How does business risk fit into the management process

Business Risk How Does Business Risk Fit Into The Management Process? Strategic Inputs External Environment Strategic Intent Strategic Mission Internal Environment Strategic Outcomes Strategic Actions Strategy Formulation The Strategic Management Process Strategy Implementation Business-Level Strategy Competitive Dynamics Corporate-Level Strategy Corporate Governance Structure & Control Acquisitions & Restructuring International Strategy Cooperative Strategies Strategic Leadership Entrepreneurship Feedback Strategic Competitiveness Above Average Returns & Innovation 21st Century Competitive Landscape Fundamental nature of competition is changing • Rapid technological changes • Rapid technology diffusions • Dramatic changes in information and communication technologies • Increasing importance of knowledge The pace of change is relentless and increasing Traditional industry boundaries are blurring, such as • Computers • Telecommunications 21st Century Competitive Landscape The global economy is changing • People, goods, services and ideas move freely across geographic boundaries • New opportunities emerge in multiple global markets • Markets and industries become more internationalized Traditional sources of competitive advantage no longer guarantee success New keys to success include: • • • • Flexibility Innovation Speed Integration Alternative Models of Superior Returns Industrial Organization Model Resource-Based Model The External Environment Resources An Attractive Industry Capability Strategy Formulation Competitive Advantage Assets and Skills An Attractive Industry Strategy Implementation Strategy Implementation Superior Returns Superior Returns Stakeholders: Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders Firm Product Market Primary Customers Suppliers Capital Market Stock market/Investors Debt suppliers/Banks Organizational Employees Managers Non-Managers TABLE 1.1 The General Environment: Segments and Elements Competitor Analysis • Gathering and interpreting information about all of the companies that the firm competes against • Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments Analysis of the External Environments • General environment – Focused on the future • Industry environment – Focused on factors and conditions influencing a firm’s profitability within an industry • Competitor environment – Focused on predicting the dynamics of competitors’ actions, responses and intentions 10 The Context of Internal Analysis • Global Economy – Traditional sources of advantages can be overcome by competitors’ international strategies and by the flow of resources throughout the global economy • Global Mind-Set – The ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture, or context • Analysis Outcome – Understanding how to leverage the firm’s bundle of heterogeneous resources and capabilities © 2007 Thomson/SouthWestern All rights reserved 3–14 FIGURE 3.1 © 2007 Thomson/SouthWestern All rights reserved Components of Internal Analysis Leading to Competitive Advantage and Strategic Competitiveness 3–15 The Challenge of Internal Analysis • Strategic decisions in terms of the firm’s resources, capabilities, and core competencies: – Are non-routine – Have ethical implications – Significantly influence the firm’s ability to earn above-average returns © 2007 Thomson/SouthWestern All rights reserved 3–16 The Challenge of Internal Analysis (cont’d) • To develop and use core competencies, managers must have: – Courage – Self-confidence – Integrity – The capacity to deal with uncertainty and complexity – A willingness to hold people (and themselves) accountable for their work © 2007 Thomson/SouthWestern All rights reserved 3–17 FIGURE 3.2 Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies Source: Adapted from R Amit & P J H Schoemaker, 1993, Strategic assets and organizational rent, Strategic Management Journal, 14: 33 © 2007 Thomson/South- Western All rights reserved 3–18 TABLE 3.1 Financial Resources Organizational Resources Physical Resources Technological Resources Tangible Resources • The firm’s borrowing capacity • The firm’s ability to generate internal funds • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems • Sophistication and location of a firm’s plant and equipment • Access to raw materials • Stock of technology, such as patents, trademarks, copyrights, and trade secrets Sources: Adapted from J B Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R M Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102 ©Grant, 20071991, Thomson/South- Western All rights reserved 3–19 TABLE 3.2 Human Resources Innovation Resources Reputational Resources Intangible Resources • Knowledge • Trust • Managerial capabilities • Organizational routines • Ideas • Scientific capabilities • Capacity to innovate • Reputation with customers • Brand name • Perceptions of product quality, durability, and reliability • Reputation with suppliers • For efficient, effective, supportive, and mutually beneficial interactions and relationships Sources: Adapted from R Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R.©M.2007 Grant,Thomson/South1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104 Western All rights reserved 3–20 TABLE 3.3 Functional Areas Distribution Human resources Management information systems Marketing Management Manufacturing Research & development © 2007 Thomson/SouthWestern All rights reserved Examples of Firms’ Capabilities Capabilities Effective use of logistics management techniques Motivating, empowering, and retaining employees Effective and efficient control of inventories through point-of-purchase data collection methods Effective promotion of brand-name products Effective customer service Innovative merchandising Ability to envision the future of clothing Effective organizational structure Design and production skills yielding reliable products Product and design quality Miniaturization of components and products Innovative technology Development of sophisticated elevator control solutions Rapid transformation of technology into new products and processes Digital technology 3–21 Value Chain Analysis • Allows the firm to understand the parts of its operations that create value and those that not • A template that firms use to: – Understand their cost position – Identify multiple means that might be used to facilitate implementation of a chosen businesslevel strategy © 2007 Thomson/SouthWestern All rights reserved 3–22 Value Chain Analysis (cont’d) • Primary activities involved with: – A product’s physical creation – A product’s sale and distribution to buyers – The product’s service after the sale • Support Activities – Provide the assistance necessary for the primary activities to take place © 2007 Thomson/SouthWestern All rights reserved 3–23 FIGURE 3.3 The Basic Value Chain © 2007 Thomson/SouthWestern All rights reserved 3–24 What Are the Firm’s Strengths, Weaknesses, Opportunities and Threats • S W O T represents the first letter in S trengths – W eaknesses – O pportunities – T hreats – • S W O T Strategy-making must be well-matched to both A firm’s resource strengths and weaknesses – A firm’s best market opportunities and external threats to its wellbeing – © 2007 Thomson/SouthWestern All rights reserved 3–25 SWOT ANALYSIS • STRENGTH – INTERNAL • WEAKNESS – INTERNAL • OPPORTUNITIES –EXTERNAL • THREATS -EXTERNAL © 2007 Thomson/SouthWestern All rights reserved 3–26 Identifying Resource Strengths and Competitive Capabilities • A strength is something a firm does well or a characteristic that enhances its competitiveness – – – – – – – – Valuable competencies or know-how Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute that places a company in a position of market advantage Alliances or cooperative ventures © 2007 Thomson/SouthWestern All rights reserved 3–27 SWOT Analysis What to Look For Potential Resource Strengths Potential Resource Weaknesses Potential Company Opportunities Potential External Threats • Powerful strategy • Strong financial condition • Strong brand name image/reputation • Widely recognized market leader • Proprietary technology • Cost advantages • Strong advertising • Product innovation skills • Good customer service • Better product quality •Alliances or JVs • No clear strategic direction • Obsolete facilities • Weak balance sheet; excess debt • Higher overall costs than rivals • Missing some key skills/competencies • Subpar profits • Internal operating problems • Falling behind in R&D • Too narrow product line • Weak marketing skills • Serving additional customer groups • Expanding to new geographic areas • Expanding product line • Transferring skills to new products • Vertical integration • Openings to take MS from rivals • Acquisition of rivals • Alliances or JVs to expand coverage • Openings to exploit new technologies • Openings to extend brand name/image • Entry of potent new competitors • Loss of sales to substitutes • Slowing market growth • Adverse shifts in exchange rates & trade policies • Costly new regulations • Vulnerability to business cycle • Growing leverage of customers or suppliers • Shift in buyer needs for product • Demographic changes © 2007 Thomson/SouthWestern All rights reserved 3–28 [...]... distribution to buyers – The product’s service after the sale • Support Activities – Provide the assistance necessary for the primary activities to take place © 2007 Thomson/SouthWestern All rights reserved 3–23 FIGURE 3.3 The Basic Value Chain © 2007 Thomson/SouthWestern All rights reserved 3–24 What Are the Firm’s Strengths, Weaknesses, Opportunities and Threats • S W O T represents the first letter in... solutions Rapid transformation of technology into new products and processes Digital technology 3–21 Value Chain Analysis • Allows the firm to understand the parts of its operations that create value and those that do not • A template that firms use to: – Understand their cost position – Identify multiple means that might be used to facilitate implementation of a chosen businesslevel strategy © 2007 Thomson/SouthWestern... advantages can be overcome by competitors’ international strategies and by the flow of resources throughout the global economy • Global Mind-Set – The ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture, or context • Analysis Outcome – Understanding how to leverage the firm’s bundle of heterogeneous resources and capabilities © 2007 Thomson/SouthWestern... Sources: Adapted from R Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R.©M.2007 Grant,Thomson/South1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104 Western All rights reserved 3–20 TABLE 3.3 Functional Areas Distribution Human resources Management information systems Marketing Management Manufacturing Research... and Threats • Opportunity – A condition in the general environment that, if exploited, helps a company achieve strategic competitiveness • Threat 11 – A condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness FIGURE 1.2 12 The Five Forces of Competition Model FIGURE 1.2 Competitor Analysis Components 13 The Context of Internal Analysis • Global... Competitive Advantage and Strategic Competitiveness 3–15 The Challenge of Internal Analysis • Strategic decisions in terms of the firm’s resources, capabilities, and core competencies: – Are non-routine – Have ethical implications – Significantly influence the firm’s ability to earn above-average returns © 2007 Thomson/SouthWestern All rights reserved 3–16 The Challenge of Internal Analysis (cont’d) • To develop... Integrity – The capacity to deal with uncertainty and complexity – A willingness to hold people (and themselves) accountable for their work © 2007 Thomson/SouthWestern All rights reserved 3–17 FIGURE 3.2 Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies Source: Adapted from R Amit & P J H Schoemaker, 1993, Strategic assets and organizational rent, Strategic Management. .. Thomson/South- Western All rights reserved 3–18 TABLE 3.1 Financial Resources Organizational Resources Physical Resources Technological Resources Tangible Resources • The firm’s borrowing capacity • The firm’s ability to generate internal funds • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems • Sophistication and location of a firm’s plant and equipment... such as patents, trademarks, copyrights, and trade secrets Sources: Adapted from J B Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R M Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102 ©Grant, 20071991, Thomson/South- Western All rights reserved 3–19 TABLE 3.2 Human Resources Innovation Resources Reputational Resources Intangible... Firms’ Capabilities Capabilities Effective use of logistics management techniques Motivating, empowering, and retaining employees Effective and efficient control of inventories through point-of-purchase data collection methods Effective promotion of brand-name products Effective customer service Innovative merchandising Ability to envision the future of clothing Effective organizational structure Design