Frightful five companies that dominate the internet economy

— Introduction to Management

WEEK TEN: THE EXCEPTIONAL MANAGER -STRATEGY

Semester 1, 2019

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2019 Course Experience Survey (CES)

Tell us what you think

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Your feedback is valuable

Every semester, we ask students to give us feedback on what works well and what needs to be improved

It’s called the Course Experience Survey (CES) and it helps us improve teaching, course design and content for you

It takes about 10 minutes to complete online

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For those cynics out there…

The CES matters – it’s part of making sure we’re doing a good job

The CES works – it has delivered a lot of improvements to what we do and you get

It helps you and those who come after you

It helps us

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Your feedback has an impact

Examples of change from student feedback:

Change to group sizes

Updated and more relevant content and examples

Change in class format

Change in lab tasks

Changes in assessment

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When is it happening?

The CES goes online each semester.

Semester 1 2019 CES dates

HE: Start: 6 May 2019 End: 2 June 2019

VE: Start: 6 May 2019 End: 2 June 2019

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What devices can be used to access the survey?

Desktop

Laptop

iPad

Smart phone

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There are 3 options to access the survey

1. Find the survey link in your student inbox

Sender :

Subject:

Click link in email

2. Access via

https://surveys.rmit.edu.au/Blue/

Student login is required

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3. Access via myRMIT

under ‘Launch Application’

click on ‘Student Survey’

Any questions?

Email to surveys@rmit.edu.au

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Any incentives to complete the CES?

All completed surveys will be placed in a raffle to win an iPad.

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Objectives of this Lecture

What does it take to be an exceptional manager?

Am I really managing if I don’t have a strategy?

Review of best-known classic strategy theories

How does effective execution help managers during the strategic-management process?

Introduction to Management

Functions of Management

Managing emotions at work & employees

The exceptional manager: strategy

Networking to build e-portfolios

Course Review

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The skills exceptional managers need

Technical skills

– the job-specific knowledge needed to perform well in a specialised field

Conceptual skills

– the ability to think analytically, to visualise an organization as a whole and understand how the parts work together

Human skills

– the ability to work well in cooperation with other people to get things done

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In the 1970s researcher Robert Katz identified three skills that are very important to being an exceptional manager: technical, conceptual and human skills.

Ask your students to think of a manager who had one or two of these skills, but not all three. What was the negative impact to the business, in their opinion? Why is it important to have all three?

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Tse Leng Tham (TLT) - Also how empahsis on different skills are more important at different levels of management?

Five hallmarks of a good manager

Gives employees challenging work to do

Creates space for employees to demonstrate their capacity to do a good job

Provides support when needed in ways that offer feedback without interfering in the work they have asked others to do

Gives recognition and praise when a piece of work is done well

Is not afraid to make tough decisions

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Can students think of anything else that might be a hallmark of a good manager?

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Strategy, strategic management and strategic planning

Strategy

Large-scale action plan that sets the direction for an organisation

Strategic management

Process that involves managers from all parts of the organisation in the formulation and implementation of strategies and strategic goals

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Why strategic management and planning are important

An organisation should adopt strategic management and planning for three reasons:

Provide direction and momentum

Encourage new ideas

Develop a sustainable competitive advantage

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There are three reasons why businesses should adopt planning and strategic management. We’ll discuss each of these in the slides to follow.

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Direction and momentum

Why are direction and momentum important?

Unless a plan is in place, managers may just focus on whatever is in front of them, ‘putting out fires’.

Managers may be so preoccupied with day-to-day pressures that their organisation can lose momentum.

Examples to consider

How Amazon.com has affected Borders bookstores

The impact of Uber on taxis

What blogs and internet news have meant for newspapers

The impact of microbreweries on mass produced beer

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Why do businesses need direction and momentum? The main reason is so that competitors are less likely to sneak up on them! Presented are four examples students may be familiar with and which give a good idea about what can happen when businesses take their customers for granted. If they do this, they risk losing market share.

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Encourage new ideas

Strategic planning can help encourage new ideas by stressing the importance of innovation.

Management scholar Gary Hamel says that companies such as Apple have been successful because they have been able to unleash the spirit of ‘strategy innovation’.

Strategy innovation

The ability to reinvent the basis of competition within existing industries —‘bold new business models that put incumbents on the defensive’

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Can students see why Apple might be described as having ‘strategy innovation’?

It was a company that was still competing in the personal computer market, but they upended the entire industry with the introduction of the ‘smart phone’ (iPhone) to the market.

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Sustainable competitive advantage

Competitive advantage

The ability of an organisation to produce goods or services more effectively than its competitors do, thereby outperforming them

Sustainable competitive advantage

Occurs when an organisation is able to get and stay ahead in four areas:

In being responsive to customers

In innovating

In quality

In effectiveness

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The final reason why planning and strategic management are important is to develop a sustainable competitive advantage. The key here is that an organisation can get ahead – and stay ahead – in four areas.

Example: It’s generally agreed that the ‘frightful five’ companies that dominate the internet economy are Amazon, Apple, Facebook, Google and Microsoft. But, in the struggle for competitive advantage, the state of play is constantly shifting. ‘Not long ago people thought IBM, Cisco Systems, Intel, and Oracle were unbeatable in tech’, Farhad Manjoo (a technology writer) observes. ‘They’re all still large companies, but they’re far less influential than they were once.’ Meanwhile, Yahoo!, once a huge success story, may be running out of time, its advertising revenues slipping far behind those of its rivals, and its decline hastened by the rise of mobile devices and social media.

Ask students if they can visualise one of the ‘frightful 5’ internet companies losing their competitive advantage. How would it come about?

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What is an effective strategy?

Strategic positioning

Developed by famous strategist Michael Porter

Attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company

‘Performing different activities from rivals, or performing similar activities in different ways’

Michael Porter

Cmproject/CC BY-SA 4.0

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Michael Porter is a name students should know (or learn). This Harvard Business School professor ‘is the single most important strategist working today, and maybe of all time’, raved Kevin Coyne of consulting firm McKinsey & Co. He is ‘the most famous and influential business professor who has ever lived’, says Fortune writer Geoffrey Colvin. ‘He is widely and rightly regarded as the all-time greatest strategy guru.’

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What is an effective strategy? Three principles

Strategy is the creation of a unique and valuable position:

Few needs, many customers

Broad needs, few customers

Broad needs, many customers

2. Strategy requires trade-offs in competing

3. Strategy involves creating a 'fit' among activities

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Three key principles underlie the unique and valuable position (p. 196)

Few needs, many customers: Strategic position can be derived from serving the few needs of many customers. Example: Bridgestone provides only tires and Midas provides a limited range of car repairs and services, but both provide their service to all kinds of people with all kinds of motor vehicles.

Broad needs, few customers: A strategic position may be based on serving the broad needs of just a few customers. Example: the Bank of Baroda opened in New Zealand mainly to service Indian residents.

Broad needs, many customers: Strategy may be oriented toward serving the broad needs of many customers. Example: IKEA establishes its home furnishing stores only in places that give access to populations of upwards of 500 000, which is one reason IKEA has yet to open a store in NZ.

2. Requires trade-offs—a company has to choose not only what strategy to follow but what strategy not to follow. Example: Neutrogena soap, points out Porter, is positioned more as a medicinal product than as a cleansing agent. In achieving this narrow positioning, the company gives up sales based on deodorising, gives up large volume and accordingly gives up some manufacturing efficiencies.

3. ‘Fit’ has to do with the ways a company’s activities interact and reinforce one another. Example: A budget airline that follows a low-cost strategy and aligns all its activities accordingly. So they might pay lower wages and have fewer cabin crew but offer more flexible working arrangements, more seats per plane and a shorter turnaround time at airports.

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Lecture Script 6-20

The strategic-management process

Figure 6.1

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There are 5 steps to the strategic management process. These will be outlined in the slides to follow.

Step 1: Establish the mission and vision

Step 2: Establish the grand strategy

Step 3: Formulate the strategic plans

Step 4: Carry out the strategic plans

Step 5: Maintain strategic control

See Appendix 1 at the end of these slides for more detail on Figure 6.1

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Question

Zach manages a small coffee shop. In order to determine if strategic planning will be likely to help his business, Zach should assess:

How many competitors he has

Foot traffic passing by his location

His profitability in the prior six months

Industry trends

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The correct answer is A.

Rationale: strategic planning is not likely to result in a significant improvement unless Zach is in a highly competitive business.

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Lecture Script 6-22

Step 1: Establishing the mission statement

Does your company’s mission statement answer these questions?
1. Who are our customers?
2. What are our major products or services?
3. In what geographical areas do we compete?
4. What is our basic technology?
5. What is our commitment to economic objectives?
6. What are our basic beliefs, values, aspirations and philosophical priorities?
7. What are our major strengths and competitive advantages?
8. What are our public responsibilities and what image do we wish to project?
9. What is our attitude toward our employees?
10. How are we different to our competitors?
Table 6.1 (1 of 2)

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Characteristics of a good mission statement: The mission is the organisation’s purpose or reason for being; it is expressed in a mission statement.

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Step 2: Establishing the vision statement

Does your company’s vision statement answer these questions?
1. Is it appropriate for the organisation and for the times?
2. Does it set standards of excellence and reflect high ideals?
3. Does it clarify purpose and direction?
4. Does it inspire enthusiasm and encourage commitment?
5. Is it well articulated and easily understood?
6. Does it reflect the uniqueness of the organisation, its distinctive competence, what it stands for and what it’s able to achieve?
7. Is it ambitious?
Source: F. R. David, How companies define their mission, Long Range Planning, February 1989: 90–7; and B. Nanus, Visionary Leadership: Creating a Compelling Sense of Direction for Your Organisation, San Francisco: Jossey-Bass, 1992: 28–9.

Table 6.1 (2 of 2)

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Characteristics of a good vision statement: An organisation’s vision, its long-term goal of what it wants to become, is expressed in a vision statement which describes its long-term direction and strategic intent.

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Step 3: Establish the grand strategy

Grand strategy

Comes after assessing the current reality through a rigorous analysis of where the organisation is presently heading and determining where it should be heading in the future

Explains how the organisation’s mission is to be accomplished

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Three common grand strategies

Growth strategy

Involves expansion of sales revenues, market share, number of employees or number of customers or (for nonprofits) clients served

Stability

Involves little or no significant change

Defensive

Involves reduction in the organisation’s efforts

Retrenchment

Stable strategy. Shotover Jet has a strategy of maintaining its jet boat rides down the Shotover River as an adventure tourist experience unique to Queenstown and New Zealand.

Courtesy Ngai Tahu Tourism Southern

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Growth strategy example: Etsy is a Brooklyn, New York, company that runs an online marketplace for handmade and vintage goods—jewellery, homewares, T-shirts—for which it charges fees to sellers for use of its platform. The firm showed strong growth in 2015, when revenues in the fourth quarter rose 35% to USD$87.9 million.

Stability example: Without much changing their product, the makers of Timex watches decided to stress the theme of authenticity (‘Wear it well’) over durability (the old slogan was ‘It takes a licking and keeps on ticking’). Or Shotover Jet from NZ which markets its thrilling jet boat rides as a unique experience but the importance it places on safety standards means the company declines many requests for a licence to operate a ‘shotover’ jet in another country.

Defensive example: ‘Big sales numbers that have sustained the recorded music business for years are substantially down, and it is hard to see how they could ever return to where they were even a decade ago’, says one analysis. Example: Goodman Fielder, the Australasian manufacturer of breads, oils, dairy products, spreads, etc. found themselves being squeezed by competitors so in 2011 they decided to narrow their product range and integrate business operations in a strategy called Project Renaissance.

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How companies can implement a grand strategy

Table 6.2

GROWTH STRATEGY STABILITY STRATEGY DEFENSIVE STRATEGY
Improve an existing product or service to attract more buyers 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) Reduce costs, as by freezing hiring or tightening expenses
Increase its promotion and marketing efforts to try to expand its market share 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) Sell off (liquidate) assets—land, buildings, inventories and the like
Expand operations, as in taking over distribution or manufacturing previously handled by someone else Gradually phase out product lines or services
Expand into new products or services. Divest part of its business, as in selling off entire divisions or subsidiaries
Acquire similar or complementary businesses Declare bankruptcy
Merge with another company to form a larger company In an attempt a turnaround—do some retrenching, with a view toward restoring profitability
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Here are some examples of how companies can implement grand strategies.

Can students think of examples of companies that might be using (or have used) one of these grand strategies?

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Step 3: Formulate strategic plans

Formulate strategic plans

The grand strategy must be translated into more specific strategic plans which determine what the organisation’s long-term goals should be for 1–5 years

Strategy formulation

Process of choosing among different strategies and altering them to best fit the organisation’s needs

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Step 4: Carry out the strategic plans

Strategy implementation

Putting strategic plans into effect

Dealing with roadblocks within the organisation’s structure and culture, and seeing if the right people and control systems are available to execute the plans

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Step 5: Maintain strategic control

Strategic control

– Consists of monitoring the execution of strategy and making adjustments, if necessary

– To keep a strategic plan on track you need to do the following:

Engage people

Keep it simple

Stay focused

Keep moving

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To keep a strategic plan on track, suggests Bryan Barry, you need to do the following:

Engage people—Actively engage people in clarifying what your group hopes to accomplish and how you will accomplish it

Keep it simple—Keep your planning simple, unless there’s a good reason to make it more complex

Stay focused—Stay focused on the important things

Keep moving—Keep moving toward your vision of the future, adjusting your plans as you learn what works

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Competitive intelligence

Competitive intelligence

Gaining information about your competitors’ activities so that you can anticipate their moves and react appropriately

Includes publicity and advertising, investor information, business associations and trade shows

The Smart electric car model displayed by Mercedes at Mondial de l'Auto, Paris, 2008

© Idealink Photography/Alamy

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If you are a manager, one of your worst nightmares is that a competitor will surprise you with a service or product—as boutique beers did to major brewers and mountain bikes did to major bicycle makers—that will revolutionise the market and force you to try to play catch-up. Successful companies conduct competitive intelligence. This is a search of publications, advertising, investor information and other informal sources of information to ensure that you know what your competitors are up to.

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SWOT analysis (1 of 2)

Environmental scanning

Careful monitoring of an organisation’s internal and external environments to detect early signs of opportunities and threats that may influence the firm’s plans

SWOT analysis

SWOT process for scanning:

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

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A SWOT analysis should provide you with a realistic understanding of your organisation in relation to its internal and external environments so you can better formulate strategy in pursuit of its mission.

A SWOT grid is shown on the next slide.

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SWOT analysis (2 of 2)

Figure 6.2

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See Appendix 2 at the end of this slide deck for additional information.

The SWOT analysis is divided into two parts—inside matters and outside matters—that is, an analysis of internal strengths and weaknesses and an analysis of external opportunities and threats.

Organisational strengths: skills and capabilities that give the organisation special competencies and competitive advantages in executing strategies in pursuit of its mission

Organisational weaknesses: drawbacks that hinder an organisation in executing strategies in pursuit of its mission

Organisational opportunities: environmental factors that the organisation may exploit for competitive advantage

Organisational threats: environmental factors that hinder an organisation from achieving a competitive advantage

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Example: SWOT characteristics that might apply to a university

S—STRENGTHS (INTERNAL STRENGTHS) W—WEAKNESSES (INTERNAL WEAKNESSES)
Faculty teaching and research abilities High-ability students Loyal alumni Strong interdisciplinary programs Limited programs in business High teaching loads Insufficient racial diversity Lack of high-technology infrastructure
O—OPPORTUNITIES (EXTERNAL OPPORTUNITIES) T—THREATS (EXTERNAL THREATS)
Growth in many local skilled jobs Many firms give equipment to universities Local minority population increasing High school students take university classes Depressed state and national economy High school enrolments in decline Increased competition from other colleges Funding from all sources at risk
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Here is an example of a SWOT that could be performed on a typical university.

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Question

When analysing the 'W' in SWOT analysis, Roberta, the manager, might be assessing:

Possible challenges in the market

Competitors' actions

High turnover of employees

Good financial resources of the firm

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The correct answer is C. High turnover, as this could be viewed as an internal weakness for the firm.

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Lecture Script 6-35

Example: How would you analyse Toyota?

Internal strengths

Attention to detail and a frugality that shuns waste of every kind

Internal weaknesses

Parts supplied by outside companies rather than trusted traditional suppliers

External opportunities

Stressed commitment to customers

Still ranks high in quality

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Forecasting: Predicting the future

Forecasting

A vision or projection of the future

Trend analysis

Hypothetical extension of a past series of events into the future

Contingency planning

Creation of alternative hypothetical but equally likely future conditions

Also called 'scenario planning' and 'scenario analysis'

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Lots of people make predictions, of course, and often they are wrong. In the 1950s, the head of IBM, Thomas J. Watson, estimated that the demand for computers would never exceed more than five for the entire world. In the late 1990s, many computer experts predicted power outages, water problems, transportation disruptions, bank shutdowns, and far worse because of computer glitches (the Y2K bug) associated with the change from the year 1999 to 2000.

Of course, the farther into the future one makes a prediction, the more difficult it is to be accurate, especially in matters of technology. Yet forecasting is a necessary part of planning. The two types are trend analysis and contingency planning.

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Porter’s five competitive forces

Porter contends that business-level strategies originate in five primary competitive forces in the firm’s environment:

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitute products or services

Rivalry among competitors

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Developed by Michael Porter, the five competitive forces can help businesses strategise based on five forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among competitors.

Consider showing this YouTube video where Michael Porter explains his five competitive forces (13:11): https://youtu.be/mYF2_FBCvXw

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Porter’s four competitive strategies (1 of 2)

Cost-leadership strategy

Keep the costs of a product or service below those of competitors while maintaining a similar level of quality and targeting a wide market

Differentiation strategy

Offer products that are of unique and superior value compared to those of competitors but to target a wide market

Figure 6.3 PORTER’S FOUR COMPETITIVE STRATEGIES

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There are four competitive strategies (two on this slide and two on the next):

Cost-leadership focuses on keeping prices low in a wide market—firms include Timex, computer maker Acer, hardware retailer Home Depot and pen maker Bic

Differentiation focuses on unique and superior products targeting a wide market—this is the strategy followed by Ritz-Carlton hotels and the makers of Lexus automobiles

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Porter’s four competitive strategies (2 of 2)

Cost-focus strategy

Keep the costs of a product below those of competitors and to target a narrow market

Focused-differentiation

Offer products that are of unique and superior value compared to those of competitors, and to target a narrow market

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Cost-focus keeps prices low, targeting a narrow market—often executed with low-end products sold in discount stores, such as low-cost beer or cigarettes, or regional petrol stations

Focused-differentiation focuses on unique and superior products targeting a narrow market—Australian and NZ wine are good examples but show that focused-differentiation products need not be expensive

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Question

The company's CEO puts pressure on the firm's R&D managers to develop products that can be created cheaply. The firm would be following a ________ strategy:

Cost leadership

Differentiation

Cost focus

Retrenchment

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The correct answer is A, cost leadership.

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Lecture Script 6-41

The BCG matrix

Figure 6.4

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See Appendix 3 at the end of this deck for more detail.

Developed by the Boston Consulting Group, the BCG Matrix is a means of evaluating strategic business units on the basis of (1) their business growth rates and (2) their share of the market. Business growth rate is concerned with how fast the entire industry is increasing. Market share is concerned with the business unit’s share of the market in relation to competitors. Market growth is divided into two categories, low and high. Market share is also divided into low and high.

Thus, in this matrix, ‘stars’ are business units that are highly desirable (high growth, high market share), compared to ‘dogs’, which are not so desirable (low growth, low market share).

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Execution: Getting things done

Execution

Consists of using questioning, analysis and follow-through in order to mesh strategy with reality, align people with goals and achieve results promised

A central part of any company’s strategy

Optus is a start-up company that was born out of the need for market competition. It was the first challenger brand in the industry and remains the biggest challenger today.

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In implementing strategy and maintaining strategic control, the focus is on effective execution.

A survey of 769 global CEOs from 40 countries revealed that ‘excellence in execution’ was their most important concern—more important than ‘profit growth’, ‘customer loyalty’, ‘stimulating innovation’ and ‘finding qualified employees’.

Ask students what might happen if a company does not effectively execute its strategy and maintain strategic control?

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Question

John owns a piano sales and tuning store. He wants to be the biggest retailer in the region. Adding salespeople would be part of his strategic ________.

Locution

Execution

Efficacy

fficiency

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The correct answer is B, execution. See previous slide: Execution: Getting things done.

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Lecture Script 6-44

The three core processes of business

A company’s overall ability to execute is a function of effectively executing according to three processes:

People—consider who will benefit you in the future

Strategy—consider how success will be accomplished

Operations—consider what path will be followed

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A company’s overall ability to execute is a function of effectively executing according to three processes: people, strategy and operations. Because all work ultimately entails some human interaction, effort or involvement, Bossidy and Charan believe that the people process is the most important.

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What questions should a strong strategic plan address?

1. What is going on in the external environment that the business needs to respond to?
2. How well do you understand the existing customers and markets? What are the priorities of existing customers?
3. What are the best opportunities for growth and the barriers to realising those opportunities?
4. Who is the competition?
5. Can the business execute the strategy—does it have the capacity?
6. Are the short term and long term balanced?
7. What are the important milestones to be achieved as the strategy is implemented?
8. What are the critical issues facing the business?
9. How does the business intend to generate a sustainable income?
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In considering whether the organisation can execute the strategy, a leader must take a realistic and critical view of its capabilities and competencies. If it does not have the talent in finance, sales and manufacturing to accomplish the vision, the chances of success are drastically reduced.

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Building a foundation for management excellence

Know your people and your business

Insist on realism

Set clear priorities

Follow through

Reward the doers

Expand people’s capabilities

Know yourself

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Know your people and your business: 'Engage intensely with your employees'

Insist on realism: 'Don’t let others avoid reality'

Set clear priorities: 'Focus on a few rather than many goals'

Follow through: 'Establish accountability and check on results'

Reward the doers: 'Show top performers that they matter'

Expand people’s capabilities: 'Develop the talent'

Know yourself: 'Do the hard work of understanding who you are'

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What will we cover in the next 2 tutorials?

Networking & Your e-portfolio Week 11
Course Review Week 12 Assessment 3 due
Introduction to Management

Functions of Management

Managing emotions at work & employees

The exceptional manager: strategy

Networking to build e-portfolios

Course Review

Next week

Today is the last lecture for the Semester

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— Thank you

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Same size and weight as the headline and set using a soft return.

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