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What is Strategy?

Strategic „ The long term action plan


„ The game plan
Management „ Company or organization direction
„ What we’re doing
Strategic Planning
Strategy Implementation „ The plan to achieve competitive
Strategic Control advantage

Competitive advantage Distinctive Capabilities


„ Low-cost provider „ Sophisticated distribution systems – Wal-
Mart
„ Differentiating feature(s) „ Product innovation capabilities – 3M
„ Narrow market niche „ Defect-free manufacturing – Toyota and
• Serving unique needs better Honda
„ Expertise, resource strengths, and „ Superior e-commerce capabilities – Dell
computer
capabilities not easily imitated „ Personalized customer service – Ritz
„ And so on Carlton Hotels
„ Others?

Strategy is the answer to:


1. What do we want to do?
“I skate to where the puck
is going to be, 2. What do we bring to the table?

3. Where should we put our efforts,


not where it has been.” and why?

4. What do we need to do to compete,


–Wayne Gretzky
survive, and meet our goals?

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“Hows” of strategy
„ How to please customers Strategic Management
„ How to respond to changing market
conditions
„ How to outcompete rivals vs Tactical Management
„ How to grow the business
„ How to manage each functional piece of vs Operations Management
the business and develop needed
organizational capabilities
„ How to achieve strategic and financial
objectives
„ How to balance short term and long term

Strategic Planning Why is vision important?


„ Identify stakeholders
• Who is involved, concerned
A clear vision will attract the right
„ Develop vision, mission, & objectives strategy.
• What do we want to be? (the vision)
• What do we want to do? (the mission)
No strategy will save an organization
• Clarify values
• Setting strategic & financial objectives that doesn’t have a clear vision of
„ External analysis where they are going.
„ Internal analysis
„ Crafting the best strategy

Vision and Mission Statements


“If you want to build a ship, should have three elements:
don’t drum up the men to
gather wood, divide the work „ Overall vision and mission
and give orders.
„ Management’s key philosophical values
Instead, teach them to yearn
for the vast and endless sea.”
„ Key objectives to be accomplished
–Antoine de Saint-Exupéry

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Three questions to improve focus Objectives
Financial objectives
„ Which consumer or customer groups • Specific measures of financial
are being satisfied? performance

„ What needs are being satisfied? Strategic objectives


• Activities that affect competitive
position
„ How are customer needs being
satisfied? „ Long-term and Short-term objectives

External Analysis
1. Macro environment?
2. Dominant economic traits?
External Analysis 3. Competitive forces?
4. Factors driving change?
5. Strongest & weakest positions?
6. Next strategic moves?
7. Key success factors?
8. Attractiveness & profitability?

The Macro Environment Dominant Economic Traits


„ Macroeconomic environment „ Market size
„ Technological environment „ Scope of competitive rivalry
Market growth rate & position in the
„ Social environment „
growth cycle
„ Demographic environment „ Number of rivals and their relative sizes
„ Political and legal environment „ Number of buyers and their relative sizes
„ Prevalence of backward and forward
integration
„ Ease of entry and exit

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Dominant Economic Traits (cont.) Porter’s Five Competitive Forces
„ Pace of technological change 1. Risk of entry by potential
„ Level of differentiation of the rival competitors
products or services
„ Presence of economies of scale
2. Rivalry among established farms
„ Capacity utilization levels 3. Bargaining power of buyers
„ Impact of learning and experience 4. Bargaining power of suppliers
„ Capital requirements 5. Substitute products
„ Industry profitability

Forces Driving Change in Industry


Structure and Business Environment
Forces Driving Change (cont.)
1. Changes in the industry growth rate 8. Increasing globalization of the industry
9. Changes in cost and efficiency
2. Changes in who buys the product and
10. Emerging buyer preferences for differentiated
how they use it products instead of a commodity product
3. Product innovation (or for a more standardized product instead of strongly
differentiated products)
4. Technological change 11. Regulatory influences and government policy
5. Marketing innovation changes
12. Changing societal concerns, attitudes, and
6. Entry or exit of major firms & countries lifestyles
7. Diffusion of technical knowledge 13. Changes in uncertainty and business risk

Strong and Weak Competitive Positions The Next Strategic Moves


„ What competitive characteristics „ Based on their competitive positions, what
differentiate farms? moves are competitors likely to make?
„ What are the characteristics of the „ Which companies, regions, or countries
strongest? may change?
„ The weakest? „ What are the makers of substitute
„ Consider these points at least: size, products doing or what might they be
location, production methods, age of changing?
equipment and/or workforce, specialization, „ Will their potential changes make a large
diversification, and vertical integration. impact?

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Key Success Factors KSFs can be grouped in several ways:

„ Key success factors must be kept at „ Technology-related


performance levels required by the
industry.
„ Manufacturing-related
„ If the KSFs are not met, the farm will not „ Distribution-related
perform adequately and its viability is „ Marketing-related
threatened. „ Skills-related
„ A KSF can be identified as the word or
phrase that would complete this sentence „ Organizational capability
for a farmer: “If we ________, we will be „ Other factors: reputation, location,
successful.” access to capital, etc.

In review, External Analysis


Attractiveness and Profitability
consists of answering 8 questions:
„ This is an overall assessment of the 1. Macro environment?
industry's attractiveness or 2. Dominant economic traits?
unattractiveness, special issues and 3. Competitive forces?
problems, and its profit outlook. 4. Factors driving change?
5. Strongest & weakest positions?
6. Next strategic moves?
7. Key success factors?
8. Attractiveness & profitability?

A full Internal Analysis


Includes consideration of
1. shared values and culture
Internal Analysis 2. personal ambitions, philosophies,
and ethical principles of the
managers
3. the farm’s strengths, weaknesses,
and competitive capabilities
(five key questions)

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Five questions for Internal Analysis Is the present strategy working?
„ How well is the present strategy
working? „ Is the farm achieving it’s financial
and strategic objectives?
„ What are the Strengths, Weaknesses,
Opportunities, and Threats? (SWOT) „ Is it progressing towards it’s vision?
„ Are costs competitive? „ What is the current financial
condition and performance?
„ How strong is the competitive
position? „ How well have profit objectives been
balanced with other financial and
„ What strategic issues need to be
strategic objectives?
addressed?

SWOT analysis Are Costs Competitive?


„ Are the costs of production and
delivery lower than for other farms?
INTERNAL EXTERNAL „ Compare the specific farm’s
estimated costs to other farms using
Good Strengths Opportunities • USDA costs of production surveys
• Farm record association reports
• Other private information sources such
Bad Weaknesses Threats as bank comparisons

Cost Comparisons Strength of the Competitive Position

„ Horizontally across farms „ Strengths and core competencies


„ Historically over time need to be strong in relation to trends
„ Vertically
„ Value chain analysis „ Is the farm making the correct moves
„ Benchmarking to position itself to take advantage of
the trends.

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Signs of Competitive Strengths Signs of Competitive Weaknesses
„ important core competencies
„ distinctive strategies „ competitive disadvantages
„ cost advantages „ losing ground compared to other farms
„ good match of the farm’s strategic product groups „ below average growth
with the industry’s growth areas „ short on financial resources
„ above average profit margins „ poor strategic product groups compared to
„ taking advantage of cost economies industry growth
„ above average technological and innovational „ weak where best growth potential is
capability „ high cost producer
„ creative, entrepreneurially alert management „ not able to take advantage of cost economies
„ capitalizing on opportunities „ poor quality of and/or missing skills in key areas
„ possessing skills in key areas

In review, five questions for


Strategic Issues to be Addressed
Internal Analysis
„ Putting the external and internal
„ How well is the present strategy working?
analyses together
„ What are the Strengths, Weaknesses,
„ Assessing how well the farm is Opportunities, and Threats? (SWOT)
placed in the industry
„ Are costs competitive?
„ Identifying the strategic issues need
How strong is the competitive position?
to be studied, improved, & changed
„

„ What strategic issues need to be


addressed?
„ This is the beginning of crafting
strategy, the next topic.

Generic strategies
„ Low cost leadership
„ Growth
„ Prospector
Crafting Strategy „ Protector
„ Reactor
„ Differentiation
„ Focus or niche
„ Best-cost provider
„ Retrenchment

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Patterns of Actions Patterns, cont.
that Define Strategy
1. Actions to out compete rivals 7. Actions to form alliances & partnerships
2. Responses to external changes 8. Efforts to pursue opportunities or defend
3. Broadening or narrowing product line, against threats
changing quality, & modifying service 9. Actions and approaches that define how
4. Actions to alter geographic coverage functional activities are managed
5. Actions to merge with or acquire rivals 10. Actions to strengthen resources and
6. Efforts to integrate backward or forward capabilities
or to outsource current internal activities 11. Actions to diversify

External factors shaping strategy: Internal factors shaping strategy:


„ Societal, political, regulatory, & „ Strengths, weaknesses, &
community considerations competitive capabilities
„ Industry attractiveness „ Ambitions, philosophies, & ethics
„ Changing conditions „ Shared values & culture
„ Specific opportunities & threats

Strategy Evaluation Tests Scoring example (subset of Table 2.1)


„ Vision Consistency Proposed Building Other TOTAL
„ Goodness of Fit Strategy Vision Fit future tests SCORE
„ Building for the Future Low cost 2 3 2 … 23
„ Performance
„ Importance New 4 3 3 … 23
„ Feasibility Markets
„ Resource Merger 3 4 5 … 27
„ Confidence
Organic 4 3 4 … 27

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Improving Strategic Planning Using Scenarios
1. Planning under uncertainty 1. Bet on most probable scenario
2. Ivory tower planning 2. Bet on the “best” scenario &
3. Planning for the present strategy
4. Managers’ biases 3. Hedge on what will happen
5. Devil’s advocacy 4. Preserve flexibility
6. Dialectic inquiry 5. Influence the outcome
7. Advisory board 6. Combine methods

Factors affecting strategy choice

„ Robustness
„ First mover advantage
„ Initial competitive position Strategy Implementation
„ Cost or resources required
„ Risk
„ Competitor's expected choices

Strategy Implementation Implementation activities


„ Develop a capable organization
„ “The most difficult part of strategic
„ Allocate resources
management”
„ Establish policies & procedures
„ Designing the organizational structure „ Motivate & reward people
„ Aligning functional strategies „ Create culture and work climate
„ Obtaining & directing resources „ Install internal support systems
„ Adapting to changes „ Institute continuous improvement
„ Exert internal leadership, keep the vision
in mind
(adapted from Thompson and Strickland, 2003)

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Implementation involves
developing:

„ The correct organization


„ Functional strategies Strategic Control
„ Strategic project plans
„ Strategic programs

Strategic Control Molz divides control into 2 parts:


„ Choose key indicators for objectives „ Strategic product
„ Establish standards • Actual outcomes compared to targets
„ Create measurement systems • Take corrective actions as needed

„ Compare performance to standards „ Strategic process


• Reevaluate assumptions and inputs
„ Evaluate results
used to develop the strategic plan
„ Take corrective actions as needed • Decide whether plan needs to be
adapted to new conditions

Hill and Jones: Concluding Comments


1. Financial controls „ Strategic management is a
continuous process.
2. Output controls • It is not a one time event.
3. Behavior controls
4. Values and norms „ After the first strategic plan is
developed, a farmer still needs to
5. Reward systems continuously
• Scan the external environment
• Evaluate new conditions and events
• Take corrective actions as needed

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