Chapters 1 and 2

1
Chapter 3 The Internal Environment and Strategic
Direction
2
Learning Objectives

• Understand the
• The leadership responsibilities of executive
  managers
• The responsibilities of boards of directors
• The importance of organizational culture in the
  management of organizations
• The characteristics of resources and capabilities
  that create a foundation for competitive
  advantage
• The usefulness of the Value Chain in
  understanding sources of competitive advantage
• The process of establishing strategic direction

3

• The Strategic Management Process

Internal and External Analysis
Strategy Formulation (corporate and business
level)
Strategic Direction
Strategy Implementation and Control
Strategic Restructuring
4
Situational Leadership

• Leadership style should fit the situation
• Effective leaders can employ a range of styles,
  from coercive to coaching to consensus-building
• Most successful leaders exhibit a high degree of
  emotional intelligence

5
Leadership Styles

• Authoritative Inspire with a vision, set
  direction. Appropriate when new direction needed.
  
• Affiliative Build teams, create harmony.
  Appropriate in stressful situations.
• Democratic Build consensus, create
  participation. Appropriate when need input from
  key employees and buy-in.
• Pace-setting Set high standards. Appropriate
  when need quick results from a highly motivated
  team.
• Coaching Develop people for the future.
• Coercive Demand immediate compliance.
  Appropriate in a crisis.

Sources Daniel Goleman, What makes a leader?
HBR on What Makes a Leader, (2001), 1-25 and
Daniel Goleman, Leadership that gets results,
HBR on What Makes a Leader, (2001), 53-85.
6
Emotional Intelligence

• Self Awareness Ability to understand own moods
  and emotions as well as their impact on others
• Self Regulation Ability to regulate impulses,
  to think before acting
• Motivation Drive to achieve, optimism, passion
• Empathy Ability to understand the emotional
  make-up of other people
• Social Skill Ability to manage relationships
  for particular purposes

Sources Daniel Goleman, What makes a leader?
HBR on What Makes a Leader, (2001), 1-25 and
Daniel Goleman, Leadership that gets results,
HBR on What Makes a Leader, (2001), 53-85.
7
Four Primary Responsibilities of Leaders

• Design organizational purpose, vision and core
  values
• Develop policies, strategies and structure
• Create an environment for organizational learning
• Serve as a steward for the organization

8
Corporate Governance
Board of Directors
Shareholders
Chief Executive Officer (CEO)
Top Manage- Ment Team
VP-Legal
VP-Financial
VP-Marketing
VP-Human Res.
9
Agency Theory

• Agents--managers with a fiduciary duty to act in
  the best interests of owners
• Agency problem--managers maximize their own
  self-interests at the expense of owners
• High salaries of CEOs
• Short-term risk vs. long-term benefits
• Empire building for status
• CEO duality

10
Governance Trends
11
Boards of Directors of High Performing Companies

• Active in governance processes
• Include BOTH insiders and outsiders
• Interlocking directorates

12
Employees and Culture

• Employees and the way they are managed can be
  important sources of competitive advantage.
• An organizations culture, the system of shared
  values that guides employee beliefs and behavior,
  is another important component of the internal
  environment.

13
Resources Leading to Sustainable Competitive
Advantage
Organizational Resources and Capabilities Financi
al Physical Human Organizational
VALUABLE?
DIFFICULT OR COSTLY TO IMITATE?
APPLIED TO MULTIPLE BUSINESSES?
UNIQUE?
Sustainable Competitive Advantage
Core Competency or Capability
Competitive Advantage
14
The Value Chain

• Primary Activities
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Service
• Activities that Support the Primary Activities
• Administration
• Technology Development
• Human Resource Development
• Procurement

15
Use of Financial Analysis in Strategic Management

• Identify Strengths and Weaknesses
• Diagnose Problems
• Declining Profitability
• Insufficient Liquidity
• Leverage Too High or Too Low
• Internal Mismanagement
• Determine Ability to Finance Future Plans
• Ability to Borrow
• Stock vs. Debt

16
Some Commonly Used Ratios

• Profitability
• Gross Profit Margin
• Net Profit Margin
• ROA
• ROE
• Liquidity
• Current
• Quick
• Leverage
• Debt to Equity
• Total Debt to Total Assets (Asset Ratio)
• Activity
• Asset Turnover Average Collection Period
• Accounts Receivable Turnover Inventory Turnover

17

• The Strategic Management Process

Internal and External Analysis
Strategy Formulation (corporate and business
level)
Strategic Direction
Strategy Implementation and Control
Strategic Restructuring
18
Managements job is not to see the company as
it is... but as it can become.
John W. Teets, CEO Greyhound Corp.
19
Strategic Direction

• Direction is defined by mission, business
  definition, vision and enterprise strategy
• Mission Organizational purpose, what it does,
  and why it exists.
• Business definition Part of mission, defines
  products, markets, functions served, and resource
  conversion processes.
• Vision What the organization wants to be in the
  future.
• Enterprise Strategy--Link between mission,
  vision, and values. What should the organization
  be? down but they still exist, even if by default

20
Business Definition

• What is our product or service?
• Who are our customers? (markets and distribution
  channels)
• What do we do for them or provide for them?
  (functions served by our products or services)
• How do we produce the service or do it? (What are
  our resource conversion processes, technologies)

21
Business Definition for Toys R Us

• Markets - Children, grandparents, parents
• Functions served (by the stores) - Availability,
  selection, low prices, easy access
• Resource conversion processes - Buying,
  inventorying, distributing, limited service,
  promotion and advertising
• Products/services - Toys and games, clothing and
  furniture for children

22
Mission and Vision of MateriaLink

• Mission - MateriaLink provides an electronic
  marketplace that allows buyers in Engine
  Procurement, and Construction (EPC) companies
  worldwide to source, procure and dispose of
  surplus and new materials in the most efficient
  manner possible.
• Vision - MateriaLink is the premier electronic
  marketplace for project surplus, new and EPC
  industry information. We will be the preferred
  provider for all EPC and new materials
  transactions. We are committed to continuing to
  provide a site functionality that will enhance
  profitability and cut costs for our users.