
Nonsubstitutable: capabilities that do not have strategic equivalents Invisible to competitors Firm specific knowledge Trust-based working relationships between managers Trustand nonmanagerial personnel
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The source of
Yes
No
Performance Implications
Competitive Consequences
No Yes No No No No Competitive Disadvantage Competitive Parity Temporary ComCompetitive Advantage Sustainable ComCompetitive Advantage
Performance Implications
Below Average Returns Average Returns Above Average to Average Returns Above Average Returns
Yes/ No No Yes/ No
Yes
Yes No
Yes
Yes Yes
Yes
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Firm Infrastructure
Support Activities
Service Marketing & Sales Procurement Outbound Logistics Operations Inbound Logistics Primary Activities
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Outsourcing
Technological Development
Support Activities
Firm Infrastructure
Outsourcing is the purchase of some or all of a valuevaluecreating activity from an external supplier Usually this is because the specialty supplier can provide these functions more efficiently
Service Procurement Marketing & Sales Outbound Logistics Operations Inbound Logistics
84 Primary Activities
Share Risks
reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
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Outsourcing Issues
Greatest Value
outsource only to firms possessing a core competence in terms of performing the primary or support activity being outsourced
Outsourcing Issues
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Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become core rigidities Core rigidities are former core competencies that now generate inertia and stifle innovation
90
Chapter 4
BusinessBusiness-Level Strategy
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 4 BusinessBusiness-Level Strategy
Strategic Outcomes
Feedback
92
BusinessBusiness-Level Strategy
BusinessBusiness-level strategy: an integrated and strategy: coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
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Strategy
BusinessBusiness-level strategy
What good or service to offer customers How to manufacture or create the good or service How to distribute the good or service in the marketplace
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Richness
the depth and detail of the two-way flow of twoinformation between the firm and customers
Affiliation
facilitating useful interactions with customers
98
Market Segmentation
Consumer Markets
Customers
Industrial Markets
99
Socioeconomic factors Geographic factors Psychological factors Consumption patterns Perceptual factors
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BusinessBusiness-level strategies are intended to create differences between the firms position relative to those of its rivals To position itself, the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals
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Competitive Scope
Broad target
Focused Differentiation
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Cost Drivers Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales
Value Chain New raw material Forward integration Backward integration Change location relative to suppliers or buyers
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Product features Performance Mix & variety of products Service levels Small vs. large buyers Process technology Wage levels Product features Hiring, training, motivation
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Can use cost leadership strategy to advantage since: competitors avoid price wars with cost leaders, creating higher profits for the entire industry
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Can mitigate buyers power by: driving prices far below competitors, causing them to exit and shifting power with buyers back to the firm
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Can mitigate suppliers power by: being able to absorb cost increases due to low cost position being able to make very large purchases, reducing chance of supplier using power
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Can frighten off new entrants due to: their need to enter on a large scale in order to be cost competitive the time it takes to move down the learning curve
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Cost leader is well positioned to: make investments to be first to create substitutes buy patents developed by potential substitutes lower prices in order to maintain value position
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Dramatic technological change could take away your cost advantage Competitors may learn how to imitate value chain Focus on efficiency could cause cost leader to overlook changes in customer preferences
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Differentiation Strategy
An integrated set of actions designed by a firm to produce or deliver goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them
price for product can exceed what the firms target customers are willing to pay nonstandardized products customers value differentiated features more than they value low cost
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Differentiation Strategy
Value provided by unique features and value characteristics Command premium price High customer service Superior quality Prestige or exclusivity Rapid innovation
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Differentiation Strategy
Differentiation actions required by this strategy: developing new systems and processes shaping perceptions through advertising quality focus capability in R&D maximize human resource contributions through low turnover and high motivation 117
Cost Drivers
Value Chain
Lower buyers costs Raise performance of product or service Create sustainability through: customer perceptions of uniqueness customer reluctance to switch to non-unique product non118
Unique product features Unique product performance Exceptional services New technologies Quality of inputs Exceptional skill or experience Detailed information
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Can defend against competition because: brand loyalty to differentiated product offsets price competition
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Can mitigate buyer power because: well differentiated products reduce customer sensitivity to price increases
121
Can mitigate suppliers power by: absorbing price increases due to higher margins passing along higher supplier prices because buyers are loyal to differentiated brand
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Can defend against new entrants because: new products must surpass proven products or, new products must be at least equal to performance of proven products, but offered at lower prices
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Well positioned relative to substitutes because: brand loyalty to a differentiated product tends to reduce customers testing of new products or switching brands
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Customers may decide that the price differential between the differentiated product and the cost leaders product is too large Means of differentiation may cease to provide value for which customers are willing to pay
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Experience may narrow customers perceptions of the value of differentiated features of the firms products Makers of counterfeit goods may attempt to replicate differentiated features of the firms products
126
Focused Business-Level Strategies BusinessA focus strategy must exploit a narrow targets differences from the balance of the industry by: isolating a particular buyer group isolating a unique segment of a product line concentrating on a particular geographic market finding their niche
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Large firms may overlook small niches Firm may lack resources to compete in the broader market May be able to serve a narrow market segment more effectively than can larger industryindustry-wide competitors Focus may allow the firm to direct resources to certain value chain activities to build competitive advantage
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Firm may be outfocused by competitors Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market
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Successful firms using this strategy have aboveabove-average returns Firm offers two types of values to customers some differentiated features (but less than a true differentiated firm) relatively low cost (but now as low as the cost leaders price)
131
An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm) The firm may become stuck in the middle lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy
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Chapter 5
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics
Strategic Outcomes
Feedback
134
Definitions
Competitors
firms operating in the same market, offering similar products and targeting similar customers
Competitive rivalry
the ongoing set of competitive actions and responses occurring between competitors competitive rivalry influences an individual firms ability to gain and sustain competitive advantages
135
Definitions
Competitive behavior
the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position
Competitive dynamics
the total set of actions and responses taken by all firms competing within a market
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How?
137
Competitive rivalry
affects all types of strategies most dominant influence is on the firms businessbusiness-level strategy or strategies.
138
Interim Rivalry Likelihood of Attack First mover incentives Organizational size Quality Likelihood of Response Type of competitive action Reputation Market dependence 139
Competitive Rivalry
Marketplace success is a function of both individual strategies and the consequences of their use
140
Competitor Analysis
Competitor analysis
a technique firms use to understand their competitive environment. Along with the general and industry environments, the competitive environment comprises the firms external environment a technique used to help the firm understand its competitors the first step to being able to predict competitors behavior in the form of its competitive actions and responses
141
Market Commonality
Multimarket competition
Firms competing in several markets
142
Resource Similarity
Resource similarity
the extent to which the firms tangible and intangible resources are comparable to a competitors in terms of both type and amount
Assessing resource similarity can be difficult if critical resources are intangible 143 rather than tangible
II I III IV
Low
Resource Similarity
High
Awareness
Awareness is the extent to which competitors recognize the degree of their mutual interdependence mutual interdependence results from market commonality resource similarity
145
Awareness Motivation
Motivation concerns the firms incentive to take action or to respond to a competitors attack and relates to perceived gains and losses
146
Competitive Rivalry
Competitive action
a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position
Competitive response
a strategic or tactical action the firm takes to counter the effects of a competitors competitive action
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151
Think and act big and well get smaller. Think and
act small and well get bigger. - Herb Kelleher,
Former CEO, Southwest Airlines
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Firms study three factors to predict how a competitor is likely to respond to competitive actions
type of competitive action reputation market dependence
157
Strategic actions receive strategic responses Tactical responses are taken to counter the effects of tactical actions Strategic actions elicit fewer total competitive responses A competitor likely will respond quickly to a tactical action The time needed to implement and assess a strategic action delays competitors responses
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Competition
Competitive Dynamics
competitive dynamics concerns the ongoing actions and responses taking place among all firms competing within a market for advantageous positions
Competitive Rivalry
building and sustaining competitive advantages are at the core of competitive rivalry competitive advantages are the link to an advantageous market position
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Firm A
Firm B
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Firm A
Firm B
163
Competitive Dynamics:
SlowSlow-Cycle Markets
SlowSlow-cycle markets SlowSlow-cycle markets the firms competitive advantages are shielded from imitation for long periods of time imitation is costly Competitive advantages are sustainable in slow-cycle markets slow A proprietary, one-of-a-kind one-ofcompetitive advantage leads to competitive success in a slow-cycle slowmarket
164
Launch
Counterattack
5
Time (Years)
10
165
Competitive Dynamics:
FastFast-Cycle Markets
SlowSlow-cycle markets FastFast-cycle markets FastFast-cycle markets the firms competitive advantages arent shielded from imitation imitation happens quickly and somewhat inexpensively Competitive advantages arent sustainable Competitors use reverse engineering to quickly imitate or improve on the firms products Non-proprietary technology is Nondiffused rapidly
166
Exploitation Launch
10
Time (Years)
15
167
Competitive Dynamics:
StandardStandard-Cycle Markets
SlowSlow-cycle markets FastFast-cycle markets StandardStandard-cycle markets StandardStandard-cycle markets the firms competitive advantages may be shielded from imitation imitation is moderately costly Competitive advantages are partially sustainable if the firm is able to continuously upgrade the quality of its competitive advantages Firms seek large market shares gain customer loyalty through brand names 168 carefully control operations
Chapter 6
CorporateCorporate-Level Strategy
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
170
2. Corporate-Level Strategy (Company-wide Strategy) Corporate(CompanyHow to create value for the corporation as a whole
171
Dominant Business
Between 70 and 95% of business from a single business unit
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175
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Resources
Managerial Motives
177
Resources
Managerial Motives
Resources
Managerial Motives
179
Resources
Managerial Motives
180
High
Vertical Integration (Market Power)
Low
Low High Corporate Readiness: Transferring Skills into 181 Businesses Through Corporate Headquarters
182
184
Sharing activities often lowers costs or raises differentiation Sharing activities can lower costs if it:
achieves economies of scale boosts efficiency of utilization helps move more rapidly down the Learning Curve
Sharing activities can enhance potential for or reduce the cost of differentiation Must involve activities that are crucial to competitive advantage
185
Strong sense of corporate identity Clear corporate mission that emphasizes the importance of integrating business units Incentive system that rewards more than just business unit performance
186
187
188
Transferring core competencies leads to competitive advantage only if the similarities among business units meet the following conditions:
activities involved in the businesses are similar enough that sharing expertise is meaningful transfer of skills involves activities which are important to competitive advantage the skills transferred represent significant sources of competitive advantage for the receiving unit 189
190
Managers have more detailed knowledge of firm relative to outside investors Firm need not risk competitive edge by disclosing sensitive competitive information to investors Firm can reduce risk by allocating resources among diversified businesses, although shareholders can generally diversify more economically on their own
192
Seek out undeveloped, sick or threatened organizations or industries Parent company (acquirer) intervenes and frequently:
changes sub-unit management team subshifts strategy infuses firm with new technology enhances discipline by changing control systems divests part of firm makes additional acquisitions to achieve critical mass
194
Frequently sell unit after making one-time onechanges since parent no longer adds value to ongoing operations
195
Restructuring: Assumptions
Requires keen management insight in selecting firms with depressed values or unforeseen potential Must do more than restructure companies Need to initiate restructuring of industries to create a more attractive environment
196
Incentives to Diversify
External Incentives:
Relaxation of anti-trust regulation allows more antirelated acquisitions than in the past Before 1986, higher taxes on dividends favored 1986, spending retained earnings on acquisitions After 1986, firms made fewer acquisitions with 1986, retained earnings, shifting to the use of debt to take advantage of tax deductible interest payments
197
Incentives to Diversify
Internal Incentives:
Poor performance may lead some firms to diversify to attempt to achieve better returns Firms may diversify to balance uncertain future cash flows Firms may diversify into different businesses in order to reduce risk
198
Besides strong incentives, firms are more likely to diversify if they have the resources to do so Value creation is determined more by appropriate use of resources than incentives to diversify
199
200
Dominant Business
Related Constrained
Unrelated Business
201
Level of Diversification
Resources
Diversification Strategy
Firm Performance
Managerial Motives
Internal Governance
Strategy Implementation
202
Chapter 7
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
204
Merger: a strategy through which two firms agree to integrate their operations on a relatively co-equal basis coAcquisition: a strategy through which one firm
buys a controlling interest in another firm with the intent of making the acquired firm a subsidiary business within its own portfolio
Acquisitions
Increase diversification
207
209
An acquisitions outcomes can be estimated more easily and accurately compared to the outcomes of an internal product development process Therefore managers may view acquisitions as lowering risk
210
It may be easier to develop and introduce new products in markets currently served by the firm It may be difficult to develop new products for markets in which a firm lacks experience
it is uncommon for a firm to develop new products internally to diversify its product lines acquisitions are the quickest and easiest way to diversify a firm and change its portfolio of business
211
Firms may use acquisitions to reduce their dependence on one or more products or markets Reducing a companys dependence on specific markets alters the firms competitive scope
212
Acquisitions may gain capabilities that the firm does not possess Acquisitions may be used to
acquire a special technological capability broaden a firms knowledge base reduce inertia
213
Acquisitions
214
215
Ineffective due-diligence process may due result in paying excessive premium for the target company
216
Firm may take on significant debt to acquire a company High debt can
increase the likelihood of bankruptcy lead to a downgrade in the firms credit rating preclude needed investment in activities that contribute to the firms long-term success long-
217
Synergy exists when assets are worth more when used in conjunction with each other than when they are used separately Firms experience transaction costs when they use acquisition strategies to create synergy Firms tend to underestimate indirect costs when evaluating a potential acquisition
218
Diversified firms must process more information of greater diversity Scope created by diversification may cause managers to rely too much on financial rather than strategic controls to evaluate business units performances Acquisitions may become substitutes for innovation
219
Managers in target firms may operate in a state of virtual suspended animation during an acquisition Executives may become hesitant to make decisions with long-term consequences longuntil negotiations have been completed Acquisition process can create a shortshortterm perspective and a greater aversion to risk among top-level executives in a target topfirm
220
Additional costs may exceed the benefits of the economies of scale and additional market power Larger size may lead to more bureaucratic controls Formalized controls often lead to relatively rigid and standardized managerial behavior Firm may produce less innovation
221
Results
Buying firms with assets that meet current needs to build competitiveness Friendly deals make integration go more smoothly Deliberate evaluation and negotiations are more likely to lead to easy integration and building synergies Provide enough additional financial resources so that profitable projects would not be foregone 222
Results
Merged firm maintains financial flexibility Continue to invest in R&D as part of the firms overall strategy Has experience at managing change and is flexible and adaptable
223
Restructuring Activities
Downsizing
Wholesale reduction of employees
Downscoping
Selectively divesting or closing non-core nonbusinesses Reducing scope of operations Leads to greater focus
Chapter 8
International Strategy
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
227
Increased market size Return on investment Economies of scale and learning Advantage in location
Better performance
229
230
Return on Investment
large investment projects may require global markets to justify the capital outlays weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators
231
Location Advantages
low cost markets may aid in developing competitive advantage may achieve better access to: Raw materials Key customers Lower cost labor Energy
232
Demand conditions
233
Demand conditions: characterized by the nature and size of buyers needs in the home market for the industrys goods or services
size of market segment can lead to scalescaleefficient facilities efficiency can lead to domination of the industry in other countries specialized demand may create opportunities beyond national boundaries
235
236
Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms
common technical training methodological product and process improvement cooperative and competitive systems
237
Type of corporate strategy selected will have an impact on the selection and implementation of the business-level businessstrategies Some corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies businessfrom the home office and coordinate resource sharing across units
239
Products are standardized across national markets Decisions regarding business-level strategies businessare centralized in the home office Strategic business units (SBU) are assumed to be interdependent Emphasizes economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)
241
242
Characteristics
High cost, low control Low cost, low risk, little control, low returns Shared costs, shared resources, shared risks, problems of integration Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations Complex, often costly, time consuming, high risk, maximum control, potential 243 aboveabove-average returns
Economic Risks
246
247
Cost of coordination across diverse geographical business units Institutional and cultural barriers Understanding strategic intent of competitors The overall complexity of competition
248
Chapter 9
Cooperative Strategy
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
250
Cooperative Strategy
251
Strategic Alliance
Strategic Alliance
Firm A Resources Capabilities Core Competencies Firm B Resources Capabilities Core Competencies
Joint venture: two or more firms create an independent company by combining parts of their assets Equity strategic alliance: partners who own different percentages of equity in a new venture Nonequity strategic alliances: contractual agreements given to a company to supply, produce, or distribute a firms goods or services without equity sharing
254
Reason
Gain access to a restricted market Establish a franchise in a new market Maintain market stability (e.g., establishing standards)
255
Reason
Speed up development of new goods or service Speed up new market entry Maintain market leadership Form an industry technology standard Share risky R&D expenses Overcome uncertainty
256
Reason
Gain market power (reduce industry overcapacity) Gain access to complementary resources Establish economies of scale Overcome trade barriers Meet competitive challenges from other competitors Pool resources for very large capital projects Learn new business techniques
257
Support Activities
Firm Infrastructure
Service Marketing & Sales Procurement Procurement Outbound Logistics Operations Inbound Logistics
Vertical Alliance
Primary Activities
Supplier
Technological Development Human Resource Mgmt.
Support Activities
Firm Infrastructure
Primary Activities
259
Horizontal Alliance
Potential Competitors
Human Resource Mgmt.
Buyer
Technological Development
Support Activities
Firm Infrastructure
Firm Infrastructure
Service
Support Activities
Service Marketing & Sales Procurement Outbound Logistics Operations Inbound Logistics
Primary Activities
Primary Activities
horizontal complementary strategic alliance is formed between partners who agree to combine their resources and skills to create value in the same stage of the value chain focus on long-term product development and distribution opportunities the partners may become competitors 260 requires a great deal of trust between the partners
261
262
mutual forbearance is a form of tacit collusion in which firms avoid competitive attacks against those rivals they meet in multiple markets competition reducing strategic alliances may require governments to find ways to permit collaboration among rivals without violating antitrust laws
267
268
269
Allows risk sharing by reducing financial investment Host partner knows local market and customs International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints Must gauge partners strategic intent so they do not gain access to important technology and become a competitor
270
A network strategy is a cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives
stable alliance network dynamic alliance network
Effective social relationships and interactions among partners are keys to a successful network cooperative strategy
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Manage the balance between learning from partners while protecting knowledge and sources of competitive advantages from excessive learning by partners Assign managerial responsibility for a firms cooperative strategies to a high-level executive or team high Specify resources and capabilities that will be shared and those that will not be shared (detailed contracts and monitoring) 275 Develop trusting relationships
cost minimization
formal contracts specify how the cooperative strategy is to be monitored and how partner behavior is to be controlled
opportunity maximization
maximize partnerships value-creation valueopportunities partners take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities fewer formal, limiting, contracts 276
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Chapter 10
Corporate Governance
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
279
Corporate Governance
Corporate governance is
a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations concerned with identifying ways to ensure that strategic decisions are made effectively used in corporations to establish order between the firms owners and its top-level managers
280
283
285
286
Risk bearing specialist (principal) pays compensation to A managerial decision-making decisionspecialist (agent)
An Agency Relationships
287
Solution:
principals engage in incentive-based incentiveperformance contracts monitoring mechanisms such as the board of directors enforcement mechanisms such as the managerial labor market to mitigate the agency 288 problem
Risk
Related Linked
Unrelated Businesses
289
Diversification
290
Governance Mechanisms
Ownership Concentration Large block shareholders have a strong incentive to monitor management closely Their large stakes make it worth their while to spend time, effort and expense to monitor closely They may also obtain Board seats which enhances their ability to monitor effectively (although financial institutions are legally forbidden from directly holding board seats)
291
Governance Mechanisms
Ownership Concentration Boards of Directors
Insiders
The firms CEO and other top-level topmanagers
Related Outsiders
Individuals not involved with daydayto-day operations, but who have a torelationship with the company
Outsiders
Individuals who are independent of the firms day-to-day operations day-toand other relationships
292
Governance Mechanisms
Ownership Concentration Boards of Directors Recommendations for more effective Board Governance: Increase diversity of board members backgrounds Strengthen internal management and accounting control systems Establish formal processes for evaluation of the boards performance
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Governance Mechanisms
Ownership Concentration Boards of Directors Executive Compensation Salary, bonuses, long term incentive compensation Executive decisions are complex and nonnon-routine Many factors intervene making it difficult to establish how managerial decisions are directly responsible for outcomes
294
Governance Mechanisms
Ownership Concentration Boards of Directors Executive Compensation Stock ownership (long-term (longincentive compensation) makes managers more susceptible to market changes which are partially beyond their control Incentive systems do not guarantee that managers make the right decisions, but do increase the likelihood that managers will do the things for which they are rewarded
295
Governance Mechanisms
Ownership Concentration Boards of Directors Executive Compensation Market for Corporate Control Firms face the risk of takeover when they are operated inefficiently Many firms begin to operate more efficiently as a result of the threat of takeover, even though the actual incidence of hostile takeovers is relatively small Changes in regulations have made hostile takeovers difficult Acts as an important source of discipline over managerial incompetence and waste
296
Owner and manager are often the same in private firms Public firms often have a dominant shareholder, frequently a bank Frequently there is less emphasis on shareholder value than in U.S. firms, although this may be changing
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298
Obligation, family and consensus are important factors Banks (especially main bank) are highly influential with firms managers Keiretsus are strongly interrelated groups of firms tied together by crosscrossshareholdings
299
Other characteristics:
powerful government intervention close relationships between firms and government sectors passive and stable shareholders who exert little control virtual absence of external market for corporate control
300
302
Chapter 11
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
305
Organizational Structure
Organizational structure specifies the firms formal reporting relationships, procedures, controls, and authority and decisiondecision-making processes It is critical to match organizational structure to the firms strategy
306
307
Organizational Controls
Organizational controls
guide the use of strategy indicate how to compare actual results with expected results suggest corrective actions to take when the difference between actual and expected results is unacceptable
Organizational Controls:
Strategic Controls
Strategic Controls Concerned with examining
what the firm might do (as suggested by opportunities in its external environment) what it can do (as indicated by its competitive advantages)
Used to evaluate the degree to which the firm focuses on the requirements to implement its strategies 309
Organizational Controls:
Financial Controls
Strategic Controls Objective criteria
Financial Controls
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311
312
All organizations require some form of organizational structure to implement and manage their strategies Firms frequently alter their structure as they grow in size and complexity Three basic structure types:
simple structure functional structure multi-divisional structure (M-form) multi(M313
314
Staff
serves as an extension of the managers supervisory authority
Growth creates
complexity managerial and structural challenges
OwnerOwner-managers
commonly lack organizational skills and experience become ineffective in managing the specialized and complex tasks involved with multiple organizational functions
316
Supports use of business-level strategies businessand some corporate-level strategies corporate single or dominant business with low levels of 318 diversification
319
Strategic control
operating divisions each division is separate business or profit center
321
322
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Centralized Staff
Engineering Marketing
Operations Personnel
Accounting
324
Marketing is the main function for tracking new product ideas New product R&D is emphasized Most functions are decentralized Formalization is limited to foster change and promote new ideas Overall structure is organic; job roles are less structured
325
Multidivisional Structure
Each division is operated as a separate business Appropriate for related-diversified relatedbusinesses Key task of corporate managers is exploiting synergies among divisions Managers use a combination of strategic controls and financial controls
326
Multidivisional Structure
The goal is to maximize overall firm performance The decision-making of managers in a decisionmultimulti-divisional structure may be:
centralized or decentralized bureaucratic or non-bureaucratic non327
Multidivisional Structure
Balance on these dimensions may change over time Structure will evolve over time with:
changes in strategy degree of diversification geographic scope nature of competition
328
Competitive Form
329
Strategic Planning
Corporate Marketing
Corporate Finance
Product Division
Product Division
Product Division
Product Division
Structural integration devices create tight links among all divisions Corporate office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions R&D is likely to be centralized Rewards are subjective and tend to emphasize overall corporate performance, in addition to divisional performance Culture emphasizes cooperative sharing
331
Strategic Planning
Corporate HRM
Corporate Marketing
Corporate Finance
SBU
Division Division Division
SBU
Division Division
SBU
Division
332
Division
Division
Division
Structural integration devices create tight links among all divisions Corporate office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions R&D is likely to be centralized Rewards are subjective and tend to emphasize overall corporate performance, in addition to divisional performance Culture emphasizes cooperative sharing
333
Legal Affairs
Finance
Auditing
Division
Division
Division
Division
Division
Division
334
Corporate headquarters has a small staff Finance and auditing are the most prominent functions in the headquarters to manage cash flow and ensure the accuracy of performance data coming from divisions The legal affairs function becomes important when the firm acquires or divests assets Divisions are independent and separate for financial evaluation purposes Divisions retain strategic control, but cash is managed by the corporate office Divisions compete for corporate resources
335
Nonexistent
337
Latin America
Multinational Headquarters
Europe
Australia
The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures
local responsiveness (multidomestic strategy) global efficiency (global strategy)
341
Strategic Network
A strategic network is a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements, such as alliances and joint ventures The strategic network seeks to develop a competitive advantage in primary or support activities A strategic center firm often manages the network
342
Strategic Network
343
Strategic Network
344
Strategic Network
345
International cooperative strategies often require more complex networks Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firms Breaking large networks into multiple manageablymanageably-sized networks helps to manage the complexity of maintaining many relationships
346
347
Chapter 12
Strategic Leadership
Strategic Inputs
Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment
Strategy Formulation
Strategic Actions Chapter 5 Chapter 4 Competitive Rivalry BusinessBusiness-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 CorporateCorporateLevel Strategy
Strategic Outcomes
Feedback
349
Strategic Leadership
350
Strategic Mission
Implementation of Strategies
352
External Environment Industry structure Rate of market growth Number and type of competitors Nature and degree of political/legal constraints Degree to which products can be differentiated
353
Characteristics of the Organization Size Age Culture Availability of resources Patterns of interaction among employees
354
Managerial Discretion
Characteristics of the Manager Tolerance for ambiguity Commitment to the firm and its desired strategic outcomes Interpersonal skills Aspiration level Degree of self-confidence self355
The top management team is composed of key managers who are responsible for
formulating and implementing the organizations strategies
A heterogeneous top management team with varied expertise and knowledge can draw on multiple perspectives when evaluating alternative strategies and building consensus
356
A top management team must also be able to function effectively as a team in order to implement strategies
a heterogeneous team makes this more difficult a heterogeneous team, however, is associated positively with innovation and strategic change
357
Strategic Leadership
Chief executive officers can gain so much power that they are virtually independent of oversight by the board of directors This is especially true when the CEO is also chairman of the board of directors CEOs of long tenure can also wield substantial power The most effective forms of governance share power and influence among the CEO and board of directors
358
The internal labor market is comprised of the career path alternatives available to a firms managers Selecting internal candidates for management positions helps to build on valuable firm-specific knowledge firm-
359
The external labor market includes the collection of career opportunities for managers outside their firm Selecting an outsider often brings fresh insights and may energize the firm with innovative new ideas
360
Effective Strategic Leadership Emphasizing ethical practice Sustaining an effective organizational culture Developing human capital
362
Strategic direction means the development of a long-term vision of a firms strategic longintent A charismatic leader can help achieve strategic intent It is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction Executives must structure the firm effectively to help achieve the vision
363
Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals Strategic leaders must verify that the firms competencies are emphasized in strategy implementation efforts
364
In many large firms, and certainly in relatedrelated-diversified ones, core competencies are exploited effectively when they are developed and applied across different organizational units Core competencies cannot be developed or exploited effectively without developing the capabilities of human capital
365
Human capital refers to the knowledge and skills of the firms entire workforce Employees are viewed as a capital resource that requires investment No strategy can be effective unless the firm is able to develop and retain good people to carry it out The effective development and management of the firms human capital may be the primary determinant of a firms ability to formulate and implement 366 strategies successfully
An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business Shaping the firms culture is a central task of effective strategic leadership
367
An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary Reengineering can facilitate this process
368
The benefits of business reengineering are maximized when employees believe that:
every job in the company is essential and important all employees must create value through their work
369
Constant learning is a vital part of every persons job Teamwork is essential to successful implementation Problems are solved only when teams accept the responsibility for the solution
370
Ethical practices increase the effectiveness of strategy implementation processes Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment
371
To properly influence employee judgment and behavior, ethical practices must shape the firms decision-making process decisionand be an integral part of an organizations culture Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees
372
Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken Financial controls are often emphasized in large corporations and focus on shortshortterm financial outcomes Strategic control focuses on the content of strategic actions, rather than their outcomes
373
Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive longlong-term returns
374
Criteria
Cash flow Return on equity Return on assets Assessment of ability to anticipate customers needs Effectiveness of customer service practices Percentage of repeat business Quality of communications with customers
375
Customer
Criteria
Asset utilization improvements Improvements in employee morale Changes in turnover rates Improvements in innovation ability Number of new products compared to competitors Increases in employees skills
376