Chapter 2

1. Chapter 2 Strategic Management and the Entrepreneur

2. Strategy necessary for success • Vital and often over-looked • Too often entrepreneurs launch business without a strategy – to compete • Entrepreneurs often find developing strategy dull and necessary. • Without strategy may succeed, but when competition stiffens…

3. Today’s global competitive environment • Co not thinking and acting strategically – vulnerable • Every business exposed to rapidly changing competitive environment. • Biggest change – from financial to intellectual capital. Knowledge is critical factor-of-production. • intellectual capital – source of competitive advantage • Knowledge revolution will spell disaster for co.s – no longer the normal way of doing things. • Strategic management involeve developing a game plan to guisde co.s to accom;lish vision, mission, and goals.

4. Building a competitive advantage • The goal of strategic plan is to create a competitive advantage • A key business success is a unique competitive advantage. • Biggest pitfalls for many entrepreneurs – failed to differentiate their co with others. • Co gains sustainable competitive advantage through ability to develop core competencies • Core competencies – superior quality, customer services, innovation, team-building… • Small co has natural adv – fewer product, better defined customer base, specific geographic market

5. Building a competitive advantage (cont) • Strategic management may come naturally to small business rather than larger business • Strategic mngt increase small firms’ effectiveness • Strategic mngt procedure should include: - relatively short planning horizon (2yrs) - informality and not overly structured - participation of employees & outside parties to improve reliability and creativity - not beginning with setting objective – may interfere with creative process - strategic thinking, not just on planning

6. 9 Steps of strategic planning • Develop a clear vision & translate it into a meaningful vision • Assess the co’s strengths and weaknesses • Scan the environment for opportunities and threats facing the business • Identify the key factors for success • Analyze the competition • Create company goals and objectives • Formulate strategic options & select the appropriate strategies • Translate strategic plans into action plan • Establish accurate control

7. Step 1: Develop a clear vision & translate it into a meaningful vision • Vision – the dream • Mission statement – what business am I in? • Elements of mission statement 1. What are the basic values and belief? 2. Who are the company's target customers 3. What are our core product and services 4. How can we better satisfy those needs & wants 5. Why should customers do business with us

8. Step 2: Assess the company’s strengths and weaknesses • Strength – positive internal factors that contribute to the accomplishment of mission, goals and objectives. • Weaknesses – negative internal factors that inhibit the accomplishment of mission, goals and objectives • Strength should originate from core competencies.

9. Step 3: Scan the environment for opportunities and threats • Opportunities – - are competitors overlook a niche in the market - is there better way to reach customer - have environmental change create new market • Threats – - New competitors entering local market - government new ruling - economic recession - Rising interest rate - technological advance make co’s product obselete

10. Step 4: Identify the key factors for success • Controllable variables that determine relative success of a business • Identify and manipulating these variable to gain competitive advantage • Focus effort to maximize co’s performance on these key factors • Those understand their key success factor tend to be leaders and vice versa • Key succes factor is relationship between Controllable variables (e.g. plant size, size of sale force, business location, distribution system etc)

11. Step 4: Identify the key factors for success (cont) • Sources of competitive advantage - manufacturing cost per unit - distribution cost per unit - development cost per unit Others (less tangible) - product quality - service offered - store location - customer credit

12. Step 5: Analyze the competition • Keeping tabs on rival movement through intelligent program is vital • The goal of competitive intelligent program: - avoid surprise of competitors strategies - identifying potential new competitors - anticipate rival next move • Competitor analysis -

13. Step 5: Analyze the competition (cont) • Collect information about competitors - read industry trade publication - ask questions of customers and supliers - talk to employees, sales rep and agents - attend trade shows Knowledge Management the practice of gathering, organizing and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position.

14. Step 6: Create company goals and objectives • Goals – broad, long range attributes that a business tend to accomplish. • Objective – specific targets of performance profitability, productivity, growth, efficiency, markets, physical facilities….

15. Step 7: Formulate strategic options & select the appropriate strategies • Strategy – a road map of action the entrepreneurs draws up to fulfill the firm’s mission, goals and objectives • Porter’s three strategic option 1. Cost leadership – lowest cost producer 2. Differentiation – build customer loyalty through goods or services that unique 3. Focus – Select one segment, identify needs, wants and interest – serve them well

16. Step 8: Translate strategic plans into action plan • To make the plan workable – divide plan into project: - Purpose – what to accomplish - Scope – which are in the company involved - Contribution – how this project related to overall strategic plan - Resource requirement – what human and financial resource needed - Timing – which schedules and datelines to ensure completion

17. Step 9: Establish accurate control • Actual performance match stated objective? • Some companies develop balance score card. Single measure is dangerous. • Customer perspective – how they judge us. • Internal business perspective – that give greatest impact on customers satisfaction. • Innovation and learning perspective- improve • Financial perspectives – how do we look to shareholders – profitability, growth and shareholder value.