Fluent Essays

Work #1: Consider your company or one that you know well and evaluate the words of their mission and vision statements. You must include the company’s mission and vision statements in your initial post. Using the information in Table 2.2 from our text, critique the adequacy and merits of the words of their vision statement identifying effective elements and shortcomings. Using the below criteria, evaluate the adequacy and merits of the words of their mission statement.  Mission Statement Criteria: Identifies the      company’s products and/or services. Specifics the      buyer needs that the company seeks to satisfy and the customer groups or      markets that it serves, and Gives the      company its own identity. What recommended      changes (identify at least one change for each statement) would      you make for each statement and why?  Please note that you are not evaluating what you know of can find out about the company, but simply the words they use for their vision and mission statements. NOTE: Make sure you choose a company that has not been selected by one of your classmates. Your initial response to the discussion question should be 250-300 words. You must have at least one course (our text) and one non-course scholarly/peer reviewed source in your initial posting.  Sources require in-text citations and must be incorporated into the body of the post in addition to a full APA citation at the end of the post. Note: Please refer to slide 8 in PPT 2 for table 2.2. Work #2: Written Assignment - Apple's Strategy Refer to Assurance of Learning Exercise #1 (Apple) in Chapter One of your Thompson (2022) text. Read “Apple Inc: Exemplifying a Successful Strategy” in Illustration Capsule 1.1. Incorporate our course (Thompson text) work for the week and dDevelop your analysis by responding to the following questions: Does Apple’s strategy seem to set it apart      from rivals? Does the strategy seem to be keyed to a      cost-based advantage, differentiating features, serving the unique needs      of a niche, or some combination of these? Explain why? What is there about Apple’s strategy that      can lead to sustainable competitive advantage? Submission Details:  Your analysis should be 500 words or less. Incorporate a minimum of at least      our course Thompson 2022 Text and one non-course      scholarly/peer-reviewed sources in your paper to support your analysis. All written assignments must include a      coverage page, introductory and concluding paragraphs, reference page, and      proper in-text citations using APA guidelines. Note: Please refer to PPT 1 for Illustration Capsule 1.1. Note: Please refer to both PPTs for Both assignments chapter 2 Charting a Company’s Direction Its Vision, Mission, Objectives, and Strategy © 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. Copyright Image Source/Getty Images Chapter 2 presents an overview of the managerial tasks associated with developing and executing company strategies. Special attention is given to the importance of a clear vision for the company and the strategic and financial objectives that will guide the way. The importance of setting objectives at all levels of the organization is explored, along with the role of operating excellence in the successful execution of strategy. The chapter wraps up with an exploration of the role of the company’s board of directors in overseeing the strategic management process. © McGraw-Hill Education 3–1 Learning Objectives After reading this chapter, you should be able to: Understand why it is critical for managers to have a clear strategic vision of where the company needs to head. Explain the importance of setting both strategic and financial objectives. Explain why the strategic initiatives taken at various organizational levels must be tightly coordinated. Recognize what a company must do to execute its strategy proficiently. Comprehend the role and responsibility of a company’s board of directors in overseeing the strategic management process. © McGraw Hill This chapter presents the concepts and analytical tools for zeroing in on a single-business company’s external environment. © McGraw-Hill Education 3–2 What Does the Strategy-Making, Strategy-Executing Process Entail? Developing a strategic vision, a mission statement, and a set of core values. Setting objectives for measuring the firm's performance and tracking its progress. Crafting a strategy to move the firm along its strategic course and achieve its objectives. Executing the chosen strategy efficiently and effectively. Monitoring developments, evaluating performance, and initiating corrective adjustments. © McGraw Hill Crafting and executing a company’s strategy is an ongoing process that consists of five interrelated stages. © McGraw-Hill Education 2-3 FIGURE 2.1 The Strategy-Making, Strategy-Executing Process Access the text alternative for slide images. © McGraw Hill A company’s strategic plan lays out its future direction, performance targets, and strategy. Figure 2.1 displays this five-stage process, which we examine next in some detail. The first three stages of the strategic management process involve making a strategic plan. A strategic plan maps out where a company is headed, establishes strategic and financial targets, and outlines the competitive moves and approaches to be used in achieving the desired business results. © McGraw-Hill Education 2-4 TABLE 2.1 Factors Shaping Decisions in the Strategy-Making, Strategy-Execution Process External Considerations. Does sticking with the company’s present strategic course present attractive opportunities for growth and profitability? What kind of competitive forces are industry members facing, and are they acting to enhance or weaken the company’s prospects for growth and profitability? What factors are driving industry change, and what impact on the company’s prospects will they have? How are industry rivals positioned, and what strategic moves are they likely to make next? What are the key factors of future competitive success, and does the industry offer good prospects for attractive profits for companies possessing those capabilities? Internal Considerations. Does the company have an appealing customer value proposition? What are the company’s competitively important resources and capabilities, and are they potent enough to produce a sustainable competitive advantage? Does the company have sufficient business and competitive strength to seize market opportunities and nullify external threats? Are the company’s costs competitive with those of key rivals? Is the company competitively stronger or weaker than key rivals? © McGraw Hill Table 2.1 provides some dos and don’ts in composing an effectively worded vision statement. © McGraw-Hill Education 2-5 Stage 1: Developing a Strategic Vision, Mission Statement, and Set of Core Values Developing a strategic vision: Delineates management’s aspirations for the firm to its stakeholders. Provides direction: “where we are going.” Sets out the compelling rationale (strategic soundness) for the firm’s direction. Uses distinctive and specific language to set the firm apart from its rivals. © McGraw Hill A strategic vision describes top management’s aspirations for the company’s future and the course and direction charted to achieve them. A clearly articulated strategic vision communicates management’s aspirations to stakeholders (customers, employees, stockholders, suppliers, etc.) and helps steer the energies of company personnel in a common direction. Well-conceived visions are distinctive and specific to a particular organization. As a valuable management tool, it must convey what top executives want the business to look like and provide managers at all organizational levels, with a reference point in making strategic decisions and preparing the company for the future © McGraw-Hill Education 2-6 TABLE 2.2 Wording a Vision Statement—the Dos and Don’ts 1 The Dos The Don’ts Be graphic. Paint a clear picture of where the company is headed and the market position(s) the company is striving to stake out. Don’t be vague or incomplete. Never skimp on specifics about where the company is headed or how the company intends to prepare for the future. Be forward-looking and directional. Describe the strategic course that will help the company prepare for the future. Don’t dwell on the present. A vision is not about what a firm once did or does now; it’s about “where we are going.” Keep it focused. Focus on providing managers with guidance in making decisions and allocating resources. Don’t use overly broad language. All-inclusive language that gives the company license to pursue any opportunity must be avoided. Have some wiggle room. Language that allows some flexibility allows the directional course to be adjusted as market, customer, and technology circumstances change. Don’t state the vision in bland or uninspiring terms. The best vision statements have the power to motivate company personnel and inspire shareholder confidence about the company’s future. © McGraw Hill Table 2.1 provides some dos and don’ts in composing an effectively worded vision statement. © McGraw-Hill Education 2-7 TABLE 2.2 Wording a Vision Statement—the Dos and Don’ts 2 The Dos The Don’ts Be sure the journey is feasible. The path and direction should be within the realm of what the company can accomplish; over time, a company should be able to demonstrate measurable progress in achieving the vision. Don’t be generic. A vision statement that could apply to companies in any of several industries (or to any of several companies in the same industry) is not specific enough to provide any guidance. Indicate why the directional path makes good business sense. The directional path should be in the long-term interests of stakeholders, especially shareowners, employees, and suppliers. Don’t rely on superlatives. Visions that claim the company’s strategic course is one of being the “best” or “most successful” usually lack specifics about the path the company is taking to get there. Make it memorable. To give the organization a sense of direction and purpose, the vision needs to be easily communicated. Ideally, it should be reducible to a few choice lines or a memorable “slogan.” Don’t run on and on. A vision statement that is not short and to the point will tend to lose its audience. © McGraw Hill Table 2.1 provides some dos and don’ts in composing an effectively worded vision statement. © McGraw-Hill Education 2-8 Examples of Strategic Visions—How Well Do They Measure Up? 1 Vision Statement Effective Elements Shortcomings Whole Foods Market Whole Foods Market is a dynamic leader in the quality food business. We are a mission-driven company that aims to set the standards of excellence for food retailers. We are building a business in which high standards permeate all aspects of our company. Quality is a state of mind at Whole Foods Market. Our motto—Whole Foods, Whole People, Whole Planet—emphasizes that our vision reaches far beyond just being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction, team member happiness and excellence, return on capital investment, improvement in the state of the environment and local and larger community support. Our ability to instill a clear sense of interdependence among our various stakeholders (the people who are interested and benefit from the success of our company) is contingent upon our efforts to communicate more often, more openly, and more compassionately. Better communication equals better understanding and more trust. Forward-looking. Graphic. Focused. Makes good business sense. Long. Not memorable. © McGraw Hill Illustration Capsule 2.1 provides a critique of the strategic visions of several prominent companies. © McGraw-Hill Education 2-9 Examples of Strategic Visions—How Well Do They Measure Up? 2 Vision Statement Effective Elements Shortcomings Keurig Dr. Pepper A leading producer and distributor of hot and cold beverages to satisfy every consumer need, anytime and anywhere. Easy to communicate. Focused. Not distinctive. Not forward-looking. Nike NIKE, Inc. fosters a culture of invention. We create products, services and experiences for today’s athlete* while solving problems for the next generation. *If you have a body, you are an athlete. Forward-looking. Flexible. Vague and lacks detail. Not focused. © McGraw Hill Illustration Capsule 2.1 provides a critique of the strategic visions of several prominent companies. © McGraw-Hill Education 2-10 Strategic Vision Examples—How Well Do They Measure Up? For which of these three businesses is it the most difficult to create a vision statement? How does the scope of a business affect the language of its vision statement? Considering the acquisition of Whole Foods by Amazon, how would you reword the Whole Foods mission statement to reduce it to less than 100 words? (Currently = 150+ words.) © McGraw Hill Student discussion responses will vary for the first question. For the second question, the instructor can begin with an explanation of factors that define the scope of a business. For the third question, the class can be divided into groups to develop a revised mission statement for Whole Foods. © McGraw-Hill Education 2-11 Communicating the Strategic Vision Why communicate the vision? Fosters employee commitment to the firm’s chosen strategic direction. Ensures understanding of its importance. Motivates, informs, and inspires internal and external stakeholders. Demonstrates top management support for the firm’s future strategic direction and competitive efforts. © McGraw Hill An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to engage in actions that move the company forward in the intended direction. © McGraw-Hill Education 2-12 Putting the Strategic Vision in Place What needs to be done: Put the vision in writing and distribute it. Hold meetings to personally explain the vision and its rationale. Create a memorable slogan or phrase that effectively expresses the essence of the vision. Emphasize the positive payoffs for making the vision happen. © McGraw Hill A strategic vision describes “where we are going”—the course and direction management has charted and the company’s future product customer-market technology focus. A strategic vision has little value unless it’s effectively communicated down the line to lower-level managers and employees. An effectively communicated vision enlists the commitment of personnel to engage in actions that move the company forward in the intended direction. The task of effectively conveying the vision is assisted when management can capture the vision in a catchy or easily remembered slogan. © McGraw-Hill Education 2-13 Why a Sound, Well-Communicated Strategic Vision Matters It crystallizes senior executives’ own views about the firm’s long-term direction. It reduces the risk of rudderless decision making. It is a tool for winning the support of organization members to help make the vision a reality. It provides a beacon for lower-level managers in setting departmental objectives and crafting departmental strategies that are in sync with the firm’s overall strategy. It helps an organization prepare for the future. © McGraw Hill A well thought-out, forcefully communicated strategic vision pays off in several respects. When management can demonstrate significant progress in achieving these five benefits, it can count its efforts to create an effective vision for the company as successful. © McGraw-Hill Education 2-14 Developing a Company Mission Statement A well-conceived company mission statement: Uses specific language to give the firm its own unique identity. Describes the firm’s current business and purpose—“who we are, what we do, and why we are here.” Focuses on describing the firm’s business, not on “making a profit”—earning a profit is an objective, not a mission. © McGraw Hill The distinction between a strategic vision and a mission statement is fairly clear-cut. A strategic vision portrays a firm’s aspirations for its future (“where we are going”). A firm’s mission describes the scope and purpose of its present business (“who we are, what we do, and why we are here”). © McGraw-Hill Education 2-15 An “Ideal” Mission Statement Identifies the company’s product or services. Specifies the buyer needs it seeks to satisfy. Identifies the customer groups or markets it is endeavoring to serve. Gives the company its own identity that sets the company firm apart from its rivals. Clarifies the firm’s purpose and business makeup to stakeholders. © McGraw Hill A company mission statement ideally (1) identifies the company’s products/services, (2) specifies the buyer needs that it seeks to satisfy and the customer groups or markets it serves, and (3) gives the company its own identity. © McGraw-Hill Education 2-16 Linking the Vision and Mission with Core Values Core values: Are the beliefs, traits, and behavioral norms that employees are expected to display in conducting the firm’s business and in pursuing its strategic vision and mission. Become an integral part of the firm’s culture and what makes it tick when strongly espoused and supported by top management. Match the firm’s vision, mission, and strategy, contributing to the firm’s business success. © McGraw Hill A firm’s core values are the beliefs, traits, and behavioral norms that the firm’s personnel are expected to display in conducting the firm’s business and pursuing its strategic vision and mission. © McGraw-Hill Education 2-17 TOMS Shoes: A Mission with a Company TOMS’s mission statement: With every product you purchase, TOMS will help a person in need, One for One®. TOM’s core values: Our mission is ingrained in our one-to-one business model. Lead with the story: our mission and purpose are the same. Communicate to ensure that customers know they are doing more than just buying a product. Extend and adapt the one–for-one model to other product categories to support other causes. Protect the success of the model when acquiring stakeholders. © McGraw Hill TOMS’s mission is ingrained in their business model to avoid relying on donors to fund giving to the poor by creating a business that would fund the giving itself. With the one-for-one model, TOMS built the cost of giving away a pair of shoes into the price of each pair they sold, enabling the company to make a profit while still giving away shoes to the needy. © McGraw-Hill Education 2-18 Stage 2: Setting Objectives The purposes of setting objectives: To convert the vision and mission into specific, measurable, challenging yet achievable, deadline performance targets. To focus efforts and align actions throughout the organization. To serve as yardsticks for tracking a firm’s performance and progress. To provide motivation and inspire employees to greater levels of effort. © McGraw Hill Concrete, measurable objectives are managerially valuable for three reasons: (1) They focus efforts and align actions throughout the organization, (2) they serve as yardsticks for tracking a company’s performance and progress, and (3) they motivate employees to expend greater effort and perform at a high level. © McGraw-Hill Education 2-19 Converting the Vision and Mission into Specific Performance Targets Characteristics of Well-Stated Objectives: Specific Quantifiable (Measurable) Challenging (Motivating) Deadline for Achievement © McGraw Hill Well-stated objectives are specific, quantifiable or measurable and contain a deadline for achievement. © McGraw-Hill Education 2-20 Setting Stretch Objectives Setting stretch objectives promotes better overall performance because stretch targets because they: Push a firm to be more inventive. Increase the urgency for improving financial performance and competitive position. Cause the firm to be more intentional and focused in its actions. Create an exciting work environment and attract the best people. Help prevent internal inertia and contentment with modest gains in performance. © McGraw Hill Stretch objectives set performance targets high enough to stretch an organization to reach its full potential and deliver the best possible results. © McGraw-Hill Education 2-21 Cautions About Stretch Goals Realistic stretch goals: Definitely reachable, with a strong and coordinated effort on the part of company personnel. Overly ambitious stretch goals: Are usually beyond the organization's capabilities to reach, regardless of the level of effort. Involve radical expectations and often go unachieved, and run the risk of killing motivation, eroding employee confidence, and damaging both worker and company performance. Can work as envisioned if: The company has ample resources and capabilities. Its recent performance is strong. © McGraw Hill There is a difference, however, between stretch goals that are clearly reachable, with enough effort, and those that are well beyond the organization's current capabilities, regardless of the level of effort. Extreme stretch goals, involving radical expectations, usually fail, killing motivation, eroding employee confidence, and damaging both worker and company performance. Extreme stretch goals can work as envisioned under circumstances where the company is a strong competitor with plentiful resources. © McGraw-Hill Education 2-22 What Kinds of Objectives To Set Financial Objectives: Communicate top management’s goals for financial performance. Are focused internally on the firm’s operations and activities. Strategic Objectives: Are the firm's goals related to market standing and competitive position. Are focused externally on competition vis-à-vis the firm’s rivals. © McGraw Hill Financial objectives relate to the financial performance targets management has established for the organization to achieve. Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects. © McGraw-Hill Education 2-23 The Need for Short-Term and Long-Term Objectives Short-Term Objectives: Focus attention on quarterly and annual performance improvements to satisfy near-term shareholder expectations. Long-Term Objectives: Force consideration of what to do now to achieve optimal long-term performance. Help pose a barrier to overemphasizing achieving just short-term results and postponing/delaying actions needed to achieve long-term performance targets. © McGraw Hill When trade-offs must be made between achieving long-term objectives and achieving short-term objectives, long-term objectives should take precedence (unless the achievement of one or more short-term performance targets has unique importance). © McGraw-Hill Education 2-24 Examples of Common Financial Objectives An x percent increase in annual revenues. Annual increases in after-tax profits of x percent. Annual increases in earnings per share of x percent. Annual dividend increases of x percent. Profit margins of x percent. An x percent return on capital employed (ROCE) or return on shareholders’ equity investment (ROE). Increased shareholder value—in the form of an upward-trending stock price. Bond and credit ratings of x. Internal cash flows of x dollars to fund capital investment. © McGraw Hill Examples of commonly used strategic objectives are listed in this slide © McGraw-Hill Education 2-25 Examples of Common Strategic Objectives Winning an x percent market share. Achieving lower overall costs than rivals. Overtaking key competitors on product performance or quality or customer service. Deriving x percent of revenues from the sale of new products introduced within the past five years. Having broader or deeper technological capabilities than rivals. Having a wider product line than rivals. Having a better-known or more powerful brand name than rivals. Having stronger national or global sales and distribution capabilities than rivals. Getting new or improved products to market ahead of rivals. © McGraw Hill Examples of commonly used strategic objectives are listed in this slide © McGraw-Hill Education 2-26 The Need for a Balanced Approach to Objective Setting A balanced scorecard approach: Strives to place a balanced emphasis on achieving both financial and strategic objectives by tracking measures of both financial performance and the competitiveness of its market position. The four dimensions of a balanced scorecard: Financial objectives. Customer: objectives relating to customers and the market. Internal process objectives relating to improving productivity and quality. Organizational objectives concerning human capital, culture, infrastructure, and innovation. © McGraw Hill The Balanced Scorecard is a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing. Despite its popularity, the balanced scorecard is not without limitations. Importantly, it may not capture some of the most important priorities of a particular organization, such as resource acquisition or partnering with other organizations. Further, its value, as with most strategy tools, depends on implementation and follow-through as much as on substance. © McGraw-Hill Education 2-27 Good Strategic Performance Is the Key to Better Financial Performance Good financial performance is not enough. Current financial results are lagging indicators and do not assure the development of competitive capabilities for delivering better financial results in the future. Setting and achieving stretch strategic objectives signal improvements in a firm’s competitiveness and strength in the marketplace. Ongoing good strategic performance is a leading indicator of a firm’s increasing capability to deliver improved future financial performance. © McGraw Hill The best and most reliable leading indicators of a company’s future financial performance and business prospects are strategic outcomes that indicate whether the company’s competitiveness and market position are stronger or weaker. The accomplishment of strategic objectives signals that the company is well-positioned to sustain or improve its performance. © McGraw-Hill Education 2-28 Setting Objectives for Every Organizational Level Breaks down overall performance targets into targets for each of the organization’s separate units. Fosters setting lower-level performance targets or outcomes that support achievement of firm-wide strategic and financial objectives. Extends the top-down objective-setting process to all organizational levels. © McGraw Hill The ideal situation is a team effort in which each organizational unit strives to produce results that contribute to the achievement of the company’s performance targets and strategic vision. Such consistency signals that organizational units know their strategic role and are on board in helping the company move down the chosen strategic path and produce the desired results. © McGraw-Hill Education 2-29 Examples of Company Objectives Jet Blue, Lululemon Athletica, Inc., General Mills. Which company included the most specific strategic objectives in its listing of objectives? Which company has the shortest-term focus based on its objectives? Which has the longest-term focus? Which company’s listing of objectives appears to best fit the balanced scorecard concept? © McGraw Hill For the first question, emphasizing the necessity for specificity in the wording of objectives is essential to evaluating successful strategic performance: who did what, how much got done, and how long did it take?. Deciding how far into the future to set the goal for achieving an objective is critical to coordinating all levels of a strategic effort. Student responses will vary for the third question. Not all strategy can be planned deliberately; there is frequently a need for a more adaptive approach. © McGraw-Hill Education 2-30 Stage 3: Crafting a Strategy Strategy making: Addresses a series of strategic hows. Requires choosing among strategic alternatives. Promotes actions to do things differently from competitors rather than running with the herd. Is a collaborative team effort that involves managers in various positions at all organizational levels. © McGraw Hill Strategy is the result of piecing together critical ‘how’ statements such as how to attract and please customers, how to compete against key rivals, how to position the company in the marketplace, and many more. Speed and entrepreneurship are key elements in growing in fast-paced markets. Therefore, strategy formulation should involve managers at all organizational levels and relies on innovative thinking. © McGraw-Hill Education 2-31 Strategy-Making Involves Managers at All Organizational Levels Chief executive officer (CEO): Has ultimate responsibility for leading the strategy-making process as the strategic visionary and chief architect of strategy. Senior executives: Fashion the major strategy components involving their areas of responsibility. Managers of subsidiaries, divisions, geographic regions, plants, and other operating units (and key employees with specialized expertise): Utilize on-the-scene familiarity with their business units to orchestrate their specific pieces of the strategy. © McGraw Hill In most companies, crafting strategy is a collaborative team effort that includes managers in various positions and at various organizational levels. Crafting strategy is rarely something only high-level executives do. © McGraw-Hill Education 2-32 FIGURE 2.2 A Company’s Strategy-Making Hierarchy Access the text alternative for slide images. © McGraw Hill The larger and more diverse the operations of an enterprise, the more points of strategic initiative it will have and the more managers at different organizational levels will have a relevant strategy-making role. Figure 2.2, A Company’s Strategy Making Hierarchy, illustrates this concept. © McGraw-Hill Education 2-33 A Firm’s Strategy-Making Hierarchy 1 Corporate strategy: Multibusiness strategy—how to gain synergies from managing a portfolio of businesses together rather than as separate businesses. Business strategy: How to strengthen market position and gain competitive advantage. Actions to build competitive capabilities of single businesses. Monitoring and aligning lower-level strategies. © McGraw Hill Corporate strategy is strategy at the multibusiness level, concerning how to improve company performance or gain competitive advantage by managing a set of businesses simultaneously. Business strategy is strategy at the single-business level, concerning how to improve the performance or gain a competitive advantage in a particular line of business. © McGraw-Hill Education 2-34 A Firm’s Strategy-Making Hierarchy 2 Functional area strategies: Add relevant detail to the “hows” of business strategy. Provide a game plan for managing a particular activity in ways that support the business … chapter 1 What Is Strategy and Why Is It Important? PART 1 Concepts and Techniques for Crafting and Executing Strategy © 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. Copyright Image Source/Getty Images Chapter 1 defines the concept of strategy and describes its many facets. The chapter explains what is meant by a competitive advantage, discusses the relationship between a company’s strategy and its business model, and introduces the student to the kinds of competitive strategies that can give a company an advantage over rivals in attracting customers and earning above-average profits. The chapter examines what sets a winning strategy apart from others and why the caliber of a company’s strategy determines whether it will enjoy a competitive advantage over other firms or be burdened by competitive disadvantage. By the end of this chapter the student will have a clear idea of why the tasks of crafting and executing strategy are core management functions and why excellent execution of an excellent strategy is the most reliable recipe for turning a company into a standout performer over the long term. © McGraw-Hill Education 3–1 Learning Objectives After reading this chapter, you should be able to: Understand what is meant by a company’s strategy and why it needs to differ from competitors’ strategies. Grasp the concept of a sustainable competitive advantage. Identify the five most basic strategic approaches for setting a company apart from its rivals. Understand why a company’s strategy tends to evolve. Identify what constitutes a viable business model. Identify the three tests of a winning strategy. © McGraw Hill This chapter presents the concepts and analytical tools for zeroing in on a single-business company’s external environment. © McGraw-Hill Education 3–2 What Do We Mean By Strategy ? A company’s strategy is the coordinated set of actions that its managers take in order to outperform the company’s competitors and achieve superior profitability. © McGraw Hill Understanding what is meant by strategy is essential to grasping the entirety of the strategy-making and implementation process. Managers must eventually achieve success to continue as managers. Success in strategic management requires a firm foundation of business knowledge, independent initiative, a broad-ranging intellect, strong intuitive and critical forward thinking, coordinated and sustained competitive effort (tasks are larger than individuals), and, most importantly, unimpeachable ethics and personal integrity. All Businesses Face Three Central Questions What is our present situation? Industry conditions and competitive pressures, market standing, competitive strengths and weaknesses, and future prospects in light of changes taking place in the business environment. What should the company’s future direction be and what performance targets should we set? What buyer needs to try to satisfy. Which growth opportunities to emphasize. Where to head and what outcomes to strive to achieve. What’s our plan for running the firm and achieving good results? Challenges managers to craft a series of competitive moves and business approaches—henceforth called a strategy—for heading the firm in the intended direction, staking out a market position, attracting customers, and achieving the targeted outcomes. © McGraw Hill Strategy Is about Making Choices Strategy is all about choosing How: How to position the firm in the marketplace. How to attract customers. How to compete against rivals. How to achieve the firm’s performance targets. How to capitalize on opportunities to grow the business. How to respond to changing economic and market conditions. © McGraw Hill Normally, companies have a wide degree of strategic freedom in choosing the “hows” of strategy: • How to position the company in the marketplace • How to attract customers • How to compete against rivals • How to achieve the company’s performance targets • How to capitalize on opportunities to grow the business • How to respond to changing economic and market conditions Strategy Is about Competing Differently Strategy as a choice: Is deciding to compete differently from rivals—pressuring rivals by doing what they do not do or, even better, doing what they cannot do. Guides the company in what it must do and also in knowing what it must not do. Is successful when its actions, business approaches, and competitive moves appeal to buyers in ways that: Set it apart from its rivals by either providing products with higher perceived values or efficiently producing at lower costs. Stake out a market position that is not crowded with strong competitors. © McGraw Hill Strategy Is about Competing Differently—A strategy stands a better chance of succeeding when it is predicated on actions, business approaches, and competitive moves aimed at: appealing to buyers in ways that set a company apart from its rivals. staking out a market position that is not crowded with strong competitors. FIGURE 1.1 Identifying a Firm’s Strategy–What to Look For Access the text alternative for slide images. © McGraw Hill Figure 1.1—Identifying a Company’s Strategy—What to Look For shows what to look for in identifying the substance of a company’s overall strategy. These are the visible actions taken that signal what strategy the company is pursuing. Illustration Capsule 1.1 Apple Inc.: Exemplifying a Successful Strategy Key elements of Apple’s successful strategy are: Designing and developing its own operating systems, hardware, application software and services. Continuously investing in R&D and frequently introducing products. Strategically locating its stores and staffing them with knowledgeable personnel. Maintaining a quality brand image, supported by premium pricing. Committing to corporate social responsibility and sustainability through supplier relations. Cultivating a diverse workforce rooted in transparency. © McGraw Hill Apple Inc. is one of the most profitable companies in the world, with revenues of more than $225 billion. For more than ten consecutive years, it has ranked number one on Fortune’s list of the “World’s Most Admired Companies.” Given the worldwide popularity of its products and services, along with its reputation for superior technological innovation and design capabilities, this is not surprising. Strategy and the Quest for Competitive Advantage Competitive advantage: Requires meeting customer needs either more effectively (with products or services that customers value more highly) or more efficiently (by providing products or services at a lower cost to customers). Sustainable competitive advantage requires: Giving buyers lasting reasons to prefer a firm’s products or services over those of its competitors. Developing expertise and long-term competitive capabilities that cannot be readily overcome. Putting the constant quest for sustainable competitive advantage at center stage in crafting your strategy. © McGraw Hill The heart and soul of any strategy is the actions and moves in the marketplace that managers are taking to improve the company’s financial performance, strengthen its long-term competitive position, and gain a competitive edge over rivals. But sustainability is a relative term, with some advantages lasting longer than others. And regardless of how sustainable a competitive advantage may appear to be at a given point in time, conditions change. Even a substantial competitive advantage over rivals may crumble in the face of drastic shifts in market conditions or disruptive innovations. Basic Strategic Approaches 1 Strategies for Building Competitive Advantage Low-Cost Provider Focused Differentiation Focused Low-Cost Broad Differentiation Best-Cost Provider © McGraw Hill This figure shows five of the most frequently used strategic approaches to setting a firm apart from rivals and achieving a sustainable competitive advantage. Low Cost Provider—Achieving a cost-based advantage over rivals Broad Differentiation—Differentiating the firm’s product or service from rivals’ in ways that will appeal to a broad spectrum of buyers Focused Low Cost—Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals, and thus, being able to serve niche members at a lower price Focused Differentiation—Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals’ products Best Cost Provider—Giving customers more value for the money by satisfying buyers’ expectations on key quality/features/ performance/ service attributes, while beating their price expectations Basic Strategic Approaches 2 Low-cost provider strategy—achieving a cost-based advantage over rivals. Broad differentiation strategy—differentiating the firm’s product or service from rivals in ways that appeal to a broad spectrum of buyers. A focused low-cost strategy—concentrating on a narrow buyer segment (or market niche) by having lower costs to serve niche members at a lower price. Focused differentiation strategy—concentrating on a narrow buyer segment (or market niche) by offering buyers customized attributes that meet their specialized needs and tastes better than rivals’ products. Best-cost provider strategy—giving customers more perceived value for their money by satisfying their expectations on key quality features, performance, and/or service attributes that match or exceed their price expectations. © McGraw Hill Five of the most frequently used strategic approaches to setting a company apart from rivals and achieving a sustainable competitive advantage are: Low-Cost Provider—Achieving a cost-based advantage over rivals. Broad Differentiation—Seeking to differentiate the company’s product or service from those of rivals in ways that will appeal to a broad spectrum of buyers. Focused Low Cost—Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals, and thus, being able to serve niche members at a lower price. Focused Differentiation—Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals’ products. Best-Cost Provider—Giving customers more value for the money by satisfying buyers’ expectations on key quality/features/performance/service attributes, while beating their price expectations. Why a Company’s Strategy Evolves over Time Managers modify strategy in response to: Changing market conditions. Advancing technology. Fresh moves of competitors. Shifting buyer needs. Emerging market opportunities. New ideas for improving the strategy. © McGraw Hill Strategic Management Principle Changing circumstances and ongoing management efforts to improve the strategy cause a firm’s strategy to evolve over time—a condition that makes the task of crafting strategy a work in progress, not a one-time event. A firm’s strategy is shaped partly by management analysis and choice and partly by the necessity of adapting and of learning by doing. Every company must be willing and ready to modify the strategy in response to changing market conditions, advancing technology, unexpected moves by competitors, shifting buyer needs, emerging market opportunities, and mounting evidence that the strategy is not working well. Most of the time, a company’s strategy evolves incrementally from management’s ongoing efforts to fine-tune the strategy and to adjust certain strategy elements in response to new learning and unfolding events. Industry environments characterized by high velocity change require companies to repeatedly adapt their strategies. FIGURE 1.2 A Company’s Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments Access the text alternative for slide images. © McGraw Hill Two elements combine to form the company’s Realized Strategy. Figure 1.2, A Company’s Strategy, is a Blend of Proactive Initiatives and Reactive Adjustments, and illustrates the elements of strategy that become the Realized Strategy. Strategy elements that prove unsuccessful are abandoned to be replaced by newly developed planned initiatives or reactive strategy elements in the current realized strategy. A Company’s Strategy Is Partly Proactive and Partly Reactive Realized (current) strategy is a blend of: Proactive (deliberate) strategy elements that include planned initiatives to improve the company’s financial performance and secure a competitive edge. Reactive (emergent) strategy elements developed on the fly in response to unanticipated developments and fresh market conditions. Abandoned and superseded strategy elements that no longer fit with the company’s ongoing strategy. © McGraw Hill A firm’s deliberate strategy consists of proactive strategy elements that are both planned and realized as planned. Its emergent strategy consists of reactive strategy elements that emerge as changing conditions warrant. The evolving nature of a firm’s strategy means that its strategy is a blend of (1) proactive, planned initiatives to improve its financial performance and secure a competitive edge, and (2) reactive responses to unanticipated developments and fresh market conditions. In total, these two elements combine to form the firm’s Realized Strategy. Just for Fun Using the strategic terminology shown in Figure 1.2, explain why U.S. football teams get four downs to make a first down. How does risk affect play selection (reactive strategy) as a team fails to advance on each of its four downs? What would be the risk effect of requiring more than a 10-yard gain for achieving a first down? What rules of play in other sports (e.g., soccer) affect how the basic principles of strategy are applied to game play? © McGraw Hill Student insights into the application of strategy will likely vary, especially among veteran student athletes with on-field experience. Class discussions about preparation, play choice and implementation should foster increased recognition of the uncertainty of future conditions necessitating reactive strategizing. A Company’s Strategy and Its Business Model How the firm will make money: By providing customers with value. The firm’s customer value proposition. By generating revenues sufficient to cover costs and produce attractive profits. The firm’s profit formula. It takes a proven business model—one that yields appealing profitability—to demonstrate viability of a firm’s strategy. © McGraw Hill A firm’s business model sets forth the logic for how its strategy will create value for customers, while at the same time generate revenues sufficient to cover costs and realize a profit. A business model is management’s plan for delivering a valuable product or service to customers in a manner that will generate revenues sufficient to cover costs and yield an attractive profit. The Relationship Between a Company’s Strategy and Its Business Model REALIZED STRATEGY: Competitive Initiatives. Business Approaches. BUSINESS MODEL: Value Proposition. Profit Formula. © McGraw Hill The two elements of a company’s business model are: The customer value proposition lays out the company’s approach to satisfying buyer wants and needs at a price customers will consider a good value. The profit formula describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition. Business Model Elements: The Customer Value Proposition The customer value proposition is: Satisfying buyer wants and needs at a price customers will consider a good value. The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to customers. © McGraw Hill Recall that any marketplace is simply a place to conduct an exchange of a perceived equality of values and prices for a good or service between a buyer and a seller. Business Model Elements: The Profit Formula The profit formula: Creates a cost structure that allows for acceptable profits, given that pricing is tied to the customer value proposition. V – the value provided to customers. P – the price charged to customers. C – the firm’s costs. The lower the costs (C) for a given customer value proposition (V–P), the greater the ability of the business model to be a moneymaker. © McGraw Hill The profit formula describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition.. FIGURE 1.3 The Business Model and the Value-Price-Cost Framework Access the text alternative for slide images. © McGraw Hill Figure 1.3 illustrates the elements of the business model in terms of what is known as the Value-Price-Cost Framework highlighting the relationship between the Customer’s Value Proposition (V-P) and the Profit Formula (P-C). Is the Company’s Strategy a Winner? Three tests of a winning strategy: Exhibits good fit with situation. Results in competitive advantage. Promotes superior performance. © McGraw Hill Three questions above can be asked to test the merits of one strategy versus another and distinguish a winning strategy from a losing or mediocre strategy. Two kinds of performance improvements tell the most about the caliber of a company’s strategy: (1) gains in profitability and financial strength and (2) gains in the company’s competitive strength and market standing. What Makes a Strategy a Winner? A winning strategy must pass three tests: The fit test. Does it exhibit good fit with the external and internal aspects of the firm’s dynamic situation? The competitive advantage test. Is it likely to result in a sustainable competitive advantage? The performance test. Is it producing superior performance, as indicated by the firm’s profitability, financial and competitive strengths, and market standing? © McGraw Hill Three questions used to test the merits of one strategy versus another and to distinguish a winning strategy from a losing or mediocre strategy: The Fit Test: How well does the strategy fit the company’s situation? To qualify as a winner, a strategy must be well matched to industry and competitive conditions, a company’s best market opportunities, and other aspects of the enterprise’s external environment. The Competitive Advantage Test: Is the strategy helping the company achieve a sustainable competitive advantage? The bigger and more durable the competitive edge that a strategy helps build, the more powerful and appealing it is. The Performance Test: Is the strategy producing good company performance? Which measures are reliable indicators of good strategic performance? Be careful of measures that can be influenced by external factors or manipulated by internal actions (high sales with low margins). Illustration Capsule 1.2 Pandora, Sirius XM, and Broadcast Radio: Three Contrasting Business Models Who listens to the radio anymore? How sustainable are the business models of Pandora, Sirius XM and over-the-air broadcasters over the long term? Given the changes in user listening habits, which competitor’s present strategy best passes the three tests of a winning strategy? What internal and external factors will create particular difficulties for each competitor in changing its strategy or business model? © McGraw Hill While all three provide the same type of entertainment service, the business models employed by Pandora, Sirius XM, and Over-The-Air Broadcast Radio are completely different. In the area of value proposition, Sirius XM provides commercial-free entertainment with some local content based upon a monthly fee, while Broadcast Radio provides entertainment with some local content, with interruptions for commercials, without a fee. Pandora bridges these two methods. In one mode it operates more like Over-the-Air Broadcast Radio, in that it provides entertainment without a fee that includes targeted advertisements, with the added benefit of allowing the listener to customize the music mix. In the other mode, listeners can elect to go ad-free for a fee, using Pandora One. For profit, Sirius XM must attract a large enough customer base in order to cover costs and provide profit, while Broadcast Radio must attract a large enough advertiser base to cover costs and provide profit. Pandora, once again bridging the two, generates profit by either an advertiser base or through ad-free services. Why Crafting and Executing Strategy Are Important Tasks Strategy provides: A prescription for doing business. A road map to competitive advantage. A game plan for pleasing customers. A formula for attaining long-term standout marketplace performance. Good Strategy + Good Strategy Execution = Good Management © McGraw Hill How well a company performs is directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed by its managers. 1. Crafting and executing strategy are top priority managerial tasks for two big reasons: High-performing enterprises are nearly always the product of astute, creative, and proactive strategy making. Even the best-conceived strategies will result in performance shortfalls if they are not executed proficiently. 2. Good Strategy + Good Strategy Execution = Good Management. Crafting and executing strategy are core management functions. Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts the company’s direction, develops competitively effective strategic moves and business approaches, and pursues what needs to be done internally to produce good day-to-day strategy execution and operating excellence. Applying What You Learned in This Chapter Google’s browser-based Chrome operating system and its online applications suite are challenging Microsoft’s long-term dominance of the office productivity application marketplace sectors. What should be Microsoft’s near-term response to this competitive challenge? How will Microsoft’s long-term response to this competitor’s actions affect its business model? Which competitor’s strategy will likely be the eventual winner in the marketplace? Why? © McGraw Hill Discussions of how strongly Microsoft will to respond to Google’s growth as a competitor in the maturing office productivity applications marketplace is likely to be influenced by the choice of application suites that a respondent uses. Emphasizing how rapidly technology changes occur in the electronic communications industry should bring an eventual recognition that, no matter how well a strategy performs in the market in its beginning, the changes in the market will eventually overwhelm its success. The Road Ahead Strategy is about asking the right questions. What must managers do, and do well, to make a firm successful in the marketplace? Strategy requires getting the right answers. Good strategic thinking and good management of the strategy-making, strategy-executing process are important. First-rate capabilities and skills in crafting and executing strategy are essential to managing successfully. Welcome and best wishes for your success! © McGraw Hill Throughout the remaining chapters and the accompanying case collection, the spotlight is trained on the foremost question in running a business enterprise: What must managers do, and do well, to make a company a winner in the marketplace? The mission of this book is to provide a solid overview of what every business student and aspiring manager needs to know about crafting and executing strategy. End of Main Content Because learning changes everything.® www.mheducation.com © McGraw Hill TEXT ALTERNATES FOR SLIDE IMAGES © McGraw Hill Figure 1.1 Identifying a Firm’s Strategy–What to Look for, Text Alternative Return to slide containing original image. The actions to look for are: Strengthening of its bargaining position with suppliers, distributors, and others. Gaining sales and market share via more performance features, more appealing design, better quality or customer service, wider product selection, or other such actions. Gains in sales and market share with lower prices based on lower costs. Entering into or exiting from new or existing product lines or geographic markets. Using new approaches in managing R&D, production, sales and marketing, finance, and other key activities. Upgrading, building, or acquiring competitively important resources and capabilities. Capturing emerging market opportunities and defending against external threats to the firm’s business prospects. Strengthening market standing and competitiveness by acquiring or merging with other firms. Strengthening competitiveness via strategic alliances and collaborative partnerships. Return to slide containing original image. © McGraw Hill Figure 1.2 A Firm’s Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments, Text Alternative Return to slide containing original image. Deliberative strategy (or proactive strategy elements) includes new planned initiatives plus ongoing strategy elements continued from prior periods. Emergent strategy (or reactive strategy elements) includes new strategy elements that emerge as managers react adaptively to changing circumstances. Both of these result in a firm's current (or realized) strategy. Prior strategy elements may also be abandoned. Return to slide containing original image. © McGraw Hill Figure 1.3 The Business Model and the Value-Price-Cost Framework, Text Alternative Return to slide containing the original image. Customer value (V) is the customer's share (customer value proposition). This value may affect or be affected by product price (P) which is the firm's share (profit formula). These values in turn affect and are affected by the per-unit cost (C). Return to slide containing the original image. © McGraw Hill