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Business Strategy (BMGT30300)

Business eLearning

Module schedule
Two hour plenary per week focusing on the
key concepts and tools of strategy
Two hour tutorial per every fortnight focusing
on the application of these key concepts and
tools through case study analysis The
tutorials will also deal with additional
readings.
PLEASE ATTEND YOUR REGISTERED TUTORIAL

Assessment:
Mid-Term MCQ examination: 30%
Final exam (closed book): 70%
BMGT30300

Required reading:
"Crafting and Executing Strategy" by
Thompson, Strickland, Gamble, Peteraf, Janes
and Sutton (2013). Publisher: McGraw Hill.
Additional readings
Links to additional readings will be available in
the Reading Folder in BlackBoard.
Certain readings will be e-mailed by us to your
UCD Connect email address.
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What do we mean by strategy


What is our present situation?

Business environment and industry conditions


Firms financial and competitive capabilities
Where do we want to go from here?
Creating a vision for the firms future direction
How are we going to get there? Crafting an action
plan that will get us there

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What is it all about?


Strategy is all about How:

How to outcompete rivals.


How to respond to economic and market
conditions and growth opportunities.

How to manage functional pieces of the


business.
How to improve the firms financial and market
performance.

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To what end?
A firm strategises:

To improve its financial performance.


To strengthen its competitive position.
To gain a sustainable competitive advantage
over its market rivals.
A creative, distinctive strategy:
Can yield above-average profits.
Makes competition difficult for rivals.

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Strategy is about competing differently from


rivals

Doing what they dont do or doing it better!

Doing what they cant do!

Doing that which sets the firm apart and


attracts customers.

Deciding what we should or should not do to


produce a competitive edge.

Can be described as adopting a particular


position

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Competitive Advantage
Meeting customer needs more effectively, with
products or services that customers value
more highly, or more efficiently, at lower cost.
Sustainable Competitive Advantage
Giving buyers lasting reasons to prefer a firms
products or services over those of its
competitors.

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Strategic choices

Building Competitive Advantage

Low-cost provider

Differentiation on
features

Focus on
market niche

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Best-cost provider

Strategy design or process?

Relationship between strategy and the


business model

Business Model
Competitive
Initiatives

Realised
Strategy
Business
Approaches

Value Proposition

Profit Formula

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An organisations business model


How the business will make money :

By providing customers with value.


The Customers value proposition
By generating revenues sufficient to cover
costs and produce attractive profits.
The firms profit formula

It takes a proven business model - one that


yields appealing profitability - to demonstrate
viability of a firms strategy.
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Elements of the Business model


The Customer Value Proposition
Satisfying buyer wants and needs at a price
customers will consider a good value.
The greater the value provided (V) and the
lower the price (P), the more attractive the
value proposition is to customers.

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The Profit Formula

Creating a cost structure that allows for


acceptable profits, given that pricing is tied to
the customer value proposition.
Vthe value provided to customers
Pthe price charged to customers
Cthe firms costs
The lower the costs (C) for a given customer
value proposition (VP), the greater the ability
of the business model to be a moneymaker.

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Adapting Business models to changing


environments => See textbook,
Illustration capsule 1.2

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Reinventing your Business Model

Johnson, M., C. Christensen and H. Kagermann (2008) Reinventing your Business Model Harvard Business Review

Does it all make sense? Testing the


strategy

The Strategic
Fit Test

The Competitive
Advantage Test

Successful
Strategy

The Performance
Test

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Testing the strategy ..some recent


suggestions

Will the strategy beat the market?


Does the strategy tap a true source of advantage?
Is the strategy granular about where to compete?
Does the strategy put the firm ahead of trends?
Does the strategy rest of privileged insights?
Does the strategy embrace uncertainty?
Does the strategy balance commitment and
flexibility?
Is the strategy contaminated by bias
Is there conviction to act on the strategy?
Has the strategy been translated into an action plan?

Source: Bradley et al. 2011 (McKinsey Quarterly)


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Why Crafting and Executing Strategy is


Important
Strategy provides:
A prescription for doing business.
A road map to competitive advantage.
A game plan for pleasing customers.
A formula for attaining long-term standout
marketplace performance.

Good Strategy + Good Strategy Execution =


Good Management

The Road Ahead


Strategy is about asking the right questions:

What must managers do, and do well, to make


a firm a winner in the marketplace?
Strategy requires getting the right answers:

Good strategic thinking and good management


of the strategy-making, strategy-executing
process.
First-rate capabilities and skills in crafting and
executing strategy are essential to managing
successfully.

Chapter 2

Charting the organisations direction

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Key issues
Appreciating why company managers need a clear
strategic vision of where a company needs to go and
why?
Understanding the importance of setting both
strategic and financial objectives?
Understanding the importance of tightly coordinating
strategic initiatives taken at various organisational
levels
Appreciating the importance of achieving operating
excellence and execute its strategy proficiently?
Understanding the role and responsibility of a
companys board of directors in overseeing the
strategic management process?

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What does a strategic process entail?


Developing a strategic vision, a mission, and
arriving at a set of values.
Setting objectives for measuring performance and
progress.
Crafting a strategy to achieve those objectives.
Executing the chosen strategy efficiently and
effectively.
Monitoring strategic developments, evaluating
execution and making adjustments in the vision
and mission, objectives, strategy, or execution as
necessary.
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Figure 2.1

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Stage 1
Developing a Strategic Vision:
Delineates managements future aspirations
for the business to its stakeholders.
Provides direction -where we are going.

Sets out the compelling rationale (strategic


soundness) for the firms direction.

Uses distinctive and specific language to set the


firm apart from its rivals.

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The Dos

The Dont s

Be graphic

Dont be vague or
incomplete

Be forward-looking and
directional

Dont dwell on the present

Keep it focused

Dont use overly broad


language

Have some wiggle room

Dont state the vision in


bland or uninspiring terms

Be sure the journey is


feasible

Dont be generic

Indicate why the


directional path makes
good business sense

Dont rely on superlatives


only

Make it memorable

Dont run on and on

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Why communicate the vision?


Why Communicate the Vision:
Fosters employee commitment to the firms
chosen strategic direction.
Ensures understanding of its importance.
Motivates, informs, and inspires internal and
external stakeholders.
Demonstrates top management support for
the firms future strategic direction and
competitive efforts.
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Landing the strategic vision


Put the vision in writing and distribute it.
Hold meetings to personally explain the
vision and its rationale.
Create a memorable slogan that captures
the essence of the vision.
Emphasize the positive payoffs for
making the vision happen.

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Crafting the mission statement


The Mission Statement:
Uses specific language to give the firm its
own unique identity.
Describes the firms current business and
purpose -who we are, what we do, and why
we are here.
Should focus on describing the
organizations business, not on making a
profit- earning a profit is an objective not a
mission.
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The ideal mission statement


Identifies the firms product or services.

Specifies the buyer needs it seeks to satisfy.


Identifies the customer groups or markets it is
endeavoring to serve.
Specifies its approach to customers.

Sets the firm apart from its rivals.


Clarifies the firms business to stakeholders.

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Linking vision and mission with core


values
Core Values

The beliefs, traits, and behavioral norms that


employees are expected to display in conducting the
firms business and in pursuing its strategic vision
and mission.
Become an integral part of the firms culture and
what makes it tick when strongly espoused and
supported by top management.
Matched with the firms vision, mission, and strategy
contribute to the firms business success.

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Stage 2: Setting objectives


The Purpose of Setting Objectives:

To convert the vision and mission into specific,


measurable, timely performance targets.

To focus efforts and align actions throughout the


organization.

To serve as measures for tracking a firms


performance and progress.

To provide motivation and inspire employees to


greater levels of effort.

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2 important types of objectives


Financial Objectives

Communicate top managements targets for financial


performance.
Are focused internally on the firms operations and
activities

Strategic Objectives

Are related to a firms marketing standing and competitive


vitality.
Are focused externally on competition vis--vis the firms
rivals.

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How is your firm performance assessed?


(See slides from lecture 1)
Five performance objectives set for your firm:
1. Grow earnings per share at least 8% annually
2. Maintain a return on equity investment (ROE) of
15% or more annually.
3. Maintain a B+ or higher credit rating.
4. Achieve stock price gains averaging about 8%
p.a.

5. Achieve an image rating of 70 or higher


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Examples of Strategic Objectives

Gaining x % market share


Achieving lower overall costs than rivals
Overtaking rivals on product performance or quality of customer service
Deriving x % of revenue from sale of new products over last x years
Having broader or deeper technological capabilities than rivals
Having wider product line than rivals
Having better brand name than rivals
Having better distribution capabilities
Consistently getting new or improved products to market ahead of rivals

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Shortcomings of financial data


Good financial performance is not enough:

Current financial results are lagging indicators of past decisions


and actions which do not translate into a stronger competitive
capability for delivering better financial results in the future.
Setting and achieving stretch strategic objectives signals a
firms growth in both competitiveness and strength in the
marketplace.
Good strategic performance is a leading indicator of a firms
increasing capability to deliver improved future financial
performance.

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The Balanced Scorecard


A balanced scorecard
measures a firms
optimal performance
by:
Placing a balanced
emphasis on achieving
both financial and strategic
objectives.
Avoiding tracking only
financial performance and
overlooking the
importance of measuring
whether a firm is
strengthening its
competitiveness and
market position.

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The Balanced Scorecard (Kaplan and Norton, 1992)

Stretch objectives
Setting stretch objectives promotes better
company performance because stretch targets:

Push a firm to be more inventive.

Increase the urgency for improving financial


performance and competitive position.

Cause the firm to be more intentional and focused in


its actions.

Act to prevent complacent coasting and easy


achievement of ho-hum performance outcomes.

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The need for short & long term


objectives
Short-Term Objectives:
Focus attention on quarterly and annual
performance improvements to satisfy nearterm shareholder expectations.

Long-Term Objectives:
Force consideration of what to do now to
achieve optimal long-term performance.
Stand as a barrier to an undue focus on
short-term results.
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The need for organisational coherence


Breaks down performance targets for each of
the organisations separate units.
Fosters setting performance targets that support
achievement of firm-wide strategic and financial
objectives.
Extends the top-down objective-setting process
to all organizational levels.

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Stage 3: Crafting strategy


Strategy Making:
Addresses a series of strategic hows.
Requires choosing among strategic
alternatives.
Promotes actions to do things differently
from competitors rather than running with the
herd.
Is a collaborative team effort that involves
managers in various positions at all
organisational levels.
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The strategy-making hierarchy

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The Strategy-making Hierarchy

Strategic intent
An organisation exhibits strategic intent
when it relentlessly pursues an
ambitious strategic objective,
concentrating the full force of its resources
and competitive actions on
achieving that objective!

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Characteristics of strategic intent


Indicates firms intent to making quantum gains in
competing against key rivals and to establishing
itself as a winner in the marketplace, often against
long odds.

Involves establishing a performance target out of


proportion to immediate capabilities and market
position but then devoting the firms full resources
and energies to achieving the target over time.
Entails sustained actions to take market share
away from rivals and achieve a much stronger
market position.
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Stage 4: Executing strategy


Converting strategic plans into actions
requires:
Directing organisational action.

Motivating people.
Building and strengthening the firms
competencies and competitive capabilities.
Creating and nurturing a strategy-supportive
work climate.

Meeting or beating performance targets.


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Managing the execution process


Staffing the firm with the needed skills and
expertise.
Building and strengthening strategy-supporting
resources and competitive capabilities.

Organising work effort along the lines of best


practice.
Allocating ample resources to the activities critical
to strategic success.
Ensuring that policies and procedures facilitate
rather than impede effective strategy execution
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Managing execution (cont.)


Installing information and operating systems that
enable effective and efficient performance.
Motivating people and tying rewards and
incentives directly to the achievement of
performance objectives.
Creating a company culture and work climate
conducive to successful strategy execution.

Exerting the internal leadership needed to propel


implementation forward and drive continuous
improvement of the strategy execution processes.

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Stage 5: Evaluating performance &


initiating adjustment
Evaluating Performance:

Deciding whether the enterprise is passing the three


tests of a good strategy - good fit, competitive
advantage, strong performance.
Initiating Corrective Adjustments:
Deciding whether to continue or change the firms
vision and mission, objectives, strategy, and/or
strategy execution methods.
Based on how open the organisation is to reflection
and learning.

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Role of BOD in corporate governance


Obligations of the Board of Directors:

Critically appraise the firms direction, strategy, and


business approaches.
Evaluate the caliber of senior executives strategic
leadership skills.
Institute a compensation plan that rewards top
executives for actions and results that serve
stakeholder interests.
Oversee the firms financial accounting and reporting
practices compliance.

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Tutorial One (Weeks 2 & 3)

Case Study: Reinventing Accor page 456

Analyse Accors Business Model and Strategy

Readings

Johnson, M., C. Christensen and H. Kagermann


(2008) Reinventing your Business Model Harvard
Business Review, Dec.
Boston Consulting Group (2009 )Business Model
Innovation
Collins and Porras (1996) Building your Companies
Vision. Harvard Business Review, Sept/Oct.

Week Two Lecture

Chapter Three
Analysing the External Environment