Management: A Practical Approach, Chapter 6: Essay – Flashcards

Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means, according to Porter, "performing different activities from rivals, or performing similar activities in different ways." Three key principles underlie strategic positioning: Strategy is the creation of a unique and valuable position, which emerges from three sources: few needs, many customers - broad needs, few customers - or broad needs, many customers. Strategy requires trade-offs in competing. A company has to choose not only what strategy to follow but what strategy not to follow. Strategy involves creating a "fit" among activities. "Fit" has to do with the ways a company's activities interact and reinforce one another.

The strategic management process involves five steps: 1. Establish the mission and vision. 2. Establish the grand strategy. 3. Formulate the strategic plans. 4. Carry out the strategic plans. 5. Maintain strategic control. The feedback loop comes out of strategic control. Through control, managers monitor progress and take corrective action early and rapidly when things go awry, returning to earlier steps to fix problems.

There are the three common grand strategies: 1. A growth strategy is a grand strategy that involves expansion—as in sales revenues, market share, number of employees, or number of customers or (for nonprofits) clients served. Examples: It can improve an existing product or service to attract more buyers. It can increase its promotion and marketing efforts to try to expand its market share. It can expand into new products or services. It can acquire similar or complementary businesses. 2. A stability strategy is a grand strategy that involves little or no significant change. Examples: It can go for a no-change strategy (if, for example, it has found that too-fast growth leads to foul-ups with orders and customer complaints). It can go for a little-change strategy (if, for example, the company has been growing at breakneck speed and feels it needs a period of consolidation). 3. A defensive strategy, or a retrenchment strategy, is a grand strategy that involves reduction in the organization's efforts. Examples: It can reduce costs, as by freezing hiring or tightening expenses. It can sell off (liquidate) assets—land, buildings, inventories, and the like. It can gradually phase out product lines or services. It can declare bankruptcy.

Putting strategic plans into effect is strategy implementation. Strategy implementation is the stage of the strategic management process where managers determine possible roadblocks within the organization and see if the right people and control systems are available to execute the plans. Resistance may be encountered when people feel the plans threaten their livelihoods or their influence. This is especially true when plans are being implemented quickly, as delays (a form of resistance) can easily be constructed and these delays may heavily damage a plan. Thus, top managers can't just announce the plans

Competitive intelligence means gaining information about one's competitors' activities so that one can anticipate their moves and react appropriately. Gaining competitive intelligence isn't always easy, but there are several avenues and most of them are public sources including (1) the public prints and advertising, (2) investor information like corporate annual reports, and (3) informal sources such as trade show gossip and information from company salespeople.

SWOT analysis, also called a situation analysis, looks at internal strengths and weaknesses and external opportunities and threats. The internal environment looks at organizational strengths—the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission, and organizational weaknesses—the drawbacks that hinder an organization in executing strategies in pursuit of its mission—are also part of the internal environment. The external environment includes organizational opportunities—environmental factors that the organization may exploit for competitive advantage. It also includes organizational threats—environmental factors that hinder an organization's achieving a competitive advantage.

SWOT analysis—also known as a situational analysis—is a search for the strengths, weaknesses, opportunities, and threats affecting the organization.Examples of a firm's strengths and weaknesses: work processes, organization, culture, staff, product quality, production capacity, image, financial resources and requirements, service levels, other internal matters. Examples of a firm's opportunities and threats: market segment analysis, industry and competition analysis, impact of technology on organization, product analysis, governmental impacts, other external matters (see Figure 6.2).

Forecasting is developing a vision or projection of the future, which is a necessary component of strategic planning. The two types are trend analysis and contingency planning. Trend analysis is a hypothetical extension of a past series of events into the future. Contingency planning is the creation of alternative hypothetical but equally likely future conditions.

Competitiveness within a particular industry originates in the five primary competitive forces in the firm's environment: 1. Threats of new entrants: for Kraft, new entrants might be store brands or Annie's. 2. Bargaining power of suppliers: companies without multiple suppliers are at the mercy of the one. 3. Bargaining power of buyers: customers who use the Internet to shop around are more able to negotiate a better price. 4. Threats of substitute products or services: for big oil companies, firms making ethanol provide a substitute product. 5. Rivalry among competitors: for Coca-Cola, Pepsi is an established rival.

Porter identified two "wide" strategies (cost-leadership and differentiation) that deal with broad markets, and two "narrow" strategies (cost-focus and focused-differentiation) that target specific markets. 1. Cost-leadership focuses on keeping costs and prices low for a wide market, and examples are Dell, Timex, Home Depot, and Bic. 2. Differentiation stresses offering unique and superior products and services to a wide market and examples include Ritz-Carlton, Lexus, and PepsiCo. 3. Cost-focus emphasizes keeping low costs and prices, but to a narrow market and examples include low-cost products sold at discount store and discount regional gas station chains. 4. Focused-differentiation stresses unique and superior products to a narrow market and examples include Rolls Royce, Cartier, Turnbull ; Asser, and niche books.

In a single-product strategy, a company makes and sells only one product within its market. Making just one product allows you to focus your manufacturing and marketing efforts just on that product. This means that your company can become savvy about repairing defects, upgrading production lines, scouting the competition, and doing highly focused advertising and sales. The risk, of course, is that if you do not focus on all aspects of the business, if a rival gets the jump on you, or if an act of God intervenes (for a florist, roses suffer a blight right before Mother's Day), your entire business may go under. The single-product strategy is seen all the time as you drive past the small retail businesses in a small town: There may be one shop that sells only flowers, one that sells only security systems, and so on. Diversification is operating several businesses in order to spread the risk. Diversification may be related or unrelated. Related diversification has three advantages: reduced risk—because if one product is weak, others may take up the slack, management efficiencies—because administration is spread over several businesses, and synergy, that the sum is greater than the parts. You see the diversification strategy at the small retailer level when you drive past a store that sells gas and food and souvenirs and rents DVD movies.

A company's overall ability to execute is a function of effectively executing in terms of its people processes, strategic processes, and operational processes. People process: An effective leader tries to evaluate talent by linking people to particular strategic milestones, developing future leaders, dealing with nonperformers, and transforming the mission and operations of the human resource department. Strategic processes: A good strategic plan addresses nine questions. In considering whether the organization can execute the strategy, a leader must take a realistic and critical view of its capabilities and competencies. Operations processes: The strategy process defines where an organization wants to go, and the people process defines who's going to get it done. Operations or the operating plan provides the path for people to follow. The operating plan should address all the major activities in which the company will engage and then define short-term objectives for these activities, to provide targets for people at which to aim.

The seven essential types of leader behaviors are: 1. Know your people and your business: engage intensely with your employees. 2. Insist on realism: don't let others avoid reality. 3. Set clear goals and priorities: focus on a few rather than many goals. 4. Follow through: establish accountability and check on results. 5. Reward the doers: show top performers that they matter. 6. Expand people's capabilities: develop the talent. 7. Know yourself: do the hard work of understanding who you are.