THE STRATEGIC MANAGEMENT PROCESS[or How to Analyze a Case] Dr. Laura Whitcomb Mgmt 497
Strategic Management Definition = The process whereby managers establish an organization’s long-term direction. This involves: 1) Setting Mission & Goals 2) Strategy Formation --internal capabilities --external environment --selection of strategy 3) Strategy Implementation 4) Strategy Evaluation
How to Analyze a Case • Mission/Vision & Objectives • Current Strategy • Industry Analysis • S.W.O.T. Analysis • Recommendations
MISSION Defined Answers the question “What business are we in?” or “Why do we exist?” --Customer Needs: What is being satisfied? --Customer Groups: Who is being satisfied? --Distinctive Competencies: How are customer needs being satisfied?
To be the world's premier consumer products company focused on convenient foods and beverages. To Refresh the World...in body, mind, and spirit. To Inspire Moments of Optimism... through our brands and our actions. To Create Value and Make a Difference... everywhere we engage. Pepsico vs. Coke?
Vision Statements • Future-oriented; transformative • Mission = what is; vision = what will be • Companies may have mission or vision or both • Mission and/or vision often accompanied by statement of company values
GOALS = a desired future state that a company attempts to realize. Should be: - precise & measurable - addressing important issues - challenging but realistic - set for a specific time period - consistent with each other
Types of Goals • Financial • Profitability • Revenue growth • Long-term shareholder value • Customer • Product/service attributes; relationship; image • Internal Process • Operations, customers, innovation • Corporate social responsibility • Learning & growth • Human, information, & organization resources
Levels of Strategy & Organization Structure • Corporate Strategy ------>Corporate Head Office • Business Strategy ------>Business Divisions • Functional Strategy ------>R&D, HR, Finance, Operations, Marketing/Sales
Corporate StrategyGeneric Alternatives/Grand Strategies • Stability • Expansion • Retrenchment • Combination
Expansion/RetrenchmentGeneric Choices • How? • Internal • External • Alliances • What? • Vertical integration • Horizontal integration • Diversification: related/unrelated
Nestle’s Corporate Strategy • 2001 Acquired Purina pet food • 2002/5 Acquired Dreyer’s Ice Cream • 2006 Acquired Novartis nutrition business & Jenny Craig diet products • 2007 Acquired Gerber baby foods
Porter’s Generic Competitive Strategies Purpose: achieve above-average long-run ROI for your industry. • Competitive Advantage • Cost Leadership • Differentiation • Competitive Scope • Broad Target • Narrow Target (Focus/Niche)
Tesla Goals & Strategy (summer 2007)Auto co. based in Silicon Valley • Begin producing $98,000 electric sports car in Oct. 2007 • Tesla engineers focus on the battery, computer software, & proprietary motor; outsource the rest • Uses lithium ion batteries, used in laptops, vs. nickel metal hydride • Development center in Detroit, with engineers hired away from Big 3 • Future: Sedan called White Star, $55-68,000; in 5 years, Blue Star, $30,000
Corporate Culture = Collection of beliefs, expectations, and values learned and shared by members and transmitted from one generation of employees to another. = Collective mental programming.
Functions of Corporate Culture • Conveys a sense of identity • Generates employee commitment • Adds to organizational stability • Serves as a frame of reference
Industry Analysis:Porter’s 5 Competitive Forces Purpose: understand why some industries have higher profit margins & what factors can change long-run industry profitability. • Risk of New Entry • Rivalry Among Established Firms • Bargaining Power of Buyers • Bargaining Power of Suppliers • Threat of Substitute Products
ENTRY Barriers • Brand Loyalty • Absolute Cost Advantages • patents • access to raw materials • superior production techniques • Economies of Scale • Government Regulation
Factors Affecting Intensity of RIVALRY • Competitive Structure • number of firms • relative market share • Demand conditions • growth • decline • Exit barriers
Factors Affecting BARGAINING POWER • Number of firms in buyer vs. supplier industries • Quantity or % of total orders • Switching costs • Standardization vs. specialization of input • Threat of vertical integration
SUBSTITUTES = products from OTHER industries that serve consumers’ needs in a way that is similar to those being served by your industry. Example: coffee vs. tea vs. soft drinks NOTE: Substitutes are very difficult to monitor, because they can involve technological changes in industries that did not pose any threat in the past.
Company Situation Analysis • INTERNAL: Strengths & Weaknesses • financial position: relative & changes over time • functional capabilities: sustainable? distinctive? • EXTERNAL: Opportunities & Threats • demographic & socio-cultural changes • economic & political/legal changes • industry & technological changes
RECOMMENDATIONS Shift from Analysis--->Synthesis • Is a fundamental shift in strategy required or not? • How do your recommendations line up with your SWOT analysis? • Is this a feasible, creative solution that is supported by your analysis?