Discusion QS
claire one
chapter_2_powerpoint.pptxIntro &
Chapter 2: Strategic Management & Firm Performance
Strategic Leadership
Being the Boss
What do you think it’s like to own or operate a business today?
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Business Landscape
What characterizes today’s business landscape?
What two factors are the primary drivers of this landscape?
Increased pressure of competition – domestic and world markets.
New markets for some – domestic and world
Technology boom in mid 1990’s – created come opportunity but there were serious losses as well.
Employment – Some jobs were destroyed through the global & tech boom. Other jobs were created. On average, unemployment rates were decreasing, so there was overall economic growth.
People who lost their jobs were because work was outsourced or companies downsized.
Biotechnology have given Canada some tremendous advantages – Richie Smith Feeds
Challenges
Main Factors:
Global economy
Globalization that results from the global economy
Rapid technological changes
Stats Canada Report 2003 - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Growth
How many businesses were operating in Canada in 2003?
(Business Dynamics in Canada, 2003 Stats Canada, http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf )
Stats Canada Report - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
How big would that business be? According to Stats Canada Report 2003
There were just over one million businesses operating in Canada in 2003.
Majority - 92% of the businesses employed less than 20 workers and accounted for 21% of total employment
Minority – 0.02% of the businesses employed more than 500 people which represents 43% of total employment
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Growth
1,000,000 businesses were operating in Canada in 2003
That number grows by an average 9,300 annually
(Business Dynamics in Canada, 2003 Stats Canada, http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf )
Stats Canada Report - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
How big would that business be? According to Stats Canada Report 2003
There were just over one million businesses operating in Canada in 2003.
Majority - 92% of the businesses employed less than 20 workers and accounted for 21% of total employment
Minority – 0.02% of the businesses employed more than 500 people which represents 43% of total employment
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Growth
Business Size & Employment
1,000,000 businesses were operating in Canada in 2003
That number grows by an average 9,300 annually
| % of Business | Employed | % of Workforce |
| Small Business | How many employees? | |
| Big Business | How many employees? | |
| Medium Business | How many employees? |
(Business Dynamics in Canada, 2003 Stats Canada, http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf )
Stats Canada Report - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
How big would that business be? According to Stats Canada Report 2003
There were just over one million businesses operating in Canada in 2003.
Majority - 92% of the businesses employed less than 20 workers and accounted for 21% of total employment
Minority – 0.02% of the businesses employed more than 500 people which represents 43% of total employment
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Facts Business Dynamics in Canada 2003 – Stats Canada
Class Estimate on Business Size & Employment
| What % of Canadian Business are: | How many people are employed in each type of business? | What % of the Workforce does this type of business employ? |
| Small Business | How many employees? | Percentage of workforce? |
| Big Business | How many employees? | Percentage of workforce? |
| Medium Business | How many employees? | Percentage of workforce? |
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Growth
Business Size & Employment
1,000,000 businesses were operating in Canada in 2003
That number grows by an average 9,300 annually
| % of Business | Employed | % of Workforce |
| 92% Small Business | How many employees? | |
| 0.02% Big Business | How many employees? | |
| 7.98% Medium Sized Business | How many employees? |
(Business Dynamics in Canada, 2003 Stats Canada, http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf )
Stats Canada Report - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
How big would that business be? According to Stats Canada Report 2003
There were just over one million businesses operating in Canada in 2003.
Majority - 92% of the businesses employed less than 20 workers and accounted for 21% of total employment
Minority – 0.02% of the businesses employed more than 500 people which represents 43% of total employment
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Growth
Business Size & Employment
1,000,000 businesses were operating in Canada in 2003
That number grows by an average 9,300 annually
| % of Business | Employed | % of Workforce |
| 92% Small Business | Less than 20 workers | 21% of total employment |
| 0.02% Big Business | More than 500 people | 43% of total employment |
| 7.98% Medium Sized Business | More than 20 and less than 500 | 36% of total employment |
(Business Dynamics in Canada, 2003 Stats Canada, http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf )
Stats Canada Report - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
How big would that business be? According to Stats Canada Report 2003
There were just over one million businesses operating in Canada in 2003.
Majority - 92% of the businesses employed less than 20 workers and accounted for 21% of total employment
Minority – 0.02% of the businesses employed more than 500 people which represents 43% of total employment
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Growth
Business Size & Employment
1,000,000 businesses were operating in Canada in 2003
That number grows by an average 9,300 annually
| % of Business | Employed | % of Workforce |
| 92% Small Business | Less than 20 workers | 21% of total employment |
| 0.02% Big Business | More than 500 people | 43% of total employment |
| 7.98% Medium Sized Business | More than 20 and less than 500 | 36% of total employment |
Small &Medium sized Enterprises (SME’s) make up 99.98% of the businesses in Canada and employ 57% of the workforce.
(Business Dynamics in Canada, 2003 Stats Canada, http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf )
Stats Canada Report - http://www.statcan.gc.ca/pub/61-534-x/61-534-x2006001-eng.pdf
How big would that business be? According to Stats Canada Report 2003
There were just over one million businesses operating in Canada in 2003.
Majority - 92% of the businesses employed less than 20 workers and accounted for 21% of total employment
Minority – 0.02% of the businesses employed more than 500 people which represents 43% of total employment
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Starts
How many businesses are started every year in Canada?
The total number of businesses grows by an average of 9,300 business per year.
New business starts - 138,100
That means 128,800 businesses die every year.
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Creation
Business Starts & Closures
How many businesses are started every year in Canada?
| Total Number of Business 2003 | Average Annual New Business Starts | Average Annual Business Closures | Average Annual Net Gain or (Loss) |
| 1,000,000 | 138,100 |
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Facts Business Dynamics in Canada 2003 – Stats Canada
Business Creation
Business Starts & Closures
How many businesses are started every year in Canada?
| Total Number of Business 2003 | Average Annual New Business Starts | Average Annual Business Closures | Average Annual Net Gain or (Loss) |
| 1,000,000 | 138,100 | 128,800 | 9,300 |
The total number of businesses grows by an average of 9,300 business per year.
New business starts - 138,100
That means 128,800 businesses die every year.
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Facts Business Dynamics in Canada 2003 – Stats Canada
Survival Rates
Growth (1991 – 2003)
Roughly 1/4 ceased to operate within the first two years
Just over 1/3 survived 5 years or more
Only 1/5 were still in operation after 10 years.
Best time to start? At the beginning of economic recovery.
Strongest growth was in the “high-knowledge” sector (15%)
Slowest growth was in goods-producing (1%)
The firms that are started in a period of economic recovery have a much better chance of survival than those that are started during an economic downturn.
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Now that you know…
Do these facts surprise you?
Most of our case studies are about the 0.02% in the “Big Business” category
Are there lessons to be learned that can be applied to the 99.98%?
How might strategy help or hinder the success of SME’s?
How might strategy help or hinder the success of Big Business?
Perspectives on Big Business
Consumers want Big Business to not only fully contribute to the financial wellbeing of the company and economy but to lead the way in other areas.
What are those areas?
Perspectives on Big Business
Consumers want Big Business to not only fully contribute to the financial wellbeing of the company and economy but to lead the way in other areas.
What are those areas?
Corporate Social Responsibility
Employee Empowerment
Diversity Initiatives
Sustainability
Environmental Consciousness
Management Transparency
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Triple Bottom Line
People Planet Profit
Triple Bottom Line (Eco-Capitalism)
Benefits
Difficulties
Triple Bottom Line
Benefits
Difficulties
Listen to Steve Pinetti of Kimpton Hotels on this video blurb
http://www.youtube.com/watch?v=SnBqj8EpQdc&feature=related
Listen to Dr. Alfredo Sfeir-Younis, from Zambuling Institute, discussing global leadership values and issues regarding the Triple Bottom Line
http://www.youtube.com/watch?v=lCh2zUNuNcc
http://www.youtube.com/watch?v=SnBqj8EpQdc&feature=related
http://www.youtube.com/watch?v=lCh2zUNuNcc
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Triple Bottom Line
Benefits
Difficulties
“Steve Pinetti of Kimpton Hotels explains how the company's internal environmental policies led to unintentional benefits, including saving money and attracting customers. ‘For a program that did not start out with a marketing motivation, it is a marketing dream come true.’ ”
Internationally recognized environmental economist, Dr. Alfredo Sfeir-Younis, says that there are low levels of coherence which impedes the triple bottom line from being implemented and prospering. He proposes a new overarching theory that creates a new framework. His Theory? Corporate Enlightenment.
http://www.youtube.com/watch?v=SnBqj8EpQdc&feature=related
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Triple Bottom Line
How can big business regain legitimacy with consumers?
“Business must find a way to engage positively in society, but this will not happen as long as it sees its social agenda as separate from its core business agenda.”
Michael Porter,
BusinessWeek, May 6, 2010
Accountability to all stakeholders, not simply shareholders
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Strategic Management & Firm Performance
Chapter 3
Back to the Basics
What is Strategy?
STRATEGY
Basically Strategy is…
Integrated
Coordinated
Set of commitments and actions
Designed to exploit core competencies
And gain a competitive advantage
Provide a destination (where we are going)
Give direction (going here, and not there)
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Strategy Component Parts
Strategy is…
Integrated & Coordinated
Set of Commitments and Actions
That provide a Destination (where are we going)*
And give Direction (going here, and not there)*
Designed to Exploit Core Competencies
And Gain a Competitive Advantage
* Liz’s additions
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Michael Porter, Ph.D.
Michael Porter, Harvard Professor and leading authority on strategy describes it this way…
http://www.youtube.com/watch?v=ibrxIP0H84M&feature=related
Interesting Clip - Michael Porter on “What is Strategy?” (2 Minutes)
http://www.youtube.com/watch?v=ibrxIP0H84M&feature=related
Harvard Business Review article: What is Strategy?
http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf
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Michael Porter, Ph.D.
Michael Porter, Harvard Professor and leading authority on strategy describes it this way…
http://www.youtube.com/watch?v=ibrxIP0H84M&feature=related
Separate strategy from goals, objectives and other issues
Common mistake:
Action steps mistaken for strategy
Interesting Clip - Michael Porter on “What is Strategy?” (2 Minutes)
http://www.youtube.com/watch?v=ibrxIP0H84M&feature=related
Harvard Business Review article: What is Strategy?
http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf
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Corporate Performance
What’s an organization?
A group of people who come together, pool their assets and work towards a goal.
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Corporate Performance
What’s an organization?
GOAL
A group of people who come together, pool their assets and work towards a goal.
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Owners
Leaders
Employees
Customers
Vendors
Corporate Performance
Why? Economic value
How is value determined?
Trade (this for that)
Customer trade
Employee trade
Owner trade
Balance – What’s fair?
Value Added
This is a balanced version – Average Returns or Average Value
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Resources IN
Value OUT
Corporate Performance
This is Above-Average Returns or Above-Average Value
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Resources IN
Value OUT
Corporate Performance
This is Below-Average Returns or Below-Average Value
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Resources IN
Value OUT
Measures of Firm Performance
What kinds of techniques can you use to measure a company’s performance?
Measures of Firm Performance
What kinds of techniques can you use to measure a company’s performance?
Survival
Accounting
Multiple Stakeholders
Finance & Present Value
Stock Market
Market Value Added & Economic Value Added
Balanced Score Card
Corporate Social Responsibility
Triple Bottom Line & Sustainability
Survival
Strengths
Limitations
Survival
Strengths
Limitations
Easy
Is the firm still in operation? Yes/No
Going Concern
Survival
Strengths
Limitations
Easy
Is the firm still in operation? Yes/No
Going Concern
Determining when a firm is not “living” can be difficult
Mergers?
Bankruptcy?
What about when a firm is doing well?
Above-average returns?
Accounting
Strengths
Limitations
Accounting
Strengths
Limitations
Easy
Primary management decision making tool
Comparison through ratio analysis
Measures tangible assets well
Measures profitability
Accounting
Strengths
Limitations
Easy
Primary management decision making tool
Comparison through ratio analysis
Measures tangible assets well
Measures profitability
Built in short term bias
Can be manipulated by managers
Difficult to measure intangible assets
Multiple Stakeholders
Strengths
Limitations
Multiple Stakeholders
Strengths
Limitations
Built on delivering the preferred solution to a need for each set of stakeholders
Appealing (sounds good in theory)
Multiple Stakeholders
Strengths
Limitations
Built on delivering the preferred solution to a need for each set of stakeholders
Appealing (sounds good in theory)
Cumbersome
Each stakeholder has a different criteria by which they will measure the organization
Can be a PR nightmare
Finance & Present Value
Strengths
Limitations
Finance & Present Value
Strengths
Limitations
Net present value of future cash flows (income)
Uses discount-rate for future assets
Tries to avoid short-term bias
Finance & Present Value
Strengths
Limitations
Net present value of future cash flows (income)
Uses discount-rate for future assets
Tries to avoid short-term bias
Can you always predict cash flow patterns accurately?
Is the discount-rate accurate?
Stock Market
Strengths
Limitations
Stock Market
Strengths
Limitations
Information is reflected in stock price right away so the theory is, this is more accurate
Stock market measures focus on past performance
Stock Market
Strengths
Limitations
Information is reflected in stock price right away so the theory is, this is more accurate
Stock market measures focus on past performance
Measures were not intended to give information on corporate performance but rather a how a person’s stock portfolio was doing
Some measures do not take risk into account
Halo effect on the stock market
Market Value Added & Economic Value Added
Strengths
Limitations
Market Value Added & Economic Value Added
Strengths
Limitations
MVA indicates shareholder wealth maximization (increases or losses)
EVA indicates the ability to generate MVA in future
EVA measures potential future shareholder value
Indicates that the rate of return on capital can be improved and by how much
Market Value Added & Economic Value Added
Strengths
Limitations
MVA indicates shareholder wealth maximization (increases or losses)
EVA indicates the ability to generate MVA in future
EVA measures potential future shareholder value
Indicates that the rate of return on capital can be improved and by how much
Complex measures based on adjustments in accounting measures
Easy for managers to manipulate the numbers
Does not assess economic value or profit
Balanced Scorecard
Strengths
Limitations
Balanced Scorecard
Strengths
Limitations
Performance management system
Balance measures of past and future performance
Four Questions
Customer
Finance
Internal Processes
Learning & Growth
Balanced Scorecard
Strengths
Limitations
Performance management system based on mission & vision
Balance measures of past and future performance
Four Questions
Customer
Finance
Internal Processes
Learning & Growth
Dissimilar measures
Financial measures
Non-Financial measures
Difficult to combine, contrast and compare
Forecasting performance based on non-financial measures can be difficult
Corporate Social Responsibility
Strengths
Limitations
Corporate Social Responsibility
Strengths
Limitations
Compelled to take social action–Triple Bottom Line
Marketing advantages
Four business areas:
Brand Differentiation
Human Resources
Risk Management
License to Operate
Corporate Social Responsibility
Strengths
Limitations
Compelled to take social action–Triple Bottom Line
Marketing advantages
Four business areas:
Brand Differentiation
Human Resources
Risk Management
License to Operate
Voluntary action
Manipulative marketing tactic? Green everything?
Measure both people (leaders, employees) and company to see if they “walk the talk”
A way to compare one company with others
