Slide 1Key points in Chapter 2Managerial Discretion and Decision BiasesDecision-Making BiasesHubrisImplications for IBPStrategic Vision vs. MissionMission StatementsObjectivesControl SystemsSlide 11Controls in Balanced Scorecard FrameworkSlide 13Slide 14Components of External AnalysisGeneral or Macro Environment1) Demographic Segment2) Economic Segment3) Political/Legal Segments4) Sociocultural Segment5) Technological Segment6) EnvironmentalGeneral EnvironmentROIC Across Industries 1995-2004Porter’s Five ForcesSlide 26Slide 27Slide 28Slide 29Potential New EntrantsBarriers to EntrySuppliersBuyersBuyersSubstitutesSubstitutes and Business DefinitionRivalry and ProfitabilityRivalry – What drives it?Industries and SegmentsSegments in the Automotive IndustrySegments in the Automotive IndustryPorter’s..in conclusionStatic model & HypercompetitionAnalysis of Direct CompetitorsImplications from Strategic Group DynamicsCompetitor Analysis ComponentsIdentification of Key Success Factors?Chapter 2Leading Strategically Through Effective Vision and MissionKey points in Chapter 2 The roles that leaders playSkill sets of effective strategic leaders (Level 5 hierarchy)Managerial Discretion and Decision BiasesDiscretion – latitude for action or decision makingHubris – excessive pride, leading to a feeling of invincibility Heuristics – rules of thumb used in decision makingDecision-Making BiasesReliance on previously formed beliefsFocus on limited objectivesExposure to limited decision alternativesIllusion of controlReliance on a limited set of heuristicsHubrisExcessive pride that leads to a feeling of invincibilityMagnifies the effects of decision-making biasesImplications for IBPBe sure you don’t fall prey to decision making biasesBe sure you understand the effects of hubrisPlay the role of Devil’s AdvocateQuestion decisions constructivelyStrategic Vision vs. MissionA strategic vision concerns “wherewe are going” or ”what do we want to be.”Markets to be pursuedFuture product/ market/customer/ technology focusKind of company management is trying to createThe mission statement focuses on its “who we are and what we do”Current product and service offeringsCustomer needs being servedTechnologicaland businesscapabilitiesMission StatementsBoundaries of the current businessFundamental purpose that sets it apart from other firms of its typeConveysWho we are,What we do, andWhy we are hereObjectivesTurns mission into performance outcomesOrganizations produce what is measuredLong and Short termControl SystemsFinancial Controlsfocus on short-term financial outcomes produce risk-averse managerial decisionsStrategic Controlsfocus on the content of strategic actions encourage decisions that incorporate moderate and acceptable levels of riskCurrent financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results laterHowever, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years aheadGood strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performanceLeading versus Lagging IndicatorsControls in Balanced Scorecard FrameworkChapter 4Exploring the External Environment: Macro and Industry DynamicsCompetitive strategy must grow out a sophisticated understanding of the rules of competition that determine industry attractiveness.Michael PorterWhen an industry with a reputation for bad economics meets a manager with a reputation for excellence, it’s usually the industry that leaves with its reputation intact.Warren BuffettSkate to where the puck is going, not to where the puck has been.Wayne GretskyComponents of External AnalysisScanning – Identifying early signalsMonitoring – Following signals or change identifies in scanning to identify patternsForecasting – Projections of what might happenAssessing – Determining the timing and significance of forecasted changeGeneral or Macro Environment1) Demographic2) Economic3) Political 4) Sociocultural5) Technological6) Environmental1) Demographic SegmentCharacteristics of the populatione.g., age, race, gender, sexual orientation and social classesEthnic structureIncome distributionGeographic distribution2) Economic SegmentGeneral health/wellbeing of the local, regional, national or global economy.e.g., Interest rates, unemployment rates, consumer spending, confidence and savings, energy costs, personal disposable income, inflation rates, housing costs3) Political/Legal SegmentsTax laws, minimum wages, environmental laws, labor laws, consumer protection, product liability, etc.4) Sociocultural SegmentAttitudes of society towards work, careers, products, services and consumer activism.e.g., concern for quality of life, birth rates, woman in the work force, low-carb dieting, health consciousness, respect for intellectual property, desire for “green retailing”, savings rates, etc.5) Technological SegmentChanges in technology that affect the workplace, and the products and services consumers expecte.g., Information technologies, entertainment technologies, product technologies.6) EnvironmentalEnvironmental and ecological issues (on supple and waste side), including pressure from NGOs and activists.General EnvironmentFirms can not influence them, but they can have a significant influence on the firm, its industry, its strategy, and its performanceCast a wide net and to identify the emerging trendsThen determine which factors are relevant, and how these changes will have an effect upon the firm.ROIC Across Industries 1995-2004Porter’s Five ForcesCompetitive RivalryPower of BuyersPower of SuppliersPotential EntrantsSubstitute ProductsEach of these forces affect costs/prices, therefore, profitabilitySubstituteProducts(of firms inother industries)RivalryAmongCompetingSellersPotentialNewEntrantsSuppliers of Key InputsBuyersPriceCostsProfits{What factors increase/decrease margins within an industry, thus affecting profitability.Porter’s 5-forces is all about marginsPrices can be kept highCosts can be
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