screen graphics created by: jana f. kuzmicki, indiana university southeast strategic management:...

Screen graphics created by:Jana F. Kuzmicki, Indiana University Southeast

STRATEGIC MANAGEMENT:STRATEGIC MANAGEMENT:Concepts and CasesConcepts and Cases

Arthur A. Thompson, Jr. &A. J. Strickland, III

Tenth Edition

The University of Alabama

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© The McGraw-Hill Companies, Inc., 1998

Irwin/McGraw-Hill

THE STRATEGIC THE STRATEGIC MANAGEMENT MANAGEMENT

PROCESSPROCESS

CHAPTER 1

Screen graphics created by:Jana F. Kuzmicki, PhD, Indiana University Southeast

“Without a strategy the

organization is like a ship without

a rudder, going around in circles.”

Joel Ross and Michael Kami


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“Quote”

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Chapter Outline

Five Tasks of Strategic Management Developing a Strategic Vision and Mission Setting Objectives Crafting a Strategy Implementing the Strategy Evaluating Performance and Initiating

Corrective Adjustments Why Strategic Management Is a Process Who Performs the Tasks of Strategy? Benefits of “Managing Strategically” Terms to Remember

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Thinking Strategically:The Three Big Strategic Questions

1. Where are we now -- what is our situation?

2. Where do we want to go?

Business(es) we want to be in and market positions we want to stake out

Buyer needs and groups we want to serve

Outcomes we want to achieve

3. How will we get there?

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What Is Strategy?

Competitive moves and business approaches management employs in running a company

Management’s “game plan” to Please customers Position a company in its chosen market Compete successfully Achieve good business performance

Concept

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Why Are Strategies Needed ?

To proactively shape how a company’s business will be conducted

To mold the independent actions and decisions of managers and employees into a coordinated, companywide game plan

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Strategic Management Concept

Competent execution of a well-

conceived strategy is a proven

recipe for organizational

success and the best test of

managerial excellence!

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Craft aStrategy

to AchieveObjectives

SetObjectives

Develop aStrategic

Vision& Mission

Implement& ExecuteStrategy

Evaluate & Make

Corrections

Improve/Change

Revise asNeeded

Revise asNeeded

Improve/Change

Recycleas Needed

Task 1 Task 2 Task 3 Task 4 Task 5

The Five Tasksof Strategic Management

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Developing a Vision and Mission

Begins with thinking strategically about The firm’s future business makeup Where to take the firm

The task is to Create a roadmap of a company’s future Decide what future business position to

stake out Provide long-term direction Give the firm a strong identity

The First Task of Strategic Management

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Missions vs. Strategic Visions

A mission statement focuses on current business activities Business(es)

company is in now

Customer needs currently being served

A strategic vision concerns a firm’s future business path The kind of

company it is trying to become

Customer needs to be satisfied in the future

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Developing a Strategic Vision

A strategic vision is a roadmap of a company’s future -- Direction it is headed Business position it

intends to stake out Capabilities it plans to

develop Customer needs it

intends to serve

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Examples: Mission andVision Statements

McDonald’s Corporation

McDonald’s vision is to dominate the global foodservice industry. Global dominance means setting the performance standard for customer satisfaction while increasing market share and profitability through our Convenience,

Value, and Execution Strategies.

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Otis ElevatorOur mission is to provide any customer a means

of moving people and things up, down, and sideways over short distances with higher

reliability than any similar enterprise in the world.

Microsoft CorporationOne vision drives everything we do: A computer

on every desk and in every home using great software as an empowering tool.

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Avis Rent-a-CarOur business is renting cars. Our mission is total

customer satisfaction.

American Red CrossThe mission of the American Red Cross is to

improve the quality of human life; to enhance self-reliance and concern for others; and to help

people avoid, prepare for, and cope with emergencies.

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The Body Shop

We aim to achieve commercial success by meeting our customers’ needs through the provision of high

quality, good value products with exceptional service and relevant information which enables customers to

make informed and responsible choices.

Eastman Kodak

We are in the picture business.

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Ritz-Carlton Hotels

The Ritz-Carlton Hotel is a place where the genuine care and comfort of our

guests is our highest mission.

We pledge to provide the finest personal service and facilities for our guests who will always enjoy

a warm, relaxed yet refined ambiance.

The Ritz-Carlton experiences enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.

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Intel

Intel supplies the computing industry with chips, boards, systems, and software. Intel’s products are

used as “building blocks” to create advanced computing systems for PC users. Intel’s mission is to be the preeminent building block supplier to the

new computing industry worldwide.

Compaq ComputerTo be the leading supplier of PCs and PC

servers in all customer segments.

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Long John Silver’sTo 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 every visit.

Bristol-Myers SquibbThe mission is to extend and enhance human

life by providing the highest quality health and personal care products. We intend to be the

preeminent global diversified health and personal care company.

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Setting Objectives

Establishing OBJECTIVES

Converts vision into specific

performance targets

Creates yardsticks to track performance

Pushes firm to be inventive and focused

Helps prevent coasting and complacency if

targets require stretch

The Second Task of Strategic Management

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Types of Objectives Required

Outcomes focused on improving a firm’s

financial performance

Outcomes focused on improving a firm’s competitiveness and its long-term business position

Financial Objectives Strategic Objectives

$

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Examples: Financial Objectives

Grow earnings per share 15% annually Boost annual return on investment (or EVA) from

15% to 20% Increase annual dividends per share

to stockholders by 5% each year Strive for stock price appreciation

equal to or above the S&P 500 average Maintain a positive cash flow Achieve and maintain a AA bond rating

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Examples: Strategic Objectives

Increase firm’s market share Overtake key rivals on quality or customer

service or product performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities

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Example: Nike’s Corporate Objectives

Protect and improve Nike’s position as the number one athletic brand in America.

Build a strong momentum in growing fitness market. Intensify 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.

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Example: McCormick’sCorporate Objectives

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 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 andFinancial Objectives

Banc One Corporation

To be one of the top three banking companies in terms of market share in all

significant markets we serve.

Domino’s Pizza

To safely deliver a hot, quality pizza in 30 minutes or less at a fair price

and a reasonable profit.

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Example: Strategic andFinancial Objectives

Ford Motor Company To satisfy our customers by providing

Quality cars and trucks, Developing new products, Reducing the time it takes to bring new

vehicles to market, Improving the efficiency of all our plants &

processes, and Building on our teamwork with employees,

unions, dealers, and suppliers.

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Exxon

To 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.

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Example: Strategic andFinancial Objectives

General ElectricTo become the most competitive enterprise in the world by being number one or number two in market share in every business the company

is in. To achieve an average of 10 inventory turns and a corporate operating profit margin

of 16% by 1998.

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Atlas Corporation

To become a low-cost, medium-size gold producer, producing in excess of

125,000 ounces of gold a year and building gold reserves of 1,500,000 ounces.

Bristol-Myers SquibbTo focus globally on those businesses in health and personal care where we can

be number one or number two through delivering superior value to the customer.

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3M Corp.

Annual growth in earnings per share of 10% or better, on average

A return on stockholders’ equity of 20-25%

A return on capital employed of 27% or better

Have at least 30% of sales come from products introduced in the past four years


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Crafting a Strategy

Strategy involves determining whether to Concentrate on a single business or several

businesses (diversification) Cater to a broad range of customers or focus

on a particular niche Develop a wide or narrow product line Pursue a competitive advantage based on

Low cost or Product superiority or Unique organizational capabilities

The Third Task of Strategic Management

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Involves deciding how to Respond to changing

buyer preferences Outcompete rivals Respond to new

market conditions Grow the business

over the long-term Achieve performance

targets

Our strategy will be . . .

Crafting a Strategy

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Strategy Is Both Planned Planned andand Reactive Reactive to Changing Circumstances

ActualStrategy

Planned (or Intended)Strategy

AdaptiveReactions

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The Hows ThatDefine a Firm's Strategy

How to grow the business How to please customers How to outcompete rivals How to respond to changing market

conditions How to manage each functional piece of the

business and develop needed organizational capabilities

How to achieve strategic and financial objectives

Strategy is HOW to . . .

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Understanding Company Strategy -- What to Look For

Patternof Actions

That DefineStrategy

Actions to Strengthen Resources & Capabilities

DiversificationResponses toChanging Conditions

Offensive Moves to Gain Edge

Changes in Product Line,Quality, or Service

GeographicCoverage

Forward orBackward Integration,

Collaboration

How Functional Activities Are

Managed

Defensive Moves

Pursuing New Opportunities

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Strategy Example: McDonald’s

Strategic priorities Continued growth Providing exceptional customer care Remaining an efficient and quality

producer Offering high value and

good-tasting products Effectively marketing McDonald’s brand

on a global scale

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Core Elements ofMcDonald’s Strategy

Add 2500 restaurants annually Promote frequent customer visits via attractive menu

items, low-price specials, and Extra Value Meals Be highly selective in granting franchises Locate on sites offering convenience to customers

and profitable growth potential Focus on limited menu and consistent quality Careful attention to store efficiency Extensive advertising and use of Mc prefix Hire courteous personnel; pay an equitable wage;

provide good training

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Crafting Strategy Is anExercise in Entrepreneurship

Strategy-making is a market-driven and customer-driven activity that involves Risk-taking and venturesomeness Innovation and business creativity Keen eye for spotting market

opportunities Keen observation of customer

needs Choosing among alternatives

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Characteristics ofEntrepreneurial Managers

Boldly pursue new strategic opportunities

Emphasize out-innovating the competition

Lead the way to improve firm performance

Willing to be a first-mover and take risks

Respond quickly and opportunistically

to new developments

Devise trail blazing strategies

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Why Do Strategies Evolve?

There is always an ongoing need to react to Shifting market conditions Fresh moves of competitors New technologies Evolving customer preferences Political and regulatory changes New windows of opportunity The crisis of the moment

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What Is a Strategic Plan?

Where firm is headed -- Strategic vision and business mission

Action approaches to achieve targeted results -- A comprehensive strategy

Short and long term performance targets --Strategic and financial objectives

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Implementing Strategy

Creating fits between way things are done and what it takes for effective strategy execution

Getting the organization to execute strategy proficiently and efficiently

Producing excellent results in a timely manner

The Fourth Task of Strategic Management

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Strategy implementation is aninternal, operations-driven activityinvolving organizing, budgeting,

motivating, culture-building,supervising, and leading to

“make the strategy work”as intended!

Strategy implementation is aninternal, operations-driven activityinvolving organizing, budgeting,

motivating, culture-building,supervising, and leading to

“make the strategy work”as intended!

Strategy Implementation

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What Does StrategyImplementation Include?

Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Motivating people to pursue objectives Tying rewards to achievement of results Creating a strategy-supportive corporate culture Installing needed information, communication, and

operating systems Instituting best practices for continuous

improvement Exerting strategic leadership

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Evaluating Performance

The tasks of strategy are not a one-time only exercise Times and conditions change Events unfold

Better ways to do things emerge

New managers with different ideas take over

The Fifth Task of Strategic Management

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Evaluating Performance

Corrective adjustments

Alter long-term direction

Redefine the business

Raise or lower performance objectives

Modify the strategy

Improve strategy execution

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Characteristics of the Strategic Management Process

Need to perform tasks never goes away

Boundaries among tasks are blurry

Strategizing is not isolated from other managerial activities

Time required comes in lumps and spurts

The big challenge is to get the best strategy-supportive performance from employees, perfect current strategy, and improve strategy execution

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Who Performs the FiveStrategic Management Tasks?

Senior Corporate Level Executives

Subsidiary Business Unit Managers

Functional Area Managers

Operating Managers

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Strategizing: An Individual or Group Responsibility?

Teams are increasingly used because Strategic issues cut across departmental

lines Ideas of people with different backgrounds

can be tapped into More people will have an ownership stake in

the strategy

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Role of Strategic Planners

Gather necessary information Provide support in revising strategic plans Coordinate review and approval process Crystallize strategic issues to be

addressed Conduct studies of industry and

competitive conditions Establish an annual review cycle Develop strategy performance

assessments

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Why Planners Should NotBe Strategy Makers

Managers may toss tough decisions to planners

Planners know less about company’s situation

Difficult to fix accountability for poor results

Managers have no “buy in” to strategy

Strategic planning may be viewed as an unproductive “bureaucratic” activity

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Strategic Management Principle

Strategy-making is a job for

line managers, not a staff of

planners -- doers should be the

strategy-makers!

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Strategic Role of aBoard of Directors

Continuously audit validity of a company’s long-term direction and strategy

Evaluate strategic leadership skills of the CEO and candidates to succeed the CEO

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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 develop the details!

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Benefits of StrategicApproach to Managing

Guides entire firm regarding “what it is we are trying to do and to achieve”

Lowers management’s threshold to change

Provides basis for evaluating competing budget requests

Unifies numerous strategy-related decisions

Creates a proactive atmosphere

Enhances long-range performance

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Recap of Important Terms

A view of an organization’s future direction and business course; a guiding concept for what the organization is trying to do and to become.

Represents management’s customized answer to the question “what is our business and what will it 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.

Strategic Vision

Organization Mission

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Organization’s targets for achievement; both short and long range objectives are needed.

Financial performance targets a company wants to achieve.

Targets relating to strengthening a company’s overall market position and competitive viability.

Performance Objectives

Financial Objectives

Strategic Objectives

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Achievement levels to be reached within the next three to five years.

Near-term performance targets; they establish the pace for achieving the long-range objectives.

Long-Range Objectives

Short-Range Objectives

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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 the how of pursuing an organization’s mission and reaching target objectives.

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.

Strategy

Strategic Plan

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Includes the full range of managerial activities associated with putting the chosen strategy into place, supervising its pursuit, and achieving the targeted results.

Strategy Implementation

screen graphics created by: jana f. kuzmicki, indiana university southeast strategic management:...

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