“management’s job is not to see the company as it is…
DESCRIPTION
Chapter Outline Developing a Strategic Vision / Mission Establishing Financial and Strategic Objectives Crafting a Strategy Factors Shaping a Company's Strategy Linking Strategy With Ethics Approaches to Performing the Strategy-Making TaskTRANSCRIPT
“Management’s job is not to see the company as it is….but as it
can become.”
“A strategy is a commitment to undertake one set of actions
rather than another.”
“Quote”
John W. Teets
Sharon M. Oster
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Chapter Outline
Developing a Strategic Vision / Mission Establishing Financial and Strategic
Objectives Crafting a Strategy Factors Shaping a Company's Strategy Linking Strategy With Ethics Approaches to Performing the
Strategy-Making Task
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Developing a Vision or Mission
Indicates the long-term course management has charted for the organization --
Business activities to be pursued
Future market position
Future customer focus
Kind of company to become
First Direction-Setting Task
Our future direction will be . . .
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Why Have a Mission orStrategic Vision?
Power of a well-conceived strategic vision
Guides managerial decision-making
Arouses employee buy-in and commitment
Prepares a company for the future
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Characteristics of a Strategic Vision
Charts a company’s future strategic course Defines the business makeup in
5 to 10 years Company specific, not generic
Provides a company with its own special identity and path to follow
The vision is not to make a profit The real mission/vision is
“what will we do to make a profit?” Requires the exercise of management foresight
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Elements of a Strategic Vision
Defines presentpresent and futurefuture business make-up of company
Charts a long-term long-term path to follow
Communicated in an inspiringinspiring and excitingexciting manner
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Defining a Company’s Business
A good business definition incorporates three factors Customer needs -- WHAT is
being satisfied Customer groups -- WHO is
being satisfied Technologies used and
functions performed -- HOW customer needs are satisfied
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Business Mission:McDonald’s
Serving a limited menu of hot, tasty food quickly in a clean, friendly restaurant for a good value to a broad base of fast-food customers worldwide.
McDonald’s serves approximately 30 million customers daily at 20,000-plus restaurants in over 90 countries.
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Broad - Narrow Mission Statements?
Narrow enough to specify real arena of interest
Serve as Boundary for what to do and not do Beacon of where top management
intends to take firm Diversified companies
employ broader business definitions
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Definitions: Broad - Narrow Scope
Broad Definition
Beverages
Children’s products
Furniture
Global mail delivery
Travel & tourism
Narrow Definition Soft drinks Toys Wrought iron lawn
furniture Overnight package
delivery Ship cruises in the
Caribbean
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Mission Statements forFunctional Departments
Spotlights department’s
Contribution to firm’s mission/vision/objectives
Role and scope of activities
Direction which department needs to pursue
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Decision Time: What Will the Vision Be?
Entrepreneurial challenge -- Creatively preparing a
company for the future Astute strategists focus on
Shifting customer needs New technologies Attractive foreign markets Growing or shrinking
opportunities
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Intel’s “Strategic Inflection Points”
Pre - mid 1980s Business focus was memory chips
Post - mid 1980s Abandon memory chip business Adopt new strategic vision
Become preeminent supplier of microprocessors to PC industry
Make PC central appliance in workplace and home
Be undisputed leader in driving PC technology forward
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Communicating the Vision
An exciting, inspirational vision Inspires, challenges, and motivates
workforceArouses strong sense of
organizational purpose and induces employee buy-in
Brings workforce together and galvanizes people to live the business
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Managerial Value: Strategic Vision and Mission
Crystallizes long-term direction Reduces risk of rudderless decision-
making Conveys organizational purpose and
identity Keeps direction-related actions of
lower-level managers on common path Helps organization prepare for the
future
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Establishing Objectives
Represent commitment to achieve specific performance targets by a certain time
Must be stated in quantifiable terms and contain a deadline for achievement
Spell-out how much of what kind of performance by when
Second Direction-Setting Task
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Purpose of Objectives
Substitutes results-oriented decision-making for aimlessness over what to accomplish
Provides benchmarks for judging organizational performance
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Strategic Management Principle
Companies whose managers set objectives for each key result area
and then press forward with actions aimed directly at achieving these performance outcomes typically outperform companies whose
managers exhibit good intentions, try hard, and hope for the best!
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Types of Objectives Required
Outcomes that improve a firm’s financial
performance
Outcomes that strengthen a firm’s
competitiveness and long-term market
position
Financial Objectives Strategic Objectives
$
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Strategic Management Principle
Every company needs
both strategic and
financial objectives!
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Examples: Financial Objectives
Achieve revenue growth of 10% per year Increase earnings by 15% annually Increase dividends per share by 5% per year Increase net profit margins from 2% to 4% Attractive EVA performance Stronger bond and credit ratings A rising stock price (outperform the S&P 500) Attractive increases in MVA Recognition as a “blue chip” company A more diversified revenue base
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Examples: Strategic Objectives
A bigger market share Quicker design-to-market times than rivals Higher product quality than rivals Lower costs relative to key competitors Broader product line than rivals A stronger reputation with customers than rivals Better customer service than rivals Recognition as a leader in technology Wider geographic coverage than rivals More innovative products than rivals
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Corporate Objectives: McDonald’s
To achieve 100 percent total customer satisfaction . . .
everyday . . . in every restaurant . . . for every customer.
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Corporate Objectives: 3M Corporation
30 percent of the company’s annual sales must come from
products fewer than four years old.
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Corporate Objectives: Anheuser-Busch
To make all our companies leaders in their industries in quality while exceeding customer expectations.
To achieve a 50% share of the U.S. beer market. To establish and maintain a dominant leadership
position in the international beer market. To provide all our employees with challenging and
rewarding work, . . . , and opportunities for personal development, advancement, and competitive compensation.
To provide our shareholders with superior returns by achieving double-digit annual earnings per share growth, . . .
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Strategic or Financial Objectives --Which Take Precedence?
Pressures for better short-term financial performance become pronounced when
Firm is struggling financially Resource commitments for new strategic
initiatives may hurt bottom-line for several years Proposed strategic moves are risky
A firm that consistently passes up opportunities to strengthen its long-term competitive position
Risks diluting its competitiveness Risks losing momentum in its markets Can hurt its ability to fend off rivals’ challenges
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Strategic Management Principle
Building a stronger long-term competitive position benefits shareholders more lastingly than improving short-term
profitability!
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The Concept of Strategic Intent
A company exhibits STRATEGIC INTENT when it relentlessly pursues an ambitious strategic
objective and concentrates its competitive actions and energies on achieving that objective!
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The Concept of Strategic Intent
Indicates firm’s intent to stake out a particular position over the long-term
Serves as a rallying cry for employees to do their very best
Signals deep-seated commitment to winning
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Objectives Are Needed at All Levels
Process is top-down, not bottom-up!
1. First, establish organization-wide objectives
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4. individual objectives come last
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Strategic Management Principle
Objective-setting needs to be more of a top-down than a bottom-up process in order to guide lower-level managers
and organizational units toward outcomes that support the
achievement of overall business and company objectives.
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Crafting a Strategy
An organization’s strategy deals with
How to make management’s strategic vision a reality
The game plan for
Moving the company into an attractive business position
Building a sustainable competitive advantage
Third Direction-Setting Task
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Strategizing Is HOW To . . .
Achieve performance targets Out-compete rivals
Achieve sustainable competitive advantage
Strengthen firm’s long-term competitive position
Make the strategic vision a reality
Our game plan for running the company will be . . .
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Fig. 2-1(a): Levels of Strategy-Making:A Diversified Company
Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level Managers
Business-Level Managers
OperatingManagers
Functional Managers
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Levels of Strategy-Making:A Single-Business Company
Business Strategy
Two-Way Influence
Two-Way Influence
Functional Strategies
Operating Strategies
Executive-Level Managers
OperatingManagers
Functional Managers
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Corporate Strategy fora Diversified Company
CorporateStrategy
How MuchDiversification
Kind of Diversification
Responses toChanging Conditions
Efforts to Build CompetitiveAdvantage ViaDiversification
Moves to StrengthenPositions and Profitsin Present BusinessesMoves to
Add New Businesses
Approach toCapital Allocation
Moves to DivestWeak Units
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Tasks of Corporate Strategy
Moves to achieve diversification Actions to boost performance of
individual businesses Capturing synergy among business units
2 + 2 = 5 effects! Establishing investment priorities and
steering corporate resources into the most attractive business units
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Strategy Components ofa Single-Business Company
BusinessStrategy
Strategic Alliances and CollaborativePartnerships
Responses to Changing Conditions
Basic CompetitiveApproach
Moves toSecureCompetitiveAdvantage
Geographic coverage;approach to verticalintegration
ManufacturingStrategy
Marketing Strategy
R & DStrategy
Human Resources Strategy Finance Strategy
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What Business Strategy Involves Forming responses to changes in industry and
competitive conditions, buyer needs and preferences, economy, regulations, etc.
Crafting competitive moves leading to sustainable competitive advantage
Building competitively valuable competencies and capabilities
Uniting strategic initiatives of functional areas Addressing strategic issues facing the
company
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Functional Strategies
Game plan for a strategically-relevant function, activity, or business process
Details how key activities will be managed
Provide support for business strategy
Specify how functional objectives are to be achieved
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Operating Strategies
Concern narrower strategies for managing grassroots activities and strategically-relevant operating units
Add detail to business and functional strategies but of lesser scope
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Example: Operating Strategy
To boost productivity by 10%, managers of firm with low-price, high-volume strategy take following actions:
Recruitment manager develops selection process designed to weed out all but best-qualified candidates
Information systems manager devises way to use technology to boost productivity of office workers
Compensation manager devises improved incentive compensation plan
Purchasing manager obtains new efficiency-increasing tools and equipment
Boosting Worker Productivity
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Example: Operating Strategy
Manufacturer of plumbing equipment emphasizes quick delivery and accurate order-filling as keystones of its customer service approach. Warehouse manager took following approaches:
Inventory stocking strategy allowing 99% of all orders to be completely filled without backordering any item
Staffing strategy of maintaining workforce capability to ship any order within 24 hours
Improving Delivery & Order-Filling
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Networking of Missions,Objectives, and Strategies
Level 1
Level 2
Level 3
Level 4
CorporateLevel
Objectives
Overall Scopeand Strategic
Vision
CorporateLevel
Strategy
BusinessLevel
Objectives
BusinessLevel
Strategic Vision
BusinessLevel
Strategies
FunctionalObjectives
Functional Missions
FunctionalStrategies
OperatingObjectives
OperatingMissions
OperatingStrategies
Two-Way Influence Two-Way Influence Two-Way Influence
Two-Way Influence Two-Way Influence Two-Way Influence
Two-Way Influence
Corporate-LevelManagers
Business-LevelManagers
Functional Managers
Plant Managers,Lower-Level Supervisors
Two-Way Influence Two-Way Influence
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Factors Shaping theChoice of Company Strategy
CompetitiveConditions &
IndustryAttractiveness
Societal, Political,
RegulatoryFactors
CompanyOpportunities
&Threats
Company’s Strategic Situation
Influencesof Key
Executives
ResourceStrengths
&Weaknesses
Shared Values&
Culture
DetermineRelevanceof Internal
& External Factors
Identify &
Evaluate Alterna-
tives
Craftthe
Strategy
External Factors
Internal Factors
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Social, Political, Regulatory,and Citizenship Factors
Pressures from special interest groups Glare of investigative reporting Health and nutrition concerns Concerns about alcohol and drug abuse Sexual harassment Corporate downsizing Impact of plant closings on communities Rising/falling interest rates Recessionary economic conditions Trade restrictions, tariffs, and import quotas
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Corporate Social Responsibility
Conduct company activities within bounds of what is considered ethical and in public interest
Respond positively to emerging societal priorities and expectations
Demonstrate willingness to take needed action ahead of regulatory confrontation
Balance stockholder interests against larger interest of society as a whole
Be a “good citizen” in community
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Competitive Conditions andIndustry Attractiveness
A company’s strategy has to be responsive to Fresh moves of rival competitorsChanges in industry’s price-cost-profit
economicsShifting buyer needs and expectationsNew technological developmentsPace of market growth
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Strategic Management Principle
A company’s strategy can’t produce real market success unless it is well-matched to
industry and competitive conditions!
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Company Opportunities and Threats
For strategy to be successful, it has to be well matched to
A company’s best opportunities
Threats to the company’s well-being
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Company Strengths, Competencies, and Competitive Capabilities
A company must have or be able to acquire the resources, competencies, and competitive capabilities needed to execute the chosen strategy
Resource deficiencies, gaps in skills, and weaknesses in competitive position make pursuit of certain strategies risky or altogether unwise
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Strategic Management Principle
A company’s strategy ought to be grounded in its resource strengths and in what it is good at doing (its competencies and competitive capabilities); it is perilous
to craft a strategy whose success is dependent on resources and capabilities
that a company lacks!
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Ethical Responsibilitiesof Firm to Stakeholders
Owners/shareholders - Expect some form of return on their investment
Employees - Expect respect for their worth and devoting their energies to firm
Customers - Expect reliable, safe product or service
Suppliers - Expect equitable relationship with firm
Community - Expect businesses to be good citizens in their community
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Tests of a Winning Strategy
GOODNESS OF FIT TESTHow well is strategy matched
to firm’s situation? COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainable competitive advantage?
PERFORMANCE TESTDoes strategy boost firm performance?
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Strategic Management Principle
To be a real winner, a strategy must
(1) Fit the enterprise’s situation
(2) Build sustainable competitive advantage
(3) Improve company performance
