Strategic Management and Total Quality Management PDF

Strategic Management and Total Quality Management Eden Almario-Camacho, MBA Course Professor  CRAFTING A STRATEGY THE QUEST FOR COMPETITIVE ADVANTAGE  OBJECTIVES: 1. discuss the value of establishing long-term objectives: 2. identify the 16 types of business strate...

Strategic Management and Total Quality Management Eden Almario-Camacho, MBA Course Professor  CRAFTING A STRATEGY THE QUEST FOR COMPETITIVE ADVANTAGE  OBJECTIVES: 1. discuss the value of establishing long-term objectives: 2. identify the 16 types of business strategies: 3. identify numerous examples of organizations pursuing different types of strategies 4. discuss guidelines when particular strategies are most appropriate to pursue; 5. describe strategic management in nonprofit governmental, and small organizations; 6. discuss the Balanced Scorecard; 7. compare and contrast financial with strategic objectives; 8. discuss the levels of strategies in large versus small firms, 9. explain the First Mover Advantages concept; 10. discuss the recent trends in outsourcing; and 11. discuss strategies for competing in turbulent, high velocity markets INTRODUCTION In the tourism and hospitality industry, the success or failure of our businesses and destinations depends on service. Basic competitive strategy: 1. What use to make of strategic alliances and collaborative partnerships. 2. What use to make of mergers and acquisitions. 3. Whether to integrate backward or forward into more stages of the industry value. 4. Whether to outsource certain value chain activities or perform them in-house. 5. Whether and when to employ offensive and defensive moves. 6. What website strategy to employ. A Company's Menu of Strategic Options A. Basic Competitive Strategy Options 1. Overall low-cost provider strategy- striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals. 2. Broad differentiation strategy seeking to differentiate the company's product offering from rivals in ways that will appeal to a broad spectrum of buyers. A Company's Menu of Strategic Options 3. Best-cost provider strategy giving customers more value for the money by incorporating good-to-excellent product/service attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products/services with comparable. 4. A focused (or market niche) strategy based on low costs – concentrating on a narrow buyer segment and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price. 5. A focused (or market niche) strategy based on differentiation – concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their taste and requirements better than rivals’ products/services. A Company's Menu of Strategic Options B. Complementary Strategic Options 1. Collaborative strategies: strategic alliances and partnerships 2. Merger and acquisition strategies 3. Vertical Integration Strategies: operating across more stages of the industry value chain 4. Outsourcing strategies 5. Offensive strategies--improving market position and building competitive advantage 6. Defensive strategies--protecting market position and competitive advantage 7. Web site strategies: which one to employ A Company's Menu of Strategic Options C. Choosing appropriate functional area strategies to support the strategic choices D. Timing a company's strategic moves in the marketplace 1. First-mover? 2. Fast-follower? 3. Late-mover? A strategy's success is determined not only by the firm's initial competitive actions, but also by how well it anticipates competitors" responses to them and by how well the firm responds to its competitor's initial actions (also called attacks). Some important definitions: Competitive rivalry is the ongoing set of competitive actions and competitive responses occurring between rivals as they compete against each other for an advantageous market position. Competitive behavior is the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position. Firms competing against each other in several product/geographic markets are in multimarket competition. All competitive behavior-that is, the total set of actions and responses taken by all firms competing within a market--is called competitive dynamics. Some important definitions: To provide an idea of what this means, new ways of competing may include the following: Bringing new goods and services to market more quickly. The use of new technologies (e.g., Amazon.com). Diversifying the product line Shifting product/service emphasis (e.g., a company's focus on accessory sales). Consolidation (e.g., the merger of Hewlett Packard and Compaq). Combining online selling with physical stores I. LONG-TERM OBJECTIVES Long-term objectives represent the results expected from pursuing certain strategies. Strategies represent the actions to be taken to accomplish long-term objectives. The timeframe for objectives and strategies should be consistent. I. LONG-TERM OBJECTIVES A. The Nature of Long-Term Objectives 1. Objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units. Each objective also should be associated with a timeline. a. Objectives are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, and so on. b. Long-term objectives are needed at the corporate, divisional, and functional levels in an organization. They are an important measure of managerial performance. I. LONG-TERM OBJECTIVES B. Financial versus Strategic Objectives 1. Financial objectives include ones associated with growth in revenues, growth in earnings, higher dividends, larger profit margins, greater return on investment, higher earnings per share, a rising stock price, improved cash flow, etc. 2. Strategic objectives include ones such as larger market share, quicker on-time delivery than rival, quicker design-to- market times than rivals, lower costs than rivals, higher product quality than rivals, wider geographic coverage than rivals, etc. I. LONG-TERM OBJECTIVES C. Not Managing by Objectives 1. Strategists should avoid the following alternative ways of "not managing by objectives." a. Managing by extrapolation b. Managing by crisis c. Managing by subjectives d. Managing by hope II. THE BALANCED SCORECARD 1. The balanced scorecard is a strategy evaluation and control technique that derives its name from the perceived need of firms to "balance" financial measures, which are oftentimes used exclusively in strategy evaluation and control with non-financial measures such as product quality and customer. III. TYPES OF STRATEGIES A. A Comprehensive Strategic Model provides a conceptual basis for applying strategic management. Alternative strategies that an enterprise could pursue can be categorized into 11 actions: forward integration, backward integration, horizontal integration, market penetration, market development product development, related diversification, unrelated diversification, retrenchment, divestiture, and liquidation. III. TYPES OF STRATEGIES B. Levels of Strategies 1. Levels of strategies for large and small companies can be illustrated as follow: In large firms, there are four levels of strategies: corporate, divisional, functional, and operational In small firms, there are three levels: company, functional, and operational. IV. INTEGRATION STRATEGIES Forward, backward, and horizontal integration are sometimes referred to as vertical integration strategies which allow a firm to gain control over distributors, suppliers, and/or competitors. A. Forward Integration 1. Forward integration involves gaining ownership or increased control over distributors or retailers. 2. Franchising is an effective means of implementing forward integration. There is a growing trend for franchisees to buy out their part of the business from their franchiser. IV. INTEGRATION STRATEGIES Six guidelines when forward integration may be an especially effective strategy A. When an organization's present distributors are especially expensive or unreliable, or incapable of meeting the firm's distribution needs. B. When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward. C. When an organization competes in an industry that is growing and expected to continue to grow markedly. D. When an organization has both the capital and human resources needed to manage the new business. E. When the advantages of stable production are particularly high. F. When present distributors have high profit margins. IV. INTEGRATION STRATEGIES B. Backward Integration 1. Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when a firm's current suppliers are unreliable, too costly, or cannot meet the firm's needs. 2. Some industries in the United States (such as automotive and aluminum industries) are reducing their historic pursuit of backward integration. Instead of owning their suppliers, companies negotiate with several outside suppliers. IV. INTEGRATION STRATEGIES 1. Horizontal integration refers to a strategy of seeking ownership of or increased control over a firm's competitors. One of the most significant trends in strategic management today is the increased use of horizontal integration as a growth strategy. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. IV. INTEGRATION STRATEGIES There are five guidelines for when horizontal integration may be an especially effective strategy: A. When an organization can gain monopolistic characteristics. B. When an organization competes in a growing industry. C. When increased economies of scale provide major competitive advantages. D. When an organization has both the capital and human talent needed to successfully manage an expanded organization. E. When competitors are faltering due to lack of managerial expertise or a need for particular resources that an organization possesses. V. INTENSIVE STRATEGIES Market penetration, market development, and product development are sometimes referred to as intensive strategies because they require intensive efforts if a firm's competitive position with existing products is to improve. V. INTENSIVE STRATEGIES A. Market Penetration 1. A market penetration strategy seeks to increase market share for present products or service in present markets through greater marketing efforts. 2. Market penetration includes increasing the number of salespersons, advertising expenditures, and publicity efforts or offering extensive sales promotion items. V. INTENSIVE STRATEGIES Five guidelines for when market penetration is especially effective: a. When current markets are not saturated. b. When usage rate of current customers could be increased. c. When marker shares of major competitors have been declining while total industry sales have been increasing. d. When the correlation between dollar sales and dollar marketing expenditures historically has been high. e. When increased economies of scale provide major advantages. V. INTENSIVE STRATEGIES B. Market Development 1. Market development involves introducing present products or services into new geographic areas. 2. For example, Ford Motor introduced eight new vehicles in India between 201 1 and 2015 to capitalize on increasing demand in the fast-expanding car market. V. INTENSIVE STRATEGIES Six guidelines when market development may be an effective strategy: a. When new channels of distribution are available that are reliable, inexpensive, and of good quality. b. When an organization is very successful at what it does. c. When new untapped or unsaturated markets exist. d. When an organization has the needed capital and human resources to manage expanded operations. e. When an organization has excess production capacity. f. When an organization's basic industry rapidly is becoming global in scope. V. INTENSIVE STRATEGIES C. Product Development 1. Product development is a strategy that seeks increased sales by improving or modifying present products or services. Product development usually entails large research and development expenditures. 2. Five guidelines for when to use product development: a. When an organization has successful products that are in the maturity stage of the product life cycle. b. When an organization competes in an industry that is characterized by rapid technological developments. c. When major competitors offer better-quality products at comparable prices. d. When an organization competes in a high-growth industry. e. When an organization has especially strong research and development capabilities. VI. DIVERSIFICATION STRATEGIES The two general types of diversification strategies are related and unrelated. 1. Businesses are said be related when their value chains possess competitively valuable cross-business strategic fits. 2. Businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist. VI. DIVERSIFICATION STRATEGIES 3. Most companies favor related diversification strategies to capitalize on synergies as follows: a. Transferring competitively valuable expertise. b. Combining the related activities of separate businesses into a single operation to achieve lower costs. c. Exploiting common use of a well-known brand name. d. Collaborating across businesses to create valuable resource strengths and capacities. 4. The greatest risk of being in a single industry is having all of the firm's eggs in one basket. However, diversification must do more than simply spread business risk across different industries. It makes sense only when it adds to shareholder value. VII. DEFENSIVE STRATEGIES A. Retrenchment 1. Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. 2. Sometimes called a turnaround or reorganizational strategy, retrenchment is designed to fortify an organization's basic distinctive competence. 3. Retrenchment can entail selling off land and buildings, pruning product lines, closing marginal businesses, closing obsolete factories, automating processes, reducing the number of employees, and instituting expense control systems. In some cases, bankruptcy can be an effective retrenchment strategy. VII. DEFENSIVE STRATEGIES B. Divestiture 1. Selling a division or part of an organization is called divestiture. Divestiture often is used to raise capital for further strategic acquisitions or investments. 2. Divestiture can be used to rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well with the firm's other activities. 3. Divestiture has become a very popular strategy as firms try to focus on their core strengths, lessening their level of diversification. 4. Historically firms have divested their unwanted or poorly performing divisions, but the global recession has witnessed firms simply closing such operations. VII. DEFENSIVE STRATEGIES 5. Six guidelines for when to use divestiture: a. When an organization has pursued a retrenchment strategy and it failed to accomplish needed improvement. b. When a division needs more resources to be competitive than the company can provide. c. When a division is responsible for an organization's overall poor performance. d. When a division is a misfit with the rest of an organization. e. When a large amount of cash is needed quickly and cannot be obtained. f. When government antitrust action threatens an organization. VII. DEFENSIVE STRATEGIES C. Liquidation 1. Selling all of a company's assets, in parts, for their tangible worth is called liquidation. Liquidation s recognition of defeat and consequently can be an emotionally difficult strategy. 2. Three guidelines of when to use liquidation: a. When an organization has pursued both a retrenchment and a divestiture strategy and neither has been successful. b. When an organization's only alternative is bankruptcy. c. When the stockholders of a firm can minimize their losses by selling assets. VIII. MICHAEL PORTER'S FIVE GENERIC STRATEGIES A. According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation, and focus. 1. Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive. There are two types of cost leadership strategies. Type I is a low-cost strategy that offers products to a wide range of customers at the lowest price available on the market. Type 2 is a best-value strategy that offers products to a wide range of customers at the best price-value available on the market. VIII. MICHAEL PORTER'S FIVE GENERIC STRATEGIES B. Differentiation 1. Differentiation strategies offer different degrees of differentiation. Successful differentiation can mean greater product flexibility, greater compatibility, lower costs, improved service, less maintenance, greater convenience, or more features. 2. A differentiation strategy should only be pursued after careful study of buyers' needs and preferences. A risk of pursuing a differentiation strategy is that the unique product may not be valued highly enough by customers to justify the higher price. 3. Common organizational requirements for a successful differentiation strategy include strong coordination among the R&D and marketing functions and substantial amenities to attract scientist and creative people. VIII. MICHAEL PORTER'S FIVE GENERIC STRATEGIES C. Focus Strategies. A successful focus strategy depends on an industry segment that is of sufficient size, has good growth potential, and is not crucial to the success of other major competitors. 1. Focus strategies are most effective when consumers have distinctive preferences or requirements and when rival firms are not attempting to specialize in the same target segment. 2. Risks of pursuing a focus strategy include the possibility that numerous competitors will recognize the successful focus strategy and copy it or that consumer preferences will drift toward the product attributes desired by the market as a whole. IX. MEANS FOR ACHIEVING STRATEGIES A. Cooperation Among Competitors 1. For collaboration between competitors to succeed, both firms must contribute something distinctive but a major risk is that unintended transfers of important skills or technology may occur. 2. Information not covered in the formal agreement often gets traded in day-to-day interactions, and firs give away too much information to rivals. 3. Although the idea of joining forces is not easily accepted by Americans, multinational firms are becoming more globally cooperative, and increasing numbers of domestic firms are joining forces with competitive foreign firms to reap mutual benefits. IX. MEANS FOR ACHIEVING STRATEGIES B. Joint Venture/Partnering 1. Joint venture is a popular strategy that occurs when two or more companies form a temporary 2. Partnership or consortium for the purpose of capitalizing on some opportunity. IX. MEANS FOR ACHIEVING STRATEGIES Other types of cooperative arrangements include R&D partnerships, cross- distribution agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia. 1. Joint ventures and cooperative arrangements are being used increasingly because they allow companies to improve communications and networking, to globalize operations, and to minimize risk. 2. A major reason why firms are using partnering as a means to achieve strategies is globalization. Technology also is a major reason behind the need to form strategic alliances, with the Internet linking widely dispersed partners. 3. Joint ventures among once rival firms are commonly being sued to pursue strategies ranging from retrenchment to market development. Although joint ventures are less risky for companies than mergers, many alliances fail. IX. MEANS FOR ACHIEVING STRATEGIES A few common problems that cause joint ventures to fail are as follows: Managers who must collaborate regularly are not involved in the venture. The venture may benefit partnering companies but not the customers. Both partners may not support the venture equally. The venture competes with more with one of the partners. IX. MEANS FOR ACHIEVING STRATEGIES Joint ventures are especially effective when: A privately owned organization forms one with a public organization. A domestic organization works with a foreign company. The distinct competencies of the firm's complement each other especially well. Some project is potentially profitable but requires overwhelming resources and risks. Two or more smaller firms have trouble competing with a larger firm. There is a need to introduce a new technology quickly. IX. MEANS FOR ACHIEVING STRATEGIES C. Merger/Acquisition. Mergers and acquisitions are two commonly used ways to pursue strategies. 1. A merger occurs when two organizations of about equal size unite to form one enterprise. 2. An acquisition occurs when a large organization purchases (acquires) a smaller firm or vice versa. 3. When a merger or acquisition is not desired by both parties, it can be called a takeover or hostile takeover. In contrast, an acquisition that is desired by both it is termed a friendly merger. IX. MEANS FOR ACHIEVING STRATEGIES D. Private-Equity Acquisitions 1. Private equity firms have unleashed a wave of new initial public offerings. 2. The intent of virtually all private-equity acquisitions is to buy firms at a low price and sell them later at a high price. IX. MEANS FOR ACHIEVING STRATEGIES E. First Mover Advantages 1. First mover advantages refer to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms. 2. Some advantages of being a first mover include securing access to rare resources, gaining new knowledge of key factors and issues, gaining market share and position, establishing and securing long-term relationships, and gaining customer loyalty and commitments. IX. MEANS FOR ACHIEVING STRATEGIES F. Outsourcing Business-Process Outsourcing (BPO) is a rapidly growing new business that involves companies take over functional operations such as human resources, information systems, and marketing for other firms. 2. Reasons that companies are choosing to outsource include: It is less expensive. It allows a firm to focus on its core business. It enables the firm to provide better services. It allows the firm to align with "best-in-the-world" suppliers. Provides flexibility. Allows the firm to concentrate on other value chain activities. X. STRATEGIC MANAGEMENT IN NON-PROFIT AND GOVERNMENTAL ORGANIZATIONS Nonprofit organizations are just like for-profit companies except for two major differences: (1) nonprofits do not pay taxes, and (2) nonprofits do not have shareholders to provide capital. A. Religious Facilities 1. The number of religious facilities having to close their doors is surging as many borrowed too much and built too big during boom times. B. Educational Institutions 1. Educational institutions are using strategic-management techniques and concepts more frequently. 1. Online college degrees are becoming common and represent a threat to traditional colleges and universities. 2. Many American colleges and universities have now established campuses outside the United States. C. Medical Organizations X. STRATEGIC MANAGEMENT IN NON-PROFIT AND GOVERNMENTAL ORGANIZATIONS 1. The U.S. hospital industry is experiencing declining margins, excess capacity, bureaucratic overburdening, poor strategies, soaring costs, reduced federal support, and high administration turnover. 2. Hospitals originally intended to be warehouses for people dying of tuberculosis, smallpox, cancer, pneumonia, and infectious diseases are creating new strategies today as advances in the diagnosis and treatment of chronic diseases are undercutting that earlier mission. 3. A successful hospital strategy for the future will require renewed and deepened collaboration with physicians, who are central to hospitals' well-being, and a reallocation of resources from acute to chronic care in home and community settings. 4. Current strategies being pursued by many hospitals include creating home health services, establishing nursing homes, and forming rehabilitation centers. X. STRATEGIC MANAGEMENT IN NON-PROFIT AND GOVERNMENTAL ORGANIZATIONS D. Governmental Agencies and Departments 1. In the US, federal, state, county, and municipal agencies and departments, such as police departments, chambers of commerce, forestry associations, and health departments are responsible for formulating, implementing, and evaluating strategies that use taxpayers' dollars in the most cost-effective way to provide services and programs. 2. Strategic-management concepts are increasingly being used to enable governmental organizations to be more effective and efficient. 3. Strategists in governmental organizations operate with less strategic autonomy than their counterparts in private firms. XI. STRATEGIC MANAGEMENT IN SMALL FIRMS A. Rationale 1. As hundreds of thousands of people have been laid off from work in the last two years, many of these individuals have started small businesses. 2. The strategic management process is just as vital for small companies as it is for large firms. Numerous magazine and journal articles have focused on applying strategic management concepts to small businesses. End of presentation  COMPETITIVE STRATEGY IS ABOUT BEING DIFFERENT. IT MEANS DELIBERATELY CHOOSING TO PERFORM ACTIVITIES DIFFERENTLY OR TO PERFORM DIFFERENT ACTIVITIES THAN RIVALS TO DELIVER A UNIQUE MIX OF VALUE. - Michael Porter