1

Management Policy

Lecture 1 Part 2

• Components of a Strategy• Intro to Diamond E• Value Chain and PEST

Strategy and Critical Thinking

StrategyMeet Goals subject to Constraints

Logical or Rational ThinkingUnbiasedDeductiveIdentity of person not an issue

Strategy versus Tactics

Goal: Dominant FirmStrategy: Low CostTactics

Low PriceBulk discountcoupons or “2 for 1”Free delivery

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THE ROLE OF STRATEGY

Hub for AnalysisRetrospectiveProspective

Link to ActionGoals – Value Proposition – Core Activities - PMF

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Business Strategy Components

PRODUCT-MKTFOCUS

GOALS

COREACTIVITIES

Value

Proposition

The Wal-Mart Business Strategy

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PRODUCT-MKTFOCUS

GOALS

CORE ACTIVITIES

• Dominate Markets•Lowest cost System•High Growth•Do it the Wal-Mart way

Value Proposition

3

The Wal-Mart Business Strategy

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PRODUCT-MKTFOCUS

GOA:LS

CORE ACTIVITIES

Value Proposition

• Everyday low prices•Always in stock•Courteous•Reliable

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PRODUCT-MKTFOCUS

GOA:LS

CORE ACTIVITIES

Value Proposition

• Integrated Logistics: Supplier to checkout•Intensely managed•Local Tailoring

The Wal-Mart Business Strategy

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PRODUCT-MKTFOCUS

GOA:LS

CORE ACTIVITIES

Value Proposition

• Branded general merchandise•Value-oriented customers•Develop easier markets first: •work from regional hubs

The Wal-Mart Business Strategy

4

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PRODUCT-MKTFOCUS

GOA:LS

CORE ACTIVITIES

• Dominate Markets•Lowest cost System•High Growth•Do it the Wal-Mart way

Value Proposition

• Branded general merchandise•Value-oriented customers•Develop easier markets first: •work from regional hubs

• Everyday low prices•Always in stock•Courteous•Reliable

• Integrated Logistics: Supplier to checkout•Intensely managed•Local Tailoring

The Wal-Mart Business Strategy

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ManagementPreferences

Organization Strategy Environment

Capabilities & Resources

Goals

Product/Mkt

Competitive Premise

Business System

The Diamond E Framework

The ability toAnalyze thisIs Key

ManagementPreferences

Organization Strategy Environment

Capabilities & Resources

Diamond E Framework: Tensions

CAN DO

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ManagementPreferences

Organization Strategy Environment

Capabilities & Resources

Diamond E Framework: Tensions

WANT TO DO

ManagementPreferences

Organization Strategy Environment

Capabilities & Resources

Diamond E Framework: Tensions

NEED TO DO

ManagementPreferences

Organization Strategy Environment

Capabilities & Resources

Diamond E Framework: Tensions

NEED TO DO

WANT TO DO

CAN DO

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Strategic Tension & The Business Model

WANT

NEEDCAN

Value Proposition

Goals

Core Activities

Product/Market

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Strategic Risks

Errors in reading the enviro

cause failure

RIS

KS

TIME HORIZON

Enviro

Capability

Long-TermShort-Term

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Strategic Risks

Enviro changesMake the Strategy obsolete

RIS

KS

TIME HORIZON

Enviro

Capability

Long-TermShort-Term

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Strategic Risks

Strategic demandsExceed the Capacity to

execute

RIS

KS

TIME HORIZON

Enviro

Capability

Long-TermShort-Term

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Strategic Risks

Internal cap’yDevelop inconsit’y

With strategy

RIS

KS

TIME HORIZON

Enviro

Capability

Long-TermShort-Term

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Strategic Risks

Errors in reading the enviro

cause failure

Internal cap’yDevelop inconsit’y

With strategy

Strategic demandsExceed the Capacity to

execute

Enviro changesMake the Strategy obsolete

RIS

KS

TIME HORIZON

Enviro

Capability

Long-TermShort-Term

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Strategic Tension

Strategy

Management Preferences

EnvironmentOrg’n, Res. & Cap’s

Strategic Tension

Strategic

Tension

Management PreferencesIndividual

EnvironmentIndustryOrg’n, Res. & Cap’s

Firm

Strategic Tension

Strategic

Tension

WANTManagement Preferences

Individual

NEEDEnvironment

Industry

CANOrg’n, Res. & Cap’s

Firm

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The Process of Strategic Analysis

Step 1: Base Case Analysis

Assess the strategic position of the bus and the urgency for action

1. Identify and evaluate the current strategy

2. Forecast future performance under current strategy

3. Assess past performance

4. Decide on the need, nature, and speed of change

The Process of Strategic Analysis

Step 2: Strategy Formulation and Testing

Develop and evaluate proposals to address business opp’y and challenges

1. Work from the enviro and capabilities to generate new proposals

2. Use the drill to shape and short-list proposals

3. Prepare performance forecasts

The Process of Strategic Analysis

Step 3: Decision and Implementation

Commit, implement, and review

1. Decide on Proposals to implement

2. Move to build commitment and develop required capabilities

3. Implement

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The Process of Strategic Analysis

Step 1: Base Case Analysis

Assess the strategic position of the bus and the urgency for action

1. Assess past performance

2. Identify and evaluate the current strategy

3. Forecast future performance under current strategy

4. Decide on the need, nature, and speed of change

Step 2: Strategy Formulation and Testing

Develop and evaluate proposals to address business opp’y and challenges

1. Work from the enviro and capabilities to generate new proposals

2. Use the drill to shape and short-list proposals

3. Prepare performance forecasts

Step 3: Decision and Implementation

Commit, implement, and review

1. Decide on Proposals to implement

2. Move to build commitment and develop required capabilities

3. Implement

Value Chain

SUPPORTACTIVITIES

FIRM INFRASTRUCTURE(e.g., Finance, Planning)

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

Value Chain

INBOUNDLOGISTICS

OPERATIONS(Manufacturing)

OUTBOUNDLOGISTICS

MARKETINGAND SALES

AFTER-SALESERVICE

PRIMARYACTIVITIES

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Value Chain

SUPPORTACTIVITIES M

ARG

IN

FIRM INFRASTRUCTURE(e.g., Finance, Planning)

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUNDLOGISTICS

OPERATIONS(Manufacturing)

OUTBOUNDLOGISTICS

MARKETINGAND SALES

AFTER-SALESERVICE

PRIMARYACTIVITIES

Supply Chain for Soft Drink Industry

Concentrate Producer

Bottler DistributorsInputs

The Soft Drink Industry Value Chain

CP Bottler Distributors

FoodstoresFountainVending MachinesConvenience Stores

Company owned

Independent- exclusive

franchise

CokePepsiDr. Pepper7-upRC

Inputs

Operations

Players:

Valueadded:

Secret formulaBrand identity

Marketing & Sales- Distribution

PackagingSweeteners

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Assessing the Environment

Macro Forces - PEST

Political Social TechnologicalEconomic

Assessing the Environment

Micro Forces -

Supply DemandCompetition

Assessing the Environment

Macro Forces - PEST

Micro Forces -

Political Social TechnologicalEconomic

Supply DemandCompetition

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MANAGEMENTPREFERENCES

ORGANIZATIONSTRATEGIC

CHOICESENVIRONMENT

RESOURCES &CAPABILITIES

Strategy and Environment Linkage

New StrategyMust Fit

MANAGEMENTPREFERENCES

ORGANIZATIONSTRATEGIC

CHOICESENVIRONMENT

RESOURCES &CAPABILITIES

Strategic ChoicesRepeatedly Reviewed

Strategy and Environment Linkage

New StrategyMust Fit

MANAGEMENTPREFERENCES

ORGANIZATIONSTRATEGIC

CHOICESENVIRONMENT

RESOURCES &CAPABILITIES

Need to understand Industry economics

and competitive environment

Strategy and Environment Linkage

New StrategyMust Fit