Summary Crafting and Executing Strategy - Thompson, Peteraf, Gamble, Strickland PDF

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Summary Crafting and Executing Strategy Arthur A. Thompson 18th Edition

Contents 1. What is strategy and why is it important? ..................................................................................... 4 1.1. What do we mean by strategy? ............................................................................................... 4 1.2. The relationship between an organization's strategy and its business model. .................. 8 1.3. What makes a good strategy? .................................................................................................. 9 1.4. Why crafting and executing strategy are important tasks. ................................................ 10 2. Charting an organization's direction: vision and mission, objectives and strategy................. 11 2.1. Stage 1: Developing a strategic vision, a mission and a set of values............................... 11 2.1.1. Developing a strategic vision .......................................................................................... 11 2.1.2. Crafting a mission statement .......................................................................................... 13 2.1.3. Linking the vision and mission with organization values ............................................. 14 2.2. Stage 2: Setting objectives ..................................................................................................... 14 2.3. Stage 3: Crafting a strategy .................................................................................................... 16 2.4. Stage 4: Executing the strategy ............................................................................................. 18 2.5. Stage 5: Evaluating performance and initiating corrective adjustments .......................... 19 2.6. Corporate governance: the role of the board of directors in the strategy-crafting, strategy-executing process. ........................................................................................................... 20 3. Evaluating a company's external environment............................................................................ 22 3.1. The strategically relevant components of a company's macro-environment .................. 22 3.2. Thinking strategically about a company's industry and competitive environment ......... 23 3.2.1. Does the industry offer attractive opportunities for growth? .................................... 23 3.2.2. What kinds of competitive forces are industry members facing, and how strong is each force? ................................................................................................................................... 24 3.2.3. What factors are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? ...................................... 34 3.2.4. What market positions do industry rivals occupy-who is strongly positioned and who is not? ................................................................................................................................... 37 3.2.5. What strategic moves are rivals likely to make next?.................................................. 38 3.2.6. What are the key factors for competitive success in the industry?........................... 40 3.2.7. Does the industry offer good prospects for attractive profits? ................................. 40 4. Evaluating a company's resources and competitive position. ................................................... 42 4.1. How well is the company’s current strategy working? ....................................................... 42 4.2. What are the company's competitively important resources and capabilities? .............. 43 4.3. Is the company able to take advantage of market opportunities and overcome external threats to its external well-being?................................................................................................. 45

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4.4. Is the company competitively stronger or weaker than key rivals? .................................. 47 4.5. What strategic issues and problems merit front-burner managerial attention? ............. 49 5. Five generic competitive strategies -- Which one to employ? ................................................. 51 5.1. The five generic strategies ..................................................................................................... 51 5.1.1. Low-cost provider strategy ............................................................................................. 52 5.1.2. Broad differentiation strategy ........................................................................................ 56 5.1.3. Focused (market niche) strategies.................................................................................. 58 5.1.4. Best-cost provider strategy............................................................................................. 59 5.1.5. The contrasting features of the five generic competitive strategies ......................... 60 6. Supplementing the chosen competitive strategy: other important strategy choices. ........... 63 6.1. Offensive strategies ................................................................................................................ 63 6.2. Defensive strategies................................................................................................................ 65 6.3. Timing of a company's defensive and offensive moves ..................................................... 66 6.4. Strengthening a company's market position via its scope of operations ......................... 68 6.4.1. Horizontal merger and acquisition strategies ................................................................... 68 6.4.2. Vertical integration strategies............................................................................................. 70 6.4.3. Outsourcing strategies......................................................................................................... 72 6.4.4. Strategic alliances and partnerships................................................................................... 73 7. Strategies for competing in foreign markets. .............................................................................. 77 7.1. Why companies decide to enter foreign markets ............................................................... 77 7.2. Why competing across national borders make strategy making more complex ............. 78 7.3. Strategic options for entering and competing in international markets ........................... 80 7.4. Competing internationally: The three main strategic approaches .................................... 83 7.5. The quest for competitive advantage in the international arena ...................................... 85 7.6. Profit sanctuaries and cross-border strategic moves.......................................................... 87 7.7. Strategies for competing in the markets of developing countries .................................... 88 7.8. Defending against global giants: Strategies for local companies in developing countries ........................................................................................................................................................... 88 8. Diversification: strategies for managing a group of businesses. ............................................... 90 8.1. When to diversify? .................................................................................................................. 90 8.2. Building shareholder value: the ultimate justification for diversification ......................... 90 8.3. Strategies for entering new businesses ................................................................................ 92 8.4. Choosing the diversification path: related vs. unrelated business .................................... 93 8.4.1. Strategic fit and diversification into related businesses .............................................. 94 8.4.2. Diversification into unrelated businesses ..................................................................... 98

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8.4.3. Combination of both ...................................................................................................... 100 8.5. Evaluating the strategy of a diversified company ............................................................. 101 8.5.1. Evaluating industry attractiveness ............................................................................... 101 8.5.2. Assessing the strength of the company's business units .......................................... 103 8.5.3. Checking the competitive advantage potential of cross-business strategic fit ...... 105 8.5.4. Checking for resource fit ............................................................................................... 106 8.5.5. Ranking the performance prospects of business units and assigning a priority for resource allocation. ................................................................................................................... 107 8.5.6. Crafting new strategic moves to improve overall corporate performance............. 108 9. Ethical business strategies, social responsibility, and environmental sustainability............. 110 9.1. What do we mean by business ethics? ............................................................................... 110 9.2. Where do ethical standards come from?............................................................................ 111 9.3. How and why ethical standards impact the tasks of crafting and executing strategy . 113 9.4. What are the drivers of unethical and business behavior ................................................ 113 9.5. Why should company strategies be ethical? ...................................................................... 114 9.6. Strategy, corporate social responsibility and environmental sustainability ................... 115 10. Building an organization capable of good strategy execution. ............................................. 119 10.1. A framework for executing strategy ................................................................................. 119 10.1.1. Staffing the organization ............................................................................................. 121 10.1.2. Building and strengthening core competencies and competitive capabilities. .... 122 10.1.3. Organizing the work effort with a supportive organizational structure ............... 124 11. Managing internal operations: actions that promote good strategy execution. ................ 131 11.1. Allocating resources to the drive for good strategy execution ..................................... 131 11.2. Instituting policies and procedures that facilitate strategy execution ......................... 132 11.3. Adopting best practices and striving for continuous improvement ............................. 133 11.4. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently ........................................................................................... 136 11.5. Tying rewards and incentives to promote better strategy execution .......................... 137 12. Corporate culture and leadership: keys to good strategy execution. .................................. 140 12.1. Instilling a corporate culture that promotes good strategy execution. ........................ 140 12.2. Exercise the internal leadership needed to propel strategy implementation forward. ......................................................................................................................................................... 144

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1. What is strategy and why is it important? In any given year, a group of organizations will stand out as the top performers, in terms of metrics such as profitability, sales growth or as a benchmark of best practice in their field. Some businesses will prosper, others will fall. There are also businesses that rise to the top and stay there, year after year, pleasing their customers, stakeholders and shareholders. Coca-Cola, IKEA, Google, Apple and Unilever are good examples of these companies. What can explain the ability of organizations like these to beat the odds and experience long periods of profitability and growth? Why is Ryanair doing so well, while other airlines struggle to survive? There are many factors that explain the performance of organizations. Some come from the internal environment, some from the external environment. But only one thing can account for the kind of long-lived success records that we see in the greatest organizations and that is a well-crafted and well-executed strategy that facilitates the capture of opportunities, produces a competitive advantage and is adaptable to changing market conditions. This opening chapter will define the concept of strategy and will describe its many facets.

1.1. What do we mean by strategy? An organization's strategy consist of the overarching direction set by managers, plus the competitive moves and business approaches that they are employing to compete successfully, improve performance and grow the business. Managers of all types of organizations face three central questions in moving an organization forward: 1. What is our present situation? (now) 2. Where do we want to go from here? (later) 3. How are we going to get there? The first question, 'What is our present situation?' will require managers to evaluate the current industry conditions, financial performance, its resources and capabilities, strengths and weaknesses and changes in the business environment. You can see it as the context within which the organization operates.

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The answer of the second question, 'Where do we want to go from here?' lies within management's vision of the organization's future direction. You can see this as the content of the strategy. The question, 'How are we going to get there?' can be seen as the process of putting the strategy into action and is probably the most difficult element of strategy for managers to control. It challenges managers to craft and execute a strategy capable of moving the organization to a certain direction (see question 2). Most planned, deliberate strategies are rarely, if ever, fully realized. However, this does not prevent successful organizations from investing heavily in the execution element of the strategy process.

Developing clear answers to the question 'How are we going to get there?' is the essence of managing strategically. There are many conflicting studies on how organizations approach this task. Some organizations rely on the status quo as a roadmap and deal with opportunities/threats as they emerge, while other organizations develop a full-blown game plan that spells out competitive moves and business approaches that will be employed to compete successfully, please customers/stakeholders and let the business grow. Other organizations, especially those who operate in dynamic and complex environments, weren't in favor of planning the strategic approach as detailed as possible. The detailed planned approach characterized the strategy approach in the 1960s and 1970s. Strategy was the sole preserve of senior executives those days. Middle managers had to implement the grand designs, which were developed by the senior executives. The reality is often that senior executives set the overall direction of the organization and define its scope while front line staff is getting more and more involved in strategic thinking and execution. This, technological change, privatization, convergence, the internet, the rapid growth of ICT has led to intensified competition and the speed at which strategy is developed. Therefore, managers need to consider the following when they think about 'How are we going to get there?'":    

How can we outcompete rivals? How can we respond to changing economic and market conditions and capitalize opportunities? How to manage each functional piece of the business? (R&D, Production, Supply Chain etc.) How to improve the organization's financial market and increasingly sustainability performance?

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The specific elements that constitute management's answer to the question 'How are we going to get there?' define an organization's business strategy. An organization's strategy consist of the overarching direction set by managers, plus the competitive moves and business approaches that they are employing to compete successfully, improve performance and grow the business. The strategy is based on an integrated array of considered choices, a pattern of actions and business approaches, and represents a managerial commitment to follow a particular course. In most industries, there are many ways to outcompete rivals and boost organizational performance, thus giving managers enough freedom. Some pursue a low-cost strategy, others try to achieve product superiority or personalized customer service that competitors can't match. Some offer multiple product lines, while others focus on only one product. Some are active in multiple stages of the industry's chain of production/distribution (fully integrated), while others focus on one stage in the industry's chain of production/distribution (e.g. only manufacturing or only distribution). Some operate globally, while others operate internationally or locally. Some operate in multiple industries (diversification: related and unrelated industries), while others operate in only one. Organizations also use alliances and joint-ventures to move their strategy forward. Competitive success requires managers to make strategic choices about the building blocks of its strategy that differ from the choices made by competitors. A strategy stands a better chance of succeeding when it is appealing to buyers in ways that set an organization apart from rivals. Distinctive elements in the strategy produces a competitive edge. Strategy is about competing differently, doing things in a way competitors don't do or can't do. Thus, the position a company chooses is also a key element of a strategy. An organization's strategy provides direction and guidance, in terms of not only what the organization should do but also what it should not do. Knowing what not to do can be as important as knowing what to do, strategically. At best, making wrong strategic moves will result in the loss of organizational resources. At worst, it will result in unintended long-term consequences that put the organization's very survival at risk. Providing direction and guidance can be a particularly important element of a strategy when it has a more emergent, bottom-up process and needs to ensure coherence and consistency between different parts of the business. Another key element of strategy is the actions and moves in the marketplace that managers are taking to gain a competitive edge over rivals. A strategy that is creative and distinctive can be seen as a strategy that provides competitive advantage. A competitive advantage tends to be more profitable and is an organization's most reliable ticket for earning profits that are above average. So where does a competitive © StuDocu.com

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advantage come from? A competitive advantage generally comes from the ability to meet customer needs more effectively, with product that customers value more highly, or more efficiently, at a lower cost. Meeting customer needs more effectively will mean that you can sell your products for a higher price, because customers value your products higher. The beer that Heineken imports from The Netherlands to the US is valued higher by American customers, because it's seen as more exclusive. Heineken will therefore be able to charge a higher price for its beer. Meeting customer demands cost-effectively can translate into being able to charge lower prices and achieve higher sales volumes (e.g. Wal-Mart or IKEA). This will result in larger revenues and lower costs. A competitive advantage can also be sustai...