Strategic Management and the Entrepreneur Chapter 2 Strategic
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Strategic Management and the Entrepreneur Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 1
Strategic Management n Small companies that are prepared can create the disruptions that revolutionize their industries, and, in the process, create a competitive edge Ø Apple Computer and the i. Pod Knowledge has become the critical factor of production n Intellectual capital counts! n Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 2
A Major Shift. . . from financial capital to intellectual capital Ø Human Ø Structural Ø Customer Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 3
Strategic Management n n Is crucial to building a successful business Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 4
Strategic Management and Competitive Edge Developing a strategic plan is crucial to gaining a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market n Example: Honest Tea n Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5
Key: Core Competencies n Unique set of skills, knowledge, or abilities that a company develops in key areas such as superior quality, customer service, innovation, teambuilding, flexibility, responsiveness, and others that allow it to vault past competitors Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 6
Key: Core Competencies Ø Core competencies are what a company does best n Durable, forming the building blocks for everything a company does n Difficult for competitors to duplicate n Must provide customers with a valuable perceived benefit Ø Best to rely on a natural advantage (often linked to a company’s “smallness”) Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 7
Strategic Management Process Step 1: Develop a vision and translate it into a mission statement Step 2: Assess strengths and weaknesses Step 3: Scan environment for opportunities and threats Step 4: Identify key success factors Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8
Strategic Management Process. . . (continued) Step 5: Analyze competition Step 6: Create goals and objectives Step 7: Formulate strategies Step 8: Translate plans into actions Step 9: Establish accurate controls Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 9
Step 1: Develop a Vision and Create a Mission Statement n n n Vision – an expression of what an entrepreneur stands for and believes in; the “sixth sense that tells us why we make a difference in the world” Vision is based on an entrepreneur’s values - 3 to 6 core values A clearly defined vision: Provides direction Ø Determines decisions Ø Motivates people Ø Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 10
Step 1: Develop a Vision and Create a Mission Statement Mission - addresses question: "What business are we in? ” n A written expression of how the company will reflect the owner’s values, beliefs, and vision n Sets the tone for the entire company and guides the decisions people make n Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 11
Step 1: Develop a Vision and Create a Mission Statement n Elements: Ø Purpose Ø Business we are in Ø Values n Example: Fetzer Vineyards Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 12
Step 2: Assess Company Strengths and Weaknesses n Strengths Ø Positive internal factors that contribute to accomplishing the mission, goals, and objectives n Weaknesses Ø Negative internal factors that inhibit the company’s ability to accomplish its mission, goals, and objectives Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 13
Step 3: Scan for Opportunities and Threats n Opportunities Ø Positive external options the company can exploit to accomplish its mission, goals, and objectives n Threats Ø Negative external forces that inhibit the company’s ability to accomplish its mission, goals, and objectives Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14
65 Million Years Ago… Today…movie theater owners – threats? Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 15
External Market Forces Technological Competitive Political and Regulatory Economic Social and Demographic Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 16
Step 4: Identify Key Success Factors Key success factors: factors that influence a company’s ability to compete successfully in an industry n The keys to unlocking the secrets of succeeding in a particular market segment n Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 17
Step 5: Analyze Competitors Study: Top execs say that their industries are becoming more competitive n Factors: n Ø Smarter rivals Ø More price competition Ø Increased customer awareness Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 18
Competitor Analysis n Direct competitors Ø Ø n Significant competitors Ø Ø n Offer the same products and services Customers often compare prices, features and deals among these competitors when they shop Offer some of the same or similar products or services Product or service lines overlap but not completely Indirect competitors Ø Offer same or similar products in only a small number of areas Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 19
Competitor Analysis Analyzing key competitors allows entrepreneurs to: Ø Avoid surprises from existing competitors’ new strategies and tactics Ø Identify potential new competitors and the threats they pose Ø Improve reaction time to competitors’ actions Ø Anticipate rivals’ next strategic moves Ø Improve ability to differentiate your company from competitors Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 20
Competitor Analysis Techniques do not require unethical behavior: Ø Monitor industry and trade publications Ø Talk to customers and suppliers Ø Listen to employees, especially sales representatives and purchasing agents Ø Attend trade shows and conferences Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 21
Competitor Analysis Techniques do not require unethical behavior: Ø Monitor competitors’ employment ads Ø Conduct searches for patents filed by competitors Ø Check EPA reports about manufacturing Ø Search databases for types of materials and equipment competitors are importing Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 22
Competitor Analysis Techniques do not require unethical behavior: Ø Study competitors' literature and "benchmark" their products and services Ø Get competitors' credit reports and SEC filings Ø Check out the local library Ø Use the World Wide Web to learn more about competitors Ø Visit competing businesses to observe their operations Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 23
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 24
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 25
Step 6: Create Company Goals and Objectives n Goals – broad, long-range attributes to be accomplished; general and abstract Ø n “BHAGS” – one factor that sets apart successful companies from unsuccessful ones Objectives – more detailed, specific targets of performance that are S. M. A. R. T. Specific Ø Measurable Ø Assignable Ø Realistic (yet challenging) Ø Timely Ø Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 26
Step 7: Formulate Strategies n Strategy Ø A “road map” that guides a company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives Ø Focused on the key success factors identified in Step 4 n Mission, goals, and objectives = Ends n Strategy = Means Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 27
Three Strategic Options Three basic strategies: Cost leadership Strategy? Differentiation Focus Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 28
Three Strategic Options Source of Competitive Advantage Uniqueness Perceived by the Customer Industry Low-Cost Position Differentiation Low Cost Differentiation Focus Cost Focus Target Market Niche Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 29
Cost Leadership n n Goal: to be the low-cost producer in the industry or market segment Advantages: Reaching buyers who buy on the basis of price Ø Power to set the industry’s price floor Ø n Works well when: Buyers are sensitive to price changes Ø Competing firms sell the same commodity products Ø A company can benefit from economies of scale Ø Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 30
Differentiation n n Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion Idea is to be better than the competition at something customers value Key: Build basis for differentiation on a distinctive competence, something that a small company is uniquely good at doing in comparison to its competitors Example: Pharmaca Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 31
Focus Company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them n Strategy builds on differences among market segments n Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 32
Focus Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market n Examples: n Ø Amazing Butterflies Ø 1570 Cinema Services Ø Freed of London Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 33
Step 8: Strategies into Action Plans n Create projects by defining: Ø Purpose Ø Scope Ø Contribution Ø Resource requirements Ø Timing Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 34
Step 9: Establish Accurate Controls n n The plan establishes the standards against which actual performance is measured Entrepreneur must: Ø Identify and track key performance indicators Ø Take corrective action Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 35
Balanced Scorecard n n A set of measurements unique to a company that includes both financial and operational measures Gives managers a quick yet comprehensive picture of a company’s overall performance Chapter 2 Strategic Management Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 36
Balanced Scorecard n Five Perspectives: 1. 2. 3. 4. 5. Chapter 2 Strategic Management Customer: How do customers see us? Internal Business: At what must we excel? Innovation and Learning: Can we continue to improve and create value? Financial: How do we look to shareholders? Corporate Citizenship: What must we do to meet our social responsibility to society as a whole, the environment, the community, and other stakeholders? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 37
Balanced Scorecard Customer Corporate Citizenship Internal Business Financial Chapter 2 Strategic Management Innovation and Learning Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 38
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