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Strategy A company’s strategy consists of the competitive
moves, internal operating approaches, and action plans devised by management to produce successful performance.
Strategy is management’s “game plan” for running the business.
Managers need strategies to guide HOW the organization’s business will be conducted and HOW performance targets will be achieved.
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Levels of Strategy1. Corporate-level Strategy
The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.
2. Business-level StrategyHow the organization conducts business in a particular industry.
3. Functional-level StrategyStrategy developed for specific functional areassuch as marketing, finance, and so forth.
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BCG Matrix*
Cash Cash CowsCows
?Question Question MarksMarks
DogsDogs
Relative Market ShareRelative Market Share
Mar
ket
Gro
wth
Rat
eM
arke
t G
row
th R
ate
LowLow
HighHigh
HighHigh LowLow
StarsStars
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What is Strategic Planning?
Strategic planning is a systematic process through which an organization agrees on and builds commitment among key stakeholders to priorities that are essential to its mission and are responsive to the environment.
Strategic Planning guides the acquisition and allocation of resources to achieve these priorities.
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Strategic Planningvs. Operational Planning
Strategic Planning– formulation– What, where– ends– vision– effectiveness– risk
Operational Planning– implementation– how– means– plans– efficiency– control
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Strategic Planning ProcessStrategic Planning Process
Developing a Vision and a Mission Assessment Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the
Situation and Initiating Corrective Action
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Strategic Planning First Stage of Strategic
Planning may involve:
Futures Thinking– Thinking about what the
business might need to do 10–20 years ahead
Strategic Intents– Thinking about key strategic
themes that will inform decision making
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Strategic Planning The Vision
– Communicating to all staff where the organisation is going and whereit intends to be in the future
Aims and Objectives:– Aims – long term target– Objectives – the way in which you are
going to achieve the aim
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Strategic Analysis Constantly evaluate their position
Strategic analysis includes different methods of assessing the current position of the business in the market place
Two basic methods:– Internal – External
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Internal Audits Productivity Efficiency Costs Other Internal Data
– Labour turnover, absenteeism– Customer satisfaction surveys– Quality procedures – Cash flow statements– Sales trends– Skills audit
Strengths and weaknesses analysis
Core competencies
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External Audits General business environment – Inflation, competitiveness,
unemployment/employment, growth, consumer spending Competitors
PEST factors– Political – e.g. change of government
– Economic – Trends in economic growth, inflation, etc.
– Social-changed outlook, age structure of population, etc.
– Technological
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SWOT Analysis
Strengths Weaknesses Opportunities Threats
Vision & MissionAn organization’s fundamental purpose
Good Strategies
SWOT Analysis
To formulate strategies that support the mission
Those that support the mission and:
• exploit opportunities and strengths• neutralize threats• avoid weaknesses
Internal AnalysisStrengths(distinctivecompetencies)
Weaknesses Threats
External AnalysisOpportunities
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Strength’s
Strength’s – Those things that you do well, theStrength’s – Those things that you do well, the high value or performance pointshigh value or performance points
Strengths can be tangible: Loyal customers,Strengths can be tangible: Loyal customers, efficient distribution channels, very high qualityefficient distribution channels, very high quality products, excellent financial conditionproducts, excellent financial condition
Strengths can be intangible: Good leadership,Strengths can be intangible: Good leadership, strategic insights, customer intelligence, solidstrategic insights, customer intelligence, solid reputation, high skilled workforcereputation, high skilled workforce
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Weaknesses
Weaknesses – Those things that prevent you from Weaknesses – Those things that prevent you from doing what you really need to dodoing what you really need to do Since weaknesses are internal, they are withinSince weaknesses are internal, they are within your controlyour control
Weaknesses include: Bad leadership, unskilledWeaknesses include: Bad leadership, unskilled workforce, insufficient resources, poor productworkforce, insufficient resources, poor product quality, slow distribution and delivery channels,quality, slow distribution and delivery channels, outdated technologies, lack of planning, . . .outdated technologies, lack of planning, . . .
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Opportunities
Opportunities – Potential areas for growth andOpportunities – Potential areas for growth and higher performancehigher performance External in nature – marketplace, unhappy External in nature – marketplace, unhappy customers with competitor’s, better economiccustomers with competitor’s, better economic conditions, more open trading policies, . . conditions, more open trading policies, . .
Timing may be important for capitalizing onTiming may be important for capitalizing on opportunitiesopportunities
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Threats
Threats – Challenges confronting the Threats – Challenges confronting the organization, external in natureorganization, external in nature
Threats can take a wide range – bad pressThreats can take a wide range – bad press coverage, shifts in consumer behavior, substitutecoverage, shifts in consumer behavior, substitute products, new regulations, . . . products, new regulations, . . .
The more accurate you are in identifying threats, The more accurate you are in identifying threats, the better position you are for dealing with thethe better position you are for dealing with the “ “sudden ripples” of change sudden ripples” of change
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Five Forces Model of Competition
Substitute Products(of firms in
other industries)
Suppliers of Key Inputs
Buyers
PotentialNew
Entrants
RivalryAmong
CompetingSellers
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Porter’s Five Competitive Forces
1. Threat of new entrants
2. Competitive rivalry
3. Threat of substitute products
4. Power of buyers
5. Power of suppliers
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Gap Analysis
Vision Assessment
Gap = Basis for Long-Term Strategic Plan
Gap = Basis for Long-Term Strategic Plan
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Setting ObjectivesSetting Objectives
The purpose is to convert the mission into Specific Performance Targets
Yardsticks for tracking company progress and performance.
Should be set at levels that require stretch and disciplined effort.
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Generic Strategies Porter’s Generic Strategies
1. Differentiation strategy» An organization seeks to distinguish itself from
competitors through the quality of its products or services. Developing an image perceived as unique
2. Overall cost leadership strategy» An organization attempts to gain competitive advantage
by reducing its costs below the costs of competing firms.
3. Focus strategy» An organization concentrates on a specific regional
market, product line, or group of buyers.
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Types of Strategy Market Dominance
Achieved through:– Internal growth– Acquisitions – mergers and takeovers
New product development: to keep ahead of rivals and set the pace
Contraction/Expansion – focus on what you are good at (core competencies) or seek to expand into a range of markets?
Global – seeking to expand Global operations
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Strategy ImplementationStrategy Implementation
Technology Human Resource Reward System
Decision Process
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Characteristic of the Good Characteristic of the Good Strategy ImplementationStrategy Implementation
An ongoing exercise Proper Communication Contingency Plan Emphasis on Organisation Culture Regular Review Importance of Planning
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What is Decision-Making?
Decision making
– The process of choosing a course of
action for dealing with a problem or
opportunity.
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Types of Decisions
– Programmed decisions.
» Involve routine problems that arise regularly
and can be addressed through standard
responses.
– Nonprogrammed decisions.
» Involve nonroutine problems that require
solutions specifically tailored to the situation at
hand
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Certain environments.
– Exist when information is sufficient to
predict the results of each alternative in
advance of implementation.
– Certainty is the ideal problem solving and
decision making environment.
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Risk environments– Exist when decision makers lack complete
certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence.
– Probabilities can be assigned through objective statistical procedures or personal intuition.
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Uncertain environments.– Exist when managers have so little information
that they cannot even assign probabilities
.– Uncertainty forces decision makers to rely on
individual and group creativity to succeed in problem solving.
– Also characterized by rapidly changing:» External conditions.» Information technology requirements.
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Classical Vs. Behavioral Decision Theory
Classical decision theory.– Views the decision maker as acting in a
world of complete certainty.
Behavioral decision theory.– Accepts a world with bounded rationality
and views the decision maker as acting only in terms of what he/she perceives about a given situation.
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Classical decision theory
– The classical decision maker:» Faces a clearly defined problem.» Knows all possible action alternatives and
their consequences.» Chooses the optimum alternative.
– Is often used as a model of how managers should make decisions.
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Rationality
Problem is clear and unambiguous. Single goal. All alternatives are known. Clear and constant preferences. Maximum payoff. The decision is in the best interest of
the organization—not the manager.
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Behavioral decision theory
– Recognizes that human beings operate with:
» Cognitive limitations.» Bounded rationality.
– The behavioral decision maker:» Faces a problem that is not clearly defined.» Has limited knowledge of possible action
alternatives and their consequences.» Chooses a satisfactory alternative.
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Bounded Rationality
Behavior that is rational within the parameters of a simplified model that captures the essential features of the problem.
Making a decision that is “good enough.” (Satisficing Model)
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Other decision making models
The garbage can model– A model of decision making that views
problems, solutions, participants, and choice situations as mixed together in the “garbage can” of the organization.
Incremental Model
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Intuitive Decision Making
An unconscious process of making decisions on the basis of experience and accumulated judgment.
– Making decisions on the basis of gut feeling
– It does play an important role in managerial decision making.
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Too Slow Too Quick
• Procrastination
• Indecision
• “Analysis paralysis”
• “Ready, fire, aim”
• Impulsive, compulsive
• Arbitrary
Range of decision makingRange of decision making
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Cultural and Social Influences
Decision-Making Process
MOTI VATION
Perception
Learning and Memory
Attitudes
AFFECT
Problem Recognition Search Evaluation Choice Outcomes
Ethnicity, Race, and Religion
Household and ref. groups
Socio-Econ: income,educ.
Demographic:Gender, Age
Psychographics: Lifestyle, Person.
Basic Psychological Processes
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