A Strategic Framework

What is a framework ?
A hypothetical description of a complex entity or process A structure supporting or containing something A basic conceptual structure In software: A set of software (compile/run-time elements, libraries, tools, services), documentation, policies, procedures, that supports the implementation of technology specific higher level software elements.

What are the components of a strategic framework?

A vision for the future A mission statement that defines what the organisation does A statement about the current position of the organisation and how its progress towards its goals and objectives will be measured A means of generating and selecting the strategies to achieve those goals Implementation of the processes to achieve the strategies A control mechanism to monitor and get feedback from implemented processes

Strategic framework
Develop Mission & Vision Statements

Measure and evaluate Progress

Internal & External Audits

Implement Strategies

Set Long term objectives & Goals Generate , Evaluate & Select Strategies

Vision and Mission statements

Vision statement: A statement that captures the long-term picture of what the organization wants to become A mission statement defines in a paragraph or so any entity's reason for existence. It embodies its philosophies, goals, ambitions and mores. Any entity that attempts to operate without a mission statement runs the risk of wandering through the world without having the ability to verify that it is on its intended course.

Sample vision statements

"Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online." Amazon.com To organize the world's information and make it universally accessible and useful - Google

Sample mission statements

"To build a place where people can come to find and discover anything they might want to buy online" Amazon To promote openness, innovation, and opportunity on the web - Mozilla Nasa:
To improve life here, To extend life to there, To find life beyond.

Internal and external audits

Internal

RBV Core Competencies Value Chain

5 Forces Competitor Analysis EFE Matrix

External

Internal Audit
Look at Internal strengths/weaknesses

RBV- resource based view

Internal resources are more important than external factors. They are the basis for competitive advantage. Identify all key resources Evaluate resources
Protect the resources you identify as high value.

Core Competencies
What a firm does that is strategically valuable They are Valuable Rare Costly to imitate Non substitutable

Value Chain
A value chain describes the categories of activities within and around an organisation, which together create a product or service. The goal of these activities is to create value that exceeds the cost of providing the product or service, generating a profit margin.

Purpose of External Audit

Identify
Opportunities Threats

Porters Five Forces

Five-Forces Analysis is a framework for analyzing a particular industry. Yet, the five forces affect all the other businesses in that industry.

Five forces do not determine whether a specific firm can be successful

Porters Five Forces

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

Competitor Analysis
An assessment of the strengths and weaknesses of current and potential competitors.

External Factor Evaluation Matrix (EFE Matrix)

Tool to visualize and prioritize the opportunities and threats that a business is facing External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces

EFE Process
List factors Divide factors into two groups: opportunities and threats. Assign Weights Rate Factors Multiple weights by ratings Total all weighted scores

EFE example

Establishing Long Term Objectives

Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable

Performance Measures by organisational level

Competitive strategies
Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Cost Leadership Differentiation Focus or Niche strategy

Cost leadership
A type of competitive strategy with which the organization aggressively seeks, efficient facilities, cut cost, and employs tight cost control to be more Efficient than competitors. The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Low cost mean company can undercut competitors.

Differentiation
A type of competitive strategy with which the organization seek to distinguish its product or services from competitors. The organization may use advertising, distinctive product features exceptional service or new technology to achieve a product perceived as unique. This strategy may be profitable because customer will pay high price for the product.

Focus
The type of competitive strategy that emphasizes concentration on a specific regional market or buyer group. The premises is that the need of a group can be better serviced by focusing entirely on it.

Generate & Evaluate Strategies

BCG matrix PESTLE SWOT

BCG growth matrix

A concept developed by the Boston Consulting Group that evaluates SBUs with respect to the dimension of business growth rate and market share

BCG growth matrix

Market Share

Cash Cow

High

Star

Dog

Problem Child

Low

BCG matrix
Dogs. These are products with a low share of a low growth market. These are the canine version of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get rid of these products. Cash Cows. These are products with a high share of a low growth market. Cash Cows generate more than is invested in them. So keep them in your portfolio of products for the time being.

BCG matrix
Problem Children. These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share. Stars. These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars.

PESTLE
PESTLE analysis - an audit of an organisation's environmental influences Purpose of using this information to guide strategic decision-making. If the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes.

PESTLE
PESTLE stands for
Political Economic Sociological Technological Legal Environmental

SWOT Analysis

A method of studying organizational resources and capabilities to assess the firms strengths and weaknesses and scanning its external environment to identify opportunities and threats.

Provides you with a critical view of the internal and external environment Helps you evaluate your ability to accomplish your mission.

SWOT matrix
Strengths

Weaknesses
Opportunities Threats

Strategy Implementation
Action stage (put formulate strategy into action) Establish annual objectives Devise policies Motivate employees Redirecting marketing efforts Prepare budgets

Formulation vs implementation
Formulation focuses on effectiveness Implementation focuses on efficiency Shift in responsibilities from strategists to divisional or functional managers

Management Issues
Annual objectives Policies Resources Organizational Structure Restructuring Rewards/Incentives

Management Issues
Resistance to change Natural environment Supportive culture Production/ operations Human resources

The nature of strategy implementation

Strategy implementation means change Less than 10% of strategies formulated are successfully implemented!

Strategy Implementation Failure

Failing to segment markets appropriately Paying too much for a new acquisition Falling behind competition in R&D Not recognizing benefit of computers in managing information

Successful Strategy Implementation

Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems

Strategy review and evaluation

Strategies become obsolete Internal environments are dynamic External environments are dynamic

Strategy Evaluation
Vital to the organizations well-being Alert management to potential/actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations

Three basic activities in strategic review

1. Examine the underlying bases of a firms strategy. 2. Compare expected to actual results. 3. Identify corrective actions to ensure that performance conforms to plans.

Difficulties in Strategy Evaluation

1. 2. 3. 4. 5. 6. Increase in environments complexity Difficulty predicting future with accuracy Increasing number of variables Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty

Strategy Evaluation Should

Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives

The product life cycle

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

Product Life Cycle

Introduction Stage
In Introduction stage, sales are low as a new idea is first introduced to a market. Customers aren't looking for the product, and may not be aware of its benefits or advantages over current offerings. In fact, they may not even know about it. Informative promotion is needed to tell potential customers about the new product concept. Even though a firm promotes its new product, it takes time for customers to learn that the product is available. Money is invested in developing the market in anticipation of future profits.

The Growth Stage

The Growth stage, industry sales grow quickly but industry profits rise and then start falling. The innovator begins to make big profits as more and more customers buy. But competitors see the opportunity and enter the market. Some just copy the most successful product, or try to improve it to compete better. Others try to refine their offerings to do a better job of appealing to some target markets. The new entries result in much product variety.

Maturity Stage
Maturity occurs when industry sales level off. Competition gets tougher as aggressive competitors have entered the race for profits. Industry profits continue to go down during maturity because promotion costs rise and competitors continue to cut prices to attract more business. New firms may still enter the market during this stage. These late entries skip the early life cycle stages, including the profitable growth stage. They must try to take market share from established firms, which is difficult and expensive in a saturated, flat market. Customers who are satisfied with their current relationship won't be interested in switching to an unknown brand.

Decline Stage
During the Sales Decline stage, new products replace the old. Price competition from dying products becomes more vigorous, but firms with strong brands may make profits until the end because they successfully differentiated their products. They may also keep some sales by appealing to the most loyal customers or those who are slow to try new ideas. These buyers might switch later, smoothing the sales decline.

Continuous assessment 1
Due 03/11/10

CA 1 group assignments
Compare and contrast the strategies of two competing IT companies (a list is provided below) reviewing in particular their previous 5 to 10 years of business. The report should provide a critical review of what the companies set out to achieve and what they actually achieved. Support your observations with correctly referenced sources and propose the future trajectory of each company providing recommendations on how they should proceed for the next 5 years. Your report should be written in the style of an external consultant asked by an investor for advice on which of the two companies to invest in.

Group assignment
10 Slides 15 minutes & Questions Write a 5,000 Word Report Submit via Webcourses only

Group assignment
1. 2. 3. 4. 5. 6. Google vs Microsoft Apple vs Nokia HP vs Dell Microsoft vs Mozilla VMWare vs Citrix Google vs Facebook

Paper to review
Paper 1 What is Strategy Porter, 1996 Read for next class! Available on website