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1
What Is Strategy Chapter Title and Why Is It Important?
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Roadmap
Strategy and the Quest for Competitive Advantage Identifying a Companys Strategy Why a Companys Strategy Evolves Over Time A Companys Strategy Is Partly Proactive and Partly Reactive
Strategy and Ethics: Passing the Test of Moral Scrutiny The Relationship Between a Companys Strategy and Its Business Model What Makes a Strategy a Winner? Why Are Crafting and Executing Strategy Important?
1-3
Direction
of competitive moves and business approaches used by managers to run the company action plan to
Managements
Grow the business Attract and please customers Compete successfully Conduct operations Achieve target levels of organizational performance
1-5
to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on) to respond to changing market conditions to achieve targeted levels of performance
1-6
How How
what has not worked Managements appetite for taking risks Managerial analysis and strategic thinking about how best to proceed, given market conditions and the companys circumstances
Appealing to buyers in ways to set the enterprise apart from rivals and Carving out its own market position
Roll out high-speed Internet or broadband service to customers via cable modems Promote a new video-on-demand service to allow digital subscribers to watch TV programs whenever they want Promote a video-on-demand service so digital customers can order and watch pay-per-view movies Partner with Sony, MGM, and others to expand movie offerings Use VoIP technology to offer subscribers Internet-based phone service at a fraction of the cost charged by others Use video-on-demand and CDV offerings to combat mounting competition from satellite TV providers Employ a sales force to sell advertising to businesses that were shifting advertising dollars from sponsoring network programs to sponsoring cable programs Significantly improve customer service
1-9
heart and soul of any strategy are the actions and moves in the marketplace that a company makes to strengthen its competitive position and gain a competitive advantage over rivals A creative distinctive strategy that sets a company apart from rivals and yields a competitive advantage is a companys most reliable ticket to above average profitability
Competing with a competitive advantage is more profitable than competing with no advantage Competing with a competitive disadvantage nearly always results in below-average profitability
1-11
A company achieves sustainable competitive advantage when an attractive number or buyers prefer its products/services over those of rivals and when the basis for this preference can be maintained over time
Its nice when a strategy produces a temporary competitive edge but a durable edge over rivals greatly enhances a companys prospects for winning in the marketplace and realizing above-average profits
What separates a powerful strategy from an ordinary strategy is managements ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage!
1-12
the industrys low-cost provider (a cost-based competitive advantage) Incorporate differentiating features (a superior product type of competitive advantage keyed to higher quality, better performance, wider selection, value-added services, or some other attribute) Focusing on a narrow market niche (winning a competitive edge by doing a better job than rivals of serving the needs and preferences of buyers comprising the niche) Developing expertise and resource strengths not easily imitated or matched by rivals (a capabilities-based competitive advantage)
1-13
Outcompete
Johnson & Johnson Reliability in baby products Harley-Davidson King-of-the-road styling Rolex Top-of-the-line prestige Mercedes-Benz Engineering design and performance L.L. Bean Good value Amazon.com Wide selection and convenience
1-14
eBay Online auctions Jiffy Lube International Quick oil changes McAfee Virus protection auctions Starbucks Premium coffees and coffee drinks The Weather Channel Cable TV
Develop expertise, resource strengths, and capabilities not easily imitated by rivals
FedEx Next-day delivery of small packages Walt Disney Theme park management and family entertainment Toyota Sophisticated production system Ritz-Carlton Personalized customer service
1-15
1-16
Changes
Shifting market conditions Technological breakthroughs Fresh moves of competitors Evolving customer preferences Emerging market opportunities New ideas to improve strategy Crisis situations
1-18
1-19
Studying market trends and competitors actions Keen observation of customer needs Scrutinizing business possibilities based on new technologies Building firms market position via acquisitions or new product introductions Pursuing ways to strengthen firms competitive capabilities Proactively searching out opportunities to
to issues of
Duty and right vs. wrong
Ethical
and moral standards address What is the right thing to do? Two criteria of an ethical strategy:
Does not entail actions and behaviors that cross the line from should do to should not do and unsavory or shady and Allows management to fulfill its ethical duties to all stakeholders
1-21
pursuit of ethically questionable business opportunities Insist all aspects of company strategy reflect high ethical standards Make it clear all employees are expected to act with integrity Install organizational checks and balances to
Monitor behavior Enforce ethical codes of conduct Provide guidance to employees in gray areas
Display
Do
Business Model . . .
Concerns whether revenues and costs flowing from the strategy demonstrate a business can be amply profitable and viable
te tra
gy
ss ne l si e Bu od M
1-26
1-30
OF FIT TEST
COMPETITIVE
ADVANTAGE TEST
PERFORMANCE
TEST
consistency and unity among all pieces of the strategy of risk the strategy poses as compared to alternative strategies to which the strategy is flexible and adaptable to changing circumstances
Degree
Degree
While these criteria are relevant, they seldom override the importance of the three tests of a winning strategy!
1-32
compelling need exists for managers to proactively shape how a firms business will be conducted
strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary
1-33
and executing strategy are core management functions Among all things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team
Charts a companys direction, Develops competitively effective strategic moves and business approaches, and Pursues what needs to be done internally to produce good day-in/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!
1-34
3
Evaluating a Chapter Title Companys External Environment
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Things are always different--the art is figuring out which differences matter.
Laszlo Birinyi
3-3
Chapter Roadmap
The Strategically Relevant Components of a Companys External Environment Thinking Strategically About a Companys Industry and Competitive Environment
Question 1: What Are the Industrys Dominant Economic Features? Question 2: What Kinds of Competitive Forces Are Industry Members Facing, and How Strong Is Each Force? Question 3: What Factors Are Driving Industry Change and What Impacts Will They Have? Question 4: What Market Positions Do Rivals OccupyWho Is Strongly Positioned and Who Is Not? Question 5: What Strategic Moves Are Rivals Likely to Make Next? Question 6: What Are the Key Factors for Future Competitive Success? Question 7: Does the Outlook for the Industry Present an Attractive Opportunity?
3-4
facets
Fig. 3.1: From Thinking Strategically about the Companys Situation to Choosing a Strategy
3-6
3-7
A companys macro-environment includes all relevant factors and influences outside its boundaries Diagnosing a companys external situation involves assessing strategically important factors that have a bearing on the decisions a companys makes about its
Direction Objectives Strategy Business model
3-8
What forces are driving change in the industry? What are the key factors for competitive success? How attractive is the industry from a profit perspective?
3-9
size and growth rate Number of rivals Scope of competitive rivalry Buyer needs and requirements Degree of product differentiation Product innovation Supply/demand conditions Pace of technological change Vertical integration Economies of scale Learning and experience curve effects
3-10
3-11
Learning/Experience Effects
Learning/experience
effects exist when a companys unit costs decline as its cumulative production volume increases because of
The
bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume
3-12
are to identify
Key
analytical tool
3-14
How aggressively are rivals using various weapons of competition to improve their market positions and performance?
Competitive
Fig. 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry
3-17
Lower prices More or different performance features Better product performance Higher quality Stronger brand image and appeal Wider selection of models and styles
Bigger/better dealer network Low interest rate financing Higher levels of advertising Stronger product innovation capabilities Better customer service Stronger capabilities to provide buyers with custom-made products
3-18
Competitors are active in making fresh moves to improve market standing and business performance Slow market growth Number of rivals increases and rivals are of equal size and competitive capability Buyer costs to switch brands are low Industry conditions tempt rivals to use price cuts or other competitive weapons to boost volume A successful strategic move carries a big payoff Diversity of rivals increases in terms of visions, objectives, strategies, resources, and countries of origin Outsiders acquire weak firms in the industry and use their resources to transform new firms into major market contenders
3-20
rivals move only infrequently or in a nonaggressive manner to draw sales from rivals market growth
Rapid
Products
of rivals are strongly differentiated and customer loyalty is high costs to switch brands are high
Buyer There
are fewer than 5 rivals or there are numerous rivals so any one firms actions has minimal impact on rivals business
3-21
of threat depends on
Size of pool of entry candidates and available resources Barriers to entry Reaction of existing firms
Evaluating
How formidable entry barriers are for each type of potential entrant and Attractiveness of growth and profit prospects
3-22
3-23
economies of scale
Brand
Capital
Access
Industry
growth is rapid and profit potential is high are unwilling or unable to contest a newcomers entry efforts existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence
3-25
Incumbents
When
barriers are high competitors are struggling to earn good profits outlook is risky
Existing
members will strongly contest efforts of new entrants to gain a market foothold
3-26
Examples
Sugar
Eyeglasses
Newspapers
Whether substitutes are readily available and attractively priced Whether buyers view substitutes as being comparable or better How much it costs end users to switch to substitutes
3-28
3-29
Substitutes The
higher the quality and performance of substitutes lower the end users switching costs
The End
Whether suppliers can exercise sufficient bargaining leverage to influence terms of supply in their favor
3-31
3-32
members incur high costs in switching their purchases to alternative suppliers inputs are in short supply
Needed Supplier
provides a differentiated input that enhances the quality of performance of sellers products or is a valuable part of sellers production process are only a few suppliers of a specific input suppliers threaten to integrate forward
3-33
There Some
being supplied is a commodity switching costs to alternative suppliers are low substitutes exist or new ones emerge in availability of supplies occurs
Industry
members account for a big fraction of suppliers total sales members threaten to integrate backward
Industry Seller
Reduce inventory and logistics costs Speed availability of next-generation components Enhance quality of parts being supplied Squeeze out cost savings for both parties
Competitive
advantage potential may accrue to sellers doing the best job of managing supply-chain relationships
3-35
buyers have sufficient bargaining leverage to influence terms of sale in their favor and competitive importance of seller-buyer strategic partnerships in the industry
Extent
3-36
3-37
Buyer switching costs to competing brands or substitutes are low Buyers are large and can demand concessions Large-volume purchases by buyers are important to sellers Buyer demand is weak or declining Only a few buyers exists Identity of buyer adds prestige to sellers list of customers Quantity and quality of information available to buyers improves Buyers have ability to postpone purchases until later Buyers threaten to integrate backward
3-38
switching costs to competing brands are high in buyer demand creates a sellers market brand reputation is important to buyer
Sellers A
specific sellers product delivers quality or performance that is very important to buyer collaboration with selected sellers provides attractive win-win opportunities
3-39
Buyer
are an increasingly important competitive element in business-to-business relationships Collaboration may result in mutual benefits regarding
Competitive
advantage potential may accrue to sellers doing the best job of managing seller-buyer partnerships
3-40
3-41
Rivalry is vigorous Entry barriers are low and entry is likely Competition from substitutes is strong Suppliers and customers have considerable bargaining power
3-42
Rivalry is moderate Entry barriers are high and no firm is likely to enter Good substitutes do not exist Suppliers and customers are in a weak bargaining position
3-43
is to craft a strategy to
Insulate firm from competitive pressures Initiate actions to produce sustainable competitive advantage Allow firm to be the industrys mover and shaker with the most powerful strategy that defines the business model for the industry
3-44
Question 3: What Factors Are Driving Industry Change and What Impacts Will They Have?
Industries
change because forces are driving industry participants to alter their actions forces are the major underlying causes of changing industry and competitive conditions do driving forces originate?
ring of macroenvironment ring of macroenvironment
3-45
Driving
Where
Inner
Outer
Usually no more than 3 - 4 factors qualify as real drivers of change Are the driving forces acting to cause market demand for product to increase or decrease? Are the driving forces acting to make competition more or less intense? Will the driving forces lead to higher or lower industry profitability?
STEP 3: Determine what strategy changes are needed to prepare for impacts of driving forces
3-46
in long-term industry growth rate in who buys the product and how they
use it
Product
Technological Marketing
innovation
3-47
Diffusion Changes
Consumer Changes
preferences shift from standardized to differentiated products (or vice versa) in degree of uncertainty and risk policies / government legislation societal concerns, attitudes, and lifestyles
3-48
Regulatory Changing
3-49
technique to reveal different competitive positions of industry rivals is strategic group mapping
strategic group is a cluster of firms in an industry with similar competitive approaches and market positions
3-50
3-53
selected as axes should not be highly correlated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative or continuous Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group If more than two good competitive variables can be used, several maps can be drawn
3-54
closer strategic groups are on the map, the stronger the cross-group competitive rivalry tends to be all positions on the map are equally attractive
Not
Driving forces and competitive pressures often favor some strategic groups and hurt others Profit potential of different strategic groups varies due to strengths and weaknesses in each groups market position
3-55
Profiling
Competitor Analysis
Sizing
Which rival has the best strategy? Which rivals appear to have weak strategies? Which firms are poised to gain market share, and which ones seen destined to lose ground? Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?
3-58
rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue? rivals have a strong incentive, along with resources, to make major strategic changes? rivals are good candidates to be acquired? Which rivals have the resources to acquire others? rivals are likely to enter new geographic markets? rivals are likely to expand their product offerings and enter new product segments?
3-59
3-60
are those competitive factors most affecting every industry members ability to prosper KSFs concern
that a company needs to be competitively successful KSFs are attributes that spell the difference between
Profit and loss Competitive success or failure
3-61
On what basis do customers choose between competing brands of sellers? What resources and competitive capabilities does a seller need to have to be competitively successful? What does it take for sellers to achieve a sustainable competitive advantage?
KSFs
Rarely are there more than 5 - 6 factors that are truly key to the future financial and competitive success of industry members
3-62
3-63
Strong
Clever
plants close to end-use customers to keep costs of shipping empty cans low
Ability
Question 7: Does the Outlook for the Industry Present an Attractive Opportunity?
Involves
assessing whether the industry and competitive environment is attractive or unattractive for earning good profits certain circumstances, a firm uniquely well-situated in an otherwise unattractive industry can still earn unusually good profits
Under
Attractiveness is relative, not absolute Conclusions about attractiveness have to be drawn from the perspective of a particular company
3-67
market size and growth potential Whether competitive forces are conducive to rising/falling industry profitability Whether industry profitability will be favorably or unfavorably impacted by driving forces Degree of risk and uncertainty in industrys future Severity of problems facing industry Firms competitive position in industry vis--vis rivals Firms potential to capitalize on vulnerabilities of weaker rivals Whether firm has sufficient resources to defend against unattractive industry factors
3-68
The degree to which an industry is attractive or unattractive is not the same for all industry participants or potential entrants. The opportunities an industry presents depend partly on a companys ability to capture them.
3-69
4
Evaluating a Companys Chapter Title Resources and Competitive Position
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Before executives can chart a new strategy, they must reach common understanding of the companys
W. Chan Kim and Renee Mauborgne
current position.
4-2
Chapter Roadmap
Question
1: How Well Is the Companys Present Strategy Working? Question 2: What Are the Companys Resource Strengths and Weaknesses and Its External Opportunities and Threats? Question 3: Are the Companys Prices and Costs Competitive? Question 4: Is the Company Competitively Stronger or Weaker than Key Rivals? Question 5: What Strategic Issues and Problems Merit Front-Burner Managerial Attention?
4-3
4-5
Question 1: How Well Is the Companys Present Strategy Working? Key Considerations Must begin by understanding what the strategy is
Low-cost leadership Differentiation Focus on a particular market niche Broad or narrow geographic market coverage? In how many stages of industrys production/distribution chain does the company operate?
Covers all the bases? Internally consistent? Makes sense? Timely and in step with marketplace?
Is company achieving its financial and strategic objectives? Is company an aboveaverage industry performer?
4-7
in sales and market share and/or retaining customers in profit margins in net profits, ROI, and EVA financial strength and credit ranking at continuous improvement activities and reputation with customers
Acquiring
Leadership
4-9
4-10
Question 2: What Are the Companys Strengths, Weaknesses, Opportunities and Threats ?
S W O T represents
S O
W T
For
strength is something a firm does well or an attribute that enhances its competitiveness
Valuable skills, competencies, or capabilities Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute placing a company in a position of market advantage Alliances or cooperative ventures with partners
competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity core competence is a well-performed internal activity central (not peripheral or incidental) to a companys competitiveness and profitability distinctive competence is a competitively valuable activity a company performs better than its rivals
4-13
Involve
competence becomes a core competence when the well-performed activity is central to a companys competitiveness and profitability a core competence is knowledge-based, residing in people, not in assets on a balance sheet core competence is typically the result of crossdepartment collaboration core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset
4-15
Often,
A A
in integrating multiple technologies to create families of new products in creating operating systems for cost efficient supply chain management new/next-generation products to market
Capability
swiftly
distinctive competence is a competitively valuable activity that a company performs better than its competitors distinctive competence is a competitively potent resource source because it
Gives a company a competitively valuable capability unmatched by rivals Can underpin and add real punch to a companys strategy
#1
4-17
Starbucks
Innovative coffee drinks and store ambience
4-18
qualify as competitively valuable or to be the basis for sustainable competitive advantage, a resource must pass 4 tests:
1. Is the resource hard to copy? 2. Is the resource durable does it have staying power? 3. Is the resource really competitively superior? 4. Can the resource be trumped by the different capabilities of rivals?
4-19
weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage weaknesses relate to
Resource
Inferior or unproven skills, expertise, or intellectual capital Lack of important physical, organizational, or intangible assets Missing capabilities in key areas
4-22
4-23
Good match with its financial and organizational resource capabilities Best prospects for profitable long-term growth Potential for competitive advantage
4-24
of lower-cost foreign competitors regulations of a hostile takeover demographic shifts shifts in foreign exchange rates upheaval in a country
4-25
Onerous Rise
in interest rates
Potential
S W O T analysis involves more than just developing the 4 lists of strengths, weaknesses, opportunities, and threats The most important part of S W O T analysis is
Using the 4 lists to draw conclusions about a companys overall situation Acting on the conclusions to
Better match a companys strategy to its resource strengths and market opportunities Correct the important weaknesses Defend against external threats
4-26
4-27
4-28
whether a firms costs are competitive with those of rivals is a crucial part of company situation analysis analytical tools
Key
A companys business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service All these activities that a company performs internally combine to form a value chainso-called because the underlying intent of a companys activities is to do things that ultimately create value for buyers The value chain contains two types of activities
Primary activities (where most of the value for customers is created) Support activities that facilitate performance of the primary activities
4-30
4-31
Support Activities
Supply chain management Recipe development and testing Mixing and baking Packaging Sales and marketing Distribution
4-32
Support Activities
Merchandise selection and purchasing Store layout and product display Advertising Customer service
4-33
Support Activities
Site selection and construction Reservations Operation of hotel properties Managing lineup of hotel locations
Accounting Hiring and training Advertising Building a brand and reputation General administration
4-34
costs of all activities in a companys value chain define the companys internal cost structure a firms costs activity by activity against costs of key rivals
Compares
Pinpoints
Different strategies Different operating practices Different technologies Different degrees of vertical integration Some companies may perform particular activities internally while others outsource them
Differences among the value chains of competing companies complicate task of assessing rivals relative cost positions
4-36
a companys cost competitiveness involves comparing costs all along the industrys value chain Suppliers value chains are relevant because
Costs, performance features, and quality of inputs provided by suppliers influence a firms own costs and product performance
Value
4-38
Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Advertising Retailing
4-41
Albertsons
identifying key value chain activities, the next step involves determining costs of performing specific value chain activities using activity-based costing degree of disaggregation depends on
Appropriate
Economics of activities Value of comparing narrowly defined versus broadly defined activities
Guideline
Requires
having accounting data to measure cost of each value chain activity costing entails
Activity-based
Defining expense categories according to specific activities performed and Assigning costs to the activity responsible for creating the cost
4-44
4-45
on cross-company comparisons of how certain activities are performed and costs associated with these activities
Purchase of materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of payrolls
4-46
Objectives of Benchmarking
Identify Learn
best and most efficient means of performing various value chain activities what is the best way to perform a particular activity from those companies who have demonstrated that they are best-in-industry or best-in-world at performing the activity what other firms do to perform an activity at lower cost out what actions to take to improve a companys own cost competitiveness
4-47
Learn
Figure
Treat
in
Restraint of trade Market and/or customer allocation schemes Price fixing Bribery
Refrain
from acquiring trade secrets by any means viewed as improper Be willing to provide same type of information to a benchmarking partner Communicate early to clarify expectations and avoid misunderstandings Be honest and complete
benchmarking interchange as confidential Use information obtained only for stated purposes Respect corporate culture of partner companies Use benchmarking contacts designated by partner company Be fully prepared for each exchange Provide partners with agenda and questionnaire prior to exchange Follow through with commitments to partner in a timely manner Understand how partner wants information provided used
4-48
competitiveness depends on how well a company manages its value chain relative to how well competitors manage their value chains When a companys costs are out-of-line, the activities responsible for the higher costs may be due to any of three parts of industry value chain
1. Activities performed by suppliers 2. A companys own internal activities 3. Activities performed by forward channel allies
Activities, Costs, & Margins of Suppliers Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Forward Channel Allies Buyer/User Value Chains
4-49
Implement use of best practices throughout company Eliminate some cost-producing activities altogether by revamping value chain system Relocate high-cost activities to lower-cost geographic areas See if high-cost activities can be performed cheaper by outside vendors/suppliers Invest in cost-saving technology Innovate around troublesome cost components Simplify product design Make up difference by achieving savings in backward or forward portions of value chain system
4-50
to lower-priced substitutes
Collaborate
closely with suppliers to identify mutual cost-saving opportunities for just-in-time deliveries from suppliers to lower inventory and internal logistics costs backward into business of high-cost suppliers
4-51
Arrange
Integrate
Options to Correct a Cost Disadvantage Associated With Activities of Forward Channel Allies
Pressure
dealer-distributors and other forward channel allies to reduce their costs to make the final price to buyers more competitive with prices of rivals closely with forward channel allies to identify win-win opportunities to reduce costs to a more economical distribution strategy
Work
Change
Switch to cheaper distribution channels Integrate forward into company-owned retail outlets
4-52
company can create competitive advantage by out-managing rivals in performing value chain activities in either/both of two ways
Option 1: Develop competencies and capabilities that rivals dont have or cant match Option 2: Do an overall better job than rivals of lowering combined costs of performing all the value chain activities
4-54
Fig. 4.5: Translating Company Performance of Value Chain Activities into Competitive Advantage
4-55
How does a company rank relative to competitors on each important factor that determines market success? Does a company have a net competitive advantage or disadvantage vis--vis major competitors?
4-56
4-58
4-59
strength of firms competitive position vis--vis key rivals Shows how firm stacks up against rivals, measureby-measure pinpoints firms competitive strengths and competitive weaknesses Indicates whether firm is at a competitive advantage / disadvantage against each rival Identifies possible offensive attacks (pit company strengths against rivals weaknesses) Identifies possible defensive actions (a need to correct competitive weaknesses)
4-60
on results of both industry and competitive analysis and an evaluation of a companys competitiveness, what items should be on a companys worry list? thinking strategically about
Requires
Pluses and minuses in the industry and competitive situation Companys resource strengths and weaknesses and attractiveness of its competitive position
A good strategy must address what to do about each and every strategic issue!
4-62
Issues Issues
need to be precise, specific, and cut straight to the chase on the the worry list raise questions about
What actions need to be considered What to think about doing
4-63
4-64
4-65
5
The Five Chapter Title Generic Competitive Strategies
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of
Michael E. Porter value.
5-2
Chapter Roadmap
The
Low-Cost Broad
Specific efforts to please customers Offensive and defensive moves to counter maneuvers of rivals Responses to prevailing market conditions Initiatives to strengthen its market position
Narrower
5-6
achievement of meaningful lower costs than rivals the theme of firms strategy features and services in product offering that buyers consider essential approaches to achieve a cost advantage in ways difficult for rivals to copy or match
Low-cost leadership means low overall costs, not just low manufacturing or production costs!
5-7
Include
Find
Approach 2
Revamp value chain to bypass cost-producing activities that add little value from the buyers perspective
Control costs! By-pass costs!
5-10
Capture scale economies; avoid scale diseconomies Capture learning and experience curve effects Control percentage of capacity utilization Pursue efforts to boost sales and spread costs such as R&D and advertising over more units Improve supply chain efficiency Substitute use of low-cost for high-cost raw materials Use online systems and sophisticated software to achieve operating efficiencies Adopt labor-saving operating methods Use bargaining power to gain concessions from suppliers Compare vertical integration vs. outsourcing
5-11
Make
Streamline
operations by eliminating low-valueadded or unnecessary work steps facilities closer to suppliers or customers
Scrutinize each cost-creating activity, identifying cost drivers Use knowledge about cost drivers to manage costs of each activity down year after year Find ways to restructure value chain to eliminate nonessential work steps and low-value activities Work diligently to create cost-conscious corporate cultures
Feature broad employee participation in continuous costimprovement efforts and limited perks for executives Strive to operate with exceptionally small corporate staffs
Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business
5-14
efforts to benchmark costs scrutiny of budget requests promoting continuous cost improvement
Programs
Successful low-cost producers champion frugality but wisely and aggressively invest in cost-saving improvements !
5-15
competition is vigorous Product is standardized or readily available from many suppliers There are few ways to achieve differentiation that have value to buyers Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have significant bargaining power Industry newcomers use introductory low prices to attract buyers and build customer base
5-16
Becoming
Buyer interest in additional features Declining buyer sensitivity to price Changes in how the product is used
Technological
Differentiation Strategies
Objective
Incorporate
differentiating features that cause buyers to prefer firms product or service over brands of rivals Keys to Success
Find
ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals spending more to achieve differentiation than the price premium that can be charged
5-19
Not
Benefits of Successful Differentiation A product / service with unique, appealing attributes allows a firm to
Command a premium price and/or Increase unit sales and/or Build brand loyalty = Competitive Advantage
5-20
Unique taste Dr. Pepper Multiple features Microsoft Windows and Office Wide selection and one-stop shopping Home Depot, Amazon.com Superior service -- FedEx, Ritz-Carlton Spare parts availability Caterpillar Engineering design and performance Mercedes, BMW Prestige Rolex Product reliability Johnson & Johnson Quality manufacture Karastan, Michelin, Toyota Technological leadership 3M Corporation Top-of-line image Ralph Lauren, Starbucks, Chanel
5-21
Those Those
Best
Technical Product
Comprehensive Unique
Production
Manufacturing
Distribution-related Marketing,
Activities, Costs, & Margins of Suppliers
5-23
Actual
and perceived value can differ when buyers are unable to assess their experience with a product
5-26
Incomplete knowledge of buyers causes them to judge value based on such signals as
Price Attractive packaging Extensive ad campaigns Ad content and image Seller facilities or professionalism and personality of employees Having a list of prestigious customers
5-27
are many ways to differentiate a product that have value and please customers needs and uses are diverse
Buyer Few
rivals are following a similar differentiation approach change and product innovation are fast-paced
5-28
Technological
Overspending
on efforts to differentiate the product offering, thus eroding profitability such that product features exceed buyers needs a price premium buyers perceive is too high striving to open up meaningful gaps in quality, service, or performance features vis--vis rivals products
5-29
5-30
Objectives Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be
the low-cost provider of a product with good-toexcellent product attributes, then use cost advantage to underprice comparable brands
5-31
best-cost providers competitive advantage is based on its capability to include upscale attributes at a lower cost than rivals comparable products To achieve competitive advantage, a company must be able to
Incorporate attractive features at a lower cost than rivals Manufacture a good-to-excellent quality product at a lower cost than rivals Develop a product that delivers good-to-excellent performance at a lower cost than rivals Provide attractive customer service at a lower cost than rivals
5-32
Where
Where
5-33
best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes
5-34
concentrated attention on a narrow piece of the total market Objective Serve niche buyers better than rivals Keys to Success
Choose
a market niche where buyers have distinctive preferences, special requirements, or unique needs unique capabilities to serve needs of target buyer segment
5-36
Develop
Geographic
uniqueness
Specialized
Special
Cable TV Internet search engines Sports cars Top-of-the line mountain bikes
Porsche
Cannondale
Enterprise
Rent-a-Car
Provides rental cars to repair garage customers Specialist in truck tire recapping
5-38
Bandag
lower costs than rivals in serving a well-defined buyer segment Focused low-cost strategy
Approach 2
Offer
a product appealing to unique preferences of a well-defined buyer segment Focused differentiation strategy
5-39
enough to be profitable and offers good growth potential crucial to success of industry leaders or difficult for multi-segment competitors to meet specialized needs of niche members has resources and capabilities to effectively serve an attractive niche other rivals are specializing in same niche can defend against challengers via superior ability to serve niche members
5-40
Not
Costly
Focuser Few
Focuser
find effective ways to match a focusers capabilities in serving niche buyers preferences shift towards product attributes desired by majority of buyers niche becomes part of overall market becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
5-41
Niche
Segment
The Saturn division of General Motors Abercrombie & Fitch Amazon.com Avon Products
5-42
Each positions a company differently in its market and competitive environment Each establishes a central theme for how a company will endeavor to outcompete rivals Each creates some boundaries for maneuvering as market circumstances unfold Each points to different ways of experimenting with the basics of the strategy Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy
The big risk Selecting a stuck in the middle strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position!
5-43
5-44
6
Supplementing Chapter Title the Chosen Competitive Strategy
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Successful business strategy is about actively shaping the game you play, not just playing the game you find. and Barry J. Adam M. Brandenburger
Nalebuff
6-2
Chapter Roadmap
Collaborative Strategies: Alliances and Partnerships Merger and Acquisition Strategies Vertical Integration Strategies: Operating Across More Stages of the Industry Value Chain Outsourcing Strategies: Narrowing the Boundaries of the Business Offensive Strategies: Improving Market Position and Building Competitive Advantage Defensive Strategies: Protecting Market Position and Competitive Advantage Web Site Strategies Choosing Appropriate Functional-Area Strategies First-Mover Advantages and Disadvantages
6-4
6-5
and partnerships can help companies cope with two demanding competitive challenges
Racing against rivals to build a market presence in many different national markets Racing against rivals to seize opportunities on the frontiers of advancing technology
Collaborative
arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities
6-7
Strategic alliance A formal agreement between two or more separate companies where there is
Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products
6-8
is critical to a companys achievement of an important objective helps build, sustain, or enhance a core competence or competitive advantage helps block a competitive threat
It
It It
helps open up important market opportunities mitigates a significant risk to a companys business
6-9
It
collaborate on technology development or new product development fill gaps in technical or manufacturing expertise create new skill sets and capabilities improve supply chain efficiency
gain economies of scale in production and/or marketing acquire or improve market access via joint marketing agreements
6-10
into critical country markets quickly to accelerate process of building a global presence inside knowledge about unfamiliar markets and cultures valuable skills and competencies concentrated in particular geographic locations a beachhead to participate in target industry new technologies and build new expertise faster than would be possible internally up expanded opportunities in target industry by combining firms capabilities with resources of partners
6-11
Gain
Access
Picking a good partner Being sensitive to cultural differences Recognizing an alliance must benefit both parties Ensuring both parties live up to their commitments Structuring the decision-making process so actions can be taken swiftly when needed Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances
6-12
How well partners work together Success of partners in responding and adapting to changing conditions Willingness of partners to renegotiate the bargain Diverging objectives and priorities of partners Inability of partners to work well together Changing conditions rendering purpose of alliance obsolete Emergence of more attractive technological paths Marketplace rivalry between one or more allies
6-13
Combination and pooling of equals, with newly created firm often taking on a new name One firm, the acquirer, purchases and absorbs operations of another, the acquired strategy
Acquisition
Merger-acquisition
Much-used strategic option Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
6-15
extend a firms business into new product categories or international markets gain quick access to new technologies or competitive capabilities invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities
6-16
Resistance from rank-and-file employees Hard-to-resolve conflicts in management styles and corporate cultures Tough problems of integration Greater-than-anticipated difficulties in
Can
Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners
6-18
cost savings only if volume needed is big enough to capture efficiencies of suppliers to reduce costs exists when
Suppliers have sizable profit margins Item supplied is a major cost component Resource requirements are easily met
Can
produce a differentiation-based competitive advantage when it results in a better quality part risk of depending on suppliers of crucial raw materials / parts / components
6-19
Reduces
gain better access to end users and better market visibility compensate for undependable distribution channels which undermine steady operations offset the lack of a broad product line, a firm may sell directly to end users bypass regular distribution channels in favor of direct sales and Internet retailing which may
Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users
6-20
resource requirements
Results
in fixed sources of supply and less flexibility in accommodating buyer demands for product variety all types of capacity-matching problems require radically different skills / capabilities
Poses May
Reduces
flexibility to make changes in component parts which may lengthen design time and ability to introduce new products
6-21
Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!
6-22
Outsourcing Strategies
Concept Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities
Internally Performed Activities Functional Activities
Suppliers
Support Services
Distributors or Retailers
6-23
Activity can be performed better or more cheaply by outside specialists Activity is not crucial to achieve a sustainable competitive advantage Risk exposure to changing technology and/or changing buyer preferences is reduced It improves firms ability to innovate Operations are streamlined to
Improve flexibility Cut time to get new products into the market
It increases firms ability to assemble diverse kinds of expertise speedily and efficiently Firm can concentrate on core value chain activities that best suit its resource strengths
6-24
thus
Hollowing out capabilities Losing touch with activities and expertise that determine overall long-term success
6-25
6-26
relentlessly on
Employ Apply Be
the element of surprise as opposed to doing what rivals expect resources where rivals are least able to defend themselves impatient with the status quo and display a strong bias for swift, decisive actions to boost a firms competitive position vis--vis rivals
6-27
3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals 4. Adopt and improve on the good ideas of other companies
6-28
Abandoning efforts to beat out competitors in existing markets and Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and Allowing a company to create and capture altogether new demand
6-30
boundaries are defined and accepted rules are well understood by all rivals try to outperform rivals by capturing a bigger share of existing demand
Competitive
is untainted by competition offers wide-open opportunities if a firm has a product and strategy allowing it to
Industry
Companies
6-32
Vulnerable market leaders Runner-up firms with weaknesses where challenger is strong Struggling rivals on verge of going under Small local or regional firms with limited capabilities
6-33
An important core competence A unique competitive capability A better-known brand name A cost advantage in manufacturing or distribution Technological superiority A superior product
6-34
Defensive Strategy
Objectives
Lessen Blunt
impact of any attack that occurs challengers to aim attacks at other rivals Approaches
Influence
Block
Signal
Participate in alternative technologies Introduce new features, add new models, or broaden product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new products or price changes Challenge quality or safety of rivals products using legal tactics Sign exclusive agreements with distributors
6-37
announce managements strong commitment to maintain present market share commit firm to policy of matching rivals terms or prices war chest of cash reserves
Publicly
Maintain Make
Challenge What use of the Internet should a company make in staking out its position in the marketplace? Five Web site approaches
Use to disseminate only product information Use as minor distribution channel to sell direct to customers Use as one of several important distribution channels to access customers Use as primary distribution channel to access buyers Use as exclusive channel to transact sales with customers
6-39
Issues
Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers sales Prompt dealers to aggressively market rivals brands
Avoids
channel conflict with dealers Important where strong support of dealer networks is essential
6-40
Achieve incremental sales Gain online sales experience Conduct marketing research
Learn more about buyer tastes and preferences Test reactions to new products Create added market buzz about products
Unlikely
profit margin from online sales is bigger than that from sales through traditional channels buyers to visit a firms website educates them to the ease and convenience of purchasing online directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly
6-42
Encouraging
Selling
Strategic
Economic means of expanding a companys economic reach Provide both existing and potential customers another choice of how to
Communicate with a company Shop for product information Make purchases Resolve customer service problems
6-43
Use Internet as the exclusive channel for all buyer-seller contact and transactions issues for an online company
How to deliver unique value to buyers Whether it will pursue competitive advantage based on lower costs, differentiation, or better value for the money Whether it will have a broad or narrow product offering Whether to perform order fulfillment activities internally or to outsource them How it will draw traffic to its Web site and then convert page views into revenues
6-44
6-46
strategic choices about how functional areas are managed to support competitive strategy and other strategic moves Functional strategies include
Research and development Production Human resources Sales and marketing Finance
First-Mover Advantages
When
to make a strategic move is often as crucial as what move to make advantages arise when
First-mover
Pioneering helps build firms image and reputation Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike
6-48
First-Mover Disadvantages
Moving
When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader Innovators products are primitive, not living up to buyer expectations Demand side of the market is skeptical about the benefits of new technology/product of a first-mover Rapid technological change allows followers to leapfrog pioneers
6-49
issue Is the race to market leadership in an industry a marathon or a sprint? a competitive advantage by being a firstmover involves addressing several questions
Seeking
Does market takeoff depend on development of complementary products or services not currently available? Is new infrastructure required before buyer demand can surge? Will buyers need to learn new skills or adopt new behaviors? Will buyers encounter high switching costs? Are there influential competitors in a position to delay or derail the efforts of a first-mover?
6-50
7
Chapter Title Competing in
Foreign Markets
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
You have no choice but to operate in a world shaped by globalization and the information revolution. There are two options: Adapt or die.
Andrew S. Grove
7-2
Chapter Roadmap
Why Companies Expand into Foreign Markets Cross-Country Differences in Cultural, Demographic, and Market Conditions The Concepts of Multi-country Competition and Global Competition Strategy Options for Entering and Competing in Foreign Markets The Quest for Competitive Advantage in Foreign Markets Profit Sanctuaries, Cross-Market Subsidization, and Global Strategic Offensives Strategic Alliances and Joint Ventures with Foreign Partners Strategies That Fit the Markets of Emerging Countries
7-3
Whether to customize a companys offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country Where to locate a companys production facilities, distribution centers, and customer service operations to realize the greatest locational advantages How to efficiently transfer a companys resource strengths and capabilities from one country to another to secure competitive advantage
7-4
Why Do Companies Expand into Foreign Markets? Obtain access to valuable natural resources Achieve lower costs and enhance competitiveness Spread Capitalize business risk across on core wider competencies market base
7-5
International Competitor
Global Competitor
Differences
in market demographics and income levels in manufacturing and distribution costs exchange rates
Variations
Fluctuating Differences
Distribution Driving
Competitive
One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide.
7-8
Wage rates Worker productivity Inflation rates Energy costs Tax rates Government regulations
Quality of business environment varies from country to country Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location
7-9
Competitiveness of a companys operations partly depends on whether exchange rate changes affect costs favorably or unfavorably
Lessons
Exporters always gain in competitiveness when the currency of the country where goods are manufactured grows weaker Exporters are disadvantaged when the currency of the country where goods are manufactured grows stronger
7-10
tariffs or quotas
regulations
Technical standards Product certification Prior approval of capital spending projects Withdrawal of funds from country Ownership (minority or majority) by local citizens
7-12
contest among rivals in one country not closely connected to market contests in other countries Buyers in different countries are attracted to different product attributes Sellers vary from country to country Industry conditions and competitive forces in each national market differ in important respects
Rival firms battle for national championships winning in one country does not necessarily signal the ability to fare well in other countries!
7-14
firms competitive position in one country is affected by its position in other countries Competitive advantage is based on a firms worldwide operations and overall global standing Rival firms in globally competitive industries vie for worldwide leadership!
7-15
strategy strategy
Multi-country Global
Strategic
Export Strategies
Involve
using domestic plants as a production base for exporting to foreign markets Excellent initial strategy to pursue international sales Advantages
Conservative way to test international waters Minimizes both risk and capital requirements Minimizes direct investments in foreign countries
An
Licensing Strategies
Licensing
Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets Desires to avoid risks of committing resources to markets which are
Disadvantage
Risk of providing valuable technical know-how to foreign firms and losing some control over its use
7-18
Franchising Strategies
Often
Advantages
Franchisee bears most of costs and risks of establishing foreign locations Franchisor has to expend only the resources to recruit, train, and support franchisees
Disadvantage
to vary a companys competitive approach to fit specific market conditions and buyer preferences in each host county OR to employ essentially the same strategy in all countries
7-20
Whether
Fig. 7.1: A Companys Strategic Options for Dealing with Cross-Country Variations in Buyer Preferences and Market Conditions
7-21
A company varies its product offerings and basic competitive strategy from country to country in an effort to be responsive to differing buyer preferences and market conditions.
7-22
Accommodate differing tastes and expectations of buyers in each country Stake out the most attractive market positions vis--vis local competitors
Local
managers are given considerable strategy-making latitude produce different products for different local markets and distribution are adapted to fit local customs and cultures
7-23
Plants
Marketing
country-to-country differences in customer preferences and buying habits exist governments enact regulations requiring products sold locally meet strict manufacturing specifications or performance standards restrictions of host governments are so diverse and complicated they preclude a uniform, coordinated worldwide market approach
7-24
Host
Trade
A company employs the same basic competitive approach in all countries where it operates.
7-26
Same products under the same brand names are sold everywhere Same distribution channels are used in all countries Competition is based on the same capabilities and marketing approaches worldwide Strategic moves are integrated and coordinated worldwide Expansion occurs in most nations where significant buyer demand exists Strategic emphasis is placed on building a global brand name Opportunities to transfer ideas, new products, and capabilities from one country to another are aggressively pursued
7-27
Fig. 7.2: How a Localized or Multicountry Strategy Differs from a Global Strategy
7-28
1. Locating activities among nations in ways that lower costs or achieve greater product differentiation 2. Efficient/effective transfer of competitively valuable competencies and capabilities from company operations in one country to company operations in another country 3. Coordinating dispersed activities in ways a domestic-only competitor cannot
7-32
issues
Whether to
Concentrate each activity in a few countries or Disperse activities to many different nations
Costs of manufacturing or other value chain activities are meaningfully lower in certain locations than in others There are sizable scale economies in performing the activity There is a steep learning curve associated with performing an activity in a single location Certain locations have
Superior resources Allow better coordination of related activities or Offer other valuable advantages
7-34
They need to be performed close to buyers Transportation costs, scale diseconomies, or trade barriers make centralization expensive Buffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed
7-35
Dominating
depth in a competitively valuable capability is a strong basis for sustainable competitive advantage over
Other multinational or global competitors and Small domestic competitors in host countries
7-36
Choose where and how to challenge rivals Shift production from one location to another to take advantage of most favorable cost or trade conditions or exchange rates Use online systems to collect ideas for new or improved products and to determine which products should be standardized or customized Enhance brand reputation by incorporating same differentiating attributes in its products in all markets where it competes
7-37
Generally,
Fig. 7.3: Profit Sanctuary Potential of Domestic-Only, International, and Global Competitors
7-39
supporting competitive offensives in one market with resources/profits diverted from operations in other markets Competitive power of cross-market subsidization results from a global firms ability to
Draw upon its resources and profits in other country markets to mount an attack on single-market or onecountry rivals and Try to lure away their customers with
Lower prices Discount promotions Heavy advertising Other offensive tactics
7-41
7-42
Spend more on marketing/advertising Trim its prices Boost product innovation efforts Take actions raising its costs and eroding its profits
Attractive offensive strategy for companies competing in multiple country markets with multiple products Approach involves a company selling goods in foreign markets at prices
Well below prices at which it sells in its home market or Well below its full costs per unit
7-43
Purpose
of alliances
Joint research efforts Technology-sharing Joint use of production or distribution facilities Marketing / promoting one anothers products
7-44
Gain better access to attractive country markets from host countrys government to import and market products locally Capture economies of scale in production and/or marketing Fill gaps in technical expertise or knowledge of local markets Share distribution facilities and dealer networks Direct combined competitive energies toward defeating mutual rivals Take advantage of partners local market knowledge and working relationships with key government officials in host country Useful way to gain agreement on important technical standards
7-45
Overcoming language and cultural barriers Dealing with diverse or conflicting operating practices Time consuming for managers in terms of communication, trust-building, and coordination costs Mistrust when collaborating in competitively sensitive areas Clash of egos and company cultures Dealing with conflicting objectives, strategies, corporate values, and ethical standards Becoming too dependent on another firm for essential expertise over the long-term
7-46
involves
Making more than minor product changes and Becoming more familiar with local cultures
Companies
have to attract buyers with bargain prices as well as better products Specially designed and/or specially packaged products may be needed to accommodate local market circumstances Management team must usually consist of a mix of expatriate and local managers
7-47
prepared to modify aspects of the companys business model to accommodate local circumstances to change the local market to better match the way the company does business elsewhere away from those emerging markets where it is impractical or uneconomic to modify the companys business model to accommodate local circumstances
7-48
Try
Stay
Fig. 7.4: Strategy Options for Local Companies in Competing Against Global Challengers
7-49
market
Cater
to customers who prefer a local touch loss of customers attracted to global brands exploit its local orientation based on
Accept
Astutely
Familiarity with local preferences Expertise in traditional products Long-standing customer relationships
Cater
to the local market in ways that pose difficulties for global rivals
7-50
When a local company trying to defend against a global challenger has resource strengths and capabilities suitable for competing in other country markets, then it should consider
Launching initiatives to transfer its expertise to cross-border markets Becoming more of an international competitor
Build a bigger customer base (to offset any losses in its home market) Grow sales and profits Put in a stronger position to contend with global challengers in its home market
7-51
Strategic Options for Local Companies: Dodging Rivals by Shifting to a New Business Model or Market Niche
When industry pressures to globalize are high, viable strategic options for a local company trying to defend against global challengers in its home market include
Shifting the business to a piece of the industry value chain where the firms expertise/resources provide a defendable position or maybe even a competitive advantage Entering a joint venture with a globally competitive partner Selling out to a global entrant into its home market
7-52
a local company has resources and capabilities that it can transfer to operations in other countries, it can launch a strategy aimed at
Entering markets of other countries as rapidly as possible Shifting to a more globalized strategy Building brand recognition and a brand image that extends to more and more countries Gradually establishing the resources and capabilities to go head-to-head against large global rivals
7-53
8
Tailoring Strategy to Fit Chapter Title Specific Industry and Company Situations
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
In a turbulent age, the only dependable advantage is reinventing your business model before circumstances
Gary Hamel and Liisa Valikangas
8-2
Chapter Roadmap
Strategies for Competing in Emerging Industries Strategies for Competing in Rapidly Growing Markets Strategies for Competing in Maturing Industries Strategies for Competing in Stagnant or Declining Industries Strategies for Competing in Turbulent, High-Velocity Markets Strategies for Competing in Fragmented Industries Strategies for Sustaining Rapid Company Growth Strategies for Industry Leaders Strategies for Runner-up Firms Strategies for Weak and Crisis-Ridden Businesses Ten Commandments for Crafting Successful Business Strategies
8-3
Most important drivers shaping a firms strategic options fall into two categories
New and unproven market Proprietary technology Lack of consensus regarding which of several competing technologies will win out Low entry barriers Experience curve effects may permit cost reductions as volume builds Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures Possible difficulties in securing raw materials Firms struggle to fund R&D, operations and build resource capabilities for rapid growth
8-5
Win early race for industry leadership by employing a bold, creative strategy Push hard to perfect technology, improve product quality, and develop attractive performance features Consider merging with or acquiring another firm to
Gain added expertise Pool resource strengths
When technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly Form strategic alliances with
Companies having related technological expertise or Key suppliers
8-6
it easy and cheap for first-time buyers to try product advertising emphasis on
Increasing frequency of use Creating brand loyalty
Focus
Use
Sales and revenues take off Profits appear Cash flows turn positive
Managing the rapid expansion of facilities and sales to position a company to contend for industry leadership Defending against competitors trying to horn in on the companys success
8-8
A company needs a strategy predicated on growing faster than the market average so it
Can
boost its market share and its competitive standing vis--vis rivals
Improve
8-9
down costs per unit to enable price reductions that attract droves of new customers Pursue rapid product innovation to
Set a companys product offering apart from rivals Incorporate attributes to appeal to growing numbers of customers
Gain
access to additional distribution channels and sales outlets Expand a companys geographic coverage Expand product line to add models/styles to appeal to a wider range of buyers
8-10
Topping Product
out problem in adding production capacity innovation and new end uses harder to come by competition increases profitability falls and acquisitions reduce number of rivals
8-12
Emphasize Strong
Increase
internationally
a ho-hum strategy with no distinctive features thus leaving firm stuck in the middle slow to mount a defense against stiffening competitive pressures on short-term profits rather than strengthening long-term competitiveness slow to respond to price-cutting too much excess capacity on marketing
8-14
Concentrating Being
Having
Overspending Failing
grows more slowly than economy as whole (or even declines) technology gives rise to betterperforming substitute products group shrinks lifestyles and buyer tastes
Competitive
focus strategy aimed at fastest growing market segments Stress differentiation based on quality improvement or product innovation Work diligently to drive costs down
Cut marginal activities from value chain Use outsourcing Redesign internal processes to exploit e-commerce Consolidate under-utilized production facilities Add more distribution channels Close low-volume, high-cost distribution outlets Prune marginal products
8-16
Gradual phasing down of operations Getting the most cash flow from the business
Disengaging from an industry during early stages of decline Quick recovery of as much of a companys investment as possible
8-17
technological change
Frequent
Rapidly
8-19
aggressively in R&D fresh actions every few months quick response capabilities
Develop
Shift resources Adapt competencies Create new competitive capabilities Speed new products to market
Use
strategic partnerships to develop specialized expertise and capabilities products/services fresh and exciting
8-20
Keep
expertise
Collaboration Agility
flexibility capabilities
8-21
First-to-market
Absence of market leaders with large market shares or widespread buyer recognition Product/service is delivered to neighborhood locations to be convenient to local residents Buyer demand is so diverse that many firms are required to satisfy buyer needs Low entry barriers Absence of scale economies Market for industrys product/service may be globalizing, thus putting many companies across the world in same market arena Exploding technologies force firms to specialize just to keep up in their area of expertise Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share
8-22
8-26
8-27
8-28
should not pursue all options to avoid stretching itself too thin of medium- and long-jump initiatives may cause firm to stray too far from its core competencies advantage may be difficult to achieve in medium- and long-jump businesses that do not mesh well with firms present resource strengths of long-jump initiatives may prove elusive
8-29
Pursuit
Competitive
Payoffs
leaders
Runner-up
firms
Weak
or crisis-ridden firms
8-30
Well-known
reputation
Proven
strategy
Key
Muscle-flexing strategy
8-32
Stay-on-the-Offensive Strategies
Be
Best
Concentrate Relentlessly
on achieving a competitive advantage and then widening the advantage over time pursue continuous improvement and innovation, being first to market with
Technological improvements New or better products More attractive performance features Customer service improvements
8-33
Cut operating costs Establish competitive capabilities rivals cannot match Make it easier for potential customers to switch their purchases from other firms to the leaders own products
Aggressively attack profit sanctuaries of important rivals Launch fresh initiatives to expand overall industry demand
Spur creation of new families of products Make product more suitable for consumers in emerging-country markets Discover new uses for product Attract new users of product Promote more frequent use
8-34
Fortify-and-Defend Strategy
Objectives
Make
it harder for new firms to enter and for challengers to gain ground onto present market share current market position
Hold
Strengthen Protect
competitive advantage
8-35
personalized services to boost buyer loyalty prices reasonable and quality attractive new capacity ahead of market demand enough to remain cost competitive feasible alternative technologies
Muscle-Flexing Strategy
Objectives
Play
competitive hardball with smaller rivals that threaten leaders position smaller rivals that moves to cut into leaders business will be hard fought rivals they are better off playing follow-the-leader or else attacking each other rather the industry leader
8-37
Signal
Convince
Counter Offer
with large-scale promotional campaigns if rivals boost advertising better deals to rivals major customers distributors from carrying rivals products
salespersons with documentation about weaknesses of competing products attractive offers to key executives of rivals arm-twisting tactics to pressure present customers not to use rivals products
8-38
Muscle-Flexing Strategy
Risks
Running
Alienating
Arousing
8-39
challengers
Focusers
Im trying!
Perennial
runners-up
big size is a competitive asset, firms with small market share face obstacles in trying to strengthen their positions
Less access to economies of scale Difficulty in gaining customer recognition Inability to afford mass media advertising Difficulty in funding capital requirements
8-41
big size provides larger rivals with a cost advantage, runner-up firms have two options
Lower costs and prices to grow sales or Out-differentiate rivals in ways to grow sales
Acquire smaller rivals to expand companys market reach and presence Find innovative ways to drive down costs to win customers from higher-priced rivals Craft an attractive differentiation strategy Pioneer a leapfrog technological breakthrough Be first-to-market with new or better products and build reputation for product leadership Outmaneuver slow-to-change market leaders in adapting to evolving market conditions and customer needs Forge strategic alliances with key distributors, dealers, or marketers of complementary products
8-43
Runner-up firms should avoid attacking a leader head-on with an imitative strategy, regardless of the resources and staying power an underdog may have!
8-44
strategy concentrated on end-use applications market leaders have neglected of an ideal vacant niche
Characteristics
Sufficient size to be profitable Growth potential Well-suited to a firms capabilities Hard for leaders to serve
8-46
Approaches
Fine craftsmanship Prestige quality Frequent product innovations Close contact with customers to gain input for better quality product
8-48
Reputation for charging lowest price Prestige quality at a good price Superior customer service Unique product attributes New product introductions Unusually creative advertising
8-49
involves avoiding
Approaches
Do not provoke competitive retaliation React and respond Defense rather than offense Keep same price as leaders Attempt to maintain market position
8-50
an offensive turnaround strategy (if resources permit) a fortify-and-defend strategy (to the extent resources permit) a fast-exit strategy
Employ
Pursue Adopt
off assets to generate cash and/or reduce debt existing strategy efforts to boost revenues
costs of efforts
8-52
Combination
middle course between status quo and exiting quickly gradually sacrificing market position in return for bigger near-term cash flow/profit
Involves
Objectives
reinvestment to minimum little priority on new capital investments stringent internal cost controls
Place
Emphasize Trim Do
Shave
Reduced Firm
levels of competitive effort will not trigger immediate fall-off in sales can re-deploy freed-up resources in higher opportunity areas is not a major component of diversified firms portfolio of businesses
8-55
Business
Liquidation Strategy
Wisest
Lack of resources Dim profit prospects May serve stockholder interests better than bankruptcy
Unpleasant
strategic option
9
Diversification:
Chapter Title Strategies for Managing a Group of Businesses
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Make winners out of every business in your company. Dont carry losers.
Jack Welch Former CEO, General Electric
9-3
Chapter Roadmap
When to Diversify Building Shareholder Value: The Ultimate Justification for Diversifying Strategies for Entering New Businesses Choosing the Diversification Path: Related versus Unrelated Businesses The Case for Diversifying into Related Businesses The Case for Diversifying into Unrelated Businesses Combination Related-Unrelated Diversification Strategies Evaluating the Strategy of a Diversified Company After a Company Diversifies: The Four Main Strategy Alternatives
9-4
company is diversified when it is in two or more lines of business that operate in diverse market environments in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business
Strategy-making
A diversified company needs a multi-industry, multi-business strategy A strategic action plan must be developed for several different businesses competing in diverse industry environments
9-5
new industries to enter and decide on means of entry actions to boost combined performance of businesses opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage investment priorities, steering resources into most attractive business units
9-6
Initiate
Pursue
Establish
ambiguity about
Resources
can be focused on
Improving competitiveness Expanding into new geographic markets Responding to changing market conditions Responding to evolving customer preferences
9-7
market becomes unattractive, a firms prospects can quickly dim changes can undermine a single business firms prospects
Unforeseen
is faced with diminishing growth prospects in present business It has opportunities to expand into industries whose technologies and products complement its present business It can leverage existing competencies and capabilities by expanding into businesses where these resource strengths are key success factors It can reduce costs by diversifying into closely related businesses It has a powerful brand name it can transfer to products of other businesses to increase sales and profits of these businesses
9-9
Why Diversify?
1+1=3
Industry Attractiveness Test the industry presents good long-term profit opportunities Cost of Entry Test the cost of entering is not so high as to spoil the profit opportunities Better-Off Test the companys different businesses should perform better together than as stand-alone enterprises, such that company As diversification into business B produces a 1 + 1 = 3 effect for shareholders
9-10
Advantages
Quicker entry into target market Easier to hurdle certain entry barriers
Acquiring technological know-how Establishing supplier relationships Becoming big enough to match rivals efficiency and costs Having to spend large sums on introductory advertising and promotion Securing adequate distribution access
9-12
Internal Startup
More
attractive when
Parent firm already has most of needed resources to build a new business Ample time exists to launch a new business Internal entry has lower costs than entry via acquisition New start-up does not have to go head-to-head against powerful rivals Additional capacity will not adversely impact supply-demand balance in industry Incumbents are slow in responding to new entry
9-13
Uneconomical or risky to go it alone Pooling competencies of two partners provides more competitive strength Only way to gain entry into a desirable foreign market
Foreign
Surmount tariff barriers and import quotas Offer local knowledge about
Market conditions Customs and cultural factors Customer buying habits Access to distribution outlets
9-14
questions
Potential
conflicts
Conflicting objectives Disagreements over how to best operate the venture Culture clashes
9-15
Unrelated Diversification
Involves diversifying into businesses with no competitively valuable value chain match-ups or strategic fits with firms present business(es)
9-16
9-17
diversifying into businesses whose value chains possess competitively valuable strategic fits with the value chain(s) of the present business(es) the strategic fits makes related diversification a 1 + 1 = 3 phenomenon
Capturing
9-18
whenever one or more activities in the value chains of different businesses are sufficiently similar to present opportunities for
Transferring competitively valuable expertise or technological know-how from one business to another Combining performance of common value chain activities to achieve lower costs Exploiting use of a well-known brand name Cross-business collaboration to create competitively valuable resource strengths and capabilities
9-19
Fig. 9.2: Related Businesses Possess Related Value Chain Activities and Competitively Valuable Strategic Fits
9-20
Skills transfer Lower costs Common brand name usage Stronger competitive capabilities
Spread
Preserve Achieve
consolidated performance greater than the sum of what individual businesses can earn operating independently (1 + 1 = 3 outcomes)
9-21
Supply
Manufacturing Sales
Distribution Managerial
Potential
Cost-savings in technology development and new product R&D Shorter times in getting new products to market Interdependence between resulting products leads to increased sales
9-23
Procuring materials Greater bargaining power in negotiating with common suppliers Benefits of added collaboration with common supply chain partners Added leverage with shippers in securing volume discounts on incoming parts
9-24
Manufacturing Fits
Potential
source of competitive advantage when a diversifiers expertise can be beneficially transferred to another business
Cost-saving
opportunities arise from ability to perform manufacturing/assembly activities jointly in same facility, making it feasible to
Consolidate production into fewer plants Significantly reduce overall manufacturing costs
9-25
Distribution Fits
Offer
Use many of same wholesale distributors and retail dealers to access customers
9-26
in sales costs
Single sales force for related products Advertising related products together Combined after-sale service and repair work Joint delivery, shipping, order processing and billing Joint promotion tie-ins
Similar
sales and marketing approaches provide opportunities to transfer selling, merchandising, and advertising/promotional skills Transfer of a strong companys brand name and reputation
9-27
Different
costs
Arise when costs can be cut by operating two or more businesses under same corporate umbrella Cost saving opportunities can stem from interrelationships anywhere along the value chains of different businesses
9-29
advantage can result from related diversification when a company captures crossbusiness opportunities to
Transfer expertise/capabilities/technology from one business to another Reduce costs by combining related activities of different businesses into a single operation Transfer use of firms brand name reputation from one business to another Create valuable competitive capabilities via crossbusiness collaboration in performing related value chain activities
9-30
Is possible only via a strategy of related diversification Builds shareholder value in ways shareholders cannot achieve by owning a portfolio of stocks of companies in unrelated industries Is not something that happens automatically when a company diversifies into related businesses
Strategic fit benefits materialize only after management has successfully pursued internal actions to capture them
9-31
Basic
approach Diversify into any industry where potential exists to realize good financial results industry attractiveness and cost-of-entry tests are important, better-off test is secondary
9-33
While
Fig. 9.3: Unrelated Unrelated Businesses Have Unrelated and No Fig. 9.3: Businesses Have Unrelated Value Chains Strategic Fits Value Chains and No Strategic Fits
9-34
business meet corporate targets for profitability and ROI? Is business in an industry with growth potential? Is business big enough to contribute to parent firms bottom line? Will business require substantial infusions of capital? Is there potential for union difficulties or adverse government regulations? Is industry vulnerable to recession, inflation, high interest rates, or shifts in government policy?
9-35
Companies
in financial distress
Companies
resources can be directed to those industries offering best profit prospects bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced of profits Hard times in one industry may be offset by good times in another industry
9-37
If
Stability
managers must
Do a superior job of diversifying into new businesses capable of producing good earnings and returns on investments Do an excellent job of negotiating favorable acquisition prices Do a good job overseeing businesses so they perform at a higher level than otherwise possible Shift corporate financial resources from poorlyperforming businesses to those with potential for above-average earnings growth Discern when it is the right time to sell a business at the right price
9-38
greater the number and diversity of businesses, the harder it is for managers to
Discern good acquisitions from bad ones Select capable managers to manage the diverse requirements of each business Judge soundness of strategic proposals of business-unit managers Know what to do if a business subsidiary stumbles
of cross-business strategic fits means unrelated diversification offers no competitive advantage potential beyond what each business can generate on its own
Consolidated performance of unrelated businesses tends to be no better than sum of individual businesses on their own (and it may be worse) Promise of greater sales-profit stability over business cycles is seldom realized
9-41
Diversification
Unrelated
Diversification
Dominant-business firms
One major core business accounting for 50 - 80 percent of revenues, with several small related or unrelated businesses accounting for remainder Diversification includes a few (2 - 5) related or unrelated businesses Diversification includes a wide collection of either related or unrelated businesses or a mixture Diversification portfolio includes several unrelated groups of related businesses
9-44
Multibusiness firms
Would you say that Newell Rubbermaids strategy is one of related diversification, unrelated diversification or a mixture of both? Explain.
9-45
Textbook publishing (for grades K-12 and higher education) Financial and information services (it owns Standard & Poors a well-known financial ratings agency and provider of financial data, Platts a provider of energy information, and McGraw-Hill Construction a provider of construction related information) Magazine publishing its flagship publication is Business Week and it is also the publisher of Aviation Week TV broadcasting it owns four ABC affiliate stations (in Indianapolis, Denver, San Diego, and Bakersfield) J.D. Power & Associates which provides a host of services relating to product quality and consumer satisfaction
Would you say that McGraw-Hills strategy is one of related diversification, unrelated diversification or a mixture of both? Explain.
9-46
9-47
Step 1: Evaluate Industry Attractiveness Attractiveness of each industry in portfolio Each industrys attractiveness relative to the others Attractiveness of all industries as a group
9-49
size and projected growth of competition opportunities and threats of cross-industry strategic fits requirements and cyclical factors
Intensity
Industry Degree
9-52
with a score much below 5.0 do not pass the attractiveness test a companys industry attractiveness scores are all above 5.0, the group of industries the firm operates in is attractive as a whole be a strong performer, a diversified firms principal businesses should be in attractive industriesthat is, industries with
To
Gaining
Appraise how well each business is positioned in its industry relative to rivals Evaluate whether it is or can be competitively strong enough to contend for market leadership
9-55
market share Costs relative to competitors Ability to match/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 Caliber of alliances and collaborative partnerships Brand image and reputation Competitively valuable capabilities Profitability relative to competitors
9-56
9-58
units with ratings above 6.7 are strong market contenders with ratings in the 3.3 to 6.7 range have moderate competitive strength vis--vis rivals units with ratings below 3.3 are in competitively weak market positions a diversified firms businesses all have scores above 5.0, its business units are all fairly strong market contenders
9-59
Businesses
Business
If
industry attractiveness (see Table 9.1) and competitive strength scores (see Table 9.2) to plot location of each business in matrix
Industry attractiveness plotted on vertical axis Competitive strength plotted on horizontal axis
Each
Size of each bubble is scaled to percentage of revenues the business generates relative to total corporate revenues
9-60
9-61
Businesses
Businesses
Candidates for harvesting or divestiture May, based on potential for good earnings and ROI, be candidates for an overhaul and reposition strategy
9-62
Determine competitive advantage potential of crossbusiness strategic fits among portfolio businesses
Examine
Whether one or more businesses have valuable strategic fits with other businesses in portfolio Whether each business meshes well with firms long-term strategic direction
9-65
Transfer skills / technology / intellectual capital from one business to another Share use of a well-known, competitively powerful brand name Create valuable new competitive capabilities
9-66
9-67
Good
A business adds to a firms resource strengths, either financially or strategically Firm has resources to adequately support requirements of its businesses as a group
9-68
Assess
Highlights opportunities to shift financial resources between businesses Explains why priorities for resource allocation can differ from business to business Provides rationalization for both invest-and-expand and divestiture strategies
9-69
cash flows are inadequate to fully fund needs for working capital and new capital investment
Strategic
options
Aggressively invest in attractive cash hogs Divest cash hogs lacking long-term potential
9-70
cash surpluses over what is needed to sustain present market position businesses are valuable because surplus cash can be used to
Pay corporate dividends Finance new acquisitions Invest in promising cash hogs
Strategic
objectives
Fortify and defend present market position Keep the business healthy
9-71
Does the business adequately contribute to achieving companywide performance targets? Does the company have adequate financial strength to fund its different businesses and maintain a healthy credit rating? Does the company have or can it develop the specific resource strengths and competitive capabilities needed to be successful in each of its businesses? Are recently acquired businesses acting to strengthen a companys resource base and competitive capabilities or are they causing its competitive and managerial resources to be stretched too thin?
9-72
Poor
Soaks up disproportionate share of financial resources Is an inconsistent bottom-line contributor Experiences a profit downturn that could jeopardize entire company Is too small to make a sizable contribution to total corporate earnings
9-73
to replicate a firms success in one business and hitting a second home run in a new business is easier said than done resource capabilities to new businesses can be far more arduous and expensive than expected can misjudge difficulty of overcoming resource strengths of rivals it will face in a new business
9-74
Transferring
Management
Step 5: Rank Business Units Based on Performance and Priority for Resource Allocation
Factors
Sales growth Profit growth Contribution to company earnings Return on capital employed in business Economic value added Cash flow generation Industry attractiveness and business strength ratings
9-75
Get the biggest bang for the buck in allocating corporate resources
Approach
2 3 6 4 5
Rank each business from highest to lowest priority for corporate resource support and new capital investment Steer resources from low- to high-opportunity areas When funds are lacking, strategic uses of resources should take precedence
9-76
Fig. 9.7: The Chief Strategic and Financial Options for Allocating a Diversified Companys Financial Resources
9-77
closely with existing business lineup and pursue opportunities it presents companys business scope by making new acquisitions in new industries certain businesses and retrench to a narrower base of business operations companys business lineup, putting a whole new face on business makeup multinational diversification, striving to globalize operations of several business units
9-78
Broaden
Divest
Restructure
Pursue
9-79
Slow grow in current businesses Vulnerability to seasonal or recessionary influences or to threats from emerging new technologies Potential to transfer resources and capabilities to other related businesses Rapidly-changing conditions in one or more core industries alter buyer requirements Complement and strengthen market position of one or more current businesses
9-80
Retrench to a smaller but more appealing group of businesses Divest unattractive businesses
Sell it Spin it off as independent company Liquidate it (close it down because no buyers can be found)
9-81
Retrenchment Strategies
Objective
Strategic
efforts have become too broad, resulting in difficulties in profitably managing all the businesses market conditions in a once-attractive industry
Lack A A
business is a cash hog with questionable long-term potential business is weakly positioned in its industry that turn out to be misfits
Businesses One
Sell it
Involves finding a company which views the business as a good deal and good fit
Liquidation
Involves closing down operations and selling remaining assets A last resort because no buyer can be found
9-84
Too many businesses in unattractive industries Too many competitively weak businesses Ongoing declines in market shares of one or more major business units Excessive debt load Ill-chosen acquisitions performing worse than expected New technologies threaten survival of one or more core businesses Appointment of new CEO who decides to redirect company Unique opportunity emerges and existing businesses must be sold to finance new acquisition
9-86
characteristics
Presents
Strategies must be conceived and executed for each business, with as many multinational variations as appropriate Cross-business and cross-country collaboration opportunities must be pursued and managed
9-87
capture of economies of scale and experience curve effects on cross-business economies of scope
Capitalize Transfer
competitively valuable resources from one business to another and from one country to another use of a competitively powerful brand name
Leverage
Coordinate Use
strategic activities and initiatives across businesses and countries cross-business or cross-country subsidization to out-compete rivals
9-89
Resource-sharing and resource-transfer opportunities among businesses Economies of scope and brand name benefits
Managing related businesses to capture important crossbusiness strategic fits Using cross-market or cross-business subsidization sparingly to secure footholds in attractive country markets
9-90
DMNC has a strategic arsenal capable of defeating both a domestic-only rival or a singlebusiness rival by competing in
Can
use its multiple profit sanctuaries and can employ cross-subsidization tactics if need be
9-91
10
Strategy, Chapter Title Ethics, and Social Responsibility
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say engages in free and open competition, without deception or
Milton Friedman, Nobel Prize-winning economist
fraud.
10-2
Chapter Roadmap
What Do We Mean by Business Ethics? Where Do Ethical Standards Come From Are They Universal or Dependent on Local Norms and Situational Circumstances? The Three Categories of Management Morality Do Company Strategies Need to be Ethical? Why Should Company Strategies Be Ethical? Linking a Companys Strategy to its Ethical Principles and Core Values Strategy and Social Responsibility
10-3
there be a link between a companys efforts to craft and execute a winning strategy and its duties to
ethics involves applying general ethical principles and standards to business behavior principles in business are not different from ethical principles in general actions are judged
Ethical
Business
By general ethical standards of society Not by a set of rules businesspeople apply to their own conduct
10-5
Ethical Relativism
Same standards of what is ethical and what is unethical resonate with peoples of most societies regardless of
Thus, common ethical standards can be used to judge conduct of personnel at companies operating in a variety of
people with dignity and respect rights of others the Golden Rule
unnecessary harm to
Respecting
the environment
10-8
on collective views of multiple societies and cultures to place clear boundaries on what constitutes
Ethical business behavior and Unethical business behavior Regardless of what country a company is operating in
Whenever basic moral standards do not vary significantly according to local cultural beliefs, traditions, or religious convictions, a multinational company can
Apply a code of ethics more or less evenly across its worldwide operations
10-9
Different societies/cultures/countries
Put more/less emphasis on some values than others Have different standards of right and wrong Have different social mores and behavioral norms
Must be judged in light of local customs and social mores and Can vary from one country to another
10-10
Companies
forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local custom Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business
10-11
Foreign
there are
Few ethical absolutes to judge a companys conduct in various countries Plenty of situations where ethical norms are contoured to fit
Local customs and traditions Local beliefs about what is fair Local standards of right and wrong
Ethical
problems in business cannot be fully resolved without appealing to the shared convictions of the parties in question
10-13
What if local standards condone kickbacks and bribery? What if local standards blink at environmental degradation?
From a global markets perspective, ethical relativism results in a maze of conflicting ethical standards for multinational companies wanting to address the issue of what ethical standards to enforce companywide
10-14
to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by both
A limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and The circumstances of local cultures, traditions, and shared values that further prescribe what constitutes
Universal ethical principles establish moral free space based on the collective view of multiple societies and cultures Commonly held views about morality and ethical principles combine to form a social contract with society It is appropriate for societies or companies to go beyond universal ethical principles and specify local or second-order ethical norms
Where firms have developed ethical codes, the standards they call for provide appropriate ethical guidance Social contracts theory maintains adherence to universal or first-order ethical norms should always take precedence over local or second-order norms!
10-16
Moral manager Managerial ethical and moral principles Immoral manager Amoral manager
10-17
Considers
it important to
Pursues
business success
Within confines of both letter and spirit of laws With a habit of operating well above what laws require
10-18
ignores ethical principles in making decisions legal standards as barriers to overcome own self-interests
Pursues Ignores
Focuses Will
only on bottom line making ones numbers trample on others to avoid being trampled upon
10-19
business and ethics should not be mixed since different rules apply to
Business activities Other realms of life
Does
not factor ethical considerations into own actions since business activity lies outside sphere of moral judgment Views ethics as inappropriate for tough, competitive business world Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)
10-20
blind to or casual about ethics of decision-making and business actions lack of concern regarding whether ethics applies to company actions self as well-intentioned or personally ethical beliefs
Displays Sees
Typical
Do what is necessary to comply with laws and regulations Government provides legal framework stating what society will put up withif it is not illegal, it is allowed
10-21
either
Amoral or Immoral
Results
of the 2005 Global Corruption Report indicate corruption is widespread across the world extends beyond bribes and kickbacks
10-22
Corruption
10-23
10-24
10-25
Ensure a companys strategy is legal May or may not ensure all elements of strategies are ethical
Approach
Approach
Push ethical principles aside in their quest for self gain Exhibit few qualms in doing whatever is necessary to achieve their goals Look out for their own best interests Have few scruples and ignore welfare of others Engage in all kinds of unethical strategic maneuvers and behaviors
10-28
Managers often feel enormous pressure to do whatever it takes to deliver good financial performance Actions often taken by managers
Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Engage in short-term maneuvers to make the numbers Stretch rules to extreme, until limits of ethical conduct are overlooked
Executives feel pressure to hit performance targets since their compensation depends heavily on company performance Fundamental problem with a make the numbers syndrome
Company does not serve its customers or shareholders well by placing top priority on the bottom line
10-29
Company Culture Places Profits and Good Performance Ahead of Ethical Behavior
In
Ignore whats right and stretch rules Engage in most any behavior or employ most any strategy they think they can get away with Play down relevance of ethical strategic actions and business conduct
Pressures
Approaches to Managing a Companys Ethical Conduct Unconcerned or non-issue approach Damage control approach Compliance approach Ethical culture approach
10-31
10-32
at companies whose executives are immoral and unintentionally amoral Notions of right and wrong in business matters are defined by government via prevailing laws and regulations after that, anything goes If the law permits unethical behavior, why stand on ethical principles Companies are usually out to make greatest possible profit at most any cost Strategies used, while legal, may embrace elements that are ethically shady
10-33
at companies whose managers are intentionally amoral but who fear scandal May adopt a code of ethics as window-dressing Adept at using spin to explain away the use of unethical strategy elements or discount the impact of shady actions Executives look the other way when shady behavior occurs Executives may condone questionable actions that help a company reach earnings targets or bolster its market standing
10-34
Emphasis
is on securing broad compliance and measuring degree to which ethical standards are upheld Commitment to eradicate unethical behavior stems from a desire to
Avoid cost and damage associated with unethical conduct or Gain favor from stakeholders from having a highly regarded reputation for ethical behavior
10-35
code of ethics a visible and regular part of communications with employees ethics training programs a chief ethics officer
Institute
formal procedures for investigating alleged ethics violations ethics audits to measure and document compliance ethics awards to employees for outstanding efforts to create an ethical climate ethics hotlines to help detect and deter violations
10-36
Conduct Give
Install
control resides in a companys code of ethics and in the ethics compliance system rather than in
Strong peer pressures for ethical behavior that come from ingraining a highly ethical corporate culture and An individuals own moral responsibility for ethical behavior
10-37
executives believe high ethical principles must seeks to gain employee buy-in to
Be deeply ingrained in the corporate culture Function as guides for how we do things around here
Company
must be ethical Employees must display ethical behaviors in executing the strategy
10-38
unethical strategy
Is morally wrong Reflects badly on the character of company personnel
An
ethical strategy is
Good business In the best interest of shareholders
10-39
strong moral and ethical characteristics Strongly advocate a corporate code of ethics and strict ethics compliance Display genuine commitment to certain corporate values and business practices Walk the talk in
Displaying a companys stated values Living up to ethical business principles and standards
Adopt
values statements/ethics codes that truly paint the white lines for a companys business practices Consciously opt for strategic actions passing moral scrutiny
10-41
10-42
ethical standards are to have more than a cosmetic role, boards of directors and top executives must work diligently to see they are scrupulously observed in
Two
sets of questions must be considered by senior executives when reviewing a new strategic initiative
Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable? Is it apparent this proposed action is in harmony with our core values? Are any conflicts or concerns evident?
10-43
10-45
notion that corporate executives should balance interests of all stakeholders began to blossom in the 1960s responsibility as it applies to businesses concerns a companys duty to
Social
Operate in an honorable manner Provide good working conditions for employees Be a good steward of the environment Actively work to better quality of life in
To benefit shareholders against any possible adverse impacts on other stakeholders To be a good corporate citizen
Socially
Corporate philanthropy Actions to earn trust and respect of stakeholders for a firms efforts to improve the general well-being of
10-48
combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategy Management should match a companys social responsibility strategy to its
Core values Business mission Overall strategy
Some
should promote the betterment of society, acting in ways to benefit all their stakeholders because
Based
Grants a business the right to conduct its business affairs Agrees not to unreasonably restrain a business pursuit of a fair profit
In
10-50
internal benefits
Enhances recruitment of quality employees Increases retention of employees Improves employee productivity Lowers costs of recruitment and trainings
Reduces
risk of reputation-damaging incidents, leading to increased buyer patronage Works in best interest of shareholders
Minimizes costly legal and regulatory actions Provides for increased investments by socially conscious mutual funds and pension benefit managers Focusing on environment issues may enhance earnings
10-51
different views exist regarding use of company resources by do-good executives in pursuit of a better world
1. 2.
Any money authorized for social responsibility initiatives is theft from a companys shareholders Caution should be exercised in pursuing various societal obligations since this
Diverts valuable resources Weakens a companys competitiveness
3.
4.
Social responsibilities are best satisfied through conventional business activities (doing what businesses are supposed to do, which does not include social engineering) Spending money for social causes
Muddies decision making by diluting focus on a firms business mission Thrusts executives into role of social engineers
10-53
Creating value for shareholders? Obligation to contribute to the larger social good? Addressing social concerns? Bettering the well-being of society and the environment? Allocate a specified percentage of profits Avoid committing a specified percentage of profits
No widely accepted standard for judging if a company has fulfilled its citizenship responsibilities exists!
10-54
Key
Incorporate measures of a companys social and environmental performance into its evaluation of top executives
Key
Use compensation incentives to enlist support of downthe-line company personnel to craft and execute a social responsibility strategy
10-55
11
Building an Chapter Title Organization Capable of Good Strategy Execution
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
The best game plan in the world never blocked or tackled anybody.
Vince Lombardi
11-2
A second-rate strategy perfectly executed will beat a first-rate strategy poorly executed every time.
Richard M. Kovacevich
11-3
Chapter Roadmap
The Principal Managerial Components of the Strategy Execution Process Building an Organization Capable of Good Strategy Execution Staffing the Organization Building Core Competencies and Competitive Capabilities
Implementation involves . . .
Create and nurture a strategy-supportive culture Consistently meet or beat performance targets
Tougher
strategy
resistance to change
array of demanding managerial activities to be performed ways to tackle each activity of bedeviling issues to be worked out good people management skills
Numerous Number
launching and managing a variety of initiatives simultaneously to integrate efforts of many different work groups into a smoothly-functioning whole
11-8
and executing strategy involves a companys whole management team and all employees
Just as every part of a watch plays a role in making the watch function properly, it takes all pieces of an organization working cohesively for a strategy to be well-executed
Top-level
that activities are done in a manner that is conducive to first-rate strategy execution
enerate commitment so an enthusiastic crusade emerges to carry out strategy how organization conducts its operations to strategy requirements
11-10
Fit
proven formula for implementing particular types of strategies are guidelines, but no absolute rules and must do it this way rules ways to proceed that are capable of working across many aspects of how to manage
11-11
There
Many
Cuts
Approach
to implementation/execution has be customized to fit the situation implement strategies - Not companies!
11-12
People
11-13
Build consensus on how to proceed Arouse enthusiasm for the strategy to turn implementation process into a companywide crusade Empower subordinates to keep process moving Establish measures of progress and deadlines
Reward those who achieve implementation milestones Direct resources to the right places Personally lead strategic change process and the drive for operating excellence
11-14
11-15
11-16
Fig. 11.2: The Three Components of Building an Organization Capable of Proficient Strategy Execution
11-17
a capable management team is a cornerstone of the organization-building task the right people to fill each slot
Find
Existing management team may be suitable Core executive group may need strengthening
mix of
Backgrounds Experiences and know-how Beliefs and values Styles of managing and personalities
Personal Talent
Picking
quality of a companys people is an essential ingredient of successful strategy execution challenge facing companies
How to recruit and retain the best and brightest talent with strong skill sets and management potential
Biggest
Intellectual
capital, not tangible assets, is increasingly being viewed as the most important investment
Talented people are a prime source of competitive advantage
11-20
Put
employees through training programs throughout their careers Give promising employees challenging, interesting, and skills-stretching assignments
11-21
Key Human Resource Practices to Attract and Retain Talented Employees (continued)
employees through jobs with great content, spanning functional and geographic boundaries Encourage employees to
Rotate
Be creative and innovative Challenge existing ways of doing things and offer better ways Submit ideas for new products or businesses
Foster
a stimulating work environment Exert efforts to retain high-potential employees with excellent salary and benefits Coach average employees to improve their skills
11-22
Identifying the desired competencies and capabilities to build into the strategy to help achieve a competitive advantage
Good
Putting desired competencies and capabilities in place, Upgrading them as needed, and Modifying them as market conditions evolve
11-23
11-24
11-25
11-26
11-27
11-28
11-29
ability to do something
Select people with relevant skills/experience Broaden or expand individual abilities as needed Mold efforts and work products of individuals into a cooperative effort to create organizational ability
11-31
experience builds and company learns how to perform the activity consistently well and at acceptable cost, the ability evolves into a competence or capability Typically, a capability or competence emerges from establishing and nurturing collaborative relationships between
Individuals and groups in different departments and/or A company and its external allies
11-32
company masters the activity, performing it better than rivals, the capability or competence becomes a
Distinctive competence and Holds potential for competitive advantage
Strengthening the companys base of skills, knowledge, and intellect or Coordinating and networking the efforts of various work groups and departments
Partnering
with key suppliers, forming strategic alliances, or maybe even outsourcing certain activities to specialists a company that has the required capabilities and integrating these competences into the firms value chain
11-35
Buying
and capabilities must continuously be modified and perhaps even replaced with new ones due to
New strategic requirements Evolving market conditions Changing customer expectations
Ongoing
efforts to keep core competencies up-todate can provide a basis for sustaining both
Effective strategy execution and Competitive advantage
11-36
plays a critical role in implementation when a firm shifts to a strategy requiring different
Skills or core competences Competitive capabilities Managerial approaches Operating methods
Types
of training approaches
Internal universities Orientation sessions for new employees Tuition reimbursement programs Online training courses
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One Big Rule: Role and purpose of organization structure is to support and facilitate good strategy execution!
Each
Prior arrangements and internal politics Executive judgments and preferences about how to arrange reporting relationships How best to integrate and coordinate work effort of different work groups and departments
CEO Vice President Vice President Vice President
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Fig. 11.3: Structuring the Work Effort to Promote Successful Strategy Execution
11-41
Step 1: Decide Which Value Chain Activities to Perform Internally and Which to Outsource
Involves
Critical activities
Other activities, such as routine administrative housekeeping and some support functions, may be candidates for outsourcing
11-42
1. What functions or business processes have to be performed extra well or in timely fashion to achieve competitive advantage?
2. In what value-chain activities would poor execution seriously impair strategic success?
11-43
Partnerships can add to a companys arsenal of capabilities and contribute to better strategy execution
11-44
Appeal of Outsourcing
Outsourcing
non-critical activities allows a firm to concentrate its energies and resources on those value-chain activities where it
Can create unique value Can be best in the industry Needs direct control to
Build core competencies Achieve competitive advantage Manage key customer-supplier-distributor relationships
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building, improving, and then leveraging partnerships, a firm enhances its overall capabilities and builds resource strengths that
Deliver value to customers Rivals cant quite match Consequently pave the way for competitive success
Partnering makes strategic sense when the result is to enhance a companys competencies and competitive capabilities.
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Dangers of Outsourcing
A
company must guard against hollowing out its knowledge base and capabilities to guard against pitfalls of outsourcing
Way
Avoid sourcing key components from a single supplier Use two or three suppliers to minimize dependence on any one supplier Regularly evaluate suppliers Work closely with key suppliers
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Avoid
fragmenting responsibility for strategy-critical activities across many departments coordinating linkages between related work groups
Meld into a valuable competitive capability
Strategic relationships Assign managers key roles Primary activities Support functions
Provide
Coordination
Valuable capability
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A
A
A
diversified company
Individual businesses, with each business unit operating as independent profit center
11-50
a centralized structure
Top managers retain authority for most decisions
In
a decentralized structure
Managers and employees are empowered to make decisions
Trend
in most companies
11-52
Creates a more horizontal structure with fewer management layers Managers and employees develop their own answers and action plans
Make decisions in their areas of responsibility Held accountable for results
Jobs can be defined more broadly Fewer managers are needed Electronic communication systems provide quick, direct access to data Genuine gains in morale and productivity
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limits on authority empowered employees can exercise people accountable for their decisions
Hold
Institute compensation
incentives that reward employees for doing their jobs in a manner contributing to good company performance a corporate culture where theres strong peer pressure on employees to act responsibly
11-55
Create
11-56
Support
Formal
Lengthens completion time Drives up administrative costs Increases risk of details falling through the cracks
Involves pulling strategy-critical processes from functional departments to create process departments or cross-functional work groups
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Building
Internet
Obtaining
task forces
Informal
Voluntary Incentive
Teamwork
ways to produce collaborative efforts to enhance firms capabilities and resource strengths
While
collaborative relationships present opportunities, nothing valuable is realized until the relationship develops into an engine for better organizational performance
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Promote See
plans for specific activities are developed and implemented adjust internal procedures and communication systems to
Iron out operating dissimilarities Nurture interpersonal ties
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Help
companies have completed the task of remodeling traditional, hierarchical structures built on
Functional specialization and Centralized authority
Corporate
downsizing movement in the late 1980s and early 1990s was aimed at
Recasting authoritarian, pyramidal organizational structures Into flatter, decentralized structures
11-64
Tools
Empowered managers and workers Reengineered work processes Self-directed work teams Rapid incorporation of Internet technology Networking with outsiders
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use of Internet technology and e-commerce business practices Fewer barriers between
Different vertical ranks Functions and disciplines Units in different geographic locations Company and its suppliers, distributors, strategic allies, and customers
Capacity
Change & Learning
for change and rapid learning Collaborative efforts among people in different functions and geographic locations
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12
Managing Chapter Title Internal Operations
16/e PPT
McGraw-Hill/Irwin
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
If you want people motivated to do a good job, give them a good job to do.
Frederick Herzberg
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Chapter Roadmap
Marshaling
Resources Behind the Drive for Good Strategy Execution Policies and Procedures that Facilitate Strategy Execution Best Practices and Striving for Continuous Improvement Information and Operating Systems
Instituting
Adopting
Installing Tying
12-5
Funding strategic initiatives that can make a contribution to strategy implementation Funding efforts to strengthen competencies and capabilities or to create new ones Shifting resources downsizing some areas, upsizing others, killing activities no longer justified, and funding new activities with a critical strategy role
12-6
12-7
Fig. 12.1: How Prescribed Policies and Procedures Facilitate Strategy Execution
12-8
of new policies
Channel behaviors and decisions to promote strategy execution Counteract tendencies of people to resist chosen strategy
Too
Often,
the best policy is empowering employees, letting them operate between the white lines anyway they think best
12-9
12-10
out and adopting best practices is integral to effective implementation is the backbone of the process of identifying, studying, and implementing best practices tools to promote continuous improvement
Benchmarking
Key
An
activity that at least one company has proved works particularly well
ractices Best P
12-12
Significantly lowering costs Improving quality or performance Shortening time requirements Enhancing safety or Delivering some other highly positive operating outcome
Demonstrate success over time Deliver quantifiable and highly positive results and Be repeatable
12-13
Characteristics of Benchmarking
Involves determining how well a firm performs particular activities and processes when compared against
Goal Promote achievement of operating excellence in performing strategy-critical activities Caution Exact duplication of best practices of other firms is not feasible due to differences in implementation situations Best approach Best practices of other firms need to be modified or adapted to fit a firms own specific situation
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12-15
Often the performance of strategically relevant activities is scattered across several functional departments
Creates inefficiencies and often impedes performance Results in lack of accountability since no one functional manager is responsible for optimum performance of an entire activity
12-16
Continuous improvement in all phases of operations 100 percent accuracy in performing activities Involvement and empowerment of employees at all levels Team-based work design Benchmarking and Total customer satisfaction
12-17
enthusiasm to do things right throughout company to achieve little steps forward each day (what the Japanese call kaizen) creativity in employees to improve performance of value-chain activities there is no such thing as good enough
12-19
Strive
Ignite
Preach
Sigma is a disciplined, statistics-based system aimed at having not more than 3.4 defects per million iterations for any business practice from manufacturing to customer transactions Two approaches to Six Sigma
An improvement system for existing processes falling below specification and needing incremental improvement A great tool for improving performance when there are wide variations in how well an activity is performed An improvement system used to develop new processes or products at Six Sigma quality levels
12-20
1. All work is a process 2. All processes have variability 3. All processes create data to explain variability
A
company systematically applying Six Sigma to its value chain activities can significantly improve the proficiency of strategy implementation Three challenges in implementing Six Sigma quality programs
1. Obtain managerial commitment 2. Establish a quality culture 3. Full involvement of employees
12-21
Measure
Collect data to find out why, how, and how often the defect occurs Analyze Involves Statistical analysis of the metrics Identification of a best practice
Improve
Implementation of the documented best practice Employees are trained on the best practice Over time, significant improvement in quality occurs
12-22
Control
Total
Techniques
Reengineering Used to produce a good basic design yielding dramatic improvements Total quality programs Used to perfect process, gradually improving efficiency and effectiveness
12-23
Benchmark Build
a TQ culture
Requires top management commitment Install TQ-supportive employee practices Empower employees to do the right things Provide employees with quick access to required information using on-line systems Preach that performance can/must be improved
12-24
Have
hard-to-imitate aspects
Require
substantial investment of management time and effort in terms of training and meetings produce short-term results
Expensive Seldom
Long-term
12-26
12-27
information and operating systems are essential for first-rate strategy execution systems can relate to
Support
On-line data capabilities Speedy delivery or repair Inventory management E-commerce capabilities
Mobilizing
Airlines
On-line Accurate
reservation system
Strict
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Federal Express
Internal
communication systems allowing it to coordinate 70,000 vehicles handling an average of 5.5 million packages per day flight operations systems allow a single controller to direct as many as 200 of 650-plus aircraft simultaneously
E-business
Leading-edge
Otis Elevator
Sophisticated
eBay
Systems have been developed for
real-time monitoring of new listings, bidding activity, Web site traffic, and page views
12-31
data data
Operations Employee
Supplier/partner/collaborative Financial
performance data
12-32
technology
Daily statistical updates Up-to-the minute performance monitoring Retail companies have up-to-the minute inventory and sales records for each item
Electronic
Gather daily or weekly statistics from different databases about inventory, sales, costs, and sales trends Enables managers to make better decisions on a real-time basis
12-33
Control
approaches
Managerial control
Establish boundaries on what not to do, allowing freedom to act with limits Track and review daily operating performance
Peer-based control
12-34
12-35
12-36
Non-monetary Incentives
Praise Constructive Special More,
criticism
recognition assignments
Retirement Piecework
incentives
12-37
Provide attractive perks and fringe benefits Rely on promotion from within when possible Make sure ideas and suggestions of employees are valued and respected Create a work atmosphere where there is genuine sincerity and mutual respect among all employees State strategic vision in inspirational terms to make employees feel they are part of something worthwhile Share financial and strategic information with employees Have knockout facilities Be flexible in how company approaches people management in multicultural environments
12-38
Lincoln Electric
Rewards productivity by paying for each piece produced (defects can be traced to worker causing them). Highest rated workers receive bonuses of as much 110% of their piecework compensation.
12-39
Xilinx
New hires receive stock option grants. CEO responds promptly to employee e-mails. During hard times management takes a 20% pay cut instead of laying off employees.
12-40
Nordstrom
Pay salespeople higher than prevailing rates, plus commission. Rule #1: Use good judgment in all situations. There will be no additional rules.
12-41
Amgen
Employees get 16 paid holidays, generous vacation time, tuition reimbursements up to $10,000, on-site massages, a discounted car wash, and the convenience of shopping at on-site farmers markets.
12-42
Prevailing
view
rewards to the achievement of strategic and financial performance targets is managements single most powerful tool to win the commitment of company personnel to effective strategy execution Objectives in designing the reward system
Generously reward those achieving objectives Deny rewards to those who dont Make the desired strategic and financial outcomes the dominant basis for designing incentives, evaluating efforts, and handing out rewards
12-44
a results-oriented system Reward people for results, not for activity Define jobs in terms of what to achieve Incorporate several performance measures Tie incentive compensation to relevant outcomes
Top executives Incentives tied to overall firm performance Department heads, teams, and individuals Incentives tied to achieving performance targets in their areas of responsibility
12-46
12-47