module 1 - the strategic management process; an introduction
DESCRIPTION
Strategic ManagementTRANSCRIPT
Module 1
The Strategic Management
Process:
An Introduction
Module Outline
• Five Risk of Strategic Management:
1. Development a Strategic Vision and Mission
2. Setting Objectives
3. Crafting a Strategy
4. Implementing a Strategy
5. Evaluating Performance and Initiating Corrective
Adjustments
• Strategic Management is an ongoing process.
• Who performs the tasks of strategy?
• Benefits of “Managing Strategically”
• Terms to remember
What is “Strategy”?
• Consists of competitive moves and business
approaches to produce successful
performance.
• Management’s “game plan” for
– Running the business
– Strengthening fir’s competitive position
– Satisfying customers
– Achieving performance targets
Thinking Strategically: 3 Big Strategic
Questions
1. Where are we now?
2. Where do we want to go?
• Business positions management wants to
stake out
• Financial outcomes to achieve
• Strategic outcomes to achieve
3. How will we get there?
The 5 Tasks of Strategic Management
Task 1 Task 2 Task 3 Task 4 Task 5
Developing
Strategic
Mission &
Vision
Setting
Objectives
Crafting
Strategy to
Achieve
Objectives
Implementi
ng &
Executing
Strategy
Evaluating
&
Correcting
Revise as
Needed
Revise as
Needed
Improve /
Change
Improve /
Change
Recycle as
Needed
5 Tasks of Strategic Management
1. Defining business, stating a mission and
forming a strategic vision.
2. Setting measurable objectives
3. Crafting a strategy to achieve objectives
4. Implementing and executing strategy
5. Evaluating performance, reviewing new
developments, and initiating corrective
adjustments
1. Developing a Vision and Mission
• Begins with thinking strategically
– About the firm’s future makeup
– Forming vision of firm’s future in 5 – 10 years
• Task is to
– Inject sense of purpose into firm’s activities
– Provide LONG-TERM DIRECTION
– Give firm STRONG IDENTITY
– Decide “WHO we are, WHAT we do, and
WHERE we headed”
An organization’s mission
– Reflects management’s vision of what firm seeks
to d and become
– Provides clear view of what firm is trying to
accomplish for its customers
– Indicates intent to stake out a particular business
position
1. Developing a Vision and Mission
Specific Questions That Help Form
Strategic Visions
• What business are we in now?
• What business do we want to be in?
• What will our customers want in future?
• What are expectations of our stakeholders?
• Who will be our future competitors?
Suppliers? Partners?
• What should our competitive scope be?
• How will technology impact our industry?
• What environmental scenario are possible?
Why a Shared Vision Matters?
• A strategic vision widely shared among all
employees functions similar to how a magnet
aligns iron filings
• When all employees are committed to firm’s
long-term direction, optimum choices on
business decisions are most likely
– Individuals and teams known intent of firm’s
strategic vision
– Daily execution of strategy is improved
Examples: Mission / Vision Statements
AVIS Rent-A-Car
– Our business is renting cars. Our mission is total
customer satisfaction.
McCormick & Company
– The primary mission is to expand our worldwide
leadership position in spice, seasoning, and
flavoring markets.
Saturn Division of General Motor (GM)
– To market vehicles developed and manufactured
in the U.S. that are world leaders in quality, cost,
and customer satisfaction through the integration
of people, technology, and business systems
and to transfer knowledge, technology, and
experience throughout GM.
Eastman Kodak
– To be the best in chemicals and electronic
imaging.
Examples: Mission / Vision Statements
Public Service Company of New Mexico
– Our mission is to work for the success of people
we serve by providing our customers reliable
electric service, energy information, and energy
options that best satisfy their needs.
American Red Cross
– The mission is to improve the quality of human
life; to enhance self-reliance and concern for
others; and to help avoid, prepare for, and cope
with emergencies.
Examples: Mission / Vision Statements
McCaw Cellular Communications
– To develop a reliable wireless network that
empowers people with the freedom to travel
anywhere – across the hall or across the
continent – and communicate effortlessly.
Long John Silver’s
– To be America’s best quick service restaurant
chain. We will provide each guest great tasting,
healthful, reasonably priced fish, seafood, and
chicken in a fast, friendly manner on visit.
Examples: Mission / Vision Statements
Sample Mission Statements
Otis Elevator
with higher reliability than any
similar enterprise in the world.
Distinction:
a means of moving people and
things up, down, and sideways
over short distances
Contribution:
To provide any customerKey Market:
Sample Mission Statements
Deluxe Checks
Error-free means absolutely no
errors; timely means a 48-hour
turnaround.
Distinction:
with error-free financial
instruments delivered in a timely
fashion.
Contribution:
To provide all banks, S&L, and
investment firms
Key Market:
Sample Mission Statements
Courtyard by Marriott
which is consistently perceived as
clean, comfortable, well maintained,
and attractive, staffed by friendly,
attentive, and efficient people.
Distinction:
with premier, moderate priced
lodging facility
Contribution:
To provide economy and quality
minded travelers
Key Market:
Sample Mission Statements
McDonald’s
delivered in a consistent, low-key
décor and friendly atmosphere.
Distinction:
food prepared in the same high-
quality manner world-wide, tasty
and reasonably priced,
Contribution:
To offer the fast food customerKey Market:
Sample Mission Statements
Dayton Hudson
Trend means private labels, fast
reaction, measured risks; service
means warm, friendly, helpful
people in convenient, efficient
environment.
Distinction:
by providing trend merchandising
and superior service.
Contribution:
To appeal younger-thinking, style-
conscious, moderate and better-
priced customer
Key Market:
Sample Mission Statements
Wal-Mart
in a manner in which they continue
to think of us fondly.
Distinction:
all their household needsContribution:
To offer all of the fine customers in
our territories
Key Market:
Why Bother to Define “Who,” “What,”
and “Where”?
• Helps managers avoid trap of
– Trying to move in too many directions
– Being so confused about firm’s direction that
effective actions are NOT taken to move in ANY
direction
• To successfully chart firm’s future, managers
must
– Know where firm is now
– Have view of where it ought to be headed
– Recognize time to shift to a new direction
2. Setting Objectives
• Purpose of setting OBJECTIVES is to
– Convert mission into performance targets
– Create yardstick to track performance
– Establish performance goals requiring stretch
– Pus firm to be inventive, intentional, focused
• Setting CHALLENGE but ACHIEVABLE objectives guards against
– Complacency
– Drift
– Internal confusion
– Status quo performance
Two Types of Objectives Needed
• Financial Objectives
– Outcomes that relate to improving firm’s financial
performance
• Strategic Objectives
– Outcomes that will result in greater
competitiveness and stronger long-term market
position
Examples of Types of Objectives
• Financial Objectives
– Increase earnings growth from 10% to 15% per year
– Boost return on equity investment from 15% to 20%
– Achieve and maintain a AA bond rating
• Strategic Objectives
– Up firm’s market share from 18% to 22%
– Overtake rivals on quality or customer service
– Attain lower overall costs than rivals
– Become leader in new product introductions
– Achieve technological superiority
Example: Corporate Objectives
Nike• Protect and improve Nike’s position as the number one
athletic brand in America.
• Build a strong momentum in growing fitness market.
• Intensity the company’s effort to develop products that women need and want.
• Explore the market for products specifically designed for the requirements of maturing Americans.
• Direct and manage the company’s international business as it continues to develop.
• Continue the drive for increased margins through proper inventory management and fewer, better products.
Example: Corporate Objectives
McCormick & Company
• Improve returns from each of our existing operating
groups.
• Dispose of those parts of our businesses which
cannot generate adequate returns or do not fit with
our business strategy.
• Achieve a 20% return on equity
• Achieve net sales growth rate of 10% per year.
• Maintain total debt to total capital at 40% or less.
• Pay out 25% to 35% of net income in dividends.
Examples: Strategic and Financial
Corporate Objectives
Nations Bank
– To build the premier financial services company
in the U.S.
Ford Motor Company
– To satisfy our customers by providing quality
cars and trucks, developing new products,
reducing time it takes to bring new vehicles to
market, improving efficiency of all our plants and
processes, and building on our teamwork with
employees, unions, dealers, and suppliers.
Examples: Strategic and Financial
Corporate Objectives
Exxon
– Provide shareholders a secure investment with a
superior return.
Alcan Aluminum
– To be the lowest cost producer of aluminum and
to outperform the average return on equity of the
Standard and Poor’s industrial stock index.
Examples: Strategic and Financial
Corporate Objectives
General Electric
– To become the most competitive enterprise in
the world by being number on or number two in
the market share in every business the company
is in.
Apple Computer
– To offer the best possible personal computing
technology, and to put that technology in the
hands of as many people as possible.
Examples: Strategic and Financial
Corporate Objectives
Atlas Corporation
– To become a low-cost, medium-size gold
producer, producing in excess pf 125,000
ounces of gold a year and building gold reserves
of 1,500,000.
Quaker Oats Company
– To achieve return on equity at 20% or above,
“real” earnings growth averaging 5% or better
over time, be a leading marketer of strong
consumer brands, and improve the profitability of
low-return businesses or divest them.
3. Crafting a Strategy
• Strategy-Making concerns HOW to
– Achieve desired strategic and financial
objectives
– Out-compete rivals and win a competitive
advantage
– Respond against threats to firm’s well-being
– Grow the business
Strategy as Planned and Reactive to
Changing Circumstances
Actual
Strategy
Planned
Strategy
Adaptive
Reaction
Crafting a Strategy
• Objectives = Targeted results & outcomes
• Strategy = HOW to achieve outcomes
• A firm’s Actual Strategy is a blend of
– Deliberate and purposeful actions – intended
strategy
– As needed reactions to unanticipated
developments and fresh competitive pressures –
unintended strategy
Understanding Company’s Strategy –
What to Look for?
The Pattern
of Actions
That Define
Strategy
Diversification
Responses to
Changing Conditions
Fresh Offensive to
Gain Market Edge
Product Line, Quality,
or Service
Geography Coverage
Forward or Backward
Integrations
Pursuing New
Opportunities
Defensive Moves
How Key Functions
Are Managed
Actions to Improve
Short-Term profits
What Does a Firm’s Strategy Consist
of?
• How to satisfy costumers
• How to grow the business
• How to respond to changing industry and
market conditions
• How to best capitalize on new opportunities
• How to manage each functional piece of
business
• How to achieve strategic and financial
objectives
Strategy Example: MacDonald’s
• Strategic and Financial Objectives
– Continued growth
– Providing exceptional customer care
– Remaining an efficient and quality producer
– Offering high value
– Effectively marketing McDonald’s brand on a
global scale
Key Elements of McDonald’s Strategy
• Adding 700 – 900 restaurants annually
• Using new menu items, low prices specials, Extra Value Meals to promote frequent costumer visits
• Being highly selective in granting franchises
• Choosing sites convenient to costumers
• Focusing on limited product line and consistent quality
• Careful attention to store efficiency
• Extensive advertising and use of Mc prefix
• Hiring courteous personnel; paying an equitable wage; and providing good training
Crafting Strategy Is an Exercise in
Entrepreneurship
• Strategy-Making is entrepreneurial
– Risk-taking and venturesomeness
– Innovation and business creativity
– Keen eye for spotting market opportunities
– Choosing among alternatives
• Strategy-Making challenge is to keep strategy
– Fresh
– Timely
– Responsive to changing conditions
– Opportunistic
Characteristics of Entrepreneurial
Managers
• Boldly pursues new strategic opportunities
• Emphasizes out-innovating the competition
• Lead the way to improve the firm
performance
• Willing to be a first-mover and take risks
• Responds quickly and opportunistically to
new developments
• Devises trail blazing strategies
Why Good Management of Strategy
Matters?
• Powerful execution of a powerful strategy is a
proven recipe for success
• Crafting and implementing strategy are core
management functions
• To qualify as well-managed, a firm should
– Have an attractive strategy
– Demonstrate proficiency in executing strategy
• A good strategy is strong enough to overpower
rivals and flexible enough to overcome obstacles
• Without proficiency strategy execution, firm cannot
achieve peak performance
Why Is a Firm’s Strategy Constantly
Evolving?
• Because firms often need to react to
– Changing market conditions
– Moves of competitors
– New technologies and production capabilities
– Evolving customer needs and preferences
– Political and regulatory changes
– New windows of opportunity
– Fresh ideas to improve current strategy
– A crisis situation
What Is a Strategic Plan?
• A Strategic Plan maps out
– Where firm is headed
– Short and long range performance targets
– Actions of management to achieve outcomes
• A Strategic Plan consists of
– A strategic vision and business mission
– Strategic and financial performance objectives
– Comprehensive strategy for achieving the
objectives
4. Implementing Strategy
• Implementing strategy involves
– Creating fits between way things are done and what it takes for effective strategy execution
– Executing strategy proficiently and efficiently
– Producing excellent results in timely manner
• Most important FITS are between strategy AND
– Organizational capabilities
– Reward structure
– Internal support systems
– Organizational culture
Strategy Implementation
Strategy implementation is an internal,
operations-driven activity involving
organizing, budgeting, motivating, culture-
building, supervising, and leading to “make
the strategy work” as intended!
What Does Strategy Implementation
Include?
• Building a firm capable of carrying out strategy successfully
• Allocating ample resources to strategy-critical activities
• Establishing strategy-supportive policies
• Instituting best practices and programs for continuous improvement
• Installing support systems
• Tying reward structure to achieve results
• Creating a strategy-supportive corporate culture
• Exerting strategic leadership
5. Evaluating Performance
• None of the tasks of strategic management are a one-time only exercise
– Time and conditions change
– Events unfold
– Better ways to do things become evident
– New managers with different ideas take over
• Managers must
– Constantly evaluate performance
– Monitor situation and decide how well things are going
– Make necessary adjustments
5. Evaluating Performance
• Corrective adjustments can entail
– Altering firm’s long-term direction
– Redefining the business
– Raising or lowering performance objectives
– Modifying the strategy
– Improving strategy execution
Characteristics of Strategic
Management Process
• Need to perform tasks never goes away because
changes occur regularly
• Boundaries among tasks are blurry
• Doing the 5 tasks is not isolated from other
managerial activities
• Time required to do tasks comes in lumps and
spurts
• Pushing to get best strategy-supportive
performance from each employee, perfecting
current strategy, and improving strategy execution
Who Performs the 5 Strategic
Management Tasks?
• Chief Executive Officer (CEO) and other
senior corporate level executives
• Managers of Subsidiary Business Units
(SBU)
• Functional area managers within a SBU
• Managers of major operating departments
and geographic units
Role of Strategic Planners
• Collect information needed by strategy managers
• Conduct background analyses as needed
• Establish and administer an Annual Strategy
Review Recycle
• Coordinate review and approval process of
strategic plans
• Assist all managers to focus on strategic issues
WARNING!
Planner should NOT make strategic decisions or do
strategic thinking for line managers
Why Planners Should Not Be Strategy
Maker?
• Planners know less about situation, placing
them in weaker position than line managers
to devise workable action plan
• Separate responsibility and accountability for
strategy-making from implementing
A MAJOR FLAW!
• Allow managers to toss decisions to planners
and avoid doing own strategic thinking
• Implementers have no “buy in” to strategy
Strategic Management Principle
Strategy-making is NOT a proper task for
strategic planners!
Strategic Roles of a Board of Directors
• See that 5 strategic management tasks are
performed adequately
• Review important strategic moves and
officially approve strategic plans
• Ensure strategic proposals are adequately
analyzed and superior to alternatives
• Evaluate caliber of top management’s
strategy-making and implementing skills
Strategic Management Principle
A Board of Director’s role in the strategic
management process is to critically
appraise and ultimately approve strategic
action plans, but rarely, if ever, to
participate directly in the details of strategy
making!
Benefits of Strategic Approach to
Managing
• Guides entire firm regarding “what it is we are trying to do and achieve”
• Lowers management’s threshold to change
• Provides basis for evaluating competing budget request and steering resources to strategy-supportive, results-producing areas
• Unites numerous strategy-related decisions of managers at all organizational levels
• Creates a proactive, rather than reactive, atmosphere
• Enhances long-range performance
Recap of Important Terms
Strategic Vision
– A view of an organization’s future direction and
business course; a guiding concepts for what the
organization is trying to do and to become.
Organization Mission
– Represents management’s customized answer
to the question “what is our business and what it
will be.” A mission statement broadly outlines the
organization’s future direction and serves as a
guiding concept for what the organization is to do
and to become.
Recap of Important Terms
Performance Objectives
– Organization’s targets for achievement; both
short and long range objectives are needed.
Financial Objectives
– Financial performance targets a company
wants to achieve.
Strategic Objectives
– Targets related to strengthening a company’s
overall market position and competitive
viability.
Recap of Important Terms
Long-Range Objectives
– Achievement levels to be reached within the next
3 to 5 years.
Short-Range Objectives
– Near-term performance targets; they establish
the pace for achieving the long-range objectives.
Recap of Important Terms
Strategy
– Managerial action plan for achieving organizational objectives; strategy is mirrored in the pattern of moves and approaches devised by management to produce the desired performance. Strategy is how of pursuing an organization’s mission and reaching target objectives.
Strategic Plan
– Statement outlining an organization’s mission and future direction, near-term and long-term performance targets, and strategy, in light of organization’s external and internal situation.
Recap of Important Terms
Strategy Formulations
– Refers to the entire direction-setting management function – conceptualizing an organization’s mission, setting specific performance objectives, and forming a strategy. The end product of strategy formulation is a strategic plan.
Strategy Implementation
– Includes the full range of managerial activities associated with putting the chosen strategy into place, supervising its pursuing, and achieving the targeted results.
End of Module 1