BA 469
Strategic Management
& Business Policy
Manolete V. Gonzalez, Phd
BA 469
Course Introductions;
Ch 1: What Is Strategy
and Why Is
It Important?
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Introductions
Name Major What do you expect/hope(?) to be doing 5
years from now? where?
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Focus: General Management of an organization
An organization is “a system of consciously coordinated activities or
forces of two or more persons.”
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General management perspective
Strategic decisions: strategy comes from “strategos,” used in ancient times to refer to administrator of conquered regions, therefore the whole “enterprise”
Beyond functional areas: for example, a company’s policy on what type of customers to go after affects marketing, production, finance, etc.
Long-term implications, affect different functional areas
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Learning Outcomes
develop skills in using strategic assessment tools to identify company wide problems,
develop skills in determining company wide strategy
develop an awareness of the impact of external factors on business strategy
understand the strategic challenges a business organization must address
understand the difficulties/realities associated with formulating and implementing appropriate responses to these challenges
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Text and Course Information
Crafting and Executing Strategy: The Quest for Competitive Advantage, by Thompson, Strickland, Gamble. 15th edition, Mc-Graw Hill/Irwin (2007)
Information about the course, including the course description, requirements, and schedules, are in the BA 469 page of the COB website
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Requirements
Case Briefs and Reports 7 Case Briefs – 2 pages 1 Group Case Report – 8 pages See Report Instructions file for details
Quizzes – 4 throughout term Multiple choice and possibly essay Based on concepts covered in chapters assigned after
last quiz. 4 chapters for first quiz, 3 chapters for other three
quizzes Participation – 10% of final grade
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Requirements: case briefs and reports
Case briefs and reports are due beginning of class case is assigned (see Schedule)
READ instructions for Case briefs and reports on Report Instructions file carefully. There are specific instructions for particular cases Typed and write for an audience consisting of
business professionals Submit these on time, penalties otherwise
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Requirements – restating the obvious
Come to class prepared Read Chapters assigned for the day Case assignments, whether briefs or reports, are
also intended to get students prepared for discussion
Participation grades are based on judgment as to active and meaningful contribution to class. In class writing.
Speak up (clarification, disagreement, etc.)
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House Rules
Keep distractions to a minimum, respect your peers Shut off cell phones or place them in silent mode (note an
unattended vibrating cell phone is distracting) Using laptops are ok for note taking or reference to notes. Avoid side discussions with your neighbor. Come to class on time; if you do arrive late, enter quietly
and unobtrusively, e.g. do not walk in front of the instructor. If you have to leave early, let the instructor know and sit
where you can leave without disturbing too many students. “Multi-tasking” during class is not appreciated, for
example reading the newspaper, working on a paper for another class, sleeping, etc.
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House Rules
Respect each other: tolerate differences of opinion and manner of participating.
If you have strong opinions, voice it and be heard, listen to responses, engage in an exchange of opinions, and then allow the class to move on.
Humor, informal, ok. But do remember why we are in class.
Other suggestions?
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“Without a strategy
the organization is
like a ship without a
rudder.”Joel Ross and Michael Kami
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Chapter 1 Roadmap What Do We Mean By Strategy?
Strategy and the Quest for Competitive Advantage
Identifying a Company’s Strategy
Why a Company’s Strategy Evolves Over Time
A Company’s Strategy Is Partly Proactive and Partly Reactive
Strategy and Ethics: Passing the Test of Moral Scrutiny
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Chapter Roadmap The Relationship Between a Company’s Strategy
and Its Business Model
What Makes a Strategy a Winner?
Why Are Crafting and Executing Strategy Important?
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Thinking Strategically: The Three Big Strategic Questions
1. What’s the company’s present situation?
2. Where does the company need to go from here?
What business(es) to be in?
What market positions to stake out?
What buyer needs and groups to serve?
3. How should it get there?
A company’s answer to “how will we get there?” is its strategy
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What Do We Mean By “Strategy”? Consists of competitive moves and business approaches used
by managers to run the company
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A Firm's Strategy Answers the questions . . .
How to grow the business
How to please customers
How to outcompete rivals
How to manage each functionalpiece of the business (R&D, production, marketing, HR, finance, and so on)
Strategy is HOW
to . . .
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A Firm's Strategy Answers the questions . . .
And as the industry environment evolves . .
How to respond to changing market conditions
How to achieve targeted levels of performance
Strategy is HOW
o . . .
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Choosing the “Hows” of Strategy
Strategic choices about “how” are based on Trial-and-error organizational learning about what has
worked and what has not worked Management’s appetite for taking risks Managerial analysis and strategic thinking about how best
to proceed, given market conditions and the company’s circumstances
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Key Elements of a Successful Strategy Developing a successful strategy hinges on making competitive
moves aimed at Appealing to buyers in ways to set the enterprise apart from
rivals and Carving out its own market position
Involves developing a distinctive “aha”element to Attract customers and Produce a competitive edge
Copying competitive moves of other successful companies rarely works!
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A Powerful Strategy Leads to Sustainable Competitive Advantage
A company achieves sustainable competitive advantage when an attractive number or buyers prefer its products/services over those of rivals and when the basis for this preference can be maintained over time
Its nice when a strategy produces a temporary competitive edge but a durable edge over rivals greatly enhances a company’s prospects for winning in the marketplace and realizing above-average profits
What separates a powerful strategy from an ordinarystrategy is management’s ability to forge a series ofmoves, both in the marketplace and internally, that
produces sustainable competitive advantage!
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Three Strategic Approaches to Building Sustainable Competitive Advantage
Be the industry’s low-cost provider a cost-based competitive advantage)
Incorporate differentiating features a “superior product” type of competitive advantage
keyed to higher quality, better performance, wider selection, value-added services, or some other attribute
Focus on a narrow market niche win a competitive edge by doing a better job than rivals
of serving the needs and preferences of buyers comprising a niche)
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A Fourth Strategic Approach to Building Sustainable Competitive Advantage
Developing expertise and resource strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)
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Competitive Advantage Examples
The text gives the following as striving to be the industry’s low-cost provider Wal-Mart
Southwest Airlines
Discussion Wal-Mart – perceptions of low price
Southwest – low ticket prices, low cost provider
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Competitive Advantage Examples
Outcompete rivals on a key differentiating feature Johnson & Johnson – Reliability in baby products
Harley-Davidson – King-of-the-road styling
Rolex – Top-of-the-line prestige
Mercedes-Benz – Engineering design and performance
L.L. Bean – Good value
Amazon.com – Wide selection and convenience
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Competitive Advantage Examples (cont)
The text suggests the following as focusing on a narrow market niche eBay – Online auctions
Jiffy Lube International – Quick oil changes
McAfee – Virus protection auctions
Starbucks – Premium coffees and coffee drinks
The Weather Channel – Cable TV
Ritz-Carlton – Personalized customer service
Discussion: depends on how one defines industry
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Competitive Advantage Examples (cont)
Develop expertise, resource strengths, andcapabilities not easily imitated by rivals FedEx – Next-day delivery of small packages
Walt Disney – Theme park management and family entertainment
Toyota – Sophisticated production system
Ritz-Carlton – Personalized customer service
Discussion: technically Toyota may be described as outcompeting rivals based on differentiating features
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Day 2
Questions on course requirements? Peer Evaluation of Case Brief: Whole Foods
and Monsanto case briefs for ungraded peer review and option to revise/resubmit
Finish Ch 1 Ch 2
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Fig. 1.1: Identifying a Company’s Strategy
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Why Do Strategies Evolve?
Changes may be necessary to react to Shifting market conditions
Technological breakthroughs
Fresh moves of competitors
Evolving customer preferences
Emerging market opportunities
New ideas to improve strategy
Crisis situations
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Fig. 1.2: A Company’s Strategy Is Partly Proactive and Partly Reactive
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Linking Strategy With Ethics
Ethical and moral standards go beyond Prohibitions of law and the language of “thou shalt
not” to issues of
Duty and “right” vs. “wrong” Ethical and moral standards address
“What is the right thing to do?”
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Linking Strategy With Ethics
Two criteria of an ethical strategy: Does not entail actions and behaviors that cross
the line from “should do” to “should not do” and “unsavory” or “shady” and
Allows management to fulfill its ethical duties to all stakeholders
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A Firm’s Ethical Responsibilities to Its Stakeholders
Owners/shareholders – Rightfully expect some form of return on their investmentOwners/shareholders – Rightfully expect some form of return on their investment
Employees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterpriseEmployees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise
Customers - Rightfully expect a seller to provide them with a reliable, safe product or serviceCustomers - Rightfully expect a seller to provide them with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairlySuppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairly
Community - Rightfully expect businesses to be good citizens in their communityCommunity - Rightfully expect businesses to be good citizens in their community
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Role of Senior Executives:Linking Strategy with Ethics
Forbid pursuit of ethically questionable business opportunities
Insist all aspects of company strategyreflect high ethical standards
Make it clear all employees areexpected to act with integrity
Install organizational checks and balances to Monitor behavior Enforce ethical codes of conduct Provide guidance to employees in gray areas
Display genuine commitment to conduct business activities ethically
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What Is a Business Model?
A business model addresses “How do we make money in this business?” Is the strategy capable of delivering
good bottom-line results? Do the revenue-cost-profit economics
of the strategy make good business sense? expected revenue streams associated cost structure and potential profit
margins Do resulting earnings streams and ROI indicate the
strategy makes sense?
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Relationship Between Strategy and Business Model
Strategy . . . Deals with a company’s
competitive initiatives and business approaches
Business Model . . . Concerns whether
revenues and costs flowing from the strategy demonstrate a business can be amply profitable
and viable
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For Discussion: Write your opinion and discuss
Who has the better business model –
Microsoft or Red Hat?
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Microsoft’s Business ModelEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from usersEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users
Sell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market shareSell resulting OS and software packages to PC makers and users at relatively attractive prices to achieve a 90% or more market share
Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit
Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit
Provide modest level of technical support to users at no costProvide modest level of technical support to users at no cost
Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems
Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems
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Red Hat’s Business ModelRely on collaborative efforts of volunteer programmers to create the softwareRely on collaborative efforts of volunteer programmers to create the software
Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux
Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux
Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages
Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages
Make source code open and available to all usersMake source code open and available to all users
Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users
Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linus users
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Tests of a Winning Strategy
GOODNESS OF FIT TEST
How well does strategy fitthe firm’s situation?
COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainablecompetitive advantage?
PERFORMANCE TEST
Does strategy boost firm performance?
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Other Criteria for Judgingthe Merits of a Strategy
Internal consistency and unity among all pieces of the strategy
Degree of risk the strategy poses as compared to alternative strategies
Degree to which the strategy is flexible and adaptable to changing circumstances
While these criteria are relevant, they seldom override the importance of the three tests of a winning strategy!
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Why Is Strategy Important?
A compelling need exists for managersto proactively shape how a firm’sbusiness will be conducted
A strategy-focused firm is more likelyto be a strong bottom-line performerthan one that views strategy as secondary
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Good Strategy + Good Strategy Execution= Good Management
Crafting and executing strategy are core management functions
Among all things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team Charts a company’s direction, Develops competitively effective strategic moves and
business approaches, and Pursues what needs to be done internally to produce
good day-in/day-out strategy execution
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Good Strategy + Good Strategy Execution= Good Management
Excellent execution of an excellent strategy is thebest test of managerial excellence – and the
most reliable recipe for winning in the marketplace!
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