2CHAPTER

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

The Strategic Management Process

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Part 1 Strategy Analysis

2–2

LO 2-1 Explain the role of vision, mission, and values in the strategic management process.

LO 2-2 Describe and evaluate the role of strategic intent in achieving long-term goals.

LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications.

LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage.

LO 2-5 Explain why anchoring a firm in ethical values is essential for long-term success.

LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2-3

Chapter Case 2 Chapter Case 2 Teach For America: Inspiring Future Leaders

• TFA Mission: Eliminate educational inequality Started by an undergraduate student,

Wendy Kopp

Inspiring mission

Provide a meaningful service option for bright young people

• Make teaching to the neediest high prestige

Over 45,000 applicants for 4,500 jobs

TFA Video

Vision, Mission, and Values

• What are visionary organizations?

Begin with the end in mind

Similar to designing & building a home Frank Lloyd Wright

Vision – what to ultimately accomplish?

Mission – what is the firm about?

Values – how to accomplish goals?

2–5

1–6

STRATEGY HIGHLIGHT 2.1STRATEGY HIGHLIGHT 2.1Winning Through Strategic

Intent: The “Pocketable” Radio

• Small Japanese Company after WWII, founded by Masura Ibuka

Invented an electric rice cooker

Wanted to license the transistor from Bell Labs in U.S.

Japanese Government & Bell Labs both said NO

Persisted with request – Finally,1953 got transistor.

“Beat Bell Labs” to pocket-sized radio

1957 – Launched world’s FIRST pocket radio

1958 – Changed company name to….

LO 2-1 Explain the role of vision, mission, and values in the strategic management process.

LO 2-2 Describe and evaluate the role of strategic intent in achieving long- term goals.

LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications.

LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage.

LO 2-5 Explain why anchoring a firm in ethical values is essential for long-term success.

LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2-7

Vision, Mission, and Values

• Customer-Oriented Missions

• Define the firm in terms of solutions for customers Disney: "Make People Happy" Enhanced strategic flexibility NOT the same as listening to customers

• Product-Oriented Missions

• Define the firm in terms of products or services U.S. Railroads: "Safest… North American railroad”

Missed the opportunity to move into delivery before

UPS & Federal Express

2–8

Defining the Business: The Starting Point of Strategy

•Example: Fall of the Railroads

““They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.”

Theodore Levitt “Market Myopia”

2–9

Mission Statements andCompetitive Advantage

• Do mission statements help gain and sustain competitive advantage?

Results are inconclusive Need strategic commitments to succeed

(e.g., Boeing Dreamliner)

• Positive associations – Visionary firms, like Merck

• Negative associations – Better World Books

• No associations – Intel

LO 2-1 Explain the role of vision, mission, and values in the strategic management process.

LO 2-2 Describe and evaluate the role of strategic intent in achieving long-term goals.

LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications.

LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage.

LO 2-5 Explain why anchoring a firm in ethical values is essential for long-term success.

LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2–11

Living the Values

• Ethical standards and norms that govern behavior.

• McKesson (health care) – ICARE

Shared principles a framework for daily interactions

• Dark side of values

Bernard Madoff Ponzi scheme estimated at $65 billion in fraud

Enron One of the largest bankruptcies in U.S. history Over 50,000 jobs lost (Enron and Arthur Andersen)

LO 2-1 Explain the role of vision, mission, and values in the strategic management process.

LO 2-2 Describe and evaluate the role of strategic intent in achieving long-term goals.

LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications.

LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage.

LO 2-5 Explain why anchoring a firm in ethical values is essential for long term success.

LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2–13

Strategy as Strategic Planning

• Top-down rational planning

Define mission, vision, and goal (strategic intent)

External analysis of opportunities and threats

Internal analysis of strengths and weaknesses

Create strategic fit through SWOT

Formulate appropriate strategy

Implement chosen strategy

Monitor performance and modify if necessary

2–14

6

Identify current mission and strategic goals

Conduct competitive analysis:•strengths•weakness•opportunity•threats

Develop specific strategies:•corporate•business•functional

carry out strategic plans

maintain strategic control

assess organisational factors

assess environmental factors

Strategy implementationStrategy formulation

Fundamental Question of the Choice of Goals: Planning for what Purpose(s)?

•Profitability (net profits)•Efficiency (low costs)•Market Share•Growth (e.g., increase in total

assets, sales, etc)•Shareholder Wealth

(dividends plus stock price appreciation)

•Utilization of Resources (e.g., ROE, ROI)

•Reputation•Contribution to

Stakeholders (e.g., employees, society)

•Survival (avoid bankruptcy)

Strategy as Scenario Planning

• Scenario planning

Envision different "what-if" plans

Generates a dominant plan

Must implement the most probable option

Keeps other scenarios in the event of changes…

"Arab Spring" impact on the oil industry?

Good example of the AFI framework

Scenario planning at Shell

2–17

EXHIBIT 2.2 Scenario Planning in the AFI Strategy Framework

2–18

1–19

STRATEGY HIGHLIGHT 2.2STRATEGY HIGHLIGHT 2.2 Shell’s Future Scenarios

• Petroleum industry use of scenario planning

Shell made right move in the 1960s

Again in the 1980s

Communism might fall in Soviet Union

Now projecting 20% energy from renewables by 2025

Strategy as Planned Emergence

• Strategic Initiative Google 50% of the firm's new products come from

the "20% rule" (one day a week on own ideas) Enron Wind investment by GE

• Mintzberg Planned Emergence

• Strategy can come from top or bottom: Some intended strategies drop off in the process Allows for new emerging ideas to become realized Resource allocation process Serendipity can have dramatic effects

2–20

Strategic Initiatives and Serendipity

• Japan Railways

Constructing a bullet train through the mountains north of Tokyo, which required many tunnels

Persistent flooding

Complex engineering plans to drain the water

Maintenance worker suggested that the fresh water off the mountains should not be drained, but rather should be bottled

1,000 vending machines on 1,000 railroad platforms in and around Tokyo, and home delivery of water, juices, and coffee followed.

The employee’s proposal had turned this “bottom-up” strategy into a multi-million dollar business. 2–21

EXHIBIT 2.3 Mintzberg’s Planning Framework

2–22

23

Strategy Making : Design or Process?Strategy Making : Design or Process?

Strategy as Design

Planning andrational choice

INTENDEDSTRATEGY

Many decision makersresponding to multitude ofexternal and internal forces

REALIZED STRATEGY

EMERGENTSTRATEGY

Strategy as Process

Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from

implementation•The fallacy of formalization --inhibits flexibility, spontaneity,

intuition and learning.

Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from

implementation•The fallacy of formalization --inhibits flexibility, spontaneity,

intuition and learning.

Strategy Making : Design or Process?Strategy Making : Design or Process?

Strategy as Design

Planning andrational choice

INTENDEDSTRATEGY

Many decision makersresponding to multitude ofexternal and internal forces

REALIZED STRATEGY

EMERGENTSTRATEGY

Strategy as Process

Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from

implementation•The fallacy of formalization --inhibits flexibility, spontaneity,

intuition and learning.

Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from

implementation•The fallacy of formalization --inhibits flexibility, spontaneity,

intuition and learning.

1–24

STRATEGY HIGHLIGHT 2.3STRATEGY HIGHLIGHT 2.3 “It’s Not What We Do!”

• Starbucks

Autonomous action of mid-level manager Tenacity and persistence of a store manager in

Southern California

Risk of failure

Possible career-limiting action

Organization must be willing to accept new ideas

Frappuccino was born! Contributing 20% of the $11billion in revenues for Starbucks

in 2010.

25BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 20019

Managers as decision makersAssumptions of the Rational Model

Managers as decision makersAssumptions of the Rational Model

Rationaldecisionmaking

Rationaldecisionmaking

An optimal decision is possible

An optimal decision is possible

All relevant informationis available

All relevant informationis available

All relevant information is understandable

All relevant information is understandable

All alternatives are knownAll alternatives are known

All possible outcomes knownAll possible outcomes known

26BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 200110

Managers as decision makersSatisficing

Managers as decision makersSatisficing

‘Satisficing’decisionmaking

‘Satisficing’decisionmaking

Time constraintsTime constraints

Limited ability to understand all factors

Limited ability to understand all factors

Inadequate baseof information

Inadequate baseof information

Limited memory ofdecision-makers

Limited memory ofdecision-makers

Poor perception of factorsto be considered

in decision process

Poor perception of factorsto be considered

in decision process

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1-40

Improving Strategic Improving Strategic DecisionDecision--MakingMaking

Prior Hypothesis

Bias

EscalatingCommitment

Reasoningby

Analogy

Representa-tiveness

Illusion of

Control

Copyright

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14-25Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Symptoms of Groupthink and How to Prevent It

• Symptoms

• Illusion of invulnerability

• Belief in the inherent morality of the group

• Stereotyped views of members of opposing groups

• Application of pressure to members who express doubts about the group’s shared allusions or question the validity of arguments proposed

• Practice of self-censorship

• Appointment of mindguards

Groupthink

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14-24Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Using Conflict-Inducing Decision-Making Techniques in Case Analysis

Groupthink

Devil’s Advocacy

Dialectical Inquiry

Use conflict-inducing decision-making techniques to help prevent groupthink and lead to better decisions.

14-29Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Two Conflict-Inducing Decision-Making Processes

Adapted from Exhibit 14.4 Two Conflict-Inducing Decision-Making Processes

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