Strategic Management, MGMT5615 Fall 2024 - PDF

Because learning changes everything. ®  Strategic Management, MGMT5615 Fall Term 2024 Cape Breton University Course Instructor: Donald MacMullen  Strategic Management, MGMT5615 Cape Breton University Fall Term 2024 Agenda...

Because learning changes everything. ®  Strategic Management, MGMT5615 Fall Term 2024 Cape Breton University Course Instructor: Donald MacMullen  Strategic Management, MGMT5615 Cape Breton University Fall Term 2024 Agenda Chapter # 1: Strategy, Business Models, and Competitive Advantage Sirius XM, Assurance of Learning Chapter # 2: Strategy Formulation, Strategy Execution Process Article: Malgorzata Tyranska: Values and Mission Statement, Canadian Universities, an in-class activity.  Because learning changes everything. ® CHAPTER 1 Strategy, Business Models, and Competitive Advantage Access the text alternative for slide images. © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Video Role of Strategy in a Firm's Quest for Competitive Advantage © McGraw Hill LLC 5  LEARNING OBJECTIVES 1. Understand what is meant by a company’s strategy. 2. Explain why a company needs a creative, distinctive strategy that sets it apart from rivals. 3. Explain why it is important for a company to have a viable business model that outlines the company’s customer value proposition and its profit formula. 4. Identify the five most dependable strategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage. 5. Understand that a company’s strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company’s strategy. 6. Identify the three tests of a winning strategy. © McGraw Hill LLC 6  What Is Strategy? Strategy involves choosing how to compete. How to create products or services that attract and please customers. How to position the company in its industry. How to develop and deploy resources to build valuable competitive capabilities. How each functional piece of the business (research and development, supply chain activities, production, sales and marketing, distribution, finance, and human resources) will be operated. How to achieve the firm’s performance targets. © McGraw Hill LLC 7  CORE CONCEPT: Strategy A company’s strategy is the coordinated set of actions that its managers take to outperform the company's competitors and achieve superior profitability. © McGraw Hill LLC 8  The Importance of a Distinctive Strategy and Competitive Approach A company’s strategy: Is a distinctive set of creative strategic choices. Manager’s decision. Apart from rivals. Competitive edge. Best fits its unique business situation for competitive advantage. Is intended to allow it to compete differently. Doing what rival firms do not do or, better yet, what rival firms cannot do. © McGraw Hill LLC 9  The Relationship Between a Company’s Strategy and Its Business Model Business model: Management’s blueprint for delivering to customers a valuable product or service that will yield an attractive profit. Elements of the business model: The customer value proposition defines how the firm will satisfy buyer wants and needs at a price buyers will consider a good value. The profit formula describes its approach to determining a cost structure that allows for acceptable profits given the pricing tied to its customer value proposition. © McGraw Hill LLC 10  CORE CONCEPT: Business Model A company’s business model sets forth how its strategy and operating approaches will create value for customers, while at the same time generating ample revenues to both cover costs and earn a profit. The two elements of a company’s business model are its customer value proposition and its profit formula. © McGraw Hill LLC 11  Video What is Competitive Advantage? © McGraw Hill LLC 12  Concepts and Connections 1.1 Spotify, Sirius XM, and Over the-Air Broadcast Radio: Three Contrasting Business Models Spotify Sirius XM Over-the-Air Radio Broadcasters Customer Provided free-of-charge Internet audio For a monthly subscription fee, provided Provided free-of-charge music, national and Value streaming service that allowed PC, satellite-based music, news, sports, national local news, local traffic reports, national and Proposition tablet computer, and smartphone users and regional weather, traffic reports in local weather, and talk radio programming to listen to its collection of 70 million limited areas, and talk radio programming Included frequent programming interruption music tracks and 3 million podcast titles Also offered subscribers streaming Internet for ads Utilized algorithms to generate playlists channels and the ability to create based on users’ predicted music personalized, commercial-free stations for preferences online and mobile listening Offered programming interrupted by Offered programming interrupted only by brief, occasional ads; eliminated brief, occasional ads advertising for Premium subscribers Profit Revenue generation: Ads targeted to Revenue generation: Monthly subscription Revenue generation: Advertising sales to Formula different audiences and sold to local fees, sales of satellite radio equipment, and national and local businesses and national buyers; subscription advertising revenues Cost structure: Fixed costs associated with revenues generated from an Cost structure: Fixed costs associated with terrestrial broadcasting operations advertising-free Premium subscription operating a satellite-based music delivery Fixed and variable costs related to local news Cost structure: Fixed costs associated service and streaming Internet service reporting, advertising sales operations, with developing software for Fixed and variable costs related to network affiliate fees, programming and computers, tablets, and smartphones programming and content royalties, content royalties, commercial production Fixed and variable costs related to marketing, and support activities activities, and support activities operating data centers to support Profit margin: Profitability dependent on Profit margin: Profitability dependent on streaming network content royalties, attracting a sufficiently large number of generating sufficient advertising revenues to marketing, and support activities subscribers to cover costs and provide cover costs and provide attractive profits Profit margin: Profitability dependent attractive profits on generating sufficient advertising revenues and subscription revenues to cover costs and provide attractive profits Sources: Company documents, 10-Ks, and information posted on their websites. © McGraw Hill LLC 13  SiriusXM XM Satellite Radio: September 25, 2001 Initially scheduled for September 12, 2001, XM's service start date was postponed due to the September 11, 2001, terrorist attacks on the World Trade Center and The Pentagon. XM Satellite Radio's first broadcast was on September 25, 2001, nearly four months before Sirius. XM Satellite Radio's first broadcast was on September 25, 2001, nearly four months before Sirius. On July 29, 2088, Sirius formally completed its merger with their former competitor XM Satellite Radio. The combined company began operating under the name of Sirius XM Satellite Radio. On November 12, 2008, Sirius and XM began broadcasting with their new, combined channel lineups. © McGraw Hill LLC 14  SiriusXM © McGraw Hill LLC 15  SiriusXM © McGraw Hill LLC 16  SiriusXM The population of North America in 2022 was 376,870,696, a 0.42% increase from 2021. Investors. (2023). Sirius XM Holdings Inc. Retrieved September 11, 2023, from https://investor.siriusxm.com © McGraw Hill LLC 17  SiriusXM SiriusXM Careers. (2023). SiriusXM Careers. Retrieved September 11, 2023, from https://careers.siriusxm.com/lifeatsiriusxm? © McGraw Hill LLC 18  SiriusXM Business Model While the company’s strategy sets forth an approach to offering superior value, a company’s business model is management’s blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit. In this exercise you will be asked to evaluate the business model for SiriusXM. The two elements of a company’s business model are (1) its customer value proposition and (2) its profit formula. The customer value proposition is established by the company’s overall strategy and lays out the company’s approach to satisfying buyer wants and needs at a price that customers will consider a good value. The greater the value provided and the lower the price, the more attractive the value proposition is to customers. 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. The lower the costs given the customer value proposition, the greater the ability of the business model to be a moneymaker. The nitty-gritty issue surrounding a company’s business model is whether it can execute its customer value proposition profitably. Just because company managers have crafted a strategy for competing and running the business does not automatically mean that the strategy © McGraw Hill LLC will lead to profitability—it may or may not. 19  SiriusXM Business Model The goal of this activity is for you to understand what is meant by a company’s strategy and why it needs to differ from that of competitors. Before completing this activity, be sure to review Ch. 1, “Strategy, Business Models, and Competitive Advantage” specifically, the introductory section, Concepts and Connections 1.1, and the SiriusXM website (investor.siriusxm.com). Review their most recent Annual Report 2022 and respond to the questions © McGraw Hill LLC 20  SiriusXM © McGraw Hill LLC 21  SiriusXM © McGraw Hill LLC 22  SiriusXM © McGraw Hill LLC 23  SiriusXM © McGraw Hill LLC 24  SiriusXM © McGraw Hill LLC 25  SiriusXM © McGraw Hill LLC 26  SiriusXM 2020 2022 Increase/ % Change Decrease Revenue $8,046 $9,003 $957 11.9% EBITDA $2,575 $2,883 $308 11.9% © McGraw Hill LLC 27  Concepts and Connections 1.1 Spotify, Sirius XM, and Over the-Air Broadcast Radio: Three Contrasting Business Models Spotify Sirius XM Over-the-Air Radio Broadcasters Customer Provided free-of-charge Internet audio For a monthly subscription fee, provided Provided free-of-charge music, national and Value streaming service that allowed PC, satellite-based music, news, sports, national local news, local traffic reports, national and Proposition tablet computer, and smartphone users and regional weather, traffic reports in local weather, and talk radio programming to listen to its collection of 70 million limited areas, and talk radio programming Included frequent programming interruption music tracks and 3 million podcast titles Also offered subscribers streaming Internet for ads Utilized algorithms to generate playlists channels and the ability to create based on users’ predicted music personalized, commercial-free stations for preferences online and mobile listening Offered programming interrupted by Offered programming interrupted only by brief, occasional ads; eliminated brief, occasional ads advertising for Premium subscribers Profit Revenue generation: Ads targeted to Revenue generation: Monthly subscription Revenue generation: Advertising sales to Formula different audiences and sold to local fees, sales of satellite radio equipment, and national and local businesses and national buyers; subscription advertising revenues Cost structure: Fixed costs associated with revenues generated from an Cost structure: Fixed costs associated with terrestrial broadcasting operations advertising-free Premium subscription operating a satellite-based music delivery Fixed and variable costs related to local news Cost structure: Fixed costs associated service and streaming Internet service reporting, advertising sales operations, with developing software for Fixed and variable costs related to network affiliate fees, programming and computers, tablets, and smartphones programming and content royalties, content royalties, commercial production Fixed and variable costs related to marketing, and support activities activities, and support activities operating data centers to support Profit margin: Profitability dependent on Profit margin: Profitability dependent on streaming network content royalties, attracting a sufficiently large number of generating sufficient advertising revenues to marketing, and support activities subscribers to cover costs and provide cover costs and provide attractive profits Profit margin: Profitability dependent attractive profits on generating sufficient advertising revenues and subscription revenues to cover costs and provide attractive profits Sources: Company documents, 10-Ks, and information posted on their websites. © McGraw Hill LLC 28 Strategy and the Quest for Sustainable Competitive Advantage Strategic approaches to a sustainable competitive advantage: 1. A low-cost provider strategy achieves a cost-based advantage over rivals. 2. A broad differentiation strategy differentiates its products or services from those of its rivals in ways that appeal to a broad spectrum of buyers. 3. A focused low-cost strategy outcompetes rivals in a narrow/niche market by achieving lower costs and offering its products at lower prices. 4. A focused differentiation strategy outcompetes rivals in a narrow/niche market by offering buyers customized and exclusive attributes. 5. A best-cost provider strategy gives customers more value by satisfying their expectations on key attributes, while beating their price expectations. © McGraw Hill LLC 29  CORE CONCEPT: Sustainable Competitive Advantage A company achieves sustainable competitive advantage when an attractively large number of buyers develop a durable preference for its products or services over the offerings of competitors, despite the efforts of competitors to overcome or erode its advantage. © McGraw Hill LLC 30  Concepts and Connections 1.2 Apple Inc.’s Strategy and Success in the Marketplace Designing and developing its own operating systems, hardware, application software, and services. Continuously investing in research and development (R&D) and frequently introducing products. Strategically locating its stores and staffing them with knowledgeable personnel. Expanding Apple’s reach domestically and internationally. Sustaining a competitive edge by focusing on its inimitable value proposition and deliberately keeping a price premium. Committing to corporate social responsibility and sustainability through supplier relations. Cultivating a diverse workforce rooted in transparency. © McGraw Hill LLC 31  The Importance of Capabilities in Building and Sustaining Competitive Advantage Competitively valuable capabilities: Cannot be easily bested, matched, or imitated by rivals. Represent superior know-how and specialized abilities that require time to fully develop and perfect. Result in a sustainable competitive advantage over rivals. © McGraw Hill LLC 32  Why a Company’s Strategy Evolves over Time A strategy changes over time due to: Unexpected moves of competitors. Shifting buyer needs and preferences. Emerging market opportunities. Managers’ new ideas for improving the strategy. Mounting evidence strategy is not working well. A strategy evolves: Incremental (minor) adjustments or dramatic (major) shifts. Proactively and adaptively. © McGraw Hill LLC 33  Figure 1.1 A Company’s Strategy Is a Blend of Planned Initiatives and Unplanned Reactive Adjustments © McGraw Hill LLC 34  Why a Company’s Strategy Evolves over Time In early 2000, Netflix founders Reed Hastings and Marc Randolph offered to sell the company to Blockbuster for $50 million. Blockbuster turned them down. Eventually, Netflix triumphed over Blockbuster, popularized streaming, and forced the entertainment industry to adapt. Hastings credits much of this success to the company’s internal culture. Hastings, R. (2020, September 8). CEO Reed Hastings on how Netflix beat Blockbuster. Marketplace. https://www.marketplace.org/2020/09/08/ceo-reed- hastings-on-how-netflix-beat-blockbuster/ © McGraw Hill LLC 35  CORE CONCEPT: Realized Strategy A company’s realized strategy is a combination of deliberate planned elements and unplanned emergent elements. Some components of a company’s deliberate strategy will fail in the marketplace and become abandoned strategy elements. © McGraw Hill LLC 36  The Three Tests of a Winning Strategy Strategic fit: How well does the strategy fit the firm’s situation? Competitive advantage: Is the strategy helping the firm achieve a sustainable competitive advantage? Performance: Is the strategy producing good firm performance? © McGraw Hill LLC 37  Why Crafting and Executing Strategy Are Important Tasks Good strategy and good strategy execution are the most telling indicators of good management. A better-conceived, competently executed strategy makes it more likely that a firm will be a standout performer in the marketplace. How well a firm performs directly reflects the caliber of its strategy and the proficiency with which the strategy is executed. © McGraw Hill LLC 38  The Road Ahead Strategy is about asking and answering a most important question: What must managers do, and do well, to make a company a winner in the marketplace? Doing a good job of managing inherently requires good strategic thinking and good management of the strategy-making and strategy-executing process. Best wishes for success in the class! © McGraw Hill LLC 39 Cape Breton University Strategic Management, MGMT5615  Because learning changes everything. ® www.mheducation.com © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. Cape Breton University Strategic Management, MGMT5615 Fall Term 2024 Course Instructor: Donald MacMullen Cape Breton University Strategic Management, MGMT5615 Academic Article: Malgorzata Tyranska: Managerial Competencies for Various Management Levels Agenda Student Insights Managerial Competence Competencies: Lakshminarayana, Pai, and Ramapradsad Different Competencies, Management Levels Conclusion Cape Breton University Strategic Management, MGMT5615: Student Insights Cape Breton University Strategic Management, MGMT5615 Managerial competence is the ability to complete tasks using relevant skills and attitudes necessary to the job. Managerial skills and competencies contribute to a workplace's productivity, as they're necessary for managing employees toward achieving set organizational goals. Cape Breton University Strategic Management, MGMT5615 Lakshminarayanan, Pai, and Ramaprasad, 2016  Cape Breton University Strategic Management, MGMT5615 Malgorzatta Tyranska’s Findings: Largest Gaps Lakshminarayanan, Pai, and Ramaprasad, 2016 Cape Breton University Strategic Management, MGMT5615 Management Competencies  Cape Breton University Strategic Management, MGMT5615 Management Competencies Cape Breton University Strategic Management, MGMT5615 Management Competencies  Cape Breton University Strategic Management, MGMT5615 Malgorzatta Tyranska’s Katz’s Model, Managerial Competencies at Different Levels Cape Breton University Strategic Management, MGMT5615 Cape Breton University Strategic Management, MGMT5615 Daniel Goleman Cape Breton University Strategic Management, MGMT5615  Cape Breton University Strategic Management, MGMT5615 Daniel Goleman Channell, M. (2021, October 13). Daniel Goleman’s Emotional Intelligence in Leadership: How To Improve Motivation In Your Team. TSW Training. https://www.tsw.co.uk/blog/leadership- and-management/daniel-goleman-emotional-intelligence/ Cape Breton University Strategic Management, MGMT5615  Strategic Management, MGMT5615 Fall Term 2024 Cape Breton University Course Instructor: Donald MacMullen  Strategic Management, MGMT5615 Cape Breton University Sit With Your Assigned Group  Strategic Management, MGMT5615 Cape Breton University Fall Term 2024 Agenda Chapter # 2: Strategy Formulation, Strategy Execution Process Canadian Universities Mission, Vision, and Values  Because learning changes everything. ® CHAPTER 2 The Strategy Formulation, Strategy Execution Process Access the text alternative for slide images. © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  LEARNING OBJECTIVES 1. Understand why it is critical for company managers to have a clear strategic vision of where a company needs to head and why. 2. Explain the importance of setting both strategic and financial objectives. 3. Explain why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets. 4. Recognize what a company must do to achieve operating excellence and to execute its strategy proficiently. © McGraw Hill LLC 5 Factors Shaping Decisions in the Strategy Formulation, Strategy Execution Process External Considerations Internal Considerations Does sticking with the company’s present Does the company have an appealing customer strategic course present attractive value proposition? opportunities for growth and profitability? What kind of competitive forces are industry What are the company’s competitively members facing and are they acting to enhance important resources and capabilities, and are or weaken the company’s prospects for growth they potent enough to produce a sustainable and profitability? competitive advantage? What factors are driving industry change, and Does the company have sufficient business and what impact on the company’s prospects will competitive strength to seize market they have? opportunities and nullify external threats? How are industry rivals positioned, and what Are the company’s costs competitive with those strategic moves are they likely to make next? of key rivals? What are the key factors of future competitive Is the company competitively stronger or success, and does the industry offer good weaker than key rivals? prospects for attractive profits for companies possessing those capabilities? © McGraw Hill LLC 6  Strategic Plan © McGraw Hill LLC 7  Stage 1: Developing a Strategic Vision, a Mission, and Core Values A strategic vision: Is top-management’s view of “where we are going.” Defines the firm’s direction and its future product–market– customer–technology focus to stakeholders. Is distinctive and specific to its organization. Avoids the use of generic, innocuous, and uninspiring language that could apply to almost any firm. Definitively states how the company’s leaders intend to position the firm beyond where it is today. © McGraw Hill LLC 8  Characteristics of Effectively Worded Vision Statements Type Description Graphic Paints a picture of the kind of company that management is trying to create and the market position(s) the company is striving to stake out. Directional Is forward looking; describes the strategic course that management has charted, and the kinds of product–market–customer–technology changes that will help the company prepare for the future. Focused Is specific enough to provide managers with guidance in making decisions and allocating resources. Flexible Is not so focused that it makes it difficult for management to adjust to changing circumstances in markets, customer preferences, or technology. Feasible Is within the realm of what the company can reasonably expect to achieve. Desirable Indicates why the directional path makes good business sense. Easy to Is explainable in 5–10 minutes and, ideally, can be reduced to a simple, memorable communicate “slogan” (like Henry Ford’s famous vision of “a car in every garage”). Source: Based partly on John P. Kotter, Leading Change (Harvard Business School Press, 1996). © McGraw Hill LLC 9  Common Shortcomings in Company Vision Statements Shortcoming Description Vague or Short on specifics about where the company is headed or what the company is incomplete doing to prepare for the future. Not forward Doesn’t indicate whether or how management intends to alter the company’s looking current product–market–customer–technology focus. Too broad So all-inclusive that the company could head in most any direction, pursue most any opportunity, or enter most any business. Bland or Lacks the power to motivate company personnel or inspire shareholder uninspiring confidence about the company’s direction. Not distinctive Provides no unique firm identity; could apply to firms in any of several industries (including rivals operating in the same market arena). Too reliant on Doesn’t say anything specific about the company’s strategic course beyond the superlatives pursuit of such distinctions as being a recognized leader, a global or worldwide leader, or the first choice of customers. Source: Based on information in Hugh Davidson, The Committed Enterprise (Oxford: Butterworth Heinemann, 2002), chap. 2; and Michel Robert, Strategy Pure and Simple II (New York: McGraw Hill, 1998), chaps. 2, 3, and 6. © McGraw Hill LLC 10  Strategic Visions - How Well Do They Measure Up? Effective Company Vision Statement Shortcomings Elements Graphic / Directional / Focused / Flexible / Feasible / Desirable / Easy to Communicate, Vague or Incomplete, Not Forward Looking, Too Broad, Bland and Uninspiring, Not Distinctive, Too Reliant on Superlatives “To save people money so they can live better”. “With every cup, with every conversation, with every community, we nurture the limitless possibilities of human connection”. “Our vision is to create a better everyday life for many people.” “Bring Inspiration and Innovation to Every Athlete in the World”. If you have a body, you are an athlete. © McGraw Hill LLC 11  Strategic Visions - How Well Do They Measure Up? Effective Company Vision Statement Shortcomings Elements Graphic / Directional / Focused / Flexible / Feasible / Desirable / Easy to Communicate, Vague or Incomplete, Not Forward Looking, Too Broad, Bland and Uninspiring, Not Distinctive, Too Reliant on Superlatives Walmart “To save people money so they can live better”. Starbucks “With every cup, with every conversation, with every community, we nurture the limitless possibilities of human connection”. Ikea “Our vision is to create a better everyday life for many people.” Nike “Bring Inspiration and Innovation to Every Athlete in the World”. If you have a body, you are an athlete. © McGraw Hill LLC 12  The Importance of Communicating the Strategic Vision An engaging, inspirational vision: Provides direction and energizes employees. Makes a convincing case for “where we are going and why.” Evokes positive support and excitement. Enlists the commitment of company personnel to engage in actions that move the company in its intended direction. © McGraw Hill LLC 13  Expressing the Essence of the Vision in a Slogan Disney To "create happiness by providing the finest in entertainment for people of all ages, everywhere." The Mayo Clinic The best care to every patient every day. Greenpeace To halt environmental abuse and promote environmental solutions. Cape Breton University © McGraw Hill LLC 14 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 by management at all levels. It is a tool for winning the support of employees to help make the vision a reality. It provides a beacon for lower-level managers in forming departmental missions. It helps an organization prepare for the future. © McGraw Hill LLC 15  Strategic Vision Versus Mission Statement A firm’s strategic vision A firm’s mission statement portrays its intended describes its present future business scope business and purpose (where are we going). (who we are, what we do, Markets to be pursued. and why we are here). Future product, market, Current product and service customer, and technology offerings. focus. Customer needs being served. Company identity. © McGraw Hill LLC 16  Developing a Company Mission Statement Ideally, a company mission statement is sufficiently descriptive to: Identify the company’s products or services. Specify the buyer needs it seeks to satisfy. Specify the customer groups or markets it is endeavoring to serve. Specify its approach to pleasing customers. Give the company its own identity. © McGraw Hill LLC 17  Example of a Mission Statement The mission of St. Jude Children’s Research Hospital: “To advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment. Consistent with the vision of our founder Danny Thomas, no child is denied treatment based on race, religion, or a family’s ability to pay.” St. Jude Children's Research Hospital is a comprehensive cancer center in the United States dedicated exclusively to children and is the first and only WHO Collaborating Centre for Childhood Cancer. Since its founding in 1962. ST JUDE CHILDREN’S RESEARCH HOSPITAL- Childhood Cancer in the Americas— PAHO/WHO | Pan American Health Organization. (2023). https://www.paho.org/en/partnerships/st-jude-childrens-research-hospital- childhood-cancer-americas © McGraw Hill LLC 18  CORE CONCEPT: Mission Statement A well-conceived mission statement conveys a company’s purpose in language specific enough to give the company its own identity. © McGraw Hill LLC 19  Strategic Mission, Vision, and Profit Occasionally, companies state that their mission is to simply earn a profit. Profit is more correctly an objective and a result of what a firm does. Profit is the obvious intent of every commercial enterprise. Profit is not “who we are and what we do.” © McGraw Hill LLC 20  Linking the Strategic Vision and Mission with Company Values Values Fair treatment Provide guidance for desired Honor and integrity actions and behaviors of Ethical behavior employees as they conduct Innovativeness the company’s business. Teamwork At values-driven companies, A passion for excellence executives “walk the talk” and company personnel are Social responsibility held accountable for Community citizenship displaying the stated values. © McGraw Hill LLC 21  CORE CONCEPT: Values A company’s values are the beliefs, traits, and behavioral norms that its personnel are expected to display in conducting the company’s business and pursuing its strategic vision and mission. © McGraw Hill LLC 22  Strategic Management, MGMT5615 Cape Breton University Classroom Core Values Student Expectations 1. Respect 2. Engagement – Observing and Attentive 3. Punctuality 4. Accountability – Hard Work 5. Integrity 6. Teamwork 7. Participation © McGraw Hill LLC  Values: Cabot Physiotherapy Sign, customer waiting room at Cabot Physiotherapy in Sydney River © McGraw Hill LLC 24  Strategy Formulation Stage 2 ‘Objectives’ © McGraw Hill LLC 25  Stage 2: Objectives, Peter Drucker Plan Organize Lead Control Peter F Drucker (1909-2005), Austrian born, American management consultant, educator, author, a leader in the development of management education, inventor of the concept known as management by objectives. © McGraw Hill LLC 26  Stage 2: Setting Objectives Why - Managerial purpose in setting objectives: To convert the strategic vision into an organizational focus to achieve specific strategic performance targets. To create yardsticks to track progress and measure performance. To motivate employees to expend greater effort and perform at a high level. How - Managerially valuable objectives: Are well-stated (clearly worded). Are quantifiable (measurable). Are challenging, yet achievable such that they stretch the organization to perform at its full potential. Contain a specific deadline for achievement. © McGraw Hill LLC 27  Setting Financial Objectives What Kinds of Financial Objectives to Set: Financial objectives: Communicate management’s targets for financial performance. Are lagging indicators reflecting results of past decisions and organizational activities. Relate to revenue growth, profitability, and return on investment. © McGraw Hill LLC 28  CORE CONCEPT: Objectives, Stretch Objectives, and Strategic Intent Objectives are an organization’s performance targets—the results management wants to achieve. Stretch objectives set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results. Strategic intent is embodied in the organization’s relentless pursuit of an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective. © McGraw Hill LLC 29  Setting Strategic Objectives What Kinds of Strategic Objectives to Set: Strategic objectives: Related to a firm’s marketing standing among market competitors and its competitive vitality. Why: They are leading indicators of a firm’s future financial performance and business prospects. If achieved, indicate that a firm’s future financial performance will be better than its current or past performance. © McGraw Hill LLC 30  CORE CONCEPT: Financial Objectives and Strategic Objectives Objectives are an organization’s performance targets—the results management wants to achieve. Financial objectives relate to the internal financial performance targets management has established for the organization to achieve. Strategic objectives relate to external target outcomes that indicate a company is strengthening its market standing, competitive vitality, and future business prospects. © McGraw Hill LLC 31  CORE CONCEPT: The Balanced Scorecard 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. © McGraw Hill LLC 32  The Balanced-Scorecard Approach to Performance Measurement Financial Objectives Strategic Objectives An x percent increase in annual Win an x percent market share. revenues. Achieve customer satisfaction rates of x percent. Annual increases in earnings Achieve a customer retention rate of x percent. per share of x percent. Acquire x number of new customers. An x percent return on capital Introduce x number of new products in the next employed (ROCE) or three years. shareholder investment (ROE). Reduce product development times to x months. Bond and credit ratings of x. Increase the percentage of sales coming from Internal cash flows of x to fund new products to x percent. new capital investment. Improve information systems capabilities to give managers defect information in x minutes. Improve teamwork by increasing the number of projects involving more than one business unit to x. © McGraw Hill LLC 33  Short-Term and Long-Term Objectives Short-Term Objectives Long-Term Objectives Are targets to be Are targets to be achieved achieved soon. within three to five years. Represent milestones or Stand as a barrier to an stair steps for reaching undue focus on short-term long-range performance. results by nearsighted management © McGraw Hill LLC 34  The Need for Objectives at All Organizational Levels Objectives are needed at all levels. To set business-level objectives. To set and establish functional-area objectives. To set operating-level objectives. Long-term objectives take precedence over short-term objectives. © McGraw Hill LLC 35  Stage 3: Crafting a Strategy Crafting a strategy means asking: How to attract and please customers? How to compete against rivals? How to position the company in the marketplace and capitalize on attractive opportunities to grow the business? How best to respond to changing economic and market conditions? How to manage each functional piece of the business? How to achieve the firm’s performance targets? © McGraw Hill LLC 36  Strategy Formulation Involves Managers at All Organizational Levels In most firms, 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. A firm’s overall strategy is a collection of strategic initiatives and actions devised by managers up and down the whole organizational hierarchy. Strategy makers must make coordinated choices about the complete strategy landscape. Long-term competitive advantage requires consideration of the external environment and internal situation, the business model, competitive positioning, key implementation approaches, and resource development and deployment. © McGraw Hill LLC 37  A Company’s Strategy-Making Hierarchy Crafting strategy is a collaborative effort. Involves managers from various levels of the organization. Should be cohesive and mutually reinforcing, fitting together like a jigsaw puzzle. Requires choosing among the various strategic alternatives. © McGraw Hill LLC 38  CORE CONCEPT: Corporate Strategy and Business Strategy Corporate strategy establishes an overall game plan for managing a set of businesses in a diversified, multi-business company. Business strategy is primarily concerned with strengthening the company’s market position and building competitive advantage in a single-business company or a single business unit of a diversified multi-business corporation. © McGraw Hill LLC 39  A Company’s Strategy-Making Hierarchy Access the text alternative for slide images. © McGraw Hill LLC 40  Implementing and Executing the Chosen Strategy Managing the strategy execution process involves: Staffing the organization to provide Pushing for continuous needed skills and expertise. improvement in how value chain Allocating ample resources to activities are performed. activities critical to good strategy Tying rewards and incentives execution. directly to the achievement of Ensuring that policies and performance objectives. procedures facilitate rather than Creating a company culture and impede effective execution. work climate conducive to Installing information and operating successful strategy execution. systems that enable company Exerting the internal leadership personnel to perform essential needed to propel implementation activities. forward. © McGraw Hill LLC 41  Evaluating Performance and Initiating Corrective Adjustments Deciding if there is a need for change: Monitoring for disruptive developments. Evaluating the firm’s recent performance. Making corrective adjustments to strategy. Strategy execution is an ongoing and uneven process of organizational learning. A firm’s vision, objectives, strategy, and approach to strategy execution are never final. Successful strategy execution entails vigilantly searching for ways to improve and then making corrective adjustments whenever and wherever it is useful to do so. © McGraw Hill LLC 42 © McGraw Hill LLC 43  Because learning changes everything. ® www.mheducation.com © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Strategic Management, MGMT5615 Cape Breton University Fall Term 2024 Course Instructor: Donald MacMullen  Strategic Management, MGMT5615 Fall Term 2023 Agenda Cape Breton University Chapter # 3, Evaluating a Company’s External Environment Academic Articles: Michael Porter: What is Strategy? The 5 Competitive Forces That Shape Strategy. Henry Mintzberg Student Project Teams Airbnb Business Case Financial Highlight and Business Case Analysis Review Quiz # 1 Next Week  Because learning changes everything. ® CHAPTER 3 Evaluating a Company’s External Environment Access the text alternative for slide images. © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Overview 1. Financial 2. Reputational 3. Operational © McGraw Hill LLC 4  Focus, External Environment: Question Worth Asking 1. What are the strategically relevant components of the macro- environment? 2. How strong are the industries competitive forces? 3. What are the industries driving forces of change, and what impact will they have? 4. How are industry rivals positioned? 5. What strategic moves are rivals likely to make? 6. What are the industry key success factors? 7. Does the industry offer good potential for attractive profits? © McGraw Hill LLC 5  LEARNING OBJECTIVES 1. Identify factors in a company’s broad macro-environment that may have strategic significance. 2. Recognize the factors that cause competition in an industry to be fierce, more or less normal, or relatively weak. 3. Map market positions of key groups of industry rivals. 4. Determine whether an industry’s outlook presents a company with sufficiently attractive opportunities for growth and profitability. © McGraw Hill LLC 6  The First Test of a Winning Strategy: “How Well Does the Current Strategy Fit the Company’s Situation?” Two facets of the company’s situation: Its external environment: industry and competitive environments in which it operates. Its internal environment: the company’s resources and organizational capabilities. © McGraw Hill LLC 7  Assessing the Company’s Industry and Competitive Environment 1. Do macro-environmental factors and industry characteristics offer sellers opportunities for growth and attractive profits? 2. What kinds and strengths of competitive forces are present in the industry? 3. How will forces driving change in the industry impact its competitive intensity and profitability? 4. Which rivals are strongly positioned in the market and which are not? 5. What strategic moves are rivals likely to make next? 6. What are the key factors of competitive success? 7. Does the industry outlook offer good prospects for profitability? © McGraw Hill LLC 8  Question 1: What Are the Strategically Relevant Components of a Company’s Macro-Environment? Relevant factors: Play a significant role in shaping management’s decisions regarding the company’s long-term direction, objectives, strategy, and business model. Are on the immediate inner ring industry and competitive environment of the company—competitive pressures, the actions of rival firms, buyer behavior, supplier-related considerations, and so on. © McGraw Hill LLC 9  The Components of a Company’s External Environment Access the text alternative for slide images. © McGraw Hill LLC 10 CORE CONCEPTS: Macro-Environment and PESTEL Analysis The macro-environment encompasses the broad environmental context in which a firm is situated and is comprised of six principal components: political factors, economic conditions, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions. PESTEL analysis can be used to assess the strategic relevance of the six principal components of the macro-environment: political, economic, social, technological, environmental, and legal forces. © McGraw Hill LLC 11  The Six Components of the Macro-Environment Included in a PESTEL Analysis 1. Political factors. 2. Economic conditions. 3. Technological factors. 4. Sociocultural factors. 5. Environmental forces. 6. Legal and regulatory factors. © McGraw Hill LLC 12  The Six Components of the Macro-Environment Included in a PESTEL Analysis Political What is this? © McGraw Hill LLC 13  The Six Components of the Macro-Environment Included in a PESTEL Analysis © McGraw Hill LLC 14  Political © McGraw Hill LLC 15  The Six Components of the Macro-Environment Included in a PESTEL Analysis Economic Conditions Legal Conditions © McGraw Hill LLC 16  The Six Components of the Macro-Environment Included in a PESTEL Analysis 1. Political factors. 2. Economic conditions. 3. Technological factors. 4. Sociocultural factors. 5. Environmental forces. 6. Legal and regulatory factors. © McGraw Hill LLC 17  Question 2: How Strong Are the Industry’s Competitive Forces? State of competition: Where are we now? The dynamics of competition are not the same from one industry to another. The five forces model of competition: It is the most powerful and widely used tool for assessing the strength of the competitive forces that affect an industry’s attractiveness. © McGraw Hill LLC 18  The Five Competitive Forces Affecting Industry Attractiveness Competitive pressures: Bargaining power of buyers. Substitute products of firms in other industries. Bargaining power of suppliers. The threat of new entrants into the market. Rivalry among competing sellers. © McGraw Hill LLC 19  The Five Forces Model of Competition Access the text alternative for slide images. Sources: Based on Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 57, no. 2 (March–April 1979), pp. 137–145; and Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review 86, no. 1 (January 2008), pp. 80–86. © McGraw Hill LLC 20  The Competitive Force of Buyer Bargaining Power Whether seller–buyer relationships represent a minor or significant competitive force in limiting industry profitability depends on: Some or many buyers having sufficient bargaining leverage to obtain price concessions and other favorable terms. The extent to which buyers are price-sensitive. © McGraw Hill LLC 21  When Is the Bargaining Power of Buyers Stronger? Buyers gain bargaining leverage when: Their costs of switching to competing brands or substitutes are relatively low. Their large size allows them to demand concessions. They are few in number, control market access or, if a buyer–customer is particularly important to a seller. Weak buyer demand creates a “buyers’ market.” Buyers are well informed about products, prices, and costs. Buyers can integrate backward into the business of sellers. © McGraw Hill LLC 22  Factors Affecting the Strength of Buyer Bargaining Power Access the text alternative for slide images. © McGraw Hill LLC 23  The Competitive Force of Substitute Products The strength of competitive pressures from the sellers of substitute products depends on whether: Substitutes are readily available and attractively priced. Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes. The costs that buyers incur in switching to the substitutes are high or low. © McGraw Hill LLC 24  Figure 3.4 Factors Affecting Competition from Substitute Products Access the text alternative for slide images. © McGraw Hill LLC 25  The Competitive Force of Substitute Products © McGraw Hill LLC 26  USA Original Equipment Auto Tires U.S. OE passenger tire shipments. (n.d.). Statista. Retrieved September 26, 2023, from https://www.statista.com/statistics/276159/passenger-tire-shipments-in- the-united-states/ U.S. OE passenger tire shipments. (2022). Statista. Retrieved September 26, 2023, from https://www.statista.com/statistics/276159/passenger-tire- shipments-in-the-united-states/ © McGraw Hill LLC 27  The Competitive Force of Supplier Bargaining Power (1 of 2) Industry suppliers can exert substantial bargaining power or leverage if: The supplied item is not a commodity readily available from many suppliers. Industry members cannot switch their purchases to another supplier or switch to attractive substitutes. Certain required inputs are in short supply. Certain suppliers provide a differentiated item that enhances the desired performance, quality, or image of the industry’s product. © McGraw Hill LLC 28  The Competitive Force of Supplier Bargaining Power (2 of 2) Industry suppliers can exert substantial bargaining power or leverage when: They provide specialized equipment or services that yield cost savings to industry members in conducting their operations. A large fraction of the costs of the buyer industry’s product is accounted by the cost of a particular input. Industry members are not major or large customers of suppliers. It does not make good economic sense for industry members to vertically integrate backward. This is changing slowly in the US Semi-Conductor Market. © McGraw Hill LLC 29  Figure 3.5 Factors Affecting the Strength of Suppliers Access the text alternative for slide images. © McGraw Hill LLC 30  The Competitive Force of Supplier Bargaining Power Semiconductor market size by application 2022-2030. (2022). Statista. Retrieved September 26, 2023, from https://www.statista.com/statistics/498265/cagr-main- semiconductor-target-markets/ © McGraw Hill LLC 31  The Competitive Force of Potential New Entrants The threat of entrants into the marketplace presents significant competitive pressure when: There is a sizable pool of likely entry candidates. Potential entrants have ample entry resources at their command. Current industry participants are looking beyond their current markets for growth opportunities. When the industry is growing, offers attractive profit opportunities, and its barriers to entry are low. © McGraw Hill LLC 32  The Competitive Force of Potential New Entrants Porter Airlines enters Western Canada Market © McGraw Hill LLC 33  The Competitive Force of Potential New Entrants Porter Airlines enters Western Canada Market CAPA. (August 6, 2020). Major airlines' domestic market share in Canada in 2020* [Graph]. In Statista. Retrieved September 26, 2023, from https://www-statista- com.cbu.idm.oclc.org/statistics/545642/air-carrier-canada-domestic-market-share/ © McGraw Hill LLC 34  What Are the Barriers to Entry? Sizable economies of scale in network of distributors– production or other areas of retailers and securing space operation. on retailers’ shelves. Cost and resource Tariffs and international trade disadvantages not related to restrictions. scale of operation. Industry incumbents that can Strong brand preferences and launch initiatives to block a customer loyalty. successful entry. High capital requirements. Restrictive regulatory policies. Difficulties in building a © McGraw Hill LLC 35  Figure 3.6 Factors Affecting the Threat of Entry Access the text alternative for slide images. © McGraw Hill LLC 36  When Is the Competitive Force of Rivalry Most Intense Among Competing Sellers? Competitors are becoming more equal in size and capability. Market growth slows or declines and lower demand results in no growth opportunities, excess capacity, and inventory. Industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume. It has become less costly for buyers to switch brands as products of rival sellers have become more standardized. High exit barriers block failing competitors from leaving the industry. Strong outside firms acquire weak firms in the industry and launch aggressive, well-funded moves to build market share. © McGraw Hill LLC 37  Factors Affecting the Strength of Competitive Rivalry Access the text alternative for slide images. © McGraw Hill LLC 38  Competitive Rivalry The most powerful of the five competitive forces is usually the competitive pressures associated with rivalry among competing sellers in the industry for buyer patronage.. © McGraw Hill LLC 39  Industry Rivalry Terms Cutthroat (brutal): Competitors engage in protracted price wars or employ other aggressive tactics mutually destructive to profitability. Fierce (strong): A vigorous market share battle reduces the profit margins of most industry rivals to bare-bones levels. Moderate (normal): Maneuvering among industry rivals, while lively and healthy, still allows most rivals to earn acceptable profits. Weak: Industry rivals satisfied with their sales growth and market share rarely undertake offensives against their competitors. © McGraw Hill LLC 40  The Collective Strengths of the Five Competitive Forces and Industry Profitability As a rule, the stronger the collective impact of the five competitive forces, the lower the combined profitability of industry participants. The stronger the forces of competition, the harder it becomes for industry members to earn attractive profits. © McGraw Hill LLC 41  When Do the Five Competitive Forces Result in Attractive Industry Conditions? The ideal competitive environment for earning superior profits occurs when: Suppliers and customers are in weak bargaining positions. There are no good substitutes. High entry barriers deter entry of new competitors. Internal rivalry produces moderate competitive pressure. © McGraw Hill LLC 42  When Do the Five Competitive Forces Result in Unattractive Industry Conditions? An industry is competitively unattractive when all five forces are producing strong competitive pressures. Internal rivalry among competitors is strong. Low entry barriers result in entry of new competitors. Competition from substitutes is intense. Suppliers and customers are in strong bargaining positions. © McGraw Hill LLC 43  Question 3: What Are the Industry’s Driving Forces of Change and What Impact Will They Have? Driving forces analysis has three steps: 1. Identifying the present driving forces, as only three to four factors qualify as real drivers of change. 2. Assessing whether the drivers of change are, individually or collectively, acting to make the industry more or less attractive. 3. Determining what strategy changes are needed to prepare for the impact of the driving forces. © McGraw Hill LLC 44  CORE CONCEPT: Driving Forces Driving forces are the major underlying causes of change in industry and competitive conditions. Some driving forces originate in the outer ring of the company’s macro-environment but most originate in the company’s more immediate industry and competitive environment. © McGraw Hill LLC 45  Common Driving Forces Changes in the long-term industry Diffusion of technical know-how growth rate. across more companies and more Increasing globalization. countries. Emerging new Internet capabilities Changes in cost and efficiency. and applications. Growing buyer preferences for Changes in who buys the product differentiated products instead of a and how they use it. standardized commodity product (or for standardized products instead of Product innovation. strongly differentiated products). Technological change and Regulatory influences and manufacturing process innovation. government policy changes. Marketing innovation. Changing societal concerns, Entry or exit of major firms. attitudes, and lifestyles. © McGraw Hill LLC 46  Question 4: How Are Industry Rivals Positioned? Strategic group mapping: It is a useful technique for graphically displaying different market or competitive positions that rival firms occupy in the industry. A strategic group: It is a cluster of industry rivals that have similar competitive approaches and market positions. © McGraw Hill LLC 47  CORE CONCEPTS: Strategic Group Mapping and Strategic Groups Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions. © McGraw Hill LLC 48  Concepts and Connections 3.1 Comparative Market Positions of Selected Pizza Chains: A Strategic Group Map Example (International to National to Regional) Access the text alternative for slide images. © McGraw Hill LLC 49  The Value of Strategic Group Maps The closer groups are to each other on the map, the stronger the cross-group rivalry. Firms in groups that are far apart do not compete directly. Not all map positions are equally attractive. Some groups are more favorably positioned because they confront weaker competitive forces. Industry driving forces favor some groups over others. Competitive pressures cause profit potential differences. © McGraw Hill LLC 50  Question 5: What Strategic Moves Are Rivals Likely to Make Next? Framework for analysis of rival competitors: Current Strategy? Rival’s market position, competitive advantage basis, and its investments in infrastructure, technology, or other resources. Objectives? Its performance on current financial and strategic objectives. Capabilities? Its current set of capabilities and efforts to acquire new capabilities related to future strategic moves. Assumptions? Views and beliefs of rival’s top managers about their firm’s strategic situation can strongly impact their future behaviors. © McGraw Hill LLC 51  Question 6: What Are the Industry Key Success Factors? Key success factors (KSFs) are competitive factors that most affect the ability of all industry firms to prosper. KSFs include: Specific product attributes. Necessary resources, competencies, and capabilities. Specific intangible assets. Competitive capabilities. © McGraw Hill LLC 52  CORE CONCEPT: Key Success Factors Key success factors are the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace. © McGraw Hill LLC 53 Questions to Ask in Identifying Industry Key Success Factors Which crucial product attributes do industry buyers consider when choosing between competing sellers? Which resources and competitive capabilities must a company have or develop to be competitively successful? Which shortcomings are certain to put a company at a significant competitive disadvantage over its rivals? © McGraw Hill LLC 54  Examples of Industry Key Success Factors Expertise in a particular technology. Scale economies. Experience curve benefits. High-capacity utilization. Strong network of wholesale distributors. Brand-building skills. Convenient retail locations. © McGraw Hill LLC 55  Question 7: Does the Industry Offer Good Prospects for Attractive Profits? Factors that determine a firm’s prospects for attractive future profits in its industry include: Both the firm’s and its industry’s growth potential. Effects of internal industry competition. Effects of prevailing and future driving forces. The firm’s competitive position in its industry vis-à-vis its rivals. The firm’s competence in performing the industry’s key success factors. © McGraw Hill LLC 56  Conclusion Porter’s Driving PESTL 5-Forces Forces Competitor Key Analysis Success Factors © McGraw Hill LLC 57  Cape Breton University Strategic Management, MGMT5615 © McGraw Hill LLC  Because learning changes everything. ® www.mheducation.com © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Strategic Management, MGMT5615 Fall Term 2024 Cape Breton University Course Instructor: Donald MacMullen  Strategic Management, MGMT5615 Cape Breton University Fall Term 2023 Agenda Chapter # 3, Evaluating a Company’s External Environment Academic Articles: Michael Porter: What is Strategy? The 5 Competitive Forces That Shape Strategy. Henry Mintzberg Student Project Teams Airbnb Business Case Financial Highlight and Business Case Analysis Review Quiz # 1 Next Week  Strategic Management, MGMT5615 Cape Breton University Fall Term 2024 Henry Mintzberg, McGill University, Montreal, Quebec  Strategy – Henry Mintzberg Mintzberg: The Strategy Concept I: The Five Ps for Strategy 1. Strategy as a Plan 2. Strategy as a Ploy 3. Strategy as a Pattern 4. Strategy as a Position 5. Strategy as a Perspective © McGraw Hill LLC 4  Strategy – Henry Mintzberg Mintzberg: The Five Ps for Strategy 1. Strategy as a Plan – Actions developed consciously and taken purposefully. © McGraw Hill LLC 5  Strategy – Henry Mintzberg Mintzberg: The Five Ps for Strategy 1. Strategy as a Ploy – Actions intended to outwit or outsmart an opponent or competitor. © McGraw Hill LLC 6  Strategy – Henry Mintzberg Mintzberg: The Five Ps for Strategy 1. Strategy as a Pattern – A stream or sequence of actions which are intended to create a consistency in behaviour. © McGraw Hill LLC 7  Strategy – Henry Mintzberg Mintzberg: The Five Ps for Strategy 1. Strategy as a Position – The position the business is looking to occupy in the market. Does your business want to be in the niche market or mass market? © McGraw Hill LLC 8  Strategy – Henry Mintzberg Mintzberg: The Five Ps for Strategy 1. Strategy as a Perspective – Strategy is not a choose position, rather a way persons perceive the world. © McGraw Hill LLC 9  Strategy – Henry Mintzberg Mintzberg: The Strategy Concept I: The Five Ps for Strategy © McGraw Hill LLC 10  Strategic Management, MGMT5615 Cape Breton University Fall Term 2024  Strategic Management, MGMT5615 Cape Breton University Fall 2024 Course Instructor: Donald MacMullen  Strategic Management, MGMT5615 Fall 2024 Agenda Cape Breton University Course/Class Agenda Updates Three Quiz # 1 Questions, Common Trend Chapter # 4: Evaluating a Company’s Resources, Capabilities, and Competitiveness Chapter # 5: Five Generic Competitive Strategies Business Case: Spotify Quiz # 2, October 28th Strategic Management, MGMT5615, Fall 2024 Cape Breton University Strategic Management, MGMT5615, Fall 2024 Cape Breton University Strategic Management, MGMT5615, Fall 2024 Cape Breton University  Because learning changes everything.® CHAPTER 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness Access the text alternative for slide images. © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  LEARNING OBJECTIVES 1. Assess how well a company’s strategy is working. 2. Understand why a company’s resources and capabilities are centrally important in giving the company a competitive edge over rivals. 3. Grasp how a company’s value chain activities can affect the company’s cost structure and customer value proposition. 4. Evaluate a company’s competitive strength relative to its key rivals. 5. Understand how a comprehensive evaluation of a company’s external and internal situations can assist managers in making critical decisions about their next strategic moves. © McGraw Hill LLC 7  Evaluating a Firm’s Internal Situation Question 1: How well is the firm’s strategy working? Question 2: What are the company’s competitively important resources and capabilities? Question 3: Are the company’s cost structure and customer value proposition competitive? Question 4: Is the company competitively stronger or weaker than key rivals? Question 5: What strategic issues and problems merit front-burner managerial attention? © McGraw Hill LLC 8 Question 1: How Well Is the Company’s Strategy Working? The two best indicators of how well a firm’s strategy is working are: 1. Whether the firm is recording gains in financial strength and profitability. 2. Whether the firm’s competitive strength and market standing are improving. © McGraw Hill LLC 9 Question 1: How Well Is the Company’s Strategy Working? The two best indicators of how well a firm’s strategy is working are: 1. Whether the firm is recording gains in financial strength and profitability. © McGraw Hill LLC 10 Question 1: How Well Is the Company’s Strategy Working? The two best indicators of how well a firm’s strategy is working are: 2. Whether the firm’s competitive strength and market standing are improving. © McGraw Hill LLC 11  Other Strategy Performance Indicators What are some other ‘Strategy Performance Indicators’ used in business? © McGraw Hill LLC 12  Other Strategy Performance Indicators Trends in the firm’s sales and earnings growth. Trends in the firm’s stock price. The firm’s overall financial strength. The firm’s customer retention rate. The rate at which new customers are acquired. Changes in firm’s image and reputation with customers. Evidence of improvement in internal processes such as defect rate, order fulfillment, delivery times, days of inventory, and employee productivity. © McGraw Hill LLC 13  Question 2: What Are the Company’s Competitively Important Resources and Capabilities? A company’s business model and strategy: Must be well matched to its collection of resources and capabilities. Requires a tight fit with a company’s internal situation. Is strengthened when exploiting resources that are competitively valuable, rare, hard to copy, and not easily trumped to rivals’ equivalent substitute resources. © McGraw Hill LLC 14  CORE CONCEPTS: Resource and Capability A resource is a competitive asset that is owned or controlled by a firm; a capability is the capacity of a firm to competently perform some internal activity. Capabilities are developed and enabled through the deployment of a firm’s resources. © McGraw Hill LLC 15  CORE CONCEPTS: Resource and Capability © McGraw Hill LLC 16  Resource and Capability Analysis Analyzing the resources and capabilities of a firm is a two-step process. 1. Identify the company’s most competitively important resources and capabilities. 2. Apply the four tests of competitive power to (VRIN) ascertain which resources and capabilities can support a sustainable competitive advantage over rival firms. © McGraw Hill LLC 17  Common Types of Tangible and Intangible Resources (1 of 2) Tangible Resources Description Physical resources State-of-the-art manufacturing plants and equipment, efficient distribution facilities, attractive real estate locations, or ownership of valuable natural resource deposits Financial resources Cash and cash equivalents, marketable securities, and other financial assets, such as a company’s credit rating and borrowing capacity Technological assets Patents, copyrights, superior production technology, and technologies that enable activities Organizational Information and communication systems (servers, resources workstations, etc.), proven quality control systems, and strong network of distributors or retail dealers © McGraw Hill LLC 18  Common Types of Tangible and Intangible Resources (2 of 2) Intangible Resources Description Human assets and An experienced and capable workforce, talented intellectual capital employees in key areas, collective learning embedded in the organization, or proven managerial know-how Brand, image, and Brand names, trademarks, product or company reputational assets image, buyer loyalty, and reputation for quality, superior service Relationships Alliances or joint ventures that provide access to technologies, specialized know-how, or geographic markets, and trust established with various partners Company culture The norms of behavior, business principles, and ingrained beliefs within the company © McGraw Hill LLC 19  Intangible Resources © McGraw Hill LLC 20  CORE CONCEPT: VRIN Tests for Sustainable Competitive Advantage The four VRIN tests for sustainable competitive advantage ask if a resource or capability is valuable, rare, inimitable, and non-substitutable. © McGraw Hill LLC 21  Determining the Competitive Power of a Company’s Resources and Capabilities VRIN competitive power tests: Is the resource or capability competitively valuable? Is the resource or capability rare—something rivals lack? Is the resource or capability inimitable or hard to copy? Is the resource or capability no substitutable or is it vulnerable to the threat of substitution from different types of resources and capabilities? © McGraw Hill LLC 22  CORE CONCEPTS: Social Complexity and Causal Ambiguity Social complexity and causal ambiguity are two factors that inhibit the ability of rivals to imitate a firm’s most valuable resources and capabilities. Causal ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate. © McGraw Hill LLC 23  CORE CONCEPTS: Social Complexity and Causal Ambiguity Causal Ambiguity - Causal ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate. © McGraw Hill LLC 24  CORE CONCEPT: Resource Bundles Companies that lack a standalone resource that is competitively powerful may nonetheless develop a competitive advantage through resource bundles that enable the superior performance of important cross- functional capabilities. © McGraw Hill LLC 25  The Importance of Dynamic Capabilities in Sustaining Competitive Advantage Management’s organization-building challenge has two elements. 1. Attending to ongoing strengthening and recalibration of existing capabilities and resources. 2. Casting a watchful eye for opportunities to develop totally new capabilities for delivering better customer value and/or outcompeting rivals. © McGraw Hill LLC 26  CORE CONCEPT: Dynamic Capability A dynamic capability is an ability to modify, deepen, or reconfigure the company’s existing resources and capabilities in response to its changing environment or market opportunities. © McGraw Hill LLC 27  Is the Company Able to Seize Market Opportunities and Nullify External Threats? SWOT represents the first letter in: Strengths, Weaknesses, Opportunities, and Threats. A well-conceived strategy is: Matched to the firm’s resource strengths and weaknesses. Aimed at capturing the firm’s best market opportunities. Positioned to defend against external threats to its well-being. © McGraw Hill LLC 28  CORE CONCEPT: SWOT Analysis SWOT analysis is a simple but powerful tool for sizing up a firm’s internal strengths and competitive deficiencies, its market opportunities, and the external threats to its future well-being. © McGraw Hill LLC 29 Table 4.2 Factors to Consider When Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats (1 of 4) Potential Internal Strengths and Competitive Capabilities: Core competencies. A strong financial condition; ample financial resources to grow the business. Strong brand name image/company reputation. Economies of scale and/or learning and experience curve advantages over rivals. Proprietary technology/superior technological skills/important patents. Cost advantages over rivals. Product innovation capabilities. Proven capabilities in improving production processes. Good supply chain management capabilities. Good customer service capabilities. Better product quality relative to rivals. Wide geographic coverage and/or strong global distribution capability. Alliances/joint ventures with other firms that provide access to valuable technology competencies, and/or attractive geographic markets. © McGraw Hill LLC 30 Table 4.2 Factors to Consider When Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats (2 of 4) Potential Internal Weaknesses and Competitive Deficiencies: No clear strategic direction. No well-developed or proven core competencies. A weak balance sheet; burdened with too much debt. Higher overall unit costs relative to key competitors. A product/service with features and attributes inferior to those of rivals.