Week 1 Notes Business Policy
Week 1 Notes Business Policy BUS 4853
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This 11 page Class Notes was uploaded by Whitney Smith on Tuesday February 2, 2016. The Class Notes belongs to BUS 4853 at Mississippi State University taught by Hanqing Fang in Spring 2016. Since its upload, it has received 39 views. For similar materials see Business Policy in Business at Mississippi State University.
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Date Created: 02/02/16
2/3/16 This Chapter’s topics 1, what is strategy Lesson 1 What is 2, what is strategic management process Strategy? 3, mission and objective 4, external and internal analysis 5, strategic choice and strategic implementation 6, competitive advantage History of Disney link Walt Disney Company What have been Disney’s recent strategies? 1984 Profits: $242 Million What strategies have worked out well for Disney in its history? And why? Theme Park Operations: 77 percent of profits Group questions, 5 mins Consumer Products: 22 percent of profits Filmed Entertainment: 1 percent of profits 1 2/3/16 Walt Disney Company Definition of Strategy Hired Michael Eisner – 1984 link Strategy: A firm’s theory about how to gain 1. Increased admission prices at theme parks 1984 - $186 m 1989 - $787 m competitive advantages 2. Focused on movie studios (character development) 1984 - $2.42 m 1994 - $845 m Eisner’s theory may have been: 3. Diversified into television (ABC), hotels, retail stores, People will pay a premium price for extraordinary sport team, cruise line, publishing, consumer entertainment. We have the necessary resources to create extraordinary entertainment. Therefore, let’s products, licensing, etc. redeploy our resources in a different way and offer something extraordinary to people. Market Cap*: 1984 = $2 billion 1994 = $28 billion *(share price) x (# of shares outstanding) Definition of Strategy The Strategic Management Process Strategy: A firm’s theory about how to gain competitive advantages External Analysis 1, it is a theory often held by members in the dominant Strategic Strategy Competitive coalition and Top Management Team (TMT) Mission Objectives Choice Implementation Advantage 2, it is often built upon a number of assumptions regarding the external and internal conditions 3, its main purpose is to gain competitive advantage 4, the remaining question is by which process that a firm Internal Analysis reaches its strategy, or how a strategy is made 2 2/3/16 Mission Mission Railroads had a narrow statement of their Mission – long term purpose • Most firms have mission statements, which are business “We are in the railroad written missions. They often define the businesses the firm will be in, how it will compete in those business” businesses, and/or firms’ core values. • Led to narrow competition • Since most firms have missions, most probably • Ignored larger trends/ other do not affect performance trans. modes • An inappropriate mission might harm performance What would have been a better vision for railroads? Mission The Strategic Management Process Mission of TodayTec External – Manufacturing high quality wax barcode Analysis ribbons coupled with the most attractive pricing in the industry (1999) Strategic Strategy Competitive Objectives Choice ImplementatioAdvantage – providing our valued customers the best in the ribbon industry coupled with the most attractive pricing in the industry (2005) Internal Analysis – Providing our valued customers the best in the ribbon industry (2012) Mission 3 2/3/16 Objectives Objectives • Tactics that fulfill mission Specific; short time horizon Objectives: • specific, measurable targets • How do you know you reach goal? Measures • the things a firm needs to ‘do’ to achieve • Objectives must be (MSART): its mission Measurable Specific – what exactly needs to be done • can influence other elements in the strategic Appropriate (consistent to mission / vision) management process Realistic Timely (deadline) Ex: Sales 5% up / month The Strategic Management Process • Mission versus Objective • Long-term versus short-term? External Analysis • General versus Specific? Mission Objectives Strategic Strategy Competitive • Mission determines objective or vice verse? Choice ImplementationAdvantage Internal Analysis 4 2/3/16 The Strategic Management Process The Strategic Management Process External and Internal Analysis External Systematic Examination Analysis of the Environment Mission Objectives Strategic Strategy Competitive External Analysis Internal Analysis Choice Implementation Advantage • human resources • competitors (knowledge) Internal • demographics • manufacturing Analysis • social trends abilities • technology The Strategic Management Process The Strategic Management Process Strategic Choice External Internal External Analysis Analysis Analysis Strategic Mission Objectives SChoiceic ImplementationCAdvantagee Choice Business Corporate Level Level Internal Analysis • positioning • which a business businesses? 5 2/3/16 The Strategic Management Process The Strategic Management Process Strategy Implementation Strategy Implementation – Putting organizational policies and practices into place to support the • how strategies are carried out strategy. • who will do what • organizational structure • organizational structure and control • formal and informal control systems • who reports to whom • employee compensation policies • how does the firm hire, promote, pay, etc. The Strategic Management Process The Strategic Management Process Strategy Implementation Which one is better? • every strategic choice has strategy implementation Guy of ideas (lots of opportunities) or guy of implications actions (better implementations) • strategy implementation is just as important as strategy formulation (Group questions. 5 minute) A Strategy Is Only As Good As Its Implementation 6 2/3/16 The Strategic Management Process is Competitive Advantage & an Intended process The Strategic Management Process Emergent vs. Intended Strategies link External Analysis • the strategic management process leads managers to intended strategies Mission Objectives Strategic Strategy Competitive Choice Implementation Advantage However, • conditions often change or new information Internal Analysis becomes available • managers respond and adopt emergent strategies Strategic Management Process for Emergent Strategies Realized strategies are a bit of both External Missions Internal Analysis and Goals Analysis Intended Realized Strategy Strategy Strategic Choice Does It Fit? EMERGENT STRATEGY Unrealized Emergent Strategy Strategy Organizational Grassroots 7 2/3/16 The Strategic Management Process Competitive Advantage Competitive Advantage • Remember: Strategy was defined as the firm’s (managers’) theory about how to Definition: the ability to create more economic value than competitors gain competitive advantage. External •Competitive Advantage is the ability to Analysis Strategic Strategy Competitive create more economic value than competitors . Mission Objectives Choice Implementation Advantage Internal •Economic Value is the difference between Analysis customers’ perceived value and the full • all other elements of the strategic management economic costs of creating the product or process are aimed at achieving competitive advantage service. Competitive Advantage Competitive Advantage Measuring Competitive Advantage Measuring Competitive Advantage Superior Economic Performance Is Viewed as Two Classes of Measures: Evidence of Competitive Advantage 1) Accounting Measures • it is rather easy to see the evidence of • ROA, ROS, ROE, etc. that exceed industry competitive advantage averages • measuring the source of the advantage per se 2) Economic Measures is typically impossible • earning a return in excess of the cost of capital • it’s difficult to ‘measure’ technology 8 2/3/16 Competitive Advantage Competitive Advantage The Ability to Create More Economic Two Generic Strategies Value Than Competitors 1) Differentiation • there must be something different about a firm’s • people choose the firm’s output over others’ offering vis-à-vis competitors’ offerings • people are willing to pay a premium • if all firms’ strategies were the same, no firm Example: Nordstrom would have a competitive advantage 2) Cost leadership vis-à-vis competitors • competitive advantage is the result of doing • lower costs of production/distribution something different and/or better than competitors Example: Wal-Mart Competitive Advantage MC: Marginal Cost Assumptions behind perfect competition ATC: Average Total Cost (firms are “price takers”) Economic Models MR: Marginal Revenue Infinite buyers and sellers – Infinite consumers with the Imperfect Competition Perfect Competition willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to ATC ATC supply the product at a certain price. P MC MC Zero entry and exit barriers – It is relatively easy for a P D business to enter or exit in a perfectly competitive market. D Perfect factor mobility - In the long run, factors of production MR are perfectly mobile allowing free long term adjustments to changing market conditions. Q Q (D=MR=Price) Perfect information - Prices and quality of products are CompetitiveAdvantage assumed to be known to all consumers and producers. 9 2/3/16 Assumptions behind perfect competition (firms are “price takers”) Competitive Advantage Zero transaction costs - Buyers and sellers incur no costs in making an exchange (perfect mobility). Temporary Competitive Advantage Profit maximization - Firms aim to sell where marginal costs • competitive advantage typically results in high profits meet marginal revenue, where they generate the most profit. • profits attract competition Homogeneous products – The characteristics of any given market good or service do not vary across suppliers. • competition limits the duration of competitive advantage in most cases Constant returns to scale - Constant returns to scale ensure Therefore, that there are sufficient firms in the industry • most competitive advantage is temporary • competitors imitate the advantage or offer something better Competitive Advantage Competitive Advantage Sustainable Competitive Advantage Competitive Parity Some competitive advantages are sustainable if: • the firm’s offerings are ‘average’ • competitors are unable to imitate (or duplicate) • people do not have a preference for the firm’s offering the source of advantage • competitors are unable to substitute the source • the firm does not have a cost advantage over others of advantage in another way. Of course, • some things that may lead to competitive parity may • in time, even sustainable competitive advantage still be critical to success (e.g., telephones) may be lost 10 2/3/16 Competitive Advantage Competitive Advantage Competitive Disadvantage Competitive Advantage Economic Returns • people may have an aversion to the firm’s offering Advantage Above Normal • the firm may have a cost disadvantage • exceeding expectations Parity Normal • a firm may have outdated technology/equipment • meeting expectations • a firm may have a negative reputation Disadvantage Below Normal Example: K-mart • failing expectations Why You Need to Know About Strategy • A solid understanding of strategy concepts will help evaluate firms you might want to work for: • Is this a good fit? • Your knowledge could help you win the job. • You will perform better on the job because you will understand how what you do fits into the “big picture” • You might be (indeed, you ARE) a strategic manager 11
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