555320S Strateginen johtaminen 555320S Strategic Management

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555320S Strateginen johtaminen555320S Strategic
Management

• Luennot / lectures Pekka Kess
• Oulun yliopisto / University of Oulu
• Tuotantotalouden osasto /
• Department of Industrial Engineering and
  Management
• Syksy 2008 / Autumn 2008

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Course Description 5 cr. (1/2)

• Goal The target of the course is that the
  students learn about strategic thinking,
  development of business strategies, change
  processes, methods and tools both in theory and
  in practice.
• Contents
• Basic structure of business strategy
• Competition
• Competitive advantages
• Strategic thinking
• Strategy maps
• Building strategy from the competencies
• Strategic management
• Analysis of strategies
• Strategy process
• Course lay-out
• Meetings on Mondays 15.9. / 22.9 / 29.9 / 6.10
  / 1.12.
• Team assignment
• kick-off on 22.9
• return the report 26.11.
• closing seminar 1.12.
• Questions and comments pekka.kess_at_oulu.fi

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Course Description 5 cr. (2/2)

• Completion of the course - Two alternatives
• Completion of the team assignment - or
• Written exam from one of the book sets
• Global strategies Ungson G. R. Wong, Y-Y
  (2008) Global Strategic Management. M. E. Sharpe,
  New Yor., 579 p. or
• New world strategies I Meredith R. (2007) The
  Elephant and The Dragon Rise of India and China
  and What it Means for All of Us. WW Norton Comp.,
  New York., 252 p. Angtmael, van A. (2007) The
  Emerging Markets Century - How a New Breed of
  World-Class Companies Is Overtaking the World.
  Free Press, New York. 358 p. or
• New world strategies II Friedman, T. L. (2007)
  The World Is Flat 3.0 - A Brief History of the
  Twenty-first Century Picador, 672 p. - or
• Tools Kaplan R.S Norton D. P. (2004) Strategy
  Maps Converting Intangible Assets into Tangible
  Outcomes. HBS Press. 480 p. - or
• Strategic thinking Hamel, G. (2000) Leading the
  Revolution. 333 p. DAveni, R. A. (1995)
  Hypercompetitive Rivalries Competing in Highly
  Dynamic Environments. The Free Press. 288 p.
• Exam possibilities will be on the 22th October
  and the 10th December. The third possibility will
  be in 2009 and the date will be fixed later.

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Team assignment

• Size of the team 2-3 students
• The task a strategic study in a Business Plan
  framework
• Strategy of the company
• A detailed description of a selected topic (to be
  inclued in the business plan)
• Writen report text Word, presentation
  Powerpoint, tables Excell, flowcharts Visio
• Kick off 22.9
• Work time 22.9 26.11.
• Presentattion 1.12. 13.15.-gt

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Team assigment Table of contents -

• Introduction (to the assignment)
• Company presentation (brief outline from the
  Business Plan)
• The Task to Enhance the topic of the business
  plan
• What is the objective
• What is the current state
• What are the improvement suggestions
• Conclusion
• Disucssion about the assigment
• Discussion about group work
• What was learned
• Literature used
• Appendices (if any)

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Case companies (1/3)
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Teams
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Business Planning

• http//www.deloitte.com/dtt/cda/doc/content/DI_wri
  ting20business20plan.pdf
• THE NEED FOR PLANNING
• THE PROCESS OF WRITING A BUSINESS PLAN
• THE EXECUTIVE SUMMARY
• THE COMPANY, STRATEGY, AND MANAGEMENT TEAM
• MANAGEMENT AND ORGANIZATION
• THE MARKET AND COMPETITORS
• THE PRODUCT OR SERVICE
• MARKETING AND SALES
• THE FINANCIAL INFORMATION

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THE NEED FOR PLANNING

• A business plan must do the following
• Discuss the companys goals for the near-term and
  long-term future
• Show how the goals can be achieved
• Demonstrate that realization of the plan will
  satisfy the readers requirements.

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E X T E R N A L U S E S F O R T H E P L A N

• Investors are interested in
• The track records of the company, the market, and
  the key executives
• The feasibility of achieving the forecasts
• The uniqueness of the product and its technology
• The quality of the management.

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I N T E R N A L U S E S F O R T H E P L A N

• The most important, the business plan commits the
  entire management team to the same goals. The
  process of working out the plans objectives
  invariably forces executives to reconcile
  different visions of where the company stands and
  where it is headed.
• What are the long-term goals of the company? The
  near-term?
• What do you wish to gain from your business plan
  (e.g., funding, reconciled internal vision,
  etc.)?
• What are the likely needs and requirements of the
  readers?

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THE PROCESS OF WRITING A BUSINESS PLAN
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Data gathering (1/2)

• Company Description
• Name
• Legal form
• Location
• Financial highlights
• Shareholders
• Management and Organization
• Organization chart
• Key management
• Board of Directors
• Consultants and advisors
• Compensation and other employee agreements
• Other shareholders, rights and resolutions
• Market and Competitors
• Market statistics
• Competitor data
• Market and customer surveys

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Data gathering (2/2)

• Product or Services
• Product literature and technical specifications
• Contracts and/or purchase orders
• Competitive advantages
• Patent, license, and trademarks
• Regulatory approvals or industry standards
• Operations plan
• Research and development plans
• Marketing and Sales
• Marketing plan
• Marketing vehicles
• Marketing materials
• Financial Information
• Financial statements for up to past five years
• Financial forecasts and projections and
  assumptions
• Amount and timing of needed funding

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THE EXECUTIVE SUMMARY

• An effective Executive Summary describes all of
  the key elements of a business plan
• A synopsis of the companys strategy for
  succeeding
• A concise account of the management teams
  qualifications that make the company successful (
  a description of the teams contribution to
  previous successful business ventures)
• A brief description of the market (along with the
  ingredients for success that make the company
  unique in that market)
• A brief description of the product or service
• Key historical and forecasted financial data,
  such as annual revenue and net income, for five
  years
• An estimate of the amount of the funds neede, a
  statement of how the money will be used and how
  lenders or investors will get their money back.

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THE COMPANY, STRATEGY, AND MANAGEMENT TEAM

• Fundamental questions
• What business are you in?
• What is the purpose of your business?
• What are your products and/or services? How are
  they related to your mission?
• What benefits do your products and/or services
  provide to your customers?
• What led you to develop your business, its
  products or services?
• What is your vision for your business? How large
  do you want to become?
• Is your vision statement based in reality and is
  it aligned with realistic growth objectives?
• Why are you uniquely qualified to be in this
  business?
• How you are distinctive from your competition?
• What is the legal name of your business?
• What is your legal structure and is it
  appropriate for your future plans?
• Where are you located?
• What stage are you presently at? Conceptual
  phase? Start-up? Mature business?
• What is your current financial position?
• What are your companys weaknesses and how are
  you addressing them?
• Who are the key members of your management team?

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MANAGEMENT AND ORGANIZATION

• Describing the management team
• Other HR issues
• Outside advisors
• Why is the CEO qualified to lead the company?
• Do the strengths and experience of the management
  team match the goals and
• strategies of the business?
• Does the management team have both technical and
  business acumen?
• Are your compensation arrangements aligned with
  the goals and objectives
• of the business?
• Do you have any strategic alliances that give you
  access to talent that is not resident in your
  management team?
• If your management team is not complete, what is
  your action plan to add the necessary talent?
  What impact is this having on current operations?
• Are your compensation programs competitive enough
  to attract and retain the right human resources?
• How will you address the ongoing development
  needs of your workforce?
• Who are your outside experts and what will it
  cost to retain them?
• Does your Board of Directors or advisors bring
  relevant experience to your management team?

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THE MARKET AND COMPETITORS

• IDENTIFYING THE MARKET
• What are the trends in your industry?
• What is the target market?
• How large is the market?
• What is the competition?
• UNDERSTANDING THE MARKET
• What motivates buying decisions?
• How is the market segmented?
• How will your product or service be positioned in
  the market? (Pricing - Technology Leadership -
  Management Style - Service Philosophy - Product
  Quality)

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THE PRODUCT OR SERVICE

• PRESENTING THE PRODUCT
• PRODUCT DEVELOPMENT ISSUES
• Describe the RD requirements fully
• Assess competing technologies
• Explain where the product or service will lead
  the company
• Explain what is proprietary
• MANUFACTURING AND OPERATIONS

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MARKETING AND SALES

• THE MARKETING PLAN
• SALES STRATEGIES

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THE FINANCIAL INFORMATION

• THE FINANCIAL STATEMENTS
• FORECASTS
• THE FUNDING REQUEST(S)
• PAYBACK AND EXIT STRATEGY

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Strategic Management

• Some schools
• Some ideas

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Business-Level Strategy (Defined)

• 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.

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Ungson Wong 2008 Meta schools of strategy
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Mintzbergin et al. 1998 schools of thought
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The Purpose of a Business-Level Strategy

• Business-Level Strategies
• Are intended to create differences between the
  firms position relative to those of its rivals.
• To position itself, the firm must decide whether
  it intends to
• Perform activities differently or
• Perform different activities as compared to its
  rivals.

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Types of Potential Competitive Advantage

• Achieving lower overall costs than rivals
• Performing activities differently (reducing
  process costs)
• Possessing the capability to differentiate the
  firms product or service and command a premium
  price
• Performing different (more highly valued)
  activities.

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Types of Business-Level Strategies
Competitive Advantage
Cost
Uniqueness
Broad Target
Competitive Scope
Narrow Target
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Cost Leadership Strategy Competitors

• Due to cost leaders advantageous position
• Rivals hesitate to compete on basis of price.
• Lack of price competition leads to greater
  profits.

Rivalry with Existing Competitors
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Cost Leadership Strategy Substitutes
ProductSubstitutes

• 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.

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Cost Leadership Strategy Buyers
Bargaining Powerof Buyers

• 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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Cost Leadership Strategy Suppliers
Bargaining Power of Suppliers

• 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.

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Cost Leadership Strategy New Entrants
The Threat of Potential Entrants

• 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.

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Differentiation Strategy

• An integrated set of actions taken to produce
  goods or services (at an acceptable cost) that
  customers perceive as being different in ways
  that are important to them.
• Focus is on non-standardized products
• Appropriate when customers value differentiated
  features more than they value low cost.

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Differentiation Strategy Competitors
Rivalry with Competitors

• Defends against competitors because brand loyalty
  to differentiated product offsets price
  competition.

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Differentiation Strategy Substitutes
Product Substitutes

• Well positioned relative to substitutes because
• Brand loyalty to a differentiated product tends
  to reduce customers testing of new products or
  switching brands.

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Differentiation Strategy Buyers
Bargaining Powerof Buyers

• Can mitigate buyers power because well
  differentiated products reduce customer
  sensitivity to price increases.

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Differentiation Strategy Suppliers
Bargaining Power of Suppliers

• Can mitigate suppliers power by
• Absorbing price increases due to higher margins.
• Passing along higher supplier prices because
  buyers are loyal to differentiated brand.

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Differentiation Strategy New Entrants
The Threat of Potential Entrants

• 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.

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Focus Strategies

• An integrated set of actions taken to produce
  goods or services that serve the needs of a
  particular competitive segment.
• Particular buyer groupyouths or senior citizens
• Different segment of a product lineprofessional
  craftsmen versus do-it-yourselfers
• Different geographic marketsEast coast versus
  West coast

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Focus Strategies (contd)

• Types of focused strategies
• Focused cost leadership strategy
• Focused differentiation strategy
• To implement a focus strategy, firms must be able
  to
• Complete various primary and support activities
  in a competitively superior manner, in order to
  develop and sustain a competitive advantage and
  earn above-average returns.

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Integrated Cost Leadership/ Differentiation
Strategy

• A firm that successfully uses an integrated cost
  leadership/differentiation strategy should be in
  a better position to
• Adapt quickly to environmental changes.
• Learn new skills and technologies more quickly.
• Effectively leverage its core competencies while
  competing against its rivals.

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Integrated Cost Leadership/ Differentiation
Strategy (contd)

• Commitment to strategic flexibility is necessary
  for implementation of integrated cost
  leadership/differentiation strategy.
• Flexible manufacturing systems (FMS)
• Information networks
• Total quality management (TQM) systems

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The resources and capabilities that have been
determined to be a source of competitive
advantage for a firm over its rivals.
Core Competency
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The resources and capabilities that have been
determined to be a source of competitive
advantage for a firm over its rivals.
Core Competency
An integrated and coordinated set of actions
taken to exploit core competencies and gain a
competitive advantage.
Strategy
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The resources and capabilities that have been
determined to be a source of competitive
advantage for a firm over its rivals.
Core Competency
An integrated and coordinated set of actions
taken to exploit core competencies and gain a
competitive advantage.
Strategy
Actions taken to provide value to customers and
gain a competitive advantage by exploiting core
competencies in specific, individual product
markets.
Business Level Strategy
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Generic Business Level Strategies
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Cost Leadership Strategy
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Cost Leadership Strategy
Requirements
Constant effort to reduce costs through
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
52
Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Support Activities
Primary Activities
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How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain as needed
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Choices That Drive Costs
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Three Key Questions
How can an activity be performed differently or
even eliminated?
1.
2.
How can a group of linked value activities be
regrouped or reordered?
3.
How might coalitions with other firms lower or
eliminate costs?
56
Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
57
Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
58
Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of new entrants
Bargaining power of buyers
59
Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Buyers
Can mitigate Buyer Power by
Driving prices far below competitors which may
cause exit and shift power back to firm
60
Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Can mitigate Supplier Power by
Bargaining Power of Buyers
Low cost position makes them better able to
absorb cost increases

Can mitigate Buyer Power by
More likely to make very large purchases which
reduces chance of supplier power

Threat of Substitute Products
Driving prices far below competitors which may
cause exit and shift power back to firm
61
Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Rivalry Among Competing Firms in Industry
Bargaining Power of Suppliers
Bargaining Power of Buyers
Can mitigate Buyer Power by
Driving prices far below competitors which may
cause exit and shift power back to firm
Threat of Substitute Products
62
Major Risks of Cost Leadership Business Level
Strategy
63
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Broad Target Market
Breadth of Competitive Scope
Narrow Target Market
64
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Narrow Target Market
65
Differentiation Business Level Strategy
Key Criteria
66
Differentiation Business Level Strategy
Requirements
67
Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
68
Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
69
Differentiation Business Level Strategy
Effectiveness with Differentiation grows out of
Value Chain activities
Examples
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Create Value with Differentiation by
Lowering Buyers Costs
Raising Buyers Performance
Creating Sustainability through

• Creating barriers by perceptions of uniqueness

• Creating switching costs through differentiation

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Drivers of Differentiation
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
73
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
74
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
75
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Can mitigate Buyer Power because well
differentiated products reduce customer
sensitivity to price increases
76
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Can mitigate Buyer Power because well
differentiated products reduce customer
sensitivity to price increases
Threat of Substitute Products
77
Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Can mitigate Buyer Power because well
differentiated products reduce customer
sensitivity to price increases
Threat of Substitute Products
78
Major Risks of a Differentiation Business Level
Strategy
79
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Narrow Target Market
80
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Focused Differen- tiation
Focused Low Cost
Narrow Target Market
81
Focused Business Level Strategies
Focused Business Level Strategies involve the
same basic approach as Broad Market Strategies.
However, opportunities may exist because
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Focused Business Level Strategies
Focused Business Level Strategies involve the
same basic approach as Broad Market Strategies.
However, opportunities may exist because
Examples
83
Major Risks Involved With a Focused Differentiatio
n Business Level Strategy
84
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Focused Differen- tiation
Focused Low Cost
Narrow Target Market
85
Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may
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Integrated Low Cost/Differentiation Strategy

• Recognize that the Integrated Low Cost/
  Differentiation business level strategy involves
  a Compromise

• The risk is that the firm may become Stuck in
  the Middle lacking a strong commitment to or
  expertise with either type of generic strategy

87
References (1/2)

• Ungson G. R. Wong, Y-Y (2008) Global Strategic
  Management. M. E. Sharpe, New Yor., 579 p.
• Meredith R. (2007) The Elephant and The Dragon
  Rice of India and China and What it Means for All
  of Us. WW Norton Comp., New Yor., 252 p
• Angtmael, van A. (2007) The Emerging Markets
  Century - How a New Breed of World-Class
  Companies Is Overtaking the World. Free Press,
  New York. 358 p.
• Friedman, T. L. (2007) The World Is Flat 3.0 - A
  Brief History of the Twenty-first Century
  Picador, 672 p.
• Hamel, G. (2000) Leading the Revolution. 333 p.
• DAveni, R. A. (1995) Hypercompetitive Rivalries
  Competing in Highly Dynamic Environments. The
  Free Press. 288 p.
• Ohmae, K. (1991) The Mind of the Strategist.
  McGraw-Hill, Inc. 304 p.
• Pitts, R. Lei, D. (2006) Strategic Management
  Building and Sustaining Competitive Advantage.
  South-Western Educational Publishing 2nd edition
  512 p.
• Tichy N. M (1983) Managing Strategic Change
  Technical, Political and Cultural Dynamics. John
  Wiley Sons, 464 p.
• Kaplan R.S Norton D. P. (2004) Strategy Maps
  Converting Intangible Assets into Tangible
  Outcomes. HBS Press. 480 p.

88
References (1/2)

• Simons, R. (2000) Performance Measurement
  Control Systems for Implementing Strategy.
  Pearson Education, New yearsey. 792 p.
• Images of Strategy (2003) Edited by Cumming S.
  Wilson, D. Blackwell Publ. Ltd. 450 p.
• Collins, J. (2004) Hyvästä paras. Gummerus Oy,
  Jyväskylä. 363 s.
• Kim W. C. Mauborgne, R. (2005) Blue Ocean
  Strategy. HBS Publishing. 240 p.
• Writing an Effective Business Plan. 4th edition.
  2003 Deloitte Touche LLP, 52 p.