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strategy

Page history last edited by Brian D Butler 9 years, 10 months ago

 

 

 

 

 

 

 

Table of Contents:


 

 

Strategy

strategy is very industry specific. 

 

Strategy is about trade-offs:  will you choose a "Low Cost strategy"? or a "product differentiation strategy"?  Strategy is about matching a companies resources and capabilities with the opportunities and threats in the marketplace.  In the end, strategy is about creating sustainable Competitive Advantage

 

Strategy is different than the goal, or mission statement.    While the goal of a firm may be to "make money", or to "create value for its shareholder", the strategy is about how a company will go about achieving its goals.  While A business plan may be the first step for a startup:  it lays out how you plan on obtaining sustainable competitive advantages and net present value in its expected future cash flows.  But long term strategy is more.  The key to success in business is creating value for a customer, and differentiating yourself from your competition. Strategy is about how to accomplish these two goals. Its how a company matches their capabilities with the opportunities in the marketplace. Its about how a company will compete, and which opportunities it will (and will not) go after.

 

 

 

Getting the right global business is not an easy process, nor is it a static one.  It is a process that requires constant attention to global trends, and changes in the competitive landscape.   For international business expansion, key strategy issues may  involve "which international expansion method will work best for my company?", and "which international markets should I be investing in today for profits tomorrow?".   These are not easy answers to come by, so we are calling on the international community of strategic advisers to help out.   Please feel free to add your insights to our global strategy wiki.

 

 

Strategic Issues

 

 

Strategy Statement

It defines where the organization is going now, describing why this organization exists.  To be effective, a strategy statement should only have three essential parts:

 

  1. objective - what you are going to achieve.  Note:  if you dont know where you are going, then any road will get you there!   Many companies, however, mistake the strategic objective with the companies values or mission statement.  But, as this is further down the hierarchy, it should be more specific.   When crafting an objective, companies should seek to be very precise about how the objective is strategic.  Note that while many companies may share the same mission statement, and some companies might share the same values or even vision statements, there should never be two companies that have the same strategic objective.   The objective should be a single goal so as to not leave room for confusion about multiple goals.   It should also have a clear time for when you want the objective to be achieved.  Finally, the objective should be measurable.
  2. scope - what you will not do (this sets the boundaries clearly for employees).  This is important so that employees dont waste time coming up with plans that will later be shot down by management for not meeting the scope requirement.  The scope should define what type of customer you are targeting, where they are located, and more importantly it should tell you about what types of customers you will not go after and what markets you will not enter.
  3. advantage - what is your unique competitive advantage (that only you can deliver).  This is the essence of the strategy statement.  What will your company do differently, what will be your value proposition, and how is only your company able to do this.  To map out this value proposition graphically is extremely useful.

 

When crafting the strategy statement for a firm, there will likely be trade-offs between market share and profitablity.  Do you seek the most marke share?  (if so, you may suffer a lower profit margin).  Or do you seek higher profit margins (and risk capturing a lower market share)?   According to Michael Porter, it is this trade-off that defines the "fundamental strategy" of a firm.

 

 

 

 

strategic management process

 

  1. Mission & Vision  (see our discussion on company statements )
  2. Objective
  3. Strategy formulation
  4. Implementation
  5. Evaluation

 

International strategy

 

 

The strategy component of competing internationally is very interesting.  Some of the key issues are:

 

1. How does a local company compete against large multinatinal

2. How can foreigners compete in emerging markets against entrenched local companies (with subsidies, government protection, etc).

3. How do you choose the right markets to compete in?

4. How to you make sure the interests of all suppliers are aligned with your own?

 

see more in our international strategy section and supply chain discussion

 

 

 

Some "classic" strategies worth studying;

 

 

Four generic strategies (classics)

 

  • Low cost strategy - good, but remember, there can only be ONE lowest cost provider.   focus = low cost & wide range of buyers
  • Broad differentiation strategy - focus = differentiation  & wide range of buyers
  • narrow differentiation strategy -  focus = differentiation  & narrow range of buyers
  • Focused low cost strategy - focus = low cost &  narrow range of buyers  ----this one is the most difficult to achieve.  Its difficult because you normally can not differentiate and focus on a narrow niche market and at the same time get low costs.  This is only possible now due to new technologies and operations.

 

Other interesting strategies:

 

1. Growth / expansion strategy

 

define, size, and prioritize the stages in which they need to engage the market in order to enable them to really focus on their financial, human and management resources.  Starbucks, for example, pursued a textbook approach to strategy; growing from a strong core defended by a powerful brand, Value Chain control, and scale, into adjacent markets, like food, music, and events. All of which led it directly and deeply into strategy decay – by robbing it of purpose, vision, and empathy.  see more in international expansion

 

2. give away for free what others are trying to charge for:  the Google model

 

Google's move to grab wireless spectrum and open it up for free access is straight out of the textbook : commoditizing complements to shift value away from them to your own product.

 

 

3. Ownership of the standard: the Microsoft model

 

Microsoft, perhaps the ultimate hardball player, focused on ownership of a standard at all costs – and is now struggling to compete in an industry whose fabric has been riven by open standards and open code: its own domination games have returned, like the ghost of strategy past, to haunt it.

 

 

Creating Value for the customer

 

Value Chain Analysis:   R&D -> Design of Products -> Production -> Marketing -> Distribution -> Customer Service

 

How do companies add value? they add value through their R&D, design of products, production, marketing, distribution, and customer service. Managers in all of these value chain departments add value. Each of them are customers of the cost accountant.

 

How do managers implement strategy? by making planning decisions and control decisions.

 

 

Operations as a source of competitive strategy:

 

 

New ways to manage and organize production and consumption lets today’s new market leaders perceive, think, judge, and execute (vastly) more efficiently, effectively, and productively than the norm, leading directly to new sources of advantage.  A good example, is Zara and their unique operating model of "fast fashion"   see Operations

 

 

Product Life Cycle

 

When discussing strategy, it is essential to first understand where you sit in the product life cycle.  Then, use the BCG Matrix...The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business  unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product's market grows the better it is for the company.

 

 

Five Forces of Competition

 

Developed by Michael Porter, this analysis summarizes basic strategies in simple summaries:  see 5 forces analysis

 

 

Common Strategy Concepts

 

 

 

  • the key is to align your interests, strengths, with opportunities
  • market flexibility (customization) is good if you are primarily focused on Revenue generation. On the other hand, if you are looking to gain efficiency, you should focus on global scale. Focusing just on opportunities is like looking just at the potential for revenue generation, but not recognizing how this can effect your costs (threats).
  • Use SWOT analysis to find out what is your competitive stance.
  • Strategy has 3 elements - issues, resources & environment
  • long run plans are defined by the value statement, mission statement & give your company a sense of direction.
  • medium term plans are defined by goals and objectives, and give you a sense of impact
  • short term plans are tactics which give you a sense of solution
  • Ansoff matrix - compare markets vs. products (current vs. new)
  • Strategy is about finding a means to achieve and ends (machieavlli)
  • Or, strategy is abot resonding to a challenge (problems vs opportunity)
  • Or, strategy is a systematic array of ideas and actions.

 

 

Conducting Market Research

 

PESTE analysis  PEST analysis

 

 

Essential question:  what is more important (1) Financial Objectives, or (2) strategic objectives?

 

* without a strong financial base, its impossible to achieve the long term strategic objectives, but

* short term pressures for meeting next quarters performance measures often distracts managers from thinking strategically long term.

* this is often the justification for Private Equity rather than publically traded companies on stock markets.

* the long term goal should be to build a strong competitive position that will benefit shareholders in the long run, even if that means missing short term financial goals.

 

 

 

Different levels of Business Strategy development:

 

  1. top level - business strategy - by executive level managers
  2. mid level - functional strategy - by functional managers
  3. low level - operations strategy  - by operational managers

 

 

Strategy - Value Creation (Models & Methods A-Z)

 

 

 

 

 

 

 

Growth Issues & HR

 

How will google keep its edge in Innovation as it grows?  How important is Human Resources to the strategy of the firm?

 

Google facing employee overload — Google may be overstocking itself with new employees. Jordan Rohan, an RBC Capital Markets analyst, told News.com, “Half the company has been hired in the last 12 months. That’s chaotic. The new employees find it difficult to figure out how to get things done.” Facing an employee glut, Google may not have the corporate expertise to structure the next for their new worker bees.

Simultaneously, Google is undergoing a talent drain, with some of its best and brightest striking out on their own. (The most recent: Salman Ullah.) Even John Doerr, an original Google investor and board member, is worried that the company’s culture may not survive the changes. Larger, more lumbering and less talented by the day: Is Google finally ready to become a regular corporation?

 

 

 

 

 

 

 

 

 

 

more

 

http://www.answers.com/topic/strategy

 

  • see Joseph Stiglitz
  • Ted Levitt
  • Porter - competitive strategy - (a) cost advantage based on scale economics (volume) or productivity (efficiency), - (b) differential advantage based on innovation (R&D, product intro), service, or on tailor made (adaptability, versatility)
  • SWOT analysis - strengths & weaknesses are Internal factors that you can control, use, optimize -- opportunities and threats are external factors that you need to understand and adapt.

 

 

Implementation of Strategy

 

turn strategy into action - an "action plan". need input from customers, and estimates about how competitors will react. Chose right managers to implement. Make sure there is enough cash.

 

 

 

Resource theory of a Firm

 

 

 

 

 

 

Strategy examples

 

 

Cost Strategy

 

cost accounting provides the details necessary for a manager to determine the sources of their competitive advantage. For example, a cost accountant will provide the managers with data to show the cost and price levels that a company can charge relative to their competitors. The analysis can be used to decide whether a company can add premium features to a product, and charge premium prices. They also help to determine who are the most important customers, and how sensitive they are to price increases, and to help managers analyze competitors products in the marketplace. They help managers to determine whether or not they have adequate cash to fund the new strategy, or if they need to go through fund raising efforts. This area of cost accounting is often referred to as "strategic cost management".

 

 

 

Furniture company strategy-

 

In this section, I will lay out my thoughts about a viable Furniture company strategy

 

 

 

strategy in the travel industry

 

For more information about the hospitality industry strategy,  I would recommend you to free download "Hospitality 2010" report by Deloitte that covers 4 key Hospitality industry trends. (Brand, Emerging Markets, Human Assets, Technology) :

 

 

 

 

 

Recommended further Reading

 

  1. Harvard Business Review - journal for popular managment concepts
  2. Strategic Management Journal
  3. Journal of Business Strategy
 

 

 

 

 

 

 

Digg!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The resource-based theory of the firm has recently been the object of much attention (Amit and Schoemaker, 1993; Barney, 1991; Conner, 1991; Grant, 1991; Hansen and  ernerfelt, 1989; Nelson, 1991; Nelson and Winter, 1982; Penrose, 1959; Wernerfelt, 1984). In a resource-based perspective, attention is focused on resources, organizational capabilities, the accumulation process and the resulting sustainable competitive advantage.   The more the resources are idiosyncratic, i.e. firm-specific, the less they can be acquired from the market. This leads to the building of internal capabilities which bring about creasing degrees of heterogenity among firms.  Together, resources and capabilities create strategic assets (Amit and Shoemaker, 1993) which are firm-specific and thus difficult to trade on the market and to imitate.

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