WELLCOME TO Strategy and Strategic Management

1. WELLCOME TOStrategy and Strategic Management School of Economics and Management Tongji University 同济大学经济与管理学院 俞秀宝

2. Reference Books - Arthur A. Thompson, Jr. A. Strickland Ⅲ (1998), Strategic Management: Concepts and Cases (12th edition), Mechanical Industry and McGraw-Hill - David A. Aaker (1998), Strategic Market Management (fifth edition), John Wiley & Sons, Inc. - Gerry Johnson and Kevan Scholes (1998), Exploring Corporate Strategy (third edition, in Chinese), Prentice Hall - Fred R. David (1998), Strategic Management (Six edition, in Chinese), Economics Science Press - Cliff Bowman (1997), STRATEGIC MANAGEMENT, Press of China People’s University and Prentice Hall 同济大学经济与管理学院 俞秀宝

3. Unit 1 Introduction Objects are an organization’s performance targets – the results and outcomes it wants to achieve. Strategic objects Relate to outcomes that strengthen an organization’s overall business position and competitive vitality. 同济大学经济与管理学院 俞秀宝

4. Strategy • Is a continuous, interactive process aimed at keeping an organization as a whole appropriately matched to its environment • (Peter, 1988) • A company’s strategy consists of the competitive efforts and business approaches that managers employ to please customers, compete successfully and achieving organizational objects • (Thompson & Strickeland, 2003) 同济大学经济与管理学院 俞秀宝

5. Strategy is concerned with • the long term direction of an organization • The scope of an organization’s activities • achieving advantage over competition • matching activities to resources and capabilities • the value of power holders • major resources implications • influence over operation decisions • (Johnson & Scholes, 2002) • And in China • - ……… 同济大学经济与管理学院 俞秀宝

6. Levels of Strategies Corporate HQ Corporate strategy Competitive strategy SBU A SBU B SBU C Manufacturing Marketing Accounting HR …. Functional strategies 同济大学经济与管理学院 俞秀宝

7. Content of strategy at different levels corporate Portfolio and resource allocation SBU How to compete Function Product, market Plans… 同济大学经济与管理学院 俞秀宝

8. Formulating strategy Resource and capabilities strategy insights Market understanding Major environment influences Competitive analysis 同济大学经济与管理学院 俞秀宝

9. Schools of Strategy Formation • - Planning School • - Designing School • - Political School • - Culture School • - Learning School • - Fate School • - ….. 同济大学经济与管理学院 俞秀宝

10. Classical model of strategic planning Internal analysis Organizational Strengths & weaknesses Core (distinctive) Competencies Managerial values Personal ambitions…. Mintzberg, 1994) External appraisal Industry attractiveness Threats & opportunities Key successful factors Social responsibilities …… Strategy formulation Strategy options evaluations 同济大学经济与管理学院 俞秀宝

11. Strategy perceived and realized Intended strategy Designed strategy Realized strategy Emergent strategy Unrealized strategy 同济大学经济与管理学院 俞秀宝

12. Who Performs Production Marketing Human resource Other key department • CEO • Vice presidents • Major org. units • Diversified companies: • CEO • Business units • Department heads • Managers of major operating units • employees 同济大学经济与管理学院 俞秀宝

13. Unit 2 Vision and Mission • What is a strategic vision? • Why have a vision or mission? • Mission statement - how to define 同济大学经济与管理学院 俞秀宝

14. What is a Strategic Vision Management’s views and conclusions about: - organization’s future course - the customer focus - the market position it should try to occupy - business activities What kind of company we are trying to create? 同济大学经济与管理学院 俞秀宝

15. Why Have a Vision or Mission • A prerequisite of effective strategic leadership • - forming a strategic vision is • not an exercise to create a catchy slogan • thinking strategically about org future • putting the company on a path that management is deeply committed to • - Chart a company future 同济大学经济与管理学院 俞秀宝

16. Mission Statement • The mission statement sets out the organization’s ground rules to its approach to doing business. • A good statement usually address the following: • a statement of beliefs and values • the products or services that the firm will sell • the markets within which the firm will trade • how those markets will be reached • the technologies that the firm will use • attitudes to growth and financing 同济大学经济与管理学院 俞秀宝

17. Pepsi Co’s Mission “ Is to increase the value of our share holders’ investment. We do this through sales growth, cost control, and wise investment resources. We believe our commercial success depends upon offering quality and value to our consumers; providing products that are safe, wholesome, economically efficient and environmentaly sound; and providing a fair return to investors while adhering to the highest standards of integrity”. 同济大学经济与管理学院 俞秀宝

18. Vision of Amersham PK “To build our position as a leading provider of products and technologies to enable the molecular medicine revolution, in which disease will be better understood, diagnosed sooner and treated more effectively”. 同济大学经济与管理学院 俞秀宝

19. Tongji’s Vision 努力建设一所文理交融、医工结合， 科技教育与人文教育协调发展的研究型、 多功能的一流的现代化大学 同济大学经济与管理学院 俞秀宝

20. Financial Objects vs Strategic Objects • Financial objects • Growth in revenues • Growth in earnings • Higher dividends • Wider profit margins • Higher returns • Attractive EVA performance • Strong bond and credit rating • Bigger cash flows • A rising stock price • A more diversified revenue base • Stable earning during recession • Strategic objects • A big market share • Quicker design-to-market times than rivals • Higher product quality than rivals • Lower costs relative to key competitors • Broader pr more attractive product line than rivals • A stronger reputation with customers than rivals • Superior customer service • Wide geographic coverage than rivals • Recognition as a leader in technology and/or product innovation 同济大学经济与管理学院 俞秀宝

21. Establishing Objects • Setting objects: convert the strategic vision and directional • course into specific performance target. • Objects: represent a managerial commitment to achieving • specific performance targets within a specific time frame. • Experience: “companies whose managers set objects for • each key result typically outperform companies whose • managers exhibit good intentions, try hard, and hope for • the best”. 同济大学经济与管理学院 俞秀宝

22. Unit 2 Activity 为你选定的一家企业撰写一个企业 愿景或使命。 同济大学经济与管理学院 俞秀宝

23. Unit 3 Industry and competitive analysis Managers are not prepared to decided on a long term direction or a strategy until they have a keen understanding of the company’s strategic situation – the exact nature of The industry and competitive conditions it faces and how These conditions match up with its resources and capabilities. Thompson & Strickland (2003) 同济大学经济与管理学院 俞秀宝

24. Sources of profit Microeconomic context Industry conditions Firm resource capabilities Resource Based view Industry Based view Industry attractiveness Company performance 同济大学经济与管理学院 俞秀宝

25. A company’s Macro-environment The economy Registration & regulations suppliers substitutes company Technology Buyers rivals Social and lifestyles New entrants Population demographics 同济大学经济与管理学院 俞秀宝

26. PESTD Analysis • Political • - political parties and alignment at local, national & regional trading-block level • legislation, regulation, taxation, employment law • Relations between government and the organization • Government ownership of the industry and attitude • to monopolies and to competition • Economic resent and future • Total GDP and GDP per head • Inflation, Interest rates, Unemployment • Disposable income and consumer expenditure • Currency fluctuations & exchange rate • Investment (from state, private and foreign firms) • Key material unit cost (energy, transport, telecommunication, …) • (Lynch, 2003) 同济大学经济与管理学院 俞秀宝

27. PESTD Analysis • Social and culture • - shift in value and culture, changes in lifestyle • - Attitudes to work and leisure, “green environment” issues • Education and health • Distribution of incomes • Technology • rate of adoption of new technologies • Expenditure on R&D by rivals • New patents and products • (Lynch 2003) • Demogrphics • - age, income, education, geographic lacation 同济大学经济与管理学院 俞秀宝

28. Environment Analysis- key issues • Political • what changes in regulation are possible? What will be their impact be? • What tax or other incentives are being developed that might affect strategy? • what are the political risks operating in a government jurisdiction? • Economic • what are the economic prospects and inflation outlets for the countries in which • the firm operates? How will they affect strategy? • Social and culture • what are the current or emerging trends in lifestyles, fashions, and other • components of culture? Why? What are their implications? • Technology • To what extent are existing technologies maturing? • What technological development or trends are affecting or will affect the industry? • Demographics • -what demographic trends will affect the market size or sub-market of the industry? • - what trends represent opportunities and threats? 同济大学经济与管理学院 俞秀宝

29. Customer Analysis • Segmentation – Strategic Business Units, definition • How should segments be defined – 5-10 variables and • firm history • Questions need to be asked for segmentation • Customer motivations – what lies behind their purchase • decision • Unmet needs – represents the opportunities for firms 同济大学经济与管理学院 俞秀宝

30. Competitor Analysis • Identify your competitors • Customer choices – from your customers point of view • Product approaches – who is offering similar products • Strategic Group approach • Understanding competitors • Size, growth, profitability • Current and past strategies • Cost structure • Image, positioning, culture • Competitors strengths and weaknesses 同济大学经济与管理学院 俞秀宝

31. What are the industry’s dominant economic traits? • Market size • Scope of competitive rivalry • Market growth and where the industry is in the growth cycle • Number of rivals and their relative sizes • The number of buyers and their relative sizes • The prevalence of backward and forward integration • The pace of technology change • Cost structure • Whether rivals’ product or services are highly or weakly differentiated or identical • Whether industry profitability is above/below par……….. 同济大学经济与管理学院 俞秀宝

32. Learning curve Cost Per unit $ 1 70 cents 35 cents Cost reduction 1 2 4 8 million units Accumulated production 同济大学经济与管理学院 俞秀宝

33. Industry structure Perfect competition - many equal suppliers of similar products Monopolistic competition - many sellers with each slightly differently Oligopoly - a few large suppliers Monopoly - one dominant seller 同济大学经济与管理学院 俞秀宝

34. Industry structure and advantages Perfect competition Monopoly Differentiation advantages Considerable very few Monopolistic competition Oligopoly Considerable very few Cost advantages 同济大学经济与管理学院 俞秀宝

35. Stages of industry evolution Introduction Maturity Decline Growth 同济大学经济与管理学院 俞秀宝

36. Industry evolution and competition Introduction growth maturity decline Demand high income enlarged repeating clever consumers Technology improve stable new prod decline Products low quality high quality standard low quality Manufacture high cost mass production more table over capacity enlarge Trade some export large export export dec no exp small import import inc large inp Competition few companies entry price compt out many many out 同济大学经济与管理学院 俞秀宝

37. Industry evolution Innovating country Other industrialized countries Developing countries production Unit produced New product maturing product standardized product 同济大学经济与管理学院 俞秀宝

38. Strategic groups 奥迪 price/quality/image 别克 本田雅阁 • - Firm in an industry following the same or a similar strategy along key dimensions • - Variables • price/quality/image • geographic coverage • market shares 帕萨特 桑塔纳 富康 捷达 夏利 奥托 悦达 Car industry in 2000 low market shares 同济大学经济与管理学院 俞秀宝

39. Common Types of Key Successful Factors • - The essential requirements for competing in an industry • Technology-Related KSFs • Manufacturing-Related KSFs • Distribution-Related KSFs • Marketing-Related KSFs • Skill-Related KSFs • Organizational Capacity • Other Types 同济大学经济与管理学院 俞秀宝

40. Industry analysis – key issues • Where is the industry now in terms of its evolution? • what are the most important issue? • where it will be ? And how it might take to go there? • what are the implications to the firm? 同济大学经济与管理学院 俞秀宝

41. Competitive analysis • competitive force: pressures to company’s profitability • - Five force model • Discover the main sources of competitive pressure and how strong each competitive force is? • a key analytical tool to analyze whether an industry is attractive or not 同济大学经济与管理学院 俞秀宝

42. What is competitive like and how strong are each of the competitive forces? SUBSTITUTES Win buyers Ability to exercise bargaining power and leverage Bargaining power and leverage SUPPLIERS OF KEY INPUTS COMPETING SELLERS BUYERS Threat of entry of new rivals POTENTIAL NEW ENTRANTS 同济大学经济与管理学院 俞秀宝

43. Rivalry intensity is likely to be high when • the number of competitors increases and as competitors • become more equal in size and capabilities • the demand for the product is growing slowly • industry conditions tempt competitors use price cuts etc to boost • unit volume • customers’ costs to switch brands are low • one or more competitors are dissatisfied with market position • exit cost is high 同济大学经济与管理学院 俞秀宝

44. Buyers are like to have higher bargaining power when • low switch cost • number of buyers are small • a customer is particularly important to a seller • they are well informed at sellers’ products, price, costs • buyers pose a credible threat of integrating backward • buyers have discretion in whether and when they purchase • the products 同济大学经济与管理学院 俞秀宝

45. Supplier power tends to be higher if • number of suppliers are small • less substitutes available in the market • supplier’s products are key to buyers • significant switch cost for buyers • supplier poses a credible threat of forward integration • (porter, 1980) 同济大学经济与管理学院 俞秀宝

46. Entry barriers of potential entrants • Government regulations and policies • economics of scale • learning and experience curve effects • technology • Brand preference and customer loyalty • capital requirement • distribution channels • …… 同济大学经济与管理学院 俞秀宝

47. Competitive pressures from substitutes • attractive price from substitutes • better quality, performance, and other attributes • low switching cost 同济大学经济与管理学院 俞秀宝

48. Strategic implications of five-force As a rule, the stronger the collective impact of competitive forces, the low the combined profitability of participant firms. 同济大学经济与管理学院 俞秀宝

49. Unit 4 Case Study 阅读三星案例，并讨论该公司是否应该 投资主题公园项目？为什么？ 同济大学经济与管理学院 俞秀宝

50. Unit 5 Evaluating Company Resources and competitive Capabilities • - How well is the company’s present strategy working? • - What are the company’s resource strengths and weaknesses and • its external opportunities and threats? • - Are the company’s prices and costs competitive? • How strong is the company’s competitive position relative to its • rivals? • What strategic issues does the company face? • SWOT analysis, shareholder value analysis, value chain analysis, strategic cost analysis and competitive strength assessment 同济大学经济与管理学院 俞秀宝