Strategy

Course Notes Table of Contents

Objectives

  1. Define the purpose of a mission statement
  2. Define the difference between corporate level, business level, and functional level strategies
  3. Describe the components of Porter's Five Factor Model
  4. List and describe three different types of environmental scanning
  5. List and describe the components of the BCG matrix
  6. Define the "go global act local" strategy, and provide examples of companies that have modified their products accordingly
  7. Describe conditions that are conducive to creating stars and cash cows
  8. Describe how quality can be a source of competitive advantage
  9. Describe the components of quality management

Strategic Management defines the business’s objectives and how it will achieve them.

Corporate level strategies

Growth

Concentration
Vertical integration
Diversification
Stability
Defensive
Harvest
Turnaround
Divestiture
Bankruptcy
Liquidation

Business Level strategies

Cost leadership
Differentiation
Focus

Functional Strategies

Accounting
Engineering
Human Resource Management
Structure
Decision Processes

 

Mission Statement:  defines the purpose of the business and the way it attempts to create value

Read the Starbuck's mission statement:

  1. What are its products or services?
  2. Where does it operate geographically?
  3. What are the organization’s basic beliefs and ethical priorities?
  4. How concerned is Starbuck's about the environment? Its employees?
  5. What is Starbuck’s competitive advantage? What is its edge over competing coffee houses?
  6. What type of investor is Starbuck’s likely to attract?
  7. If Starbuck’s were to diversify, what businesses do you think would be the best fit?
  8. Does Starbuck's support fair trade coffee? 

Mission statements answer the following questions:

  • What products does the business sell? (Products)
  • In what geographic location does it operate (Geographic location)
  • What is its corporate philosophy? (Philosophy)

These three facets of the mission statement apply to all business units within the corporate hierarchy.

Evaluate the following mission statements against the above three criteria: which would encourage you to invest in the product?

Wendy’s (Original mission statement)

Providing a high quality hamburger with limited but complete support menu items, in an efficient and atmospheric manner to the adult fast food consumer at lunch and dinner meals (1981).

Otis Elevator

Moving people and material vertically and horizontally over relatively short distances.

Tom’s of Maine

The purpose of Tom's of Maine is:

  • To serve our customers' health needs with imaginative science from plants and minerals;
  • To inspire all those we serve with a mission of responsibility and goodness;
  • To empower others by sharing our knowledge, time, talents, and profits; and
  • To help create a better world by exchanging our faith, experience, and hope.

The Avon Vision

To be the company that best understands and satisfies the product, service and self-fulfillment needs of women - globally.

Mission statements are sometimes revised in response to environmental scanning.

Scanning Types:

  • Politics: pharmaceutical industry and drug testing – R.J. Reynolds and tobacco [warning labels]
  • Social Trends: changing demography [Fiesta markets in Houston]; health conscious – fat free; [Burger King website]
  • Competition: do we need to revise our product mix, marketing, strategy? [Dell computers and direct selling]
  • Geography: companies and overseas investment for underdeveloped markets (China)

Porter’s Five Factor Model

  • Bargaining power of customers: Walmart and suppliers
  • Bargaining power of suppliers: Diamonds, oil
  • Threats of substitutes

List substitutes for the following products:

  • Coffee
  • Ketchup
  • Gas
  • Sugar
  • Chocolate
  • Beer
  • Threat of new entrants: Disney
  • Rivalry: Jet Blue in Nashville

SWOT

  • Strengths: What the organization does well
  • Weaknesses: Areas of vulnerability
  • Opportunities: Areas for growth
  • Threats: Negative trends

Exercise

Based on your experience, do a SWOT Analysis for:

  • the College of Business Computer Lab
  • Blockbuster Video
  • Kroger

Corporate Level Strategies

What businesses should the company be in?

Growth: expand products offered or markets served

Concentration: expansion of the products within the primary business line. Gerber: “babies are our business”;  KFC: “We do chicken right”

Takes place through:

  • Market development: gaining a share of the current market, or expanding into a new market; or
  • Product development: improving the basic product

Integration

Forward Organization becomes its own distributor: Disney and Disney stores
Backward Organization becomes its own supplier. Ford owns a company that produces windshields
Horizontal Combine with businesses in the same industry – McDonald’s & Boston market
Related Acquire firms in different area but related industry
  • Renewal:     Organizational turnaround: Sears
  • Divestiture: Selling one or more businesses
  • Harvest:      Using short term profits to expand business elsewhere
  • Liquidation: Selling off all the assets

Integration and Diversification can result in separate business units, each of which are operated independently from the parent company [e.g., Pepsico - FritoLay, Gatorade, Tropicana]

Business Level Strategy

How should the organization compete in each of its businesses?

Overall Cost Leadership: Tight cost control

Differentiation: a unique form of competitive advantage that allows businesses to charge a premium.  "I’m worth" or  "Wear it and be wonderful." This strategy works best when the differentiating factor is difficult to imitate.

  • Disney: brand image
  • Volvo: safety
  • Coleman: camping equipment

Exercise:

  1. List the names of some expensive, high end chocolates.
  2. List the names of some chocolates that you see across from the checkout stand at the grocer.

Why would individuals choose to buy the high end product?

Focus: differentiation or cost leadership within a particular market segment: for example, Baxter’s Premium foods:

  • Cream of Scampi
  • Cock-a-Leekie
  • Cream of Pheasant
  • Royal Game

BCG Matrix

Provides a framework for managing businesses within a corporate portfolio

Star: high share of high growth market - Starbucks and specialty coffees

Question Marks: Low market share in rapidly growing market – Rotor Rooter and Residential plumbing. Cultivate or divest.

[both stars and question marks require substantial cash investment, but question marks can end up being “cash hogs”

Cash Cow: High market share in a slow growth business. “Milked” for stars and question marks. Nabisco & cookie market.

Dog: Low share of low growth market. Low or negative cash flow. Usually divested or liquidated.

The following contribute to “star” and cash cow status:

  1. Absence of rivalry
  2. First mover advantage (pc operating system and pc direct selling)
  3. Rareness (uncommonness)
  4. High customer demand for product

List five products that you think are rare or unique. Why would you pay a premium for these products? Why would you wish to have these products over others?

Rareness ->Low imitability: difficult to find substitute products

Conversely, high imitability, and fierce rivalry, and low customer demand contribute to low market share.

Question mark status (low share in a high growth market) could arise from:

  • High imitability: cell phones
  • Fierce rivalry: Rotor Rooter in residential plumbing
  • Question marks: provide substantial cash to grow the business (cash hog) or divest

Dog status can result from:

  • Low market share in a low growth market [GE and consumer electronics]

Divest; if the "dog" is the entire business, liquidate

What are the implications? Sometimes, expansion into foreign markets is the only way to expand market share.

Go global act local: modifying one’s products or services to suit local preferences

Examples:

Pizza:

Dominos

  • Iceland: at the Reykjavik drive-in, pizza ordered by cell phone
  • Tokyo: Potato pizza, pickled ginger pizza
  • India: Non-beef pepperoni pizza

***How would you modify a pizza for consumption in China?***

Pizza Hut

Vegetables

  • Pillsbury
  • France: salad topping
  • Britain: sandwich & pizza topping
  • Japan: after school treat
  • Korea: sprinkled over ice cream
  • Japan: seasoned vegetables for lunch boxes (e.g., sesame lotus root)

Snacks

  • Cheetos (Asia):  butter, seafood, steak flavor
  • Fritos (Asia): seafood flavor, chili, plantain, and lime flavors in Mexico; India: lentil based

Icecream

  • Ben & Jerry’s
  • England: Cool Britannia (vanilla, strawberries, & chocolate covered shortbread)

Pampers

Japanese women change babies 2x as often as Americans, prefer “thin diapers,” and have tiny apartments

[Source: the Wall Street Journal, 1996, R22 “Custom-Made:” The most successful companies have to realize a simple truth: All consumers aren’t alike]

"Go global act local"

To appeal to emerging markets within their current geographic area, or to expand into another geographic area, organizations in many cases find it necessary to "go global act local."

Examples: McDonald's and Chipolte restaurants
McDonald's UK:  http://www.mcdonalds.co.uk/?f=y; & http://photowebs.blogspot.com/2008/02/different-countries-different-mcdonalds.html  
Reaching Diverse Markets:  http://www.advisortoday.com/archives/article.cfm?articleID=920 

In some cases, the following products are local staples, but are marketed to other countries as an alternative food source:

Some products simply are not well received, no matter how alternatively they are prepared or packaged:

Boil a lobster, pay a fine

Check out the following manufacturers that have adopted a "go global act local" strategy.

Stay local act global: customize restaurants to capitalize on trends that customers like in other countries: e.g., Mexican restaurants in Murfreesboro

The go global act local concept is closer to home than you may think. McDonald's for example has changed its menu offerings to accommodate the tastes of consumers in different parts of the country. What would you expect to find in McDonald's in the following parts of the country:

The Southeast

The Southwest

The Northwest

The Midwest

Quality as a Source of Competitive Advantage

Innovation and Continuous Improvement

Extreme Hotel Concierge Services: http://money.cnn.com/2005/01/18/pf/hotelservices/index.htm  

Internet week: Nissan and web-enabled build-to-order manufacturing. Smyrna, TN, will be the first Nissan plant to use an Integrated Customer Ordering Network.  ICON). Cars will be ready six days after order.

Quality assurance and food:
http://www.cals.ncsu.edu/course/ent425/text18/food.html

Quality improvement occurs through continuous improvement, which involves benchmarking, or looking at competitors who have superior products.

Scenario:

You are the owner of a small hamburger establishment in town. Your sales are satisfactory, but you would ultimately like to corner the market on the tastiest fries. What establishments would you visit to gather information about the best fries in town, and possibly the nation?

Who would you benchmark for the following (and why?):

Luxury cars

Retail bookstores

Vacation resorts

Fine dining establishments

Fast food restaurants have attempted to improve their quality by providing nutritional information, and in some cases changing their menus:
http://www.calorie-count.com/calories/manufacturer/426.html and http://www.mcdonalds.com/usa/eat/nutrition_info.html

Some organizations provide awards to franchises who excel in quality standards: http://www.bennigans.com

On what quality criteria do you rate your restaurant experience?

Quality management consists of:

  1. Intense focus on the customer (including employees)
  2. Continual improvement
  3. Improvement of everything (products, services, processes)
  4. Accurate measurement (statistical techniques and benchmarks)
  5. Empowerment of employees (teams, lateral organizations, delegation)

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