Description
It explains the relationship between strategy and business model. It gives five steps of strategy making process
Strategic Management
“If you don’t have a strategy you will be . . . part of somebody else’s strategy.” - Alvin Toffler
Why do some organizations succeed while others fail?
Strategy is a set of related actions that managers
take to increase their company’s performance.
Strategic Leadership
?
?
Task of most effectively managing a company’s strategy-making process
?
Strategy Formulation
?
Task of determining and selecting strategies
?
Strategy Implementation
?
Task of putting strategies into action to improve a company’s efficiency and effectiveness
Results when a company’s strategies lead to superior performance compared to competitors
Competitive Advantage
Superior Performance and Sustainable Competitive Advantage
?
Superior Performance
One company’s profitability relative to that of other companies in the same or similar business or industry ? Maximizing shareholder value is the ultimate goal of profit making companies
?
ROIC (Profitability) = Return On Invested Capital
ROIC
?
=
Net profit Capital invested
=
Net income after tax Equity + Debt to creditors
Competitive Advantage
?
When a company’s profitability is greater than the average of all other companies in the same industry & competing for the same customers
When a company’s strategies enable it to maintain above average profitability for a number of years
Sustainable Competitive Advantage
Case of Dell Computers
Background
?
? ?
Founded in 1984 by Michael Dell at the age of 19.
Its strategy clicked into full gear in late 1990s. Dell was the world leader in 2002.
?
?
They were able to sell IBM clones at 40% cheaper price.
Attracted price conscious customers.
Facts
? Every Fortune 100 company does business with Dell. ? #1 PC provider in the U.S. and #2 worldwide. ? Preferred desktop and laptop of enterprises in the US and Europe. ? No. 1 PC supplier to small and medium businesses in the United States for 10 years in a row. ? 140,000 systems shipped per day, on average – that’s more than one every second. ? Rank No. 34 among the Fortune 500 ? 24 of the world’s top supercomputers run on Dell. ? The 10 largest U.S. companies run on Dell.
Key Strategy Of DELL
?
? ?
Strong capabilities in supply chain management
Low cost manufacturing Direct sales capabilities.
Core Elements of Dell’s Business Strategy
? ? ? ? ? ?
Build-to-order manufacturing
Partnerships with suppliers Just-in-time components inventories
Direct sales to customers
Customer service and technical support Use of Internet and e-commerce technology
Build to order manufacturing
?
Built to order, nothing is produced for inventory. So, no in-house stock of finished goods
Customers can order customized computers, laptops, workstations, servers as per their need. Leads to higher customer satisfaction. Orders are directed to nearest factory
?
?
?
Typical time to delivery: 3 days to 20 days depending on mode of shipping
Partnership with suppliers
?
Partnership with reputable suppliers of PC parts and components, avoided parts and components manufacturing on its own
?
?
Evaluated makers of each component and picked the best one or two as suppliers.
While partnering, focused on brand / name of supplier/component, technology, performance, quality and cost. Long term commitment to suppliers so, no shortage of components even during high demand seasons. Encourage suppliers to locate their plants/distribution centers near to Dell’s assembly plants Continuous cooperation with suppliers to drive down costs.
? ? ?
Internet and E-Commerce Technology
? ?
Leader in internet and e-commerce technology Greater efficiency in supply chain activities
?
? ? ? ?
Streamline order-to-delivery process
Encourage greater use of its Web Site Customer profiling, sales trend, business intelligence Real time order-status information Sales and technical support tool
Just-in-time Inventory Practices
?
?
Varies from 2 hours to couple of days
Average inventory turn cycle dropped from 32 days in 1995 to 3 days in 2008
?
?
Reduced “time-to-market” time of new technology
Significant cost advantage because of frequent reductions in components’ prices. Partnership with branded suppliers eliminated need of quality check at Dell’s end.
?
Direct Sales Strategy
?
?
Customer-driven sales strategy
Selling direct gives firsthand intelligence about customer needs and preferences
?
Immediate feedback on design problems and quality glitches that allows prompt corrective action
Able to quickly detect shifts in sales and market trend High profit margin due to no commission to reseller/dealers
?
?
Comparison of Dell’s Market Share with their Core Competition: 1997-2001
Market Share
IBM
HP
-19%
Dell
-23%
1997 - 2001
Company’s Business Model
?
A business model addresses “How do we make money in this business?”
?
Is the strategy capable of delivering good bottom-line results?
?
Do the revenue-cost-profit economics of the strategy make good business sense?
? ?
Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit margins
?
Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money?
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 the business can be amply profitable and viable
Differences in Industry and Company Performance
A Company’s Profitability and Profit Growth are determined by two main factors:
1. The overall performance of its industry relative to other industries 2. Its relative success in its industry as compared to the competitors
Return on Invested Capital in Selected Industries, 1997–2003
Data Source: Value Line Investment Survey
Levels of Strategic Management
Strategy-making Levels in a diversified Co.
Corporate-Level Managers Business-Level Managers
Corporate Strategy
Two-Way Influence
Business Strategies
Two-Way Influence
Functional Managers
Functional Strategies
Two-Way Influence
Operating Managers
Operating Strategies
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 narrower strategies for managing grassroots activities and strategically-relevant operating units
Add detail to business and functional strategies Delegation of responsibility to frontline managers
?
?
Planned, Deliberate, Emergent and Realized Strategies
Intended and Emergent Strategies
?
Intended or Planned Strategies
? ? ?
Strategies an organization plans to put into action Typically the result of a formal planning process Unrealized strategies are the result of unprecedented changes and unplanned events after the formal planning is completed
?
Emergent Strategies
? ?
Unplanned responses to unforeseen circumstances Serendipitous discoveries and events may emerge that can open up new unplanned opportunities Must assess whether the emergent strategy fits the company’s needs and capabilities
?
?
Realized Strategies
?
The product of whatever intended strategies are actually put into action and of any emergent strategies that evolve
The Five Steps of the Strategy Making Process
?
Select the corporate vision, mission, and values and the major corporate goals and objectives.
?
?
Analyze the external competitive environment to identify opportunities and threats.
Analyze the organization’s internal environment to identify its strengths and weaknesses. Select strategies that:
?
?
Build on the organization’s strengths and correct its weaknesses – in order to take advantage of external opportunities and counter external threats Are consistent with organization’s vision, mission, and values and major goals and objectives Are congruent and constitute a viable business model
? ?
?
Implement the strategies.
? Crafting the Organization’s Mission Statement
Provides a framework or context within which strategies are formulated, including:
? ?
?
?
Mission – The reason for existence – what an organization does Vision – A statement of some desired future state Values – A statement of key values that an organization is committed to Major Goals – The measurable desired future state that an organization attempts to realize
? External Analysis
Purpose is to identify the strategic opportunities and threats in the organization’s operating environment that will affect how it pursues its mission.
External Analysis requires an assessment of: ? Industry environment in which company operates ? Competitive structure of industry ? Competitive position of the company ? Competitiveness and position of major rivals ? The country or national environments in which company competes ? The wider socioeconomic or macroenvironment that may affect the company and its industry ? Social ? Government • Legal • Technological
? Internal Analysis
Purpose is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior performance and weaknesses to inferior performance.
Internal analysis includes an assessment of:
?
Quantity and quality of a company’s resources and capabilities
?
Ways of building unique skills and company-specific or distinctive competencies
Building & sustaining a competitive advantage requires a company to achieve superior: • Efficiency • Innovations
• Quality • Responsiveness to customers
? Selecting Strategies: SWOT Analysis and Business Model
?
?
SWOT analyses help to identify strategies that align a company’s resources and capabilities to its environment – in order to create and sustain a competitive advantage. Functional strategies should be consistent with and support the company’s business level and global strategies. ? Functional-level strategy – directed at operational effectiveness
?
Business-level strategy – businesses’ overall competitive themes
?
?
Global strategy – expand, grow and prosper at a global level
Corporate-level strategy – to maximize profitability and profit growth
When taken together, the various strategies pursued by a company must lead to a viable business model.
? Strategy Implementation
?
After choosing a set of congruent strategies to achieve competitive advantage, managers must put those strategies into action:
? ? ? ? ? ?
Implementation and execution of the strategic plans Design of the best organization structure Consistency of strategy with company culture Control systems to measure and monitor progress Governance systems for legal and ethical compliance Consistency with maximizing profit and profit growth
?
The feedback loop – strategic planning is ongoing
?
Managers must monitor strategy execution:
• To determine if strategic goals and objectives are being achieved
• To evaluate to what extent competitive advantage is being created and sustained
?
Managers must monitor and reevaluate for the next round of strategy formulation and implementation
Who Participates in Crafting a Company’s Strategy?
?
? ?
Chief executive officer - CEO
Senior corporate executives Chief financial officer - CFO
?
?
Managers of business divisions and major product lines
Key VPs for production, marketing, human resources, and other functional departments
Every company manager has a strategy-making, strategy-executing role – ranging from minor to major – for the area he or she heads!
Strategizing: An Individual or Team Responsibility?
?
Teams are increasingly used because
?
Finding market- and customer-driven solutions is necessary Complex strategic issues cut across functional areas and departmental units
?
?
Ideas of people with different backgrounds and experiences strengthen strategizing effort
Groups charged with crafting the strategy often include the people charged with implementing it
?
Good Strategy + Good Strategy Execution = Good Management
?
?
Crafting and executing strategy are core management functions
A company’s ultimate success depends on how well its team
? ?
Charts the company’s direction, Develops competitively effective strategic moves and business approaches, and Pursues what needs to be done internally to produce good dayin/day-out strategy execution
?
Excellent execution of an excellent strategy is the best test of managerial excellence -- and the most reliable recipe for winning in the marketplace!
“The essence of strategy lies in creating tomorrow’s competitive advantage faster than competitors mimic the ones you possess today.”
- Gary Hamel &
C. K. Prahalad
doc_644925262.pptx
It explains the relationship between strategy and business model. It gives five steps of strategy making process
Strategic Management
“If you don’t have a strategy you will be . . . part of somebody else’s strategy.” - Alvin Toffler
Why do some organizations succeed while others fail?
Strategy is a set of related actions that managers
take to increase their company’s performance.
Strategic Leadership
?
?
Task of most effectively managing a company’s strategy-making process
?
Strategy Formulation
?
Task of determining and selecting strategies
?
Strategy Implementation
?
Task of putting strategies into action to improve a company’s efficiency and effectiveness
Results when a company’s strategies lead to superior performance compared to competitors
Competitive Advantage
Superior Performance and Sustainable Competitive Advantage
?
Superior Performance
One company’s profitability relative to that of other companies in the same or similar business or industry ? Maximizing shareholder value is the ultimate goal of profit making companies
?
ROIC (Profitability) = Return On Invested Capital
ROIC
?
=
Net profit Capital invested
=
Net income after tax Equity + Debt to creditors
Competitive Advantage
?
When a company’s profitability is greater than the average of all other companies in the same industry & competing for the same customers
When a company’s strategies enable it to maintain above average profitability for a number of years
Sustainable Competitive Advantage
Case of Dell Computers
Background
?
? ?
Founded in 1984 by Michael Dell at the age of 19.
Its strategy clicked into full gear in late 1990s. Dell was the world leader in 2002.
?
?
They were able to sell IBM clones at 40% cheaper price.
Attracted price conscious customers.
Facts
? Every Fortune 100 company does business with Dell. ? #1 PC provider in the U.S. and #2 worldwide. ? Preferred desktop and laptop of enterprises in the US and Europe. ? No. 1 PC supplier to small and medium businesses in the United States for 10 years in a row. ? 140,000 systems shipped per day, on average – that’s more than one every second. ? Rank No. 34 among the Fortune 500 ? 24 of the world’s top supercomputers run on Dell. ? The 10 largest U.S. companies run on Dell.
Key Strategy Of DELL
?
? ?
Strong capabilities in supply chain management
Low cost manufacturing Direct sales capabilities.
Core Elements of Dell’s Business Strategy
? ? ? ? ? ?
Build-to-order manufacturing
Partnerships with suppliers Just-in-time components inventories
Direct sales to customers
Customer service and technical support Use of Internet and e-commerce technology
Build to order manufacturing
?
Built to order, nothing is produced for inventory. So, no in-house stock of finished goods
Customers can order customized computers, laptops, workstations, servers as per their need. Leads to higher customer satisfaction. Orders are directed to nearest factory
?
?
?
Typical time to delivery: 3 days to 20 days depending on mode of shipping
Partnership with suppliers
?
Partnership with reputable suppliers of PC parts and components, avoided parts and components manufacturing on its own
?
?
Evaluated makers of each component and picked the best one or two as suppliers.
While partnering, focused on brand / name of supplier/component, technology, performance, quality and cost. Long term commitment to suppliers so, no shortage of components even during high demand seasons. Encourage suppliers to locate their plants/distribution centers near to Dell’s assembly plants Continuous cooperation with suppliers to drive down costs.
? ? ?
Internet and E-Commerce Technology
? ?
Leader in internet and e-commerce technology Greater efficiency in supply chain activities
?
? ? ? ?
Streamline order-to-delivery process
Encourage greater use of its Web Site Customer profiling, sales trend, business intelligence Real time order-status information Sales and technical support tool
Just-in-time Inventory Practices
?
?
Varies from 2 hours to couple of days
Average inventory turn cycle dropped from 32 days in 1995 to 3 days in 2008
?
?
Reduced “time-to-market” time of new technology
Significant cost advantage because of frequent reductions in components’ prices. Partnership with branded suppliers eliminated need of quality check at Dell’s end.
?
Direct Sales Strategy
?
?
Customer-driven sales strategy
Selling direct gives firsthand intelligence about customer needs and preferences
?
Immediate feedback on design problems and quality glitches that allows prompt corrective action
Able to quickly detect shifts in sales and market trend High profit margin due to no commission to reseller/dealers
?
?
Comparison of Dell’s Market Share with their Core Competition: 1997-2001
Market Share
IBM
HP
-19%
Dell
-23%
1997 - 2001
Company’s Business Model
?
A business model addresses “How do we make money in this business?”
?
Is the strategy capable of delivering good bottom-line results?
?
Do the revenue-cost-profit economics of the strategy make good business sense?
? ?
Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit margins
?
Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money?
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 the business can be amply profitable and viable
Differences in Industry and Company Performance
A Company’s Profitability and Profit Growth are determined by two main factors:
1. The overall performance of its industry relative to other industries 2. Its relative success in its industry as compared to the competitors
Return on Invested Capital in Selected Industries, 1997–2003
Data Source: Value Line Investment Survey
Levels of Strategic Management
Strategy-making Levels in a diversified Co.
Corporate-Level Managers Business-Level Managers
Corporate Strategy
Two-Way Influence
Business Strategies
Two-Way Influence
Functional Managers
Functional Strategies
Two-Way Influence
Operating Managers
Operating Strategies
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 narrower strategies for managing grassroots activities and strategically-relevant operating units
Add detail to business and functional strategies Delegation of responsibility to frontline managers
?
?
Planned, Deliberate, Emergent and Realized Strategies
Intended and Emergent Strategies
?
Intended or Planned Strategies
? ? ?
Strategies an organization plans to put into action Typically the result of a formal planning process Unrealized strategies are the result of unprecedented changes and unplanned events after the formal planning is completed
?
Emergent Strategies
? ?
Unplanned responses to unforeseen circumstances Serendipitous discoveries and events may emerge that can open up new unplanned opportunities Must assess whether the emergent strategy fits the company’s needs and capabilities
?
?
Realized Strategies
?
The product of whatever intended strategies are actually put into action and of any emergent strategies that evolve
The Five Steps of the Strategy Making Process
?
Select the corporate vision, mission, and values and the major corporate goals and objectives.
?
?
Analyze the external competitive environment to identify opportunities and threats.
Analyze the organization’s internal environment to identify its strengths and weaknesses. Select strategies that:
?
?
Build on the organization’s strengths and correct its weaknesses – in order to take advantage of external opportunities and counter external threats Are consistent with organization’s vision, mission, and values and major goals and objectives Are congruent and constitute a viable business model
? ?
?
Implement the strategies.
? Crafting the Organization’s Mission Statement
Provides a framework or context within which strategies are formulated, including:
? ?
?
?
Mission – The reason for existence – what an organization does Vision – A statement of some desired future state Values – A statement of key values that an organization is committed to Major Goals – The measurable desired future state that an organization attempts to realize
? External Analysis
Purpose is to identify the strategic opportunities and threats in the organization’s operating environment that will affect how it pursues its mission.
External Analysis requires an assessment of: ? Industry environment in which company operates ? Competitive structure of industry ? Competitive position of the company ? Competitiveness and position of major rivals ? The country or national environments in which company competes ? The wider socioeconomic or macroenvironment that may affect the company and its industry ? Social ? Government • Legal • Technological
? Internal Analysis
Purpose is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior performance and weaknesses to inferior performance.
Internal analysis includes an assessment of:
?
Quantity and quality of a company’s resources and capabilities
?
Ways of building unique skills and company-specific or distinctive competencies
Building & sustaining a competitive advantage requires a company to achieve superior: • Efficiency • Innovations
• Quality • Responsiveness to customers
? Selecting Strategies: SWOT Analysis and Business Model
?
?
SWOT analyses help to identify strategies that align a company’s resources and capabilities to its environment – in order to create and sustain a competitive advantage. Functional strategies should be consistent with and support the company’s business level and global strategies. ? Functional-level strategy – directed at operational effectiveness
?
Business-level strategy – businesses’ overall competitive themes
?
?
Global strategy – expand, grow and prosper at a global level
Corporate-level strategy – to maximize profitability and profit growth
When taken together, the various strategies pursued by a company must lead to a viable business model.
? Strategy Implementation
?
After choosing a set of congruent strategies to achieve competitive advantage, managers must put those strategies into action:
? ? ? ? ? ?
Implementation and execution of the strategic plans Design of the best organization structure Consistency of strategy with company culture Control systems to measure and monitor progress Governance systems for legal and ethical compliance Consistency with maximizing profit and profit growth
?
The feedback loop – strategic planning is ongoing
?
Managers must monitor strategy execution:
• To determine if strategic goals and objectives are being achieved
• To evaluate to what extent competitive advantage is being created and sustained
?
Managers must monitor and reevaluate for the next round of strategy formulation and implementation
Who Participates in Crafting a Company’s Strategy?
?
? ?
Chief executive officer - CEO
Senior corporate executives Chief financial officer - CFO
?
?
Managers of business divisions and major product lines
Key VPs for production, marketing, human resources, and other functional departments
Every company manager has a strategy-making, strategy-executing role – ranging from minor to major – for the area he or she heads!
Strategizing: An Individual or Team Responsibility?
?
Teams are increasingly used because
?
Finding market- and customer-driven solutions is necessary Complex strategic issues cut across functional areas and departmental units
?
?
Ideas of people with different backgrounds and experiences strengthen strategizing effort
Groups charged with crafting the strategy often include the people charged with implementing it
?
Good Strategy + Good Strategy Execution = Good Management
?
?
Crafting and executing strategy are core management functions
A company’s ultimate success depends on how well its team
? ?
Charts the company’s direction, Develops competitively effective strategic moves and business approaches, and Pursues what needs to be done internally to produce good dayin/day-out strategy execution
?
Excellent execution of an excellent strategy is the best test of managerial excellence -- and the most reliable recipe for winning in the marketplace!
“The essence of strategy lies in creating tomorrow’s competitive advantage faster than competitors mimic the ones you possess today.”
- Gary Hamel &
C. K. Prahalad
doc_644925262.pptx