Session 4 - Shandong University
Transcript of Session 4 - Shandong University
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Session 4
Essentials of Planning
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Basics of Planning
Planning is defined as the process of coping
with uncertainty by formulating future courses
of action to achieve specific results
Planning sets the stage for all other major
managerial functions
Planning is a never-ending process…
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Planning: The Primary Management
Function
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Uncertainty – Reality of Organization
State uncertainty: unpredictable environment
Will it rain on the day of our wedding?
Effect uncertainty: unpredictable impacts of
environmental changes
Will outdoor guests be uncomfortable if it rains?
Response uncertainty: unpredictable
consequences of decisions
Will our outdoor wedding reception still be fun if we decide
to have it inside rented tents and it doesn’t rain?
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Organizational Responses to Uncertainty
Defenders: “Be very good at doing a few things”
relying on a primary technology and/or a narrow product line to remain competitive.
Prospectors: “Stay a step ahead of the competition”
seeking first-mover advantage by aggressively making things happen and not waiting for them to happen.
Analyzers: “Follow the leader” following the market leader and imitating what works, avoiding expensive
R&D mistakes.
Reactors: “If it ain’t broken, don’t fix it” waiting for adversity (e.g., declining sales) to occur before taking
corrective action.
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Essentials of Planning
Having a PLAN – objective (end) plus an action statement (means) What, when , and how things should be
accomplished considering organization’s capabilities and environmental uncertainties
Important components:
Types of planning
Organizational mission
Objectives & priorities
Planning/control cycle
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Types of Planning
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Types of Planning (cont’d)
Strategic planning: determining how to
pursue long-term goals with available resources.
Intermediate planning: determining subunits’
contribution with allocated resources.
Operational planning: determining how to
accomplish specific tasks with available
resources.
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Criteria for Effective Mission Statements:
Organizational mission: A clear, formally written, and publicized statement that guides the organization by1. defining the organization for key stakeholders.
2. creating an inspiring vision of the organization.
3. outlining how the vision will be accomplished.
4. establishing key priorities.
5. stating a common goal and foster togetherness.
6. creating a philosophical anchor for the organization.
7. generating enthusiasm and a “can do” attitude.
8. empowering organization members to believe every individual is a key to success.
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Strategic Intent (Vision)
The “holy grail”
Leveraging of a firm’s resources, capabilities, and core competencies to accomplish the firm’s goals in the competitive environment
Internally focused
Seek to ensure that all of the organization’s employees are focused on achieving the firm’s
goals
“To be the leader in the global document market.”
----Xerox
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Bush’s decision to lay his party’s holy tax
grail on the table was not so much the
product of an epiphany as it was incremental
dawning that something must be done.
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Strategic Mission
An application of strategic intent
A statement of a firm’s unique purpose and the scope of its operations in product and market terms
Externally focused
Establish a firm’ individuality, inspiring and relevant to all stakeholders
“Connecting, informing and entertaining people
everywhere in innovative ways that will enrich their lives.”
----Time Warner
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Stakeholders Stakeholders are the individuals and groups
who…
can affect, and are affected by, the strategic outcomes
achieved
have enforceable claims on a firm’s performance
Types of stakeholders
Capital market stakeholders…shareholders, major
capital suppliers
Product market stakeholders…customers, suppliers,
host communities, unions
Organizational stakeholders…all employees
Stakeholders’ interests may conflict
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Your Mission Statement?
So for group project, you will create a company…
What is your company’s mission statement?
Remember, you should include the mission statement in your written report.
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Strategic Management
Strategy is an integrated externally-oriented perception
of how to achieve the organization’s mission.
Strategic management is the ongoing process of
ensuring a competitively superior fit between an
organization and its changing environment.
Strategic Management = Strategic
Planning + Implementation + Control
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Strategic Management Process
Study the external and internal environments
Identify marketplace opportunities and threats
Determine how to use core competencies
Use strategic intent to leverage resources, capabilities and core competencies and win competitive battles
Integrate formulation and implementation of strategies
Seek feedback to improve strategies
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Strategic Management Process
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Step 1:
Formulation of a Grand Strategy
Grand Strategy
A general explanation of how the organization’s
mission is to be accomplished.
Situational Analysis
Finding the organization’s niche by performing a
SWOT (Strengths, Weaknesses, Opportunities,
and Threats) analysis to match unfolding
opportunities with resources being acquired.
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Determining Grand Strategy Through
SWOT Analysis
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The External
Environment
This is a
“must know”
model
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True or False?
Demographic, economic, political/legal,
sociocultural, technological, and global are
the six elements comprising the industry
environment.
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False!!!
Demographic, economic, political/legal,
sociocultural, technological, and global
are the six elements comprising the
GENERAL environment.
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The External Environment: General
Environment
Dimensions in the broader society that influence
and industry and the firms within it
Economic
Socio-cultural
Global
Technological
Political/legal
Demographic
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The External Environment : Industry
Environment Set of factors directly influencing a firm and its
competitive actions and competitive responses
Threat of new entrants
Power of suppliers
Power of buyers
Threat of product substitutes
Intensity of rivalry among competitors
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The External Environment:
Competitor Environment
All of the companies that the firm competes
against.
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Analysis of the External Environments:
What to Analyze?
General environment
Focused on the future
Industry environment
Focused on factors and conditions influencing a firm’s
profitability within an industry
Competitor environment
Focused on predicting the dynamics of competitors’
actions, responses and intentions
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Analysis of the External Environments:
Why Analyze?
To identify opportunities and threats:
Opportunity A condition in the general environment that if exploited,
helps a company achieve strategic competitiveness
Threat A condition in the general environment that may hinder
a company’s efforts to achieve strategic competitiveness
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Analysis of the External Environments:
How to Analyze?
Four-step process:
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General Environment (I)
The Demographic Segment
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
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General Environment (II)
The Economic Segment
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
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General Environment (III)
The Sociocultural Segment
Women in the workplace
Workforce diversity
Attitudes about quality of worklife
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
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General Environment (IV)
The Global Segment
Significant international
events
Emerging and changing
global markets
Global outsourcing
Access to resources on a
global basis
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General Environment (V)
The Technological Segment
Product innovations
Applications of knowledge
Focus of private and
government-supported R&D
expenditures
New communication
technologies
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General Environment (VI)
The Political/Legal Segment
Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and
policies
Intellectual property
enforcement
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True or False?
Firms can easily control the
elements of the six segments of the
general environment.
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False!!!
Firms can NOT directly control the
elements of the six segments of the
general environment.
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Industry Environment
Industry Defined
A group of firms producing products that
are close substitutes
Firms that influence one another
Includes a rich mix of competitive strategies
that companies use in pursuing strategic
competitiveness and above-average returns
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Porter’s Five Forces of Competition Model
This is a
“must know”
model
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A More Traditional Look of Porter’s Model
2. New entrants
5. Industry
competitors
Intensity of rivalry
3. Buyers
4. Substitutes
1. Suppliers
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1st Force:
Threat of New EntrantsBarriers to entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected retaliation
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2nd Force:
Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few in number
Suitable substitute products are not available
Individual buyers are not large customers of suppliers and there are many of them
Suppliers’ goods are critical to buyers’ marketplace success
Suppliers’ products create high switching costs.
Suppliers pose a threat to integrate forward into buyers’ industry
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3rd Force:
Bargaining Power of Buyers
Buyer power increase when:
Buyers are large and few in number
Buyers purchase a large portion of an industry’s total output
Buyers’ purchases are a significant portion of a supplier’s annual revenues
Buyers can switch to another product without incurring high switching costs
Buyers pose threat to integrate backward into the sellers’ industry
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4th Force:
Threat of Substitute Products
The threat of substitute products increases
when:
Buyers face few switching costs
The substitute product’s price is lower
Substitute product’s quality and
performance are equal to or greater than
the existing product
Differentiated industry products that are valued
by customers reduce this threat
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5th Force: Intensity of Rivalry Among
Competitors
Industry rivalry increases when:
There are numerous or equally balanced competitors
Industry growth slows or declines
There are high fixed costs or high storage costs
There is a lack of differentiation opportunities or low switching costs
When the strategic stakes are high
When high exit barriers prevent competitors from leaving the industry
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Interpreting Industry Analyses
Low entry barriers
UnattractiveIndustry
Suppliers and buyers have strong positions
Strong threats from substitute products
Intense rivalry among competitors
Low profit potential
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Interpreting Industry Analyses
AttractiveIndustry
High entry barriers
Suppliers and buyers have weak positions
Few threats from substitute products
Moderate rivalry among competitors
High profit potential
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True or False?
The five forces model
(buyers/suppliers/new
entrants/substitutes/rivalry) is a
firm-level analytical model.
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False!!!
The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is an INDUSTRY-level analytical model.
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Competitor Analysis
Competitor Intelligence The ethical gathering of needed information and data that
provides insight into:
A competitor’s direction (future objectives)
A competitor’s capabilities and intentions (current
strategy)
A competitor’s beliefs about the industry (its
assumptions)
A competitor’s capabilities
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Competitor Analysis
Components
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Components of Internal Analysis
This is a
“must know”
model
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Resources
Are the source of a firm’s capabilities
Represent inputs into a firm’s production process
Alone, does not yield a competitive
advantage
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Resources: Tangible and Intangible
Tangible resources
Financial resources
Physical resources
Technological resources
Organizational resources
Intangible Resources
Human resources
innovation resources
Reputation resources
Tangible and intangible resources, which
are more important?
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Capabilities Firm’s capacity to deploy resources that have
been purposely integrated to achieve a desired
end state
Emerge over time through complex interactions
among tangible and intangible resources
Developed in specific functional areas or as part
of a functional area
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Core Competencies
Resources and capabilities that serve as a source of a
firm’s competitive advantage
Distinguish a company competitively and reflect its
personality
“Crown jewels of a company”
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True or False?
A firm’s resources and capabilities always
lead to competencies.
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False!!!
A firm’s resources and capabilities DO
NOT always lead to competencies.
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Discovering Core Competencies (I)
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#1: Valuable?
Help a firm neutralize threats or exploit opportunities
#2: Rare?
Not possessed by many others
#3: Costly-to-imitate?
Historically unique? A unique and a valuable organizational culture or brand name
Causally ambiguous? The causes and uses of a competence are unclear
Socially complex? Interpersonal relationships, trust, and friendship among managers, suppliers, and customers
#4: Nonsubstitutable?
No strategic equivalent
Checklist of Four Criteria
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Discovering Core Competencies (II)
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Team Project: SWOT Analysis
Your goal in this exercise is to conduct
SWOT analysis for your company!
Remember, you should include the SWOT
analysis in your written report.
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Thinking Strategically: Synergy
Synergy occurs when two or more variables interact to produce an effect greater than the sum of the effects of any of the variables acting independently (Kreitner, 2007: 191). Synergy has been called the 1+1=3 effect.
Types of synergy Market synergy: extending products to new markets.
Cost synergy: savings from combinations of common-base operations, resources, and facilities.
Technological synergy: the transfer and application of technologies to new markets.
Management synergy: complementary skills that make for more effective overall management.
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Thinking Strategically: Porter’s Generic
Competitive Strategies
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Business-Level Strategy
An integrated and coordinated set of commitments
and actions the firm uses to gain a competitive
advantage by exploiting core competencies in
specific product markets
Business-level
Strategy
Which good or
service to provide
How to
manufacture it
How to
distribute it
Key Issues:
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Customers: Business-Level Strategic Issues
Customers are the foundation of successful
business-level strategy
Who will be served by the strategy?
What needs those target customers have that the
strategy will satisfy?
How those needs will be satisfied by the strategy?
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Customer Needs—Who?
Determining the Customers to Serve
CustomersIndustrialMarkets
ConsumerMarkets
Market Segmentation
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Strategic Focus: Southwest
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Types of Business-Level Strategies
This is a
“must know”
model
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#1: Cost Leadership StrategyWhat is it?
Acceptable features at the lowest cost
Relatively standardized products
Cost saving actions required by this strategy:
Building efficient scale facilities
Tightly controlling production costs and overhead
Minimizing costs of sales, R&D and service
Building efficient manufacturing facilities
Monitoring costs of activities provided by outsiders
Simplifying production processes
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#1: Cost Leadership Strategy Defending Against
5 Competitive Forces
Can frighten off new entrants due to: Their need to enter on a large scale in order to be cost competitive
The time it takes to move down the learning curve
Can mitigate suppliers’ power by: Being able to absorb cost increases due to low cost position
Being able to make very large purchases, reducing chance of
supplier using power
Can mitigate buyers’ power by: Driving prices far below competitors, causing them to exit, thus
shifting power with buyers back to the firm
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#1: Cost Leadership Strategy Defending Against 5 Competitive Forces (cont.)
Can fend off product substitutes, because cost leader
is well positioned to: Make investments to be first to create substitutes
Buy patents developed by potential substitutes
Lower prices in order to maintain value position
Can deter rivals, because: Rivals hesitate to compete on basis of price
Lack of price competition leads to greater profits
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Processes used to produce and distribute good or
service may become obsolete due to competitors’
innovations
Focus on cost reductions may occur at expense of
customers’ perceptions of differentiation
Competitors, using their own core competencies,
may successfully imitate the cost leader’s strategy
#1: Cost Leadership Strategy Competitive Risks
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#2: Differentiation StrategyWhat is it?
Being different
Nonstandardized products
Customers value differentiated features more
than they value low cost!
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#2: Differentiation Strategy Defending Against 5 Competitive Forces
Can defend against new entrants because: New products must surpass proven products
New products must be at least equal to performance of proven
products, but offered at lower prices
Can mitigate suppliers’ power by: Absorbing price increases due to higher margins
Passing along higher supplier prices because buyers are loyal to
differentiated brand
Can mitigate buyers’ power because: Well differentiated products reduce customer sensitivity to price
increases
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#2: Differentiation Strategy Defending Against 5 Competitive Forces (cont.)
Well positioned relative to substitutes because
Brand loyalty to a differentiated product tends to reduce
customers’ testing of new products or switching brands
Defends against rivals because:
Brand loyalty to differentiated product offsets price
competition
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The price differential between the differentiator’s
product and the cost leader’s product becomes too
large
Differentiation ceases to provide value for which
customers are willing to pay
Experience narrows customers’ perceptions of the
value of differentiated features
Counterfeit goods replicate differentiated features of
the firm’s products
#2: Differentiation Strategy
Competitive Risks
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#3 & 4: Focus StrategiesWhat is it?
Serve a particular competitive segment
Particular buyer group (e.g. youths or senior citizens
Different segment of a product line (e.g. professional
craftsmen versus do-it-yourselfers
Different geographic markets (e.g. East coast versus West
coast)
Types of focused strategies Focused cost leadership strategy
Focused differentiation strategy
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#3 & 4: Focus StrategiesWhat factors drive them?
Large firms may overlook small niches
A firm may lack the resources needed to compete in
the broader market
A firm is able to serve a narrow market segment
more effectively than can its larger industry-wide
competitors
Focusing allows the firm to direct its resources to
certain value chain activities to build competitive
advantage
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A focusing firm may be “outfocused” by its
competitors
A large competitor may set its sights on a firm’s
niche market
Customer preferences in niche market may change
to more closely resemble those of the broader
market
#3 & 4: Focus StrategiesCompetitive Risks