Copyright ©2011 Taylor & Francis Group, an informa business

Chapter 3

TOOLS OF THE TRADE

The Strategic Management ProcessStrategy is all about performance; so there is the

need to be especially practical.SM is a framework of thoughts and actions by which

firms pursue a competitive advantage and superior performance.

Even good strategies and intentions are worth little until some action is taken on their behalf.

Managing strategy requires understanding the link to action, as well as the reciprocal link from action back to strategy.

Strategic Management ProcessOrganizational

Mission, Values, & Intentions

Organizational Abilities, Skills,

& Resources

Environmental Conditions & Characteristics

Goals, Objectives, &

Strategies

Functional Strategies for

Implementation

Learning, Adaptation, and Change

Organizational Mission, Values, and IntentionsMission/Vision:

Known by various names, like vision, statement of purpose, core value statement, etc. Mission = present statement; “what we do” Vision = forward-looking statement; “what do we want

to be”

An organization’s mission is the reason it exists; it is the foundation of principles by which the firm is guided.

Every firm has a mission and set of core values. The question is whether this foundation is intentional and explicit or merely accidental and haphazard.

Organizational Mission, Values and Intentions

Mission of Nike:“To bring inspiration and innovation to

every athlete in the world.”

Mission of Duke Energy:“Our purpose is to create superior value for

our customers, employees, communities and investors through the production, conversion, delivery and sale of energy and energy services.”

Organizational Mission, Values, and Intentions

What makes a mission an effective tool?

It is more than just the quality of the values the mission depicts but the closeness with which those values are linked to real and practical actions.

If and how does this apply to Nike?

The SWOT Framework

SWOT analysis is a simple but powerful tool that is often underutilized.

Strengths and Weaknesses (internal) deal with the organizational skills, abilities, and resources of the firm.

Opportunities and Threats (external) deal with characteristics of the environment and the nature of environmental change.

The SWOT Framework

SWOT Matrix

Positive Negative

Internal Characteristics

StrengthsThe characteristics

(e.g., resources, capabilities, etc.) that give it an advantage

over competitors

WeaknessesThe characteristics (or lack thereof) that put a

firm at a disadvantage to competitors

External Factors

OpportunitiesElements or factors in the environment that a firm could exploit to its

advantage

ThreatsElements or factors in the environment that

could present problems for the firm or one or more of its businesses

The SWOT Framework

SWOT-TOWSMatrix

Internal Environment

Strengths Weaknesses

External Environme

nt

Opportunities

S-O Strategies

Taking advantage of opportunities using a

firm’s strengths

W-O Strategies

Working to overcome weaknesses to take

advantage of opportunities

Threats

S-T Strategies

Using existing strengths to minimize

effects of potential threats

W-T Strategies

Working to overcome weaknesses that

expose the firm to potential threats

Organizational Abilities, Skills, and Resources The “analysis” in SWOT analysis requires discerning the

key success factors of a particular market and then assessing the firm’s position relative to them.

Where firms have much of what is needed, they are in a position of strength; where they have little or none of what is needed, they are in a position of weakness.

Resource-based view (Barney, 1991): competitive advantage is a function of a firm’s resources C.A. Resources should be: valuable, rare, inimitable, and non-

substitutable Resources you create or bundle are often more valuable than

those that are purchased

Environmental Conditions and Characteristics

The other side of SWOT analysis, the assessment of environmental opportunities and threats, is just as important as the assessment of strengths and weaknesses.

To begin, the environment must be clearly identified.

Environmental Conditions and Characteristics

The Competitive or Industrial Environment Includes:

-Competitors-Customers-Suppliers-Regulators-Financiers

The General or Macro Environment Includes:

-Demographics-Social Forces-Economic Forces-Technology-Political Context

The Firm

Environmental Conditions and Characteristics

Environmental analysis should focus on the context in which competition takes place.

Opportunities are instances where firms can gain new competitive advantage.

Threats are hazards to competitive advantage.

Goals, Objectives, and StrategiesFirms choose their goals, based

upon their mission along with their assessments of SWOT. What do we do?What do we want to be?What do we have to work with?What are we up against?

Strategies and resource deployments then are a reflection of those goals.

Goals, Objectives, and StrategiesPrinciples for goals setting:

Goals and strategies should be consistent with the firm’s mission and flow from the conclusions of the SWOT analysis.

Strategies must fit the environment for which they were fashioned.

Goals, objectives, and strategies should be specific in the short term but general in the long term.

Goals, Objectives, and Strategies

SMART goals-Specific-goals is explicit, not vague

Measurable-achievement is quantifiable

Aggressive-achievement is challenging

Realistic-achievement is possible

Time-bound-achievement has a deadline

Functional Strategies and ImplementationFunctional strategies and implementation relate

directly to customer value.

Implementation can be complicated though because just about everything affects just about everything else.

Implementation is more than just hardware and software, more than just warehouses and trucks. It is also the human component and the know-how of making things work together.

It includes the right people, directed by the right communication system, motivated by the right compensation, supported by the right training and resources.

Functional Strategies and ImplementationAny breakdown in this complex system, any

missed step in the linkage between the concept and the customer, and the implementation will fail and the competitive advantage will suffer.

Learning, Adaptation, and Change

Business is ongoing—a contest that never really ends.

It begins with never being satisfied and never becoming complacent.

The challenge is avoiding the paradox of success.

Remember the lesson of the mythical figure Icarus.

Learning, Adaptation, and ChangeSuccess can blind a firm to the realities of a changing

external environment

Six principles to avoid the paradox of success:

Minimal consensus-disagreement can be healthy Minimal contentment-avoid getting too “comfortable” Minimal affluence-avoid “hoarding” cash

Excessive slack resources are unproductive Obscure information that would otherwise lead to change

Minimal faith-never be to sure of a plan; “be prepared” Minimal consistency-don’t avoid change

Allowing small, evolutionary changes (good) helps avoid large, revolutionary change (bad)

Minimal rationality-allow yourself to “think outside of the box”

Additional Thoughts & CaveatsStarting from Scratch is the Exception

Typically, there will be processes, investments, and people in place. In these instances, creating new strategy means initiating and managing change.

Important to remember the difficulty of changing the mindset of individuals within a firm

Even in instances where strategy making is initiated from scratch, there remain constraints:

The skills, talents, and biases of the entrepreneur The availability of resources The realities of the marketplace and the limits on the capital the firm

can raise

Additional Thoughts & Caveats

Whose Job is Strategic Management?One school of thought—The CEO and the top

management team.

However, the CEO and other top managers are often isolated by the organization and bureaucracy that surrounds them, cut off from direct and regular interaction with customers, the environment, and from day to day operations. So, they may be unaware of many of things very near the heart of their own competitive advantage.

Additional Thoughts & Caveats

Whose Job is Strategic Management?

A second school of thought—An egalitarian process, open and inclusive, but also slow, involving conflict and often too little direction and consistency.

A better approach lies between the two extremes.

The challenge for top management is to create a process that seeks and gets this diverse input but that does so without stifling momentum and the real work that must go on to deliver value to customers.

Additional Thoughts & Caveats

Intended versus Realized

Strategy may not always emerge as expected. Events intervene, conditions change, people adapt, learn, and grow and all of this variation affects the way strategy works.

Strategy can emerge differently than intended and still be considered successful.

The Honda’s growth strategy in US

Additional Thoughts & Caveats

Intended versus Realized OutcomesThe strategy process should be adaptive.

To keep the organization fit to its environment Plans should be revisited often, as conditions and

competencies change and as feedback is received New insights should be sought and standing

assumptions should be challenged General and consistent in the long term, specific

and flexible in the short term Like hitting a moving target, over and over again,

the strategic process should be continuously learning, adapting, and changing

Additional Thoughts & Caveats

A Messy ProcessThe process of strategy is not nearly so neat

and linear as often presented. Every step can affect every other step Missions and statements of purpose are influenced

by an awareness of what is possible and popular Strengths and weaknesses, opportunities and

threats are inextricably linked to the industry and environment

Implementation is often far removed from the deliberate stages of the process and so can appear more ad hoc and reactive

Additional Thoughts & Caveats

A Messy Process

It is a very human process and so is subject to all manner of human limitations and biases

Politics, self-interest, misunderstanding, and serendipity all play a role and all influence strategy as it emerges

So, it can be difficult to connect and explain all of the various analyses, strategies, and functional efforts that produce a particular set of outcomes

Additional Thoughts & Caveats

A Messy Process Recognizing that strategy can be a little

messy is key to realizing its value. Order and cleanliness, like consistency, can

be a hobgoblin in the mind of the strategist.Reality will never look as sterile as the

model. The process will never be as orderly as a textbook table of contents.

Yet, the use of these tools and learnings help manage the inherent complexity.