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STRATEGIC MANAGEMENT PROCESS

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Concepts and Cases Arthur A. Thompson, Jr. & A. J. Strickland, III Tenth Edition The University of Alabama Screen graphics created by: Jana F. Kuzmicki, Indiana ... – PowerPoint PPT presentation

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Title: STRATEGIC MANAGEMENT PROCESS


1
STRATEGIC MANAGEMENT Concepts and Cases Arthur
A. Thompson, Jr. A. J. Strickland, III Tenth
Edition The University of Alabama
Screen graphics created by Jana F. Kuzmicki,
Indiana University Southeast
2
CHAPTER 1
  • THE STRATEGIC MANAGEMENT PROCESS

Screen graphics created by Jana F. Kuzmicki,
PhD, Indiana University Southeast
3
Without a strategy the organization is like a
ship without a rudder, going around in circles.
  • Joel Ross and Michael Kami
  • The McGraw-Hill Companies, Inc., 1998

Irwin/McGraw-Hill
4
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

5
Thinking StrategicallyThe 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?

6
What Is Strategy?
Concept
  • Competitive moves and business approaches
    management employs in running a company
  • Managements game plan to
  • Please customers
  • Position a company in its chosen market
  • Compete successfully
  • Achieve good business performance

7
Why Are Strategies Needed ?
  • To proactively shape how a companys business
    will be conducted
  • To mold the independent actions and decisions of
    managers and employees into a coordinated,
    companywide game plan

8
Strategic Management Concept
Competent execution of a well-conceived strategy
is a proven recipe for organizational success
and the best test of managerial excellence!
9
The Five Tasksof Strategic Management
Task 1
Task 2
Task 3
Task 4
Task 5
Craft a Strategy to Achieve Objectives
Set Objectives
Develop a Strategic Vision Mission
Implement Execute Strategy
Evaluate Make Corrections
Improve/ Change
Revise as Needed
Revise as Needed
Improve/ Change
Recycle as Needed
10
Developing a Vision and Mission
The First Task of Strategic Management
  • Begins with thinking strategically about
  • The firms future business makeup
  • Where to take the firm
  • The task is to
  • Create a roadmap of a companys future
  • Decide what future business position to stake out
  • Provide long-term direction
  • Give the firm a strong identity

11
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 firms future
    business path
  • The kind of company it is trying to become
  • Customer needs to be satisfied in the future

12
Developing a Strategic Vision
  • A strategic vision is a roadmap of a companys
    future --
  • Direction it is headed
  • Business position it intends to stake out
  • Capabilities it plans to develop
  • Customer needs it intends to serve

13
Examples Mission andVision Statements
  • McDonalds Corporation
  • McDonalds 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.

14
Examples Mission andVision Statements
  • Otis Elevator
  • Our 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 Corporation One vision drives
everything we do A computer on every desk and
in every home using great software as an
empowering tool.
15
Examples Mission andVision Statements
  • Avis Rent-a-Car
  • Our business is renting cars. Our mission is
    total customer satisfaction.

American Red Cross The 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.
16
Examples Mission andVision Statements
  • 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.

17
Examples Mission andVision Statements
  • 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.

18
Examples Mission andVision Statements
  • Intel
  • Intel supplies the computing industry with chips,
    boards, systems, and software. Intels products
    are used as building blocks to create advanced
    computing systems for PC users. Intels mission
    is to be the preeminent building block supplier
    to the new computing industry worldwide.

Compaq Computer To be the leading supplier of
PCs and PC servers in all customer segments.
19
Examples Mission andVision Statements
  • Long John Silvers
  • To be Americas 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 Squibb The 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.
20
Setting Objectives
The Second Task of Strategic Management
  • 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

21
Types of Objectives Required
Financial Objectives
Strategic Objectives
  • Outcomes focused on improving a firms
    competitiveness and its long-term business
    position
  • Outcomes focused on improving a firms financial
    performance


22
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 SP 500 average
  • Maintain a positive cash flow
  • Achieve and maintain a AA bond rating

23
Examples Strategic Objectives
  • Increase firms market share
  • Overtake key rivals on quality or customer
    service or product performance
  • Attain lower overall costs than rivals
  • Boost firms reputation with customers
  • Attain stronger foothold in international markets
  • Achieve technological superiority
  • Become leader in new product introductions
  • Capture attractive growth opportunities

24
Example Nikes Corporate Objectives
  • Protect and 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 and manage the companys international
    business as it continues to develop.
  • Continue the drive for increased margins through
    proper inventory management and fewer,
    better products.

25
Example McCormicksCorporate 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.

26
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.

Dominos Pizza To safely deliver a hot, quality
pizza in 30 minutes or
less at a fair price and a
reasonable profit.
27
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.

28
Examples Strategic andFinancial Objectives
  • 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
Poors
industrial stock index.
29
Example Strategic andFinancial Objectives
  • General Electric
  • To 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.

30
Examples Strategic andFinancial Objectives
  • Bristol-Myers Squibb
  • To 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.

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.
31
Examples Strategic andFinancial Objectives
  • 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

32
Crafting a Strategy
The Third Task of Strategic Management
  • 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

33
Crafting a Strategy
  • 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 . . .
34
Strategy Is Both Planned and Reactive to
Changing Circumstances
Planned (or Intended) Strategy
Actual Strategy
Adaptive Reactions
35
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 . . .
36
Understanding Company Strategy -- What to
Look For
Diversification
Responses to Changing Conditions
Actions to Strengthen Resources Capabilities
How Functional Activities Are Managed
Offensive Moves to Gain Edge
Pattern of Actions That Define Strategy
Changes in Product Line, Quality, or Service
Defensive Moves
Pursuing New Opportunities
Geographic Coverage
Forward or Backward Integration, Collaboration
37
Strategy Example McDonalds
  • Strategic priorities
  • Continued growth
  • Providing exceptional customer care
  • Remaining an efficient and quality producer
  • Offering high value and
    good-tasting products
  • Effectively marketing McDonalds brand on a
    global scale

38
Core Elements ofMcDonalds 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

39
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

40
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

41
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

42
What Is a Strategic Plan?
Where firm is headed -- Strategic vision and
business mission
Short and long term performance targets
--Strategic and financial objectives
Action approaches to achieve targeted results --
A comprehensive strategy
43
Implementing Strategy
The Fourth Task of Strategic Management
  • 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

44
Strategy Implementation
Strategy implementation is an internal,
operations-driven activity involving organizing,
budgeting, motivating, culture-building, supervisi
ng, and leading to make the strategy work as
intended!
45
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

46
Evaluating Performance
The Fifth Task of Strategic Management
  • 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

47
Evaluating Performance
  • Corrective adjustments
  • Alter long-term direction
  • Redefine the business
  • Raise or lower performance objectives
  • Modify the strategy
  • Improve strategy execution

48
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

49
Who Performs the FiveStrategic Management
Tasks?
  • Senior Corporate Level Executives
  • Subsidiary Business Unit Managers
  • Functional Area Managers
  • Operating Managers

50
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

51
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

52
Why Planners Should NotBe Strategy Makers
  • Managers may toss tough decisions to planners
  • Planners know less about companys 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

53
Strategic Management Principle
  • Strategy-making is a job for line managers, not a
    staff of planners -- doers should be the
    strategy-makers!

54
Strategic Role of aBoard of Directors
  • Continuously audit validity of a companys
    long-term direction and strategy
  • Evaluate strategic leadership skills of the CEO
    and candidates to succeed the CEO

55
Strategic Management Principle
  • A board of directors role in the strategic
    management process is to critically appraise and
    ultimately approve strategic action plans, but
    rarely, if ever, to develop the details!

56
Benefits of StrategicApproach to Managing
  • Guides entire firm regarding what it is we are
    trying to do and to achieve
  • Lowers managements threshold to change
  • Provides basis for evaluating competing budget
    requests
  • Unifies numerous strategy-related
    decisions
  • Creates a proactive atmosphere
  • Enhances long-range performance

57
Recap of Important Terms
Strategic Vision
  • A view of an organizations future direction and
    business course a guiding concept for what the
    organization 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.

Organization Mission
58
Recap of Important Terms
Performance Objectives
  • Organizations targets for achievement both
    short and long range objectives are needed.
  • Financial performance targets a company wants to
    achieve.
  • Targets relating to strengthening a companys
    overall market position and competitive viability.

Financial Objectives
Strategic Objectives
59
Recap of Important Terms
  • 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
60
Recap of Important Terms
Strategy
  • 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 organizations
    mission and reaching target objectives.
  • Statement outlining an organizations mission and
    future direction, near-term and long-term
    performance targets, and strategy, in light of
    organizations external and internal situation.

Strategic Plan
61
Recap of Important Terms
  • 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
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