Strategic Management

Unique to competing across boarders - Whether to customize the company's offerings in each country -Whether to employ the same strategy -Where to locate production, distribution, and customer service operations -How to transfer strengths/capabilities Why do companies enter foreign markets? - Gain access to new customers - Achieve lower costs and thereby becoming more cost competitive - Further exploit capabilities and resource strengths - Spread business risk Why competing across national boarders makes strategy more complex - Cross country differences in buyer taste, market size, growth potential - Sizeable cross- country differences in wage rate, worker productivity, inflation rates, energy supplies and other profit contributors - Gov policies/reg - Risk of adverse shift in currency Core Concept : International Strategy - Tension between the market pressures to localize a company's product offering country by country and the competitive pressure to lower costs by offering most standardize products in all countries where a company competes is one of the big strategic issues that company must address Currency Companies that export goods to foreign countries always gain in competitiveness when the currency of the country in which the goods are being manufactures grows weaker relative to the currencies of countries to which goods are being exported Multi-country competition Exists when competition in one national market is not closely connected to competition in another national market.. There is no global or world market, just a collection of self-contained markets - company varies product offerings and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions Local strategy drawbacks - Increased production and distribution costs - Not conducive to building a single worldwide competitive advantage - Handicap a company from using its existing resources, competencies, and capabilities Global Competition Competitive conditions across national markets are linked strongly enough to form a true international market and when leading competitors compete head to head in many different countries - Ex: motor vehicles, tvs 7 Primary Strategic Options: International Competition - Maintain a national production base and export to foreign markets - License foreign firms to use the company's technology to produce/distribute - Franchise - Multi country strategy - Global strategy - Rely upon acquisitions or internal startup ventures to gain entry - Strategic alliances/joint ventures with foreign companies Think Global, Act Global Strategy Company employs the same basic competitive approach in all countries where it operates, sells the same product everywhere - Coordinate strategic actions from central headquarters Think global, act local Middle ground approach allowing managers to - Incorporate minor country specific variations in products to better satisfy - Make adjustments in production/distribution/marketing Acquisitions Allows acquirer to move directly to the task of transferring resources and personnel, integrating and redirecting activities, putting a new strategy in place, accelerating efforts Internal Start ups Makes sense when a company already operates in a number of countries - When creating a new subsidiary is cheaper - When adding new production capacity will not adversely impact the supply/demand balance in the local market - When a new subsidiary has the ability to gain good distribution access - When a new subsidiary will have the size, cost structure, and resource strengths to compete against local rivals Cross-Boarder Alliances Enable a growth minded company to widen its geo coverage and strengthen its competitive foreign markets - offers flexibility and allows a company to retain some degree of autonomy and operating control Risk of a collaborative strategy - Knowledge and expertise of local partners could be less valuable - Language and culture barriers - Conflicting objectives/strategies - Cannot become dependent on foreign partners Using Location to Build Competitive Advantage - The costs of manufacturing/other activities are sig. lower in some locations - Scale economies exist in production or distribution - Sizeable learning and experience benefits are associated with performing an activity - Certain locations have superior resources, allow better coordination of related activities Profit Sanctuaries Country markets in which a company derives substantial profits because of its strong or protected market position Offensive Attacks on Global Rivals - Attack a profit sanctuary - Dump goods at cut rate prices in the markets of rivals, when this happens company is selling well below the price at which it sells elsewhere, below full costs per unit - Risk of government retaliation Task of Diversifying : Top-Level Executives - Pick new industries to enter - decide to start a new business, acquire, or form a joint venture/strategic alliance - Initiating actions to boost the combined performance of the business the firm has entered - Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into a competitive advantage - Evaluate the growth and profit prospects When a company becomes a prime case for diversifying - When it spots an opportunity for expanding into industries whose technologies and products compliment its present business - When it can leverage existing competencies and capabilities by expanding into businesses where those resources strengths are valuable - When diversifying into closely related businesses opens new avenues for reducing costs -Powerful and well known brand name Industry Attractiveness Test - Depends on the presence of industry and competitive conditions that are conducive to earnings as good or better profits and return on investments than the company is earning in present business Cost of Entry Test Cost to enter target industry must not be so high as to erode the potential for good profitability Better Off Test Offer potential for the company's existing business and new business to perform better together under a single corporate umbrella than they would perform operating as independent stand alone business - 1+1 = 3 Case for Diversifying into Related Businesses - Strategic fit Exists when the value chains of different businesses present opportunities for cross-business resource transfer, lower costs through combining the performance of related value chain activities, cross business use of potent brand name, and or cross business collaboration to build new or strong competitive capabilities Economies of Scale : Case for Diversifying into Related Businesses Cost savings that accrue directly from a larger sized operation Economies of Scope: Case for Diversifying into Related Businesses Cost reductions that flow from operating in multiple businesses. Such economies stem directly from strategic fit efficiencies along the value chains of related businesses Unrelated Businesses - Company investments spread over businesses whose technologies and value chains bear no close relationships and whose markets are largely disconnected Case for Unrelated Businesses - Financial resources can be employed to maximum advantage - Invest in whatever industries offer the best profit prospects - Diverting cash flow from company businesses with lower growth and profit prospects to acquiring and expanding business - Shareholder wealth can be enhanced by buying a distressed business at a low price and fixing it - profitatbility can be somewhat more stable Drawbacks to unrelated diversification - Demanding Managerial Requirements - No potential for competitive advantage beyond any benefits of corporate parenting and what each individual business can generate on its own Actions to improve company performance - Assessing the attractiveness of the industries the company has diversified into, both individually and as a group - Assessing the competitive strength of the company's business units and determining how many are strong contenders in their industries - Checking the competitive advantage potential of cross-business strategic fits among the company's various business units -Checking whether the firms resources fit the requirements of its present business line up -Ranking the performance prospects of the businesses from best to worst and determining what the corporate parent's priority should be when allocating resources -Crafting new strategic moves Competitive Strength Scores for each Business Unit - Relative market share - Costs relative to competitors costs - Ability to match or beat rivals on key product attributes - Ability to benefit from strategic fits with sister businesses - Ability to exercise bargaining leverage with key suppliers or customers - Brand image and reputation -Competitively valuable capabilities - Profitability relative to competitors Cash Hog Business that generates cash flows that are too small to fully fund its operations and growth - Require cash infusions to provide additional working capital and finance new investment Cash Cow Business generates cash flows over and above its internal requirements thus providing corporate parents with funds for investing in cash hog businesses, financing new acquistions, or paying dividends Crafting Strategies to Improve Overall Performance - Sticking closely with the existing business line up and pursuing the opportunities these businesses present -Broadening the company's business scope by making new acquisitions in new industries - Divesting certain businesses and retrenching to a narrower base of operations - Restructuing the company's business line up and putting a whole new fact on the company's make up - Pursuing multinational diversification and striving to globalize the operations of several of the company's business units Business has the duty to.... - Deliver value to customers and shareholders - Act in an ethical manner - Be committed corporate citizen and allocate some of its financial and human resources to improving the well being of employees, the communities in which they operate and society as a whole - Avoid strategies and operating practices that adversely effect the environment Business Ethics Deals with the application of general ethical principles and standards to the actions and decisions of business and the conduct of their personnel School of Ethical Universalism - Most important standards of whats ethical and what is not resonate with peoples of many societies regardless of local traditions and cultural norms - Universal ethical standards --> Avoids issues with having different ethical standards for different company personnel depending on where they work School of Ethical Relativism Differing religious beliefs, historic traditions and customers, core values and beliefs, and behavioral norms across countries and culture give rise to multiple sets of standards - Certain business related actions or behaviors are ethically wrong or right depending on prevailing local ethical standards Integrated Social Contracts Theory Universal ethical principles or norms based on the collective views of multiple cultures and societies combined to form a "social contract" - Universal norms always take precedence over local ethical norms Moral Manager Dedicated to high standards of ethical behavior both in their actions and in their expectations of how the business should be conducted Immoral Manager No regard for so-called ethical standards in business and pay no attention to ethical principles in making decisions and conducting the companys business Amoral Manager Business ought to be able to do whatever prevailing laws and regulations allow them to do Drivers of unethical strategies and business behavior - Overzealous pursuit of wealth and other selfish interests - Heavy pressures on company managers to meet or beat performance targets - Company culture that puts the profitability and good business performance ahead of ethical behavior Why should a company be ethical? - Unethical --> morally wrong and reflects badly on the character of the company personnel involved - Good business and in the interest of shareholders Social Responsibility -Company's duty to operate in an honorable manner - Provide good working conditions for employees - Be a good steward of the environment - Activity work to better the quality of life in local communities and society at large Triple Bottom Line Profit People Planet Benefits of Ethical Behavior - increased buyer patronage - Strong commitment to socially responsibility reduces the risk of reputation damaging incidences - Socially responsible actions yield internal benefits and can improve operational efficiency - Well conceived social responsibility work to the advantage of shareholders Team Effort - All managers have a responsibility to execute strategy in their area of authority - All employees are active participants in strategy execution process Principle Managerial components of strategy execution process - Developing the competencies, capabilities, and organizational structure to execute strategy successfully - Marshaling sufficient money and people behind the drive for execution - Instituting policies and procedures that facilitate strategy execution -Adopting best practices for continuous improvement in how value chain activities are performed - Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently - Using rewards and incentives - Instilling a corporate culture that promotes good execution - Exercising strong leadership, making corrective adjustments, move towards operating excellence as rapidly as feasible Two Best Signs of Good Execution - Meeting or beating performance targets - Performing value chain activities in a manner that is conducive to company operating excellence Key Action: Staffing the Organization Strong management team : Smart, clear thinkers. Good at figuring out what needs to be done. Skill in making it happen Recruiting and Retaining Talented Employees: Considerable effort to screen and evaluate, training programs, job rotations, encouraging employees to challenge the existing way of doing things, making the work environment stimulating and engaging Retain: Promotions, salary, bonus Coaching average performers to improve Key Action: Developing and strengthening core competencies and competitive capabilities - Developing a set of competencies and capabilities suited to the current strategy - Updating and revising this set as external conditions change - Training and retraining company personnel as needed to maintain skills based competencies Key Action: Structure the organization and work effort - Instituting organization arrangements the facilitate good execution -- Deciding how much decision making authority to push down to lower-level managers and front line employees Core Concept: Execution Company competencies and capabilities must be continually refreshed and recalibrated to remain aligned with changing customer expectations, ever-evolving competitive conditions, and a company's own strategic initiatives to outperform rivals - The organizational momentum that comes from astute and timely management efforts to develop a formidable portfolio of dynamic capabilities is often sufficient to keep a company's sales and profit performance going Decided which value chain activities to perform internally or outsource - Outsourcing enables a company to heighten its strategic focus and concentrate is full energies and resources on even more competently performing those value chain activities that are at the core of its strategy and for which it can create unique value - Improves chances for outclassing rivals in the performance of strategy critical activities and turning a core competences into a distinctive competence - Streamlining internal operations that flow for outsourcing often acts to decrease internal bureaucracies, flatten the organizational structure, speed internal decision making and shorten time to respond to changes - Partnerships can add to a company's arsenal of capabilities and contribute to better execution Execution Critical - In companies where proficient performance of certain value chain activities is execution critical, it is important, to make the organizational units performing these activities the main building blocks in the enterprises organizational scheme Internal Cross-Unit Coordination - Filing customer orders accurately and promptly - Fast ongoing introduction of new products -Improving product quality -Supply chain management - Building the capability to conduct business via the internet - Obtaining feedback from customers and making product modifications to meet their needs Resources Must be properly allocated for good strategy execution Prescribing policies and procedures - Provides top down guidance about how certain things need to be done - Align actions and behavior of company personnel with the requirements for good execution - Places limits on independent actions and helps overcome resistence to change - Channels individual and group efforts along a strategy- supportive path - Helps enforce consistency Best Practice Means of performing an activity or process that yields results consistently superior to those realized via alternative methods - Serves as a benchmark or standard for determining how well a particular organization performs that activity From Benching Marking and Best practice to Operating Excellence - Participate in benchmarking to identify the best practice for performing an activity - Adapt the best practice to fit the company's situation, then implement it - Continue to benchmark company performance of the activity against "best in the industry" or "best in the world" performers Business Process Reengineering Radically redesigning and streamlining how an activity is performed with the intent of achieving quantum improvements in performance TQM Creating a total quality culture bent on continuously improving the performance of every task and value chain activity - 100% accuracy in performing tasks, involvement and empowerment of employees at all levels, team-based work design, benchmarking and total customer satisfaction - Continuous improvement programs Six Sigma - Ongoing incremental improvements - No more than 3.4 defects per million itterations (99.99....) - DMAIC : define, measure, analyze, improve and control TQM vs. Six Sigma The focus of TQM is general improvement using collaborative and cultural approach to a problem, while Six Sigma is more statistical and data driven. TQM emphasizes increased performance levels; Six Sigma stresses acceptance requirements and minimum standards. TQM’s quality definition is where a product meets set company standards, while Six Sigma’s quality definition is, to a larger part, determined by the customer. State of the art operating system and real time data - integral to competent strategy execution and operating excellence. They can also be a basis for competitive advantage is they give a firm capabilities rivals cant match Information systems need to cover.... - Customer Data - Operations Data - Employee Data - Supplier/Partner/Collaborative Ally Data - Financial Performance Data Rewards and Incentives Use of incentives and rewards in the single most powerful tool management has to win strong employee commitment to diligent, competent strategy execution and operating excellence - Attractive financial compensation - Perks and fringe benefits - Libral use of non-monetary carrot-and-stick incentives -Relying on promotion from within whenever possible - Stating the strategic vision in inspirational terms that make employees feel they are part of doing something worthwhile in a large social sense - Maintaining above average facilities Balance Between Rewards and Punishments - Unwise to take off the pressure for good individual and group performance or play down stress, anxiety, and adverse consequences of shortfalls in performance - Dont want too much stress - Incentives must be based on accomplishing the right results, not on dutifully performing assigned tasks Effective Compensation System - Making the performance payoff a major not minor piece of the total compensation package - Having incentives that extend to all managers and workers not just top management - Administer the reward system with scrupulous objectivity and fairness - Make sure that performance targets each individual or team is expected to achieve involes outcomes that the individual or team can personally affect - Keep the time between achieving target performance outcome and payment of the reward as short as possible Corporate Culture Refers to the character of a company's internal work climate and personality - Shaped by core values, beliefs, business principles, ethical standards, traditions, ingrained behaviors, work practices, approach to people management and style of operation A company's stated core values and ethical principles - Help create a work climate where company personnel share common and strongly held convictions about how the company's business is to be conducted - Signal employees that they are expected to display the company's core values in their actions and uphold the company's ethical standards Company Subculture - Vary significant by department, location, division or unit Can exist as a result of Acquiring other companies different operating histories and work climates Languages Different upbringings Problem: Clash, company has to be alert to the importance of commonality and compatibility Strong Company Culture - Culturally approved behaviors and ways of doing things flourish which disapproved behaviors and work practices get squashed - over time, values come to be widely shared by rank and file employees, people who dislike the culture leave - Individuals encounter strong peer pressure to observe norms Weak Culture Companies - Lack values and principles that are consistently preached or widely shared - Usually because the company had a series of different values and views about how the company's business should be conducted - Stems from moderately entrenched subcultures Why Corporate Cultures Matter - Culture functions as a valuable ally in execution - highly important assistant to management efforts - closely aligning the culture with requirements for strategy execution merits the full attention of a senior executive High performance Cultures Standout traits - can do spirit - pride in doing things right - no excuses accountability - pervasive result- oriented climate to stretch and beat objectives Adaptive cultures Willingness on the part of organization members to accept change and take on the challenge of introducing and executing new strategy Unhealthy cultures - Change resistant cultures - politicized cultures - insular, inwardly focused - unethical/greed driven - incompatible subcultures Culture Changing Actions - Replace high profile executives and managers strongly associated with old culture - Promote individuals who possess desired traits - Appointing outsiders with desired cultural attitudes to influencial positions - Screening all candidates carefully - Mandating all company personnel to attend culture training programs - Push hard to implement new style - Designing compensation incentives that boost the pay of teams and individuals - Granting generous pay raises to individuals who step out front -Revising policies and procedures Managerial Actions : Culture - Stay on top of what is happening - Monitor progress, iron out issues, learn about obstacles, deciding the best pay to get things done - Constructive pressure - Corrective action Constructive Pressure - Treating employees as partners in the drive for excellence - use empowerment - stretch objectives and clearly communicate an expectation that company personnel are to give their best in achieving performance targets - Benchmarking, best practices, business reenginering, TQM, six sigma Good job of leading execution " Doing a good job of leading the strategy execution process is not about searching for the right way to proceed or for provable correct solutions, it;s about proceeding in a manner that produces good results, namely proficient strategy execution, progress towards operating excellence and good business performance.