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Definitions
• Strategy:The basic, central direction of the firm.
• Strategic Management (traditional):The comprehensive alignment of a firm’s resources and capabilities with the external environment.
–Operational Effectiveness
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Definitions• Strategic Management (modern):
The pursuit of differentiation through–Innovation–Revolution–Hypercompetition
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The Strategic Management Process
• Environmental _______ and analysis
• Strategy _________
• Strategy _________
• Evaluation and ________
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External Environment:The Macro-Environment
• Demographics
• ______
• Natural
• Political/Legal
• _________
• Global
• _______________
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External Environment:The Industry Environment
• _______
• Suppliers
• _______
• Substitutes
• __________
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Internal Environment
• Strengths/Weaknesses
• ________ Skills– Marketing, Production, etc.
• Resources– _________: Physical & Financial– _________: Human, Brands, Image,
Copyrights, Cultural
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StakeholdersINTERNAL• Stockholders• Employees• Managers• Board Members
EXTERNAL• Customers• Suppliers• Rivals• Substitutes• Governments• Unions• Local Community• General Public
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Levels of Strategy
Corporate
Business Business Business
Marketing Production Hum. Res. Accounting Logistics
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Facets of Strategy
Strategy is a combination of what you
• ________(external environment)
• ________(internal)
• ________(managerial)
• ________(ethical, social responsibility)
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The Strategy Model
________Strategy
_________Strategy
_________Strategy
UnrealizedStrategy
EmergentStrategy
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The Strategic Management Process
Scanning Formulation Implement Evaluate& Control
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Business Level Strategy
How a firm competes within an industry.
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Modified Building Blocks ofCompetitive Advantage
_________ _______
Quality
Innovation/Creativity
EfficiencyCompetitive Advantage:
______________
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Where to compete:– Product/Service
– __________
– __________
– Niches/Segments
• Develop _______ in current and future needs of the arena
• Develop ____________to meet needs– Product/Service development
– Marketing
– ________
Strategic Arena
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Quality
Product/Service quality
• __________
• __________
• __________
• Design/Features
• Image
An achieved quality advantage often is leveraged through ______________.
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Efficiency
Cost to _______• Materials (volume)• Production (scale)• __________• __________
Leveraging an efficiency advantage:• Lower ______ (higher market share)• Market ______ (higher profit margin)
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Innovation/Creativity
Organization-wide _________ to innovation and creativity
• Create a new _______________• Create new/improved versions of existing
products• Find new _________ for existing product • Discover _______________ to perform
organizational processes
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Innovation/CreativityInnovation approaches:• Prospector
– ______mover, cutting edge, looking for the big hit.
• Analyzer– _______mover, improves upon the efforts of
the prospectors.
• Defender– Not interested in new space. Creative in
protecting its current position.
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Modified Building Blocks ofCompetitive Advantage
___________________
Quality EfficiencyCompetitive Advantage:
_____________
Innovation/Creativity
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Which Blocks?
Historically, firms chose between Quality and Efficiency as their main source of advantage, then used _______________ accordingly.
Today firms are encouraged to strive for ___________ in all four areas to maintain ____________.
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The 7-S Framework
Structure
Strategy
Systems
_____
_____
SharedValues
_____
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The Value Chain
Company Infrastructure
Human Resources
Research & Development
SUPPORT ACTIVITIES
PRIMARY ACTIVITIES
MaterialsManagement
_________ Marketing& Sales
_______
Information Systems/technology
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Learning Organizations
Skilled at ________, acquiring, and transferring ________
&
at modifying its behavior to reflect the new _________________.
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The Culture of Learning
• Information gathering
• Problem solving (opportunity)
• Learn from experience
• _____________: New products/approaches
• Evaluate status quo: Products, methods and approaches
• ____________
• Free flow of _____________
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Levers of Learning• Challenge the __________ to learn
• Invest in _________ and training
• Organize to _________ learning (structure)
• Reward _______: success and failure
• Set the ____ level
• Eliminate ____________ competition
• Ensure _________ reaches implementation
• Benchmark
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Learning by Benchmarking
• Benchmark the __________at the activity of interest, not just within your industry.
• _____ the benchmark to your organization’s specific needs and abilities.
• Set __________ for your organization in attaining the benchmark.
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HypercompetitionHighly _______ industry environment.
– Caused by existing firms or new entrants– ________ is a key block for success
Continual disruption of the status quo, usually for ________________.– Predict _____________ in customer needs– Develop ________ to meet those needs– Speed and _______– Shift the ______ of the game
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Design Strategy (Creativity)
Going from Knowledge to _______. Key is to be able to continually do the following:
• Observe _________ using your products and/or related products
• Try out many ______ quickly by __________ (3D printing, models, videos, etc.) to speed product launch
• Place new products within an ___________ that connects with consumers
P&G and GE currently lead the way in this.
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Business-level Strategy• Built on _____________ that support core
building blocks that give advantage• _____________________ cause a firm to
need multiple blocks to succeed• __________ in multiple blocks is difficult
and stretches resources and competencies• Learning helps a firm handle ___________• Design Strategy forces learning into the
___________ in the form of creativity
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Reasons For Seeking an International Presence
Reasons For Seeking an International Presence
• Growth/seek new markets
• _________________
• Access local natural resources
• _________________
• Follow institutional customers
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Three International Strategies
Three International Strategies
• Market
• Entry Mode
• Expansion/Location
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Market StrategyDecision based on strategist’s view of
foreign markets compared to their home or existing markets.
• Markets are similar• Pure Global strategy (standardization)
• Markets differ• Multi-domestic strategy (adaptation)
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Strategic Decisions of Market Strategy
Global Multi-D
________ Standard Adapted
Strategy (B-level) Standard Adapted
_____________ Central Local
Decision authority Central Local
_____________ Worldwide Local
Marketing & Dist. Coordinated Adapted
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The TransnationalGlobalGlobal scale __________scale __________
National-levelNational-level________________________
Cross-market capacityCross-market capacityto leverage _________to leverage _________
BusinessBusinessManagersManagers
CountryCountryManagersManagers
FunctionalFunctionalManagersManagers
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Entry ModesEntry Modes
• Wholly-owned subsidiaries
• Joint ________
• Strategic _________
• Licensing/__________
• Exporting
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Wholly-owned Subsidiary
• Only one ________ owner (no partner)
• Full ______________ control
• Higher risk: All _______ are from one firm
• Established through ________ or internal development
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Joint Venture
Equity __________: Two firms go together to form a third entity.
•Alternate forms: ______, partial acquisition.
•Majority/Minority owned
•Less ____ for each partner, resource commitments are ______.
•Less _______; joint decision making
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Strategic Alliance
__________ partnership; Two firms share resources to take advantage of an __________.
•Usually _________
•Joint _____________
•Shared ________________
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License/FranchiseLicense:• _________; providing
local firm with know-how, technology, etc.
• Local firm ________ your product; then either sells in local market or ____ to you.
Franchise:• ________; providing
local _____________ with materials, brand name, and process knowledge.
• Local firm sells your product/service in ___________.
• ______ Franchisee
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Exporting
• Shipping product across national borders
• _________________: Shipping, tariffs, taxes, warehousing, etc.
• Variable ______________ and resource commitment
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Expansion/Location Strategies
• Strategies for ultimately reaching a ___________________ in many countries:– Geographic Diversification—go to many
fast and then ________________ in each
– Geographic Concentration—go to one or a few and __________ before going to others
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Diversification versus Concentration Strategies
ConcentrationDiversification
______ growth High Low
_____ stability High Low
Comp. ________ Long Short
________ effects Low High
Product _________ High Low
Constraints High Low
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Combining the International Strategies
Combining the International Strategies
Expansion ------------ Market
Concentrate
Diversify
Pure Global
1) Export 2) WOS
1) WOS 2) Maj.
JV (with exporting)
Multi-Domestic
1) JV 2) License
1) License 2) Min JV
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Definitions• Corporation
A firm that operates ___________ in more than one industry.
• Corporate-level StrategyThe rationale behind the mix of
___________ held by a corporation.
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Corporate Growth Strategies
• Concentration
• Vertical __________
• ________ Diversification
• ________ Diversification
• ________ Diversification
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ConcentrationSingle Business: Not diversified.• No ________ from core business.
• Vulnerable to ____________ (economic, competitive, etc.)
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ConcentrationHorizontal Expansion: Firm expands into
___________ of its current industry.• Change in degree of _______, product
features, etc.
• Success in one segment does not _________ success in others.
• Hotels, __________, Beer, etc.
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ConcentrationDominant Business: A single business
company pursues diversification for the first time.
• Management mindset favors core business.
• Maintain focus in core while expanding growth opportunities.
• Provides buffer against downturns in the core industry.
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Vertical Integration
• ______ of one business is the _____ for another business.
• Backward vs. forward integration• Can you _______ all businesses as
well as the industry “specialists”?• Example: Petroleum companies
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Wholesale/Logistics
Customer (Retail)
Assembly
Components
Materials
Raw Materials
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Related Diversification
Businesses share at least one leveragable link in their core _________________.
• Synergy– Links _____________ one or more of the Building
Blocks of Competitive Advantage
• Marketing, Management, & Operating fit
• Beware of _______ Synergy
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Unrelated Diversification
No exploitable links exist between businesses, or potential links are not exploited by choice.
• Spread risks & play business cycles
• Build a stable portfolio for investors
• Seemingly unlimited growth potential
• Management expertise is key
– Allocate resources for health of all businesses
– Know when to sell/buy for overall portfolio health
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Hybrid Diversification
Related ____________ grouped into divisions, divisions are not related.
• ________ created within divisions
• ___________ across divisions
• Growth opportunities _________ over pure related diversification
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Cooperative Strategies
• Mergers
• Acquisitions
• Alliances
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Merger
Two firms permanently ______ to integrate their operations because they have resources and capabilities that together may create a ___________________________.
– Two companies become one.– Typically a ________________, and almost
always horizontal.
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AcquisitionOne firm buys an __________ in another.
• Full acquisition – acquired firm becomes a ___________ business or is assimilated.
• Partial acquisition – • ______________– Acquisition for purpose of
working together toward a goal.
• _______________ acquisition - firms remain separate entities, might not work together.
• Friendly & unfriendly.
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Alliance/Partnership
• Firms __________ combine resources, capabilities, etc. to pursue __________ mutual interests in developing, manufacturing, or distributing goods or services.
• Usually __________, but could be small equity stake or equity swap.
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Reasons to Cooperate• Respond to __________________• Reduce __________
– Partnership between major rivals• Eagle Snacks
• Respond to ___________– Increase market power (size)
• Airlines, petroleum, pharmaceuticals
• Reduce ___________– Telecommunications (regulations)
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Effective Partnerships• Deliberate and careful ____________
– Identify “good” partners
• ______________ assets/resources– Synergy, competitive advantage
• Continual emphasis on _________ and R&D investment– Focus is on ____________
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Effective Partnerships
• Friendly joining– Less _________, cultural resistance
• Major firm has ____________– Keep debt low
• Ability to manage ________– Flexibility and adaptability skills needed
in both firms
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Cooperative Pitfalls
• Misrepresented competencies &/or inadequate ______ evaluation.
• Integration difficulties– Corporate _______– Financial/control systems– Management ______– Status of acquired executives
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Cooperative Pitfalls
• Large _____– Acquired/partner firm
– Acquiring/merging process
• Firm becomes ________
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Causes of Corporate Decline
• Poor __________
• Overexpansion
• Poor financial controls
• High _____
• New _________
• Organizational ______
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Corporate Decline Strategies• Turnaround
• restore ________________ business(es) to health
• Invest/Diversify• go into new, hopefully profitable areas
• Retrenchment• reducing the scope of ____________
• Restructuring• structural changes only
• Divestiture• selling or spinning off a ___________
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Steps of Turnaround & Retrenchment
• Proper leadership mindset
• Reduce cash expenditures
• Redefine the strategic focus
• Sell unwanted assets
• Improve profitability of remaining units
• Strengthen competitive position
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Proper Leadership Mindset
Must view the situation objectively• ________________ are not working• No ____________________ to old strategies,
businesses, brands, traditions, etc.
Must be able to _____________• Make tough cuts in assets, personnel, etc.• Represent a __________, hope to the company• Build ___________ for the new direction
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Leadership Possibilities
• _______ Managers– Stigma of failure, can they gain buy-in?– Industry/company knowledge and experience
• _____ Managers– Fresh views and ________ strategic knowledge– Need to learn _____________ of firm– Likely to bring ___________
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Reduce Cash Expenditures• “Stop the bleeding”• Identify sources of cash loss and
control immediately (happens prior to the creation of a clear strategic focus).
• Plant closings, reduce duplication, layoffs, etc.
• Temporary measuresShould be reversible later if strategy dictates.
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Redefine Strategic Focus• Diagnosis: What went wrong?
– __________ treatment plan
• Prognosis: What should the new firm look like?– Identify ____________, markets, and/or regions. – Building Blocks of Advantage
• Avoid ________________ to business units, markets, etc.
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Sell Unwanted Assets• Businesses and/or assets not fitting the
new focus • __________ businesses that do not fit
the focus will bring the best price• Liquidate (close down and write off)
anything _______________ that will not sell
• KEEP _______ ASSETS!
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Improve Profitability• ________ in labor saving
equipment/processes
• Strategic layoffs of __________ white and blue collar workers• Done according to new strategic focus
• Assign _______ responsibility to appropriate levels
• _______ financial controls
• Cut back on _________ products
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Strengthen Competitive Position
• Use _____ generated from previous two steps
• Acquire businesses and make alliances that fit the ___________________
• Acquisitions/alliances that offer ________ with remaining businesses
• ______ acquisitions/alliances will put you back where you started