The Strategic Management Process 2

8/11/2019 The Strategic Management Process 2

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THE STRATEGIC MANAGEMENT

PROCESS:

An Introduction

MODULE 1These copyrighted materials are being used with the express written permission of Richard D. Irwin, Inc., and are intended for the benefit of enrolled students using

Thompson & Strickland, Strategic Management: Concepts and Cases(9th edition). All rights reserved. Copyright 1995 Richard D. Irwin, Inc. These files originally werecreated in PowerPoint format, and they have been transformed into "browser-friendly" HTML format with Microsoft's PowerPoint Internet Assistant.

Glenn M. Gomes, Ph.D.*

Professor Emeritus*(University of Southern California; at CSUC since 1985)


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MODULE OUTLINE

Five Tasks of Strategic Management

Developing a Strategic Vision & Mission

Setting Objectives

Crafting a Strategy

Implementing the Strategy

Evaluating Performance & Initiating Corrective

Adjustments

Strategic Management is an Ongoing Process

Who Performs the Tasks of Strategy?

Benefits of Managing Strategically

Terms to Remember


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WHAT IS STRATEGY?

Concept & Definition

Consists of competitive moves & business

approaches to produce successful

performance Managements game plan for

Running the business

Strengthening firms competitive position

Satisfying customers

Achieving performance targets


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THINKING STRATEGICALLY:

THREE BIG STRATEGIC QUESTIONS

1. WHERE ARE WE NOW?

2. WHERE DO WE WANT TO GO?

Business positions management wants tostake out

FINANCIAL outcomes to achieve

STRATEGIC outcomes to achieve

3. HOW WILL WE GET THERE?


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FIVE TASKS OF

STRATEGIC MANAGEMENT

1. Defining business, stating a mission, &

forming a strategic vision

2. Setting measurable objectives

3. Crafting a strategy to achieve objectives

4. Implementing & executing strategy

5. Evaluating performance, reviewing newdevelopments, & initiating corrective

adjustments


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DEVELOPING A VISION & MISSION

First Task of Strategic Management

Begins with thinking strategically About firms

future makeup &

Forming vision of firms future in 5-10 years

Task is to

Inject sense of purpose into firms activities

Provide LONG-TERM DIRECTION

Give firm STRONG IDENTITY Decide WHO we are, WHAT we do, & WHERE we

are headed


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DEVELOPING A VISION & MISSION

An organizations MISSION

Reflects managements vision of what firm

seeks to do & become

Provides clear view of what firm is trying to

accomplish for its customers

Indicates intent to stake out a particularbusiness position


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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 scenarios are possible?


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WHY A SHARED VISION MATTERS

A strategic vision widely shared among all

employees functions similar to how a magnetaligns iron filings

When all employees are committed to firmslong-term direction, optimum choices onbusiness decisions are more likely

Individuals & teams know intent of firms strategic

vision

Daily execution of strategy is improved


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EXAMPLES: MISSION / VISION

STATEMENTS

EXAMPLES: MISSION / VISION STATEMENTS

AVIS RENT-A-CAR

Our business is renting cars. Our mission istotal customer satisfaction.

McCORMICK & COMPANY

The primary mission is to expand ourworldwide leadership position in the spice,

seasoning, and flavoring markets.


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STATEMENTS

SATURN DIVISION OF GM

To market vehicles developed and manufacturedin the U.S. that are world leaders in quality, cost,

and customer satisfaction through theintegration of people, technology, and businesssystems and to transfer knowledge, technology,and experience throughout GM.

EASTMAN KODAK To be the worlds best in chemicals and

electronic imaging.


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STATEMENTS

PUBLIC SERVICE COMPANY OF NEW MEXICO

Our mission is to work for the success of peoplewe serve by providing our customers reliable

electric service, energy information, and energyoptions that best satisfy their needs.

AMERICAN RED CROSS

The mission is to improve the quality of humanlife; to enhance self-reliance and concern forothers; and to help people avoid, prepare for,and cope with emergencies.


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STATEMENTS

MCCAW CELLULAR COMMUNICATIONS

To develop a reliable wireless network thatempowers people with the freedom to travel

anywhere--across the hall or across thecontinent--and communicate effortlessly.

LONG JOHN SILVERS

To be Americas best quick service restaurant

chain. We will provide each guest great tasting,healthful, reasonably priced fish, seafood, andchicken in a fast, friendly manner on every visit.


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SAMPLE MISSION STATEMENTS


Key Market: To provide any customer

Contribution: a means of moving people andthings up, down and sideways over short

distances

Distinction: with higher reliability than any

similar enterprise in the world.

Otis Elevator


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Key Market: To provide all banks, S&Ls and

investment firms

Contribution: with error-free financial

instruments delivered in a timely fashion.

Distinction: Error-free means absolutely no

errors; timely means a 48-hour turnaround.

Deluxe Checks


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Key Market: To provide economy and qualityminded travelers

Contribution: with a premier, moderate

priced lodging facility Distinction: which is consistently perceived as

clean, comfortable, well maintained, and

attractive, staffed by friendly, attentive andefficient people.

Courtyard by Marriott


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Key Market: To offer the fast food customer

Contribution: food prepared in the same

high-quality manner world-wide, tasty and

reasonably priced,

Distinction: delivered in a consistent, low-key

decor and friendly atmosphere.

McDonalds


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Key Market: To appeal to a younger-thinking,style-conscious, moderate and better pricedcustomer

Contribution: by providing trend merchandisingand superior service.

Distinction: Trend means private labels, fastreaction, measured risks; service means warm,

friendly, helpful people in a convenient, efficientenvironment.

Dayton Hudson


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Key Market: To offer all of the fine customers

in our territories

Contribution: all of their household needs

Distinction: in a manner in which they

continue to think of us fondly.

Wal-Mart


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WHY BOTHER TO DEFINE

WHO, WHAT, & WHERE?

Helps managers avoid trap of

Trying to move in too many directions

Being so confused about firms direction that effective

actions are NOT taken to move in ANY direction

To successfully chart firms 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


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TWO TYPES OF

OBJECTIVES NEEDED

Outcomes that relate to improving firms

financial performance

Outcomes that will result in greater

competitiveness & stronger long-term market

position

Financial Objectives

Strategic Objectives


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EXAMPLES OF TYPES

OF OBJECTIVESFINANCIAL OBJECTIVES

Increase earnings growth from 10 to 15% per year

Boost return on equity investment from 15 to 20%

Achieve & maintain a AA bond rating

STRATEGIC OBJECTIVES

Up firms 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


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EXAMPLE:

CORPORATE OBJECTIVES Nike Protect & improve Nikes position as the number one

athletic brand in America.

Build a strong momentum in growing fitness market.

Intensify the companys effort to develop products that

women need and want. Explore the market for products specifically designed

for the requirements of maturing Americans.

Direct & manage the companys international business

as it continues to develop. Continue the drive for increased margins through

proper inventory management and fewer, betterproducts.


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EXAMPLE: CORPORATE OBJECTIVES

McCORMICK & COMPANY mprove returns from each of our existing operating

groups.

Dispose of those parts of our businesses which cannotgenerate 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 an average earnings per share growth rate of

15% per year. Maintain total debt to total capital at 40% or less.

Pay out 25% to 35% of net income in dividends.


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EXAMPLES: STRATEGIC & FINANCIAL

CORPORATE OBJECTIVES NATIONSBANK

To build the premier financial services

company in the U.S.

FORD MOTOR COMPANY

To satisfy our customers by providing quality cars &trucks, developing new products, reducing time ittakes to bring new vehicles to market, improving

efficiency of all our plants & processes, & building onour teamwork with employees, unions, dealers, &suppliers.


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EXAMPLES: STRATEGIC &

FINANCIAL CORPORATE OBJECTIVES

EXXON

Provide shareholders a secure investment

with a superior return.

ALCAN ALUMINUM

To be the lowest cost producer of aluminum

& to outperform the average return on equity

of the Standard and Poors industrial stock

index.


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GENERAL ELECTRIC

To become the most competitive enterprise inthe world by being number one or number

two in market share in every business thecompany is in.

APPLE COMPUTER

To offer the best possible personal computingtechnology, and to put that technology in thehands of as many people as possible.


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ATLAS CORPORATION

To become a low-cost, medium-size goldproducer, producing in excess of 125,000 ouncesof 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 betterover time, be a leading marketer of strongconsumer brands, and improve the profitabilityof low-return businesses or divest them.


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CRAFTING A STRATEGY

Third Task of Strategic Management

Strategy-Making concerns HOW toAchieve

desired strategic & financial objectives

Out-compete rivals & win a competitive

advantage

Respond to changing industry & competitive

conditions

Defend against threats to firms well-being

Grow the business


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Strategy as Planned & Reactive to

Changing Circumstances Planned Strategy

Actual Strategy

Adaptive Reaction


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CRAFTING A STRATEGY

Objectives = Targeted results & outcomes

Strategy = HOW to achieve outcomes

A firms actual strategy is a blend of

Deliberate & purposeful actions - intended

strategy

As needed reactions to unanticipated

developments & fresh competitive pressures -

unintended strategy


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Understanding Company Strategy --

What to Look For

The Pattern ofActions thatDefine Strategy

Actions to Improve ShortTerm Profits

Diversification

Responses to ChangingConditions

Fresh Offensive to GainMarket Edge

Product Line, Quality, orService

Geographic Coverage

Forward or BackwardIntegration

How Key Functions AreManaged

Defensive Moves

Pursuing New Opportunities


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WHAT DOES A FIRMS

STRATEGY CONSIST OF?

How to satisfy customers

How to grow the business

How to respond to changing industry &

market conditions

How to best capitalize on new opportunities

How to manage each functional piece ofbusiness

How to achieve strategic & financial objectives


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STRATEGY EXAMPLE: McDONALDS

Strategic & financial objectivesContinued

growth

Providing exceptional customer care

Remaining an efficient & quality producer

Offering high value

Effectively marketing McDonalds brand on aglobal scale


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KEY ELEMENTS OF

McDONALDS STRATEGY

Adding 700-900 restaurants annually

Using new menu items, low price specials, Extra Value

Meals to promote frequent customer visits

Being highly selective in granting franchises

Choosing sites convenient to customers

Focusing on limited product line & consistent quality

Careful attention to store efficiency

Extensive advertising & use of Mc prefix Hiring courteous personnel; paying an equitable wage;

& providing good training


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CRAFTING STRATEGY IS AN

EXERCISE IN ENTREPRENEURSHIP

Strategy-Making is entrepreneurial

Risk-taking & 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


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CHARACTERISTICS OF

ENTREPRENEURIAL MANAGERS

Boldly pursues new strategic opportunities

Emphasizes out-innovating the competition

Leads the way to improve firm performance

Willing to be a first-mover & take risks

Responds quickly & opportunistically to new

developments Devises trail blazing strategies


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WHY GOOD MANAGEMENT

OF STRATEGY MATTERS Powerful execution of a powerful strategy is a proven

recipe for success

Crafting & implementing strategy are COREmanagement 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 &

flexible enough to overcome obstacles Without proficient strategy execution, firm cannot

achieve peak performance


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WHY IS A FIRMS STRATEGY

CONSTANTLY EVOLVING?

Because firms often need to react toChanging

market conditions

Moves of competitors

New technologies & production capabilities Evolving customer needs & preferences

Political & regulatory changes

New windows of opportunity Fresh ideas to improve current strategy

A crisis situation


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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 & business mission

Strategic & financial performance objectives Comprehensive strategy for achieving the

objectives


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IMPLEMENTING STRATEGY

Fourth Task of Strategic Management

Implementing strategy involves Creating fitsbetween way things are done & what it takes foreffective strategy execution

Executing strategy proficiently & efficiently

Producing excellent results in timely manner

Most important FITS are between strategy AND Organizational capabilities

Reward structure

Internal support systems

Organizational culture


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Strategy Implementation

Strategy implementation is aninternal, operations-driven

activity involving organizing,budgeting, motivating, culture-building, supervising, and

leading to make the strategyworkas intended!


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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 & programs for continuousimprovement

Installing support systems

Tying reward structure to achievement of results Creating a strategy-supportive corporate culture

Exerting strategic leadership


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EVALUATING PERFORMANCE

Fifth Task of Strategic Management

None of the tasks of strategic management are a

one-time only exercise

Times & 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 & decide how well things are going

Make necessary adjustments


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CHARACTERISTICS OF STRATEGIC

MANAGEMENT PROCESS

Need to perform tasks never goes away becausechanges occur regularly

Boundaries among tasks are blurry

Doing the 5 tasks is not isolated from othermanagerial activities

Time required to do tasks comes in lumps &spurts

Pushing to get best strategy-supportiveperformance from each employee, perfectingcurrent strategy, & improving strategy execution


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WHO PERFORMS THE FIVE

STRATEGIC MANAGEMENT TASKS?

Chief Executive Officer & Other Senior

Corporate Level Executives

Managers of Subsidiary Business Units

Functional Area Managers Within a Subsidiary

Business Unit

Managers of Major Operating Departments &

Geographic Units


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ROLE OF STRATEGIC PLANNERS

WARNING!Planners should NOT make strategic decisions or do strategic thinking

for line managers

COLLECT INFORMATION needed by strategymanagers

Conduct BACKGROUND ANALYSES as needed

Establish & administer an ANNUAL STRATEGY

REVIEW CYCLE COORDINATE review & approval process of

strategic plans

ASSIST all managers to focus on strategic issues


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WHY PLANNERS SHOULD NOT

BE STRATEGY MAKERS

Planners know less about situation, placingthem in weaker position than line managers todevise workable action plan

Separates responsibility & accountability forstrategy-making from implementing

A MAJOR FLAW!

Allows managers to toss decisions to planners& avoid doing own strategic thinking

Implementers have no buy in to strategy


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STRATEGIC MANAGEMENT PRINCIPLE

Strategy-making is NOT a proper task for

strategic planners!

S G C O S O


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STRATEGIC ROLES OF A

BOARD OF DIRECTORS

See that five strategic management tasks are

performed adequately

Review important strategic moves & officially

approve strategic plans

Ensure strategic proposals are adequately

analyzed & superior to alternatives

Evaluate caliber of top managements

strategy-making & implementing skills


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BENEFITS OF STRATEGIC


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BENEFITS OF STRATEGIC

APPROACH TO MANAGING

Guides entire firm regarding what it is we are trying todo & to achieve

Lowers managements threshold to change

Provides basis for evaluating competing budget

requests & steering resources to strategy-supportive,results-producing areas

Unites numerous strategy-related decisions ofmanagers at all organizational levels

Creates a PROACTIVE, rather than REACTIVE,atmosphere

Enhances LONG-RANGE performance


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RECAP OF IMPORTANT TERMS

Strategic Vision

Organization Mission

A view of an organizations future direction and

business course; a guiding concept for what theorganization is trying to do and to

become.Represents managements customized

answer to the question what is our business and

what will it be. A mission statement broadly

outlines the organizations future direction and

serves as a guiding concept for what the

organization is to do and to become.


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Long-Range Objectives

Short-Range Objectives

Achievement levels to be reached within the

next three to five years.Near-termperformance targets; they establish the pace

for achieving the long-range objectives.


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Strategy

Strategic Plan

Managerial action plan for achieving organizationalobjectives; strategy is mirrored in the PATTERN ofmoves and approaches devised by management toproduce the desired performance. Strategy is the HOWof pursuing an organizations mission and reachingtarget objectives.Statement outlining an organizationsmission and future direction, near-term and long-termperformance targets, and strategy, in light oforganizations external and internal situation.


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Strategy Formulation

Strategy Implementation

Refers to the entire direction-setting

management function -- conceptualizing anorganizations mission, setting specificperformance objectives, and forming a strategy.The end product of strategy formulation is astrategic plan. Includes the full range ofmanagerial activities associated with putting thechosen strategy into place, supervising its pursuit,and achieving the targeted results.


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The Strategic Management Process 2

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