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STRATEGIC MANAGEMENT

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Title: STRATEGIC MANAGEMENT


1
STRATEGIC MANAGEMENT
Screen graphics created by AP Mazarura
2
  • Without a strategy the organization is like a
    ship without a rudder, going around in circles.
  • Joel Ross and Michael Kami

3
Thinking Strategically The Three Big Strategic
Questions
  • Where are we now what is our situation?
  • 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
  • How will we get there?

4
CHAPTER 1
  • THE STRATEGIC MANAGEMENT
  • PROCESS

Screen graphics created by A P Mazarura,
Midlands State University, Gweru, Zimbabwe
5
Chapter Outline
  • Five tasks of strategic management
  • Developing a strategic vision and mission
  • Setting objectives
  • Crafting performance and initiating corrective
    adjustments
  • Why strategic management is a process
  • Who performs the task of strategy?
  • Benefits of Managing Strategically
  • Terms to remember

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
The Five Tasks of Strategic Management
Task 1 Task 2 Task 3 Task 4 Task 5
Develop a strategic vision and mission Set objectives Craft strategy to achieves objectives Implement execute strategy Evaluate make corrections
. . . . . . . . . . . . . . .
Revise as needed Revise as needed Improve and change Improve and change Recycle as needed
. . . . . . . . . .
9
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

10
Strategic Management Concept
  • N/L

11
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

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 and Vision 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
Example Mission and Vision 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.

15
Examples Mission and Vision Statements
  • Ritz-Carlton Hotels
  • The Ritz-Calton 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 always enjoy a
    warm, relaxed yet refined ambiance.
  • The Ritz-Carlton experience enlivens the senses,
    instils well-being, and fulfils even the
    unexpressed wishes and needs of our guests.

16
Examples Mission and Vision 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.

17
Examples Mission and Vision 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

18
Examples Mission and Vision 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 and Vision 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 intended to be the
    preeminent global diversified health and personal
    care company.

20
Types of Objectives Required
  • Financial Objectives
  • Outcomes focused on improving a firms financial
    performance
  • Strategic Objectives
  • Outcomes focused on improving a firms
    competitiveness and its long term business
    position

21
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

22
Setting Objectives
  • The Second Task of strategic Management
  • Establishing Objectives
  • Converts vision into specific performance
    targets.
  • Create yardsticks to track performance
  • Pushes firm to be inventive and focused
  • Helps prevent coasting and complacency if targets
    require stretch

23
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

24
Example 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 companys effort to develop
    products that are 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 McCormicks Corporate Objectives
  • Dispose of those parts of our business 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 earning per share growth rate
    of 15 per year
  • Maintain a total debt to total capital at 40 or
    less
  • Pay out 25 to 35 of net income in dividends

26
Example Strategic and Financial 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.

27
Example Strategic and Financial 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.

28
Examples Strategic and Financial 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.

29
Examples Strategic and Financial 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.

30
Examples Strategic and Financial 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 125000 ounces of gold a
    year and building gold reserves of 1 500 000
    ounces.

31
Example Strategic Financial 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 employer of 27 or better
  • Have at least 30 of sales come from products
    introduced in the past four years.

32
Crafting a strategy
  • Involves deciding how to
  • Respond to changing buyer preferences
  • Outcome rivals
  • Respond to new market conditions
  • Grow the business over the long term
  • Achieve perfomance targets

33
The Hows That Define a Firms Strategy
  • How to grow the business
  • How to please customer
  • How to out complete rivals
  • How to respond to changing market conditions
  • How to manage each functional piece of the
    business and develop needed organisational
    capabilities
  • How to achieve strategic and financial objectives

34
Crafting a Strategy
  • The Third Task of Strategic Management
  • Strategy involves determining whether to
  • Concentrate on a single business or several
    business (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 organisational capabilities

35
Strategy Example McDonalds
  • Strategic Priorities
  • Continued growth
  • Providing
  • Remaining an efficient and quality producer
  • Offering high value and good tasting products.
  • Effectively marketing McDonalds brand on a
    global scale

36
Crafting strategy is an Exercise 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

37
Why Do Strategies Evolve?
  • There is always an ongoing need to react to
  • Shifting market conditions
  • Fresh moves of competitions
  • New technologies
  • Evolving customer preferences
  • Political and regulatory changes
  • New windows of opportunity
  • Then crisis of the moment

38
Core Elements of Mc Donalds 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 convince 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
Characteristics of Entrepreneurial Managers
  • Boldly pursue new strategic opportunities
  • Emphasize out-innovating the competition
  • Lead the way to improve firm performance
  • Willing to be first-mover and take risks
  • Respond quickly and opportunistically to new
    developments
  • Devise trail blazing strategies

40
What is a Strategic Plan?
  • Where firm is headed
  • Strategic vision and business mission
  • Short and long term performance
  • Strategic and financial objectives
  • Action approaches to achieve targeted results
  • A comprehensive strategy

41
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 organisation to execute strategy
    proficiency and efficiently
  • Producing excellent results in a timely manner

42
What does strategy implementation include?
  • Building a capable organisation
  • 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 corporative
    culture
  • Installing needed information, communication, and
    operating systems
  • Instituting best practices for continuous
    improvement
  • Exerting strategic leadership

43
Evaluating Performance
  • Corrective adjustments
  • Alter long-term direction
  • Redefine the business
  • Raise or lower performance objectives
  • Modify the strategy
  • Improve strategy execution

44
Strategy Implementation
  • Strategy implementation is an internal,
    operation-driven activity involving organizing,
    budgeting, motivating, culture-building,
    supervising and leading to make the strategy
    work as intended!

45
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
46
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

47
Who Performs the Five Strategic Management Tasks?
  • Senior corporate level executives
  • Subsidiary unit managers
  • Functional area managers
  • Operating managers

48
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

49
Strategic Management Principle
  • Strategy-making is a job for line managers, not a
    staff of planners doers should be the
    strategy-makers!

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
Why Planers should not be strategy makers
  • Managers may toss tough decisions to planners
  • Planers 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

52
Strategic Role of a Board of Directors
  • Continuously audit validity of a companys
    long-term direction ad strategy
  • Evaluate strategic leadership skills of the CEO
    and candidates to succeed the CEO

53
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!

54
Recap of Important Terms
  • Strategic Vision
  • A view of an organisations future direction and
    business course a guiding concept for what the
    organisation is trying to do and to become
  • Organisation Mission
  • Represents managements customized answer to the
    question what is our business and what will it
    be. A mission statement broadly outlines the
    organisations future direction ad serves as a
    guiding concept for what the organisation is to
    do and to become.

55
Recap of Important Terms
  • Long-Range Objectives
  • Achievement levels to be reached within the next
    three to five years.
  • Short-Range Objectives
  • Near-term performance target they establish the
    pace for achieving the long-range objectives.

56
Benefits of Strategic Approach to Managing
  • Guides entire firm regarding what 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
  • Performance Objectives
  • Organisations targets for achievement both
    short and long range objectives are needed
  • Financial Objectives
  • Financial performance targets a company wants to
    achieve
  • Strategic Objectives
  • Targets relating to strengthening a companys
    overall market position and competitive viability

58
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 organisations
    mission and reaching target objectives.
  • Strategic Plan
  • Statement outlining an organisations mission and
    future direction, near-term and long term
    performance targets and strategy, in light of
    organisations external and internal situations.

59
Recap of Important Terms
  • Strategy Implementation
  • Includes the full range of managerial activities
    associated with putting the chosen strategy into
    place, supervision its pursuit and achieving the
    targeted results.

60
CHAPTER 2
  • THE THREE STRATEGY MAKING TASKS

Screen graphics created by Jana F. Kuzmicki,
Indiana University Southeast
61
Chapter Outline
  • Developing a strategic vision/mission
  • Establishing financial and strategic objectives
  • Crafting a strategy
  • Factors shaping a companys strategy
  • Linking strategy with ethics
  • Approaches to performing the strategy-making task

62
Why have a Mission or Strategic Vision?
  • Power of a well-conceived strategic vision
  • Guides managerial decision making
  • Arouses employee buy-in and commitment
  • Prepares a company for the future

63
  • Managements job is not to see the company as it
    is but as it can become.
  • John W. Teets
  • A strategy is a commitment to undertake one set
    of actions rather than another.
  • Sharon M. Oster

64
Developing a Vision or Mission
  • First direction-setting task
  • Indicates the long-term course management has
    charted for the organisation
  • Business activities to be pursued
  • Future market position
  • Future customer focus
  • Kind of company to become

65
Characteristics of a Strategic Vision
  • Charts a companys future strategic course
  • Defines the business makeup in 5 to 10 years
  • Company specific, not genetic
  • 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

66
Elements of a Strategic Vision
  • Defines present and future Business make up of
    company
  • Charts a long-term path to follow

67
Example Strategic Vision
  • DELTA AIRLINES
  • WORLDWIDE, because we are and intend to remain an
    innovative, aggressive, ethical and successful
    competitor that offers access to the world at the
    highest standards of customer service. We will
    continue to look for opportunities to extend our
    reach through new routes and creative global
    alliances.

68
Example Strategic Vision
  • DELTA AIRLINES
  • OF CHOICE, because we have value the loyalty of
    our customers, employees and investors. For
    passengers and shippers, we will continue to
    provide the best service and value. For our
    personnel, we will continue to offer an evermore
    challenging, rewarding and result-oriented
    workplace that recognizes and appreciates their
    contributions. For our shareholders, we will earn
    a consistent, superior financial return.

69
Example Strategic Vision
  • DELTA AIRLINES
  • we want Delta to be the
  • WORLD WIDE AIRLINE OF CHOICE

70
Example Strategic Vision
  • DELTA AIRLINES
  • AIRLINE, because we intend to stay in the
    business we know best air transport and related
    services. We wont stray from our roots. We
    believe in the long-term prospects for profitable
    growth in the airline industry and we will
    continue for focus time, attention and investment
    on enhancing our place in that business
    environment

71
Defining a Companys 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

72
Business Mission Russell Corp.
  • Russell Corporation is a vertically integrated
    international designer, manufacturer and mark of
    athletic uniforms, and a comprehensive of
    lightweight, yarn-dyed woven fabrics
  • The companys manufacturing operations include
    the entire process of converting raw fibers into
    finished apparel and fabrics
  • Products are marketed to sporting goods dealers,
    department and specially stores, mass
    merchandisers and other apparel manufacturers

73
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

74
Mission Statement of a Diversified Firm
  • TIMES MIRROR CORPORATION
  • Times mirror is a media and information company
    principally engaged in newspaper publishing,
    book, magazine and other publishing and cable and
    broadcast television

75
Business Mission McDonalds
  • 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
  • McDonalds serves approximately 30 million
    customers daily at 20.000-plus restaurants in
    over 90 countries

76
Definitions Broad Narrow Scope
  • Broad Definition
  • Beverages
  • Childrens products
  • Furniture
  • Global mail delivery
  • Travel Tourism
  • Narrow Definition
  • Soft drinks
  • Toys
  • Wrought iron lawn
  • furniture
  • Overnight package
  • delivery
  • Ship cruises in the
  • Caribbean

77
Mission Statements for Functional Departments
  • Spotlights Departments
  • Contribution to firms mission/vision/objectives
  • Role and scope of activities
  • Direction which department needs to pursue

78
Mission Statements of Functional Departments
  • Human Resources
  • To contribute to organizational success by
    developing effective leaders, creating high
    performance teams and maximizing the potential of
    individuals
  • Corporate Security
  • To provide service for the protection of
    corporate personnel and assets through preventive
    measures and investigations

79
Intels 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

80
Managerial Value Strategic Vision and Mission
  • Crystallizes long-term direction
  • Reduces risk or rudderless decision-making
  • Conveys organizational purpose and identity
  • Keeps direction-related actions of lower-level
    managers on common path
  • Helps organisation prepare for the future

81
Decision TimeWhat 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

82
Communicating the Vision
  • An exciting, inspirational vision
  • Inspires, challenges and motivates workforce
  • Arouses strong sense of organizational purpose
    and induces employee buy-in
  • Brings workforce together and galvanizes people
    to live the business

83
Establishing Objectives
  • Second Direction-Setting Task
  • 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

84
Purpose of Objectives
  • Substitutes results-oriented decision-making for
    aimlessness over what to accomplish
  • Provides benchmarks for judging organizational
    performance

85
Types of Objectives Required
  • Financial Objectives
  • Outcomes that improve a firms financial
    performance
  • Strategic Objectives
  • Outcomes that strengthen a firms competitiveness
    and long-term market position

86
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 SP 500)
  • Attractive increases in MVA
  • Recognition as a blue chip company
  • A more diversified revenue base

87
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 while managers exhibit good intentions,
    try hard and hope for the best!

88
Strategic Management Principle
  • Every company needs both strategic and financial
    objectives!

89
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

90
Corporate Objectives McDonalds
  • To achieve 100 percent total customer
    satisfaction everyday in every restaurant
    for every customer

91
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

92
Strategic of Financial Objectives Which Take
Precedence?
  • Pressure 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

93
Corporative Objectives 3M Corporation
  • 30 percent of the companys annual sales must
    come from products fewer than four years old

94
Corporate Objectives McCormick Co.
  • To achieve a 20 percent return on equity
  • To achieve a net sales growth rate of 10 percent
    per year
  • To maintain an average earnings per share growth
    rate of 15 percent per year
  • To maintain total debt-to-total capital at 40
    percent or less
  • To pay out 25 to 35 of the net income in
    dividends

95
Strategic Management Principle
  • Building a stronger long-term competitive
    position benefits shareholders more lastingly
    than improving short-term profitability!

96
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!

97
Short-Ranger and Long-Ranger Objectives
  • Short-Range Objectives
  • Targets to be achieved soon
  • Serve as star steps for reaching long-range
    performance
  • Long Range Objectives
  • Targets to be achieved within 3 to 5 years
  • Prompt actions now that will permit reaching
    targeted long-range performance later

98
Strategic Management Principle
  • Objectives-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.

99
The Concept of Strategic Intent
  • Indicates firms 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

100
Objectives are Needed at all Levels
  • Process is top-down, not bottom-up
  • First, establish organisation-wide objectives
  • Next, set business and product line objectives
  • Then, establish functional and departmental
    objectives
  • Individual objectives come last

101
Crafting a Strategy
  • Third Direction Setting Task
  • 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

102
Strategizing is How to
  • Achieve performance targets
  • Out-compete rivals
  • Achieve sustainable competitive advantage
  • Strengthen firms long-term competitive position
  • Make the strategic vision a reality

103
Fig. 2-1(a) Level of Strategy-Making A
Diversified Company

Corporate Strategy
Corporate-Level Managers
KEY
Two way influence
Business level Managers
Business Strategy
Functional Managers
Functional Strategies
Operating Strategies
Operating Managers
104
Corporate Strategy for a Diversified Company
Kind of Diversification
Response to changing conditions
How much diversification
Corporate Strategy
Efforts to build competitive advantage via
diversification
Approach to capital allocation
Moves to strengthen positions and profits in
present businesses
Moves to diverse weak units
Moves to Add New Businesses
105
Characteristics of strategy- Making
  • Action oriented
  • Evolves over time
  • A never-ending, ongoing task

106
Level of Strategy-Making A Single-Business
Company
  • e

Business Strategy
Executive-level Managers
KEY
Two-way influence
Functional Strategies
Functional Managers
Operating Strategies
Operating Managers
107
Tasks of Corporate Strategy
  • Moves to achieve diversification
  • Actions to boost of individual businesses
  • Capturing synergy among business units 225
    effects!
  • Establishing investment priorities and steering
    corporate resources into the most attractive
    business units

108
Strategy Components of a Single-Business Company
  • a

Response to changing conditions
Strategic Alliances and collaborative
partnerships
Basic competitive Approach
Manufacturing Strategy
Moves to secure competitive advantage
Business Strategy
Marketing Strategy
R O Strategy
Geographic coverage approach to vertical
integration
Finance Strategy
Human Resource Strategy
109
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

110
Example Operating Strategy
  • Boosting Worker Productivity
  • 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 best-qualified
    candidates
  • Information systems manager devises way to use
    technology to boost productivity of office
    workers
  • Compensation manger devises improved incentive
    compensation plan
  • Purchasing manager obtains new efficiency
  • Increasing tools and equipment

111
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 initiative of functional areas
  • Addressing strategic issues facing the company

112
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

113
Example Operating Strategy
  • Improving Delivery Order-Filling
  • 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 24hrs

114
Uniting the Companys Strategy Making Effort
  • A companys strategy is a collection of
    strategies and initiatives
  • Separate levels of strategy must be unified into
    a cohesive company-wide action plan
  • Pieces of strategy should fit together like
    puzzle pieces

115
Strategic Management Principle
  • Objectives and strategies that are unified from
    top to bottom of the strategy-making managerial
    hierarchy require a team effort

116
Social, Political, Regulatory, and Citizenship
Factors
  • Pressures from special interest groups
  • Giare 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 economy conditions
  • Trade restrictions, tariffs and import quotas

117
Networking of Missions, Objectives and Strategies
  • .

Level 1 Corporate level Managers
Overall scope Strategic Vision
Corporate Level Objectives
Corporate Level Strategy
Business Level Strategic vision
Business Level Objectives
Business Level Strategies
Level 2 Business level Managers
Level 3 Functional Managers
Functional Missions
Functional Objectives
Functional Objectives
Operating Strategies
Operating Missions
Operating Objectives
Level 4 Plant Managers Lower-level Supervisors
118
Factors Shaping the Choice of Company Strategy
  • .

External factors (threats opportunities)
Social Political Regulatory Factors
Competitive Condition Industry
Attractiveness
Company Opportunities Threats
Determine Relevance Of internal external
Factors
Identify Evaluate Alternatives
Craft the Strategy
Companys Strategic Situation
Resource Strengths Weaknesses
Shared Values Culture
Influences Of key Executives
Internal Factors Strengths weaknesses
119
Corporate Social Responsibility
  • Conduct company activities within bounds of what
    is considered ethical and in 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

120
Competitive Conditions and Industry
Attractiveness
  • A companys strategy has to be responsive to
  • Fresh moves of rival competitors
  • Changes in industrys price-cost-profit economics
  • Shifting buyer needs and expectations
  • New technological developments
  • Pace of market growth

121
Company Opportunities and Threats
  • For strategy to be successful, it has to be well
    matched to
  • A companys opportunities
  • Threats to the companys well-being

122
Strategic Management Principle
  • A companys 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 depended on resources and
    capabilities that a company lacks!

123
Strategic Management Principle
  • A companys strategy cant produce real market
    success unless it is well-matched to industry and
    competitive conditions!

124
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 defiance's, gaps in skills, and
    weaknesses in competitive position make pursuit
    of certain strategies risky or altogether unwise

125
Ambitions, Philosophies and Ethics of Key
Executives
  • Managers generally stamp strategies they craft
    with their own personal
  • Ambitions
  • Values
  • Business philosophies
  • Attitudes toward risk
  • Ethical beliefs

126
Shared Values and Company Culture
  • Values and culture can dominate strategic moves
    a company will
  • Consider
  • Reject
  • A company should not undertake strategic moves
    which conflict with
  • Its culture
  • Values widely shared by managers and employees

127
Linking Strategy with Ethics
  • Ethical and moral standards to beyond
  • Prohibitions of law and
  • Language of thou shalt not to
  • Issues of duty and
  • Language of should and should not do

128
Tests of a Winning Strategy
  • Goodness of Fit Test
  • How well is strategy matched to firms situation?
  • Competitive advantage test
  • Does strategy lead to sustainable competitive
    advantage?
  • Performance Test
  • Does strategy boost firm performance

129
Hewlett-Packards Basic Values The HP Way
  • Sharing firms success with employees
  • Showing trust and respect for employees
  • Providing customers with products/services of the
    greatest value
  • Being genuinely interested in providing customers
    with effective solutions to their problems
  • Making profit a high stockholder priority
  • Avoiding use of long-term debt to finance growth
  • Individual initiative, creativity teamwork
  • Being a good corporate citizen

130
Ethical Responsibilities of Firm to Stakeholders
  • Owner/shareholders expect some form of return
    on their investment
  • Employees expect reliable, safe product or
    service
  • Suppliers expect equitable relationship with
    firm
  • Community expect businesses to be good citizens
    in their community

131
Strategic Management Principle
  • To be a real winner, a strategy must
  • Fit the enterprises situation
  • Build sustainable competitive advantage
  • Improve company performance

132
Approaches to Performing the Strategy-Making Task
  • Master Strategist
  • Manager personally functions as chief strategist
  • Delegate it to others
  • Manager delegates strategy-making to others
  • Collaborative
  • Manager enlists help of key subordinates in
    hammering out consensus strategy
  • Champion
  • Manager encourages subordinates to develop and
    implement strong strategies

133
Chapter 3
  • INDUSTRY AND COMPETITIVE ANALYSIS

Screen graphics created by Jana F. Kuzmicki,
Indiana University Southeast
134
Chapter Outline
  • Role of situation analysis in strategy-making
  • Methods of industry and competitive analysis
  • Industrys competitive forces
  • Industrys competitive forces
  • Drivers of industry change
  • Competitive positions of rivals
  • Competitive moves of rivals
  • Key success factors
  • Conclusions overall industry attractiveness
  • Conducting an industry and competitive analysis

135
Good Situation Analysis Leads to Good Strategic
Choices
  • P.25

Assess industry competitive conditions
Industrys dominant economic tress Nature of
competition strength of competitive forces
Drivers of industry change Competitive position
of rivals Key success factors Conclusion about
industry attractiveness
Identify Strategic Options For the Company
Select The best Strategy For the Company
Assess Company Situation
Assessment of companys present strategy
Strengths, weaknesses, opportunity threats
Companys costs compared to rivals Strength of
companys competitive position Strategic issues
to be addressed
136
v
  • Analysis is the critical starting point of
    strategic thinking.

137
What is Situation Analysis
  • Focuses on two considerations
  • A companys EXTERNAL or MACRO-ENVIRONMENT
  • Industry and competitive conditions
  • A companys INTERNAL or MICRO ENVIRONMENT
  • Its competencies, capabilities, resource,
    strengths and weakness and competitiveness

138
Key Considerations Regarding the External
Environment
N/L
Competitive forces and strengths of each force
Drivers of change instru industry
Predicting the moves of competitors
Key success factors
Conclusions Industry Attractiveness
139
Question 1 What are the Industrys Dominant
Economic Traits?
  • Market size and growth rate
  • Scope of competitive rivalry (height, intensity)
  • Number of competitors and their relative sizes.
  • Prevalence of backward/forward integration
  • Entry /exit barriers
  • Nature and pace of technological change
  • Product and customer characteristics
  • Scale economies and experience curve effects
  • Capacity utilization and resource requirements
  • Industry profitability

140
Cost Advantages of Different Experience Curve
Effects
10 Cost Reduction 20 Cost Reduction 30 Cost Reduction
1 Million units
2 Million Units
4 Million Units
8 Million Units
141
Question 2 What is Competition Like How Strong
are the Competitive Forces?
  • To identify
  • Main sources of competitive forces
  • Strength of these forces
  • Key analytical tools
  • Five forces models of competition

142
The Experience Curve Effect
  • An experience curve exists when unit costs
    decline as cumulative production volume increase
    because of
  • Accumulating production know how
  • Growing mastery of the technology
  • The bigger the experience curve effect, the
    bigger the cost advantage of the firm with the
    largest cumulative production volume.

143
Relevance of Key Economic Features
  • N/L P.26

144
Five Forces Model of Competition
Substitute Products Of form in Other
Industries
  • .

Buyers
Suppliers of Key Inputs
Rivalry Among Competing Sellers
Potential New Entrants
145
Analyzing the Five Competitive Forces How to do
it
  • Asses strength of each competitive force
  • Rivalry among competitors
  • Substitute products
  • Potential entry
  • Bargaining power of buyers
  • Explain how each force acts to create competitive
    pressure.
  • Decide whether overall competition is brutal
    fierce, strong, normal/moderate, or weak

146
What Causes rivalry to be stronger?
  • Lots of firms, more equal in size and capability
  • Slow market growth(competing for a small market)
  • Industry conditions tempt some firms to go on the
    offensive to boost volume and market share
  • Customers have low costs in switching brands
  • One or more firms initiates moves to bolster
    their standing at expense of rivals
  • A successful strategic move carries a big payoff
  • Cost more to get out of business than to stay in
  • Firms have diverse strategies, corporate
    priorities resources ,and countries of origin.

147
Competitive Force of Potential Entry
  • Seriousness of threat depends on
  • Barriers to entry
  • Reaction of existing firms to entry
  • Barriers exist when
  • Newcomers confront obstacles
  • Economic factors put potential entrant at a
    disadvantage relative to incumbent firms

148
Rivalry Among Competing sellers
  • Usually the most powerful of the five forces
  • Check which weapons of competitive rivalry are
    most actively used by rivals in jockeying for
    position
  • Price
  • Quantity
  • Performance features offered
  • Customer service
  • Warranties / guarantees
  • Advertising / promotions
  • Dealer networks
  • Product innovation

149
Principle of Competitive Markets
  • Competitive jockeying among rival firms is
    dynamic and ever changing
  • As industry members initiate new offensive and
    defensive moves
  • As emphasis swings from one mix of competitive
    weapons to another

150
Common Barriers to Entry
  • Economic of scale
  • Inability to gain access to specialized
    technology
  • Existence of learning/experience curve effects
  • Strong brand preferences and customer loyalty
  • Capital requirements and/or other specialized
    resource requirements
  • Cost disadvantages independent of size
  • Access to distribution channels
  • Regulatory policies, tariffs, trade restrictions

151
Principle of Competitive Markets
  • Threat of entry is stronger when
  • Entry barriers are low
  • Sizeable pool of entry candidates exists
  • Incumbents are unwilling or unable to contest a
    newcomers entry efforts
  • Newcomer can expect to earn attractive profits

152
How to tell whether substitute Products are a
strong forces
  • Sales of substitutes are growing rapidly
  • Producers of substitutes are planning to add new
    capacity
  • Their profits are up

153
Competitive Force of Suppliers
  • Suppliers are a strong competitive force when
  • Item makes up large portion of products costs is
    crucial to production process and or
    significantly affects products quality
  • It is costly for buyers to switch suppliers
  • They have good reputations and growing demands
  • They can supply a component cheaper than industry
    members can make it themselves
  • They do not have to contend with substitutes
  • Buying firms are not important customers

154
Competitive Force of Substitute Products
  • Concept
  • Substitutes matter when customers are attracted
    to the products of firms in other industries
  • Examples
  • Eyeglasses vs. contact lens
  • Sugar vs. glass vs. metal vs. wood
  • Newspapers vs. TV Internet
  • Transport vs. Letters

155
Principle of Competitive Markets
  • The competitive threat of substitutes is stronger
    when they are
  • Readily available
  • Attractively priced
  • Believed to have comparable or better performance
    features
  • Customer switching costs are below

156
Principle of Competitive Markets
  • Suppliers are a stronger force the more they can
    exercise power over
  • Price charged
  • Quality/performance or items supplied
  • Amounts and delivery times

157
Competitive Force of Buyers
  • Buyers are a strong competitive force when
  • They are large and purchase a sizeable percentage
    of industrys product
  • They buy in volume quantities
  • They can integrate backward
  • Industrys product is standardized
  • Their costs in switching to substitutes or other
    brands are low
  • They can purchase from several sellers
  • Product purchased does not save buyer money

158
Strategic Implications of the Five Competitive
Forces
  • Competitive environment is unattractive when
  • Rivalry is strong
  • Entry barriers are low
  • Competition from substitutes is strong
  • Suppliers and customers have considerable
    bargaining power

159
Coping with the Five Competitive Forces
  • Objective is to craft a strategy that will
  • Insulate firm from competitive forces
  • Influence competitive pressures in ways that
    favour company
  • Build a sustainable competitive advantage

160
Principle of Competitive Markets
  • Buyers are a stronger competitive force the more
    they have leverage to bargaining over
  • Price
  • Quality
  • Service
  • Other terms and conditions of sale

161
Strategic Implications of the Five Competitive
Forces
  • Competitive environment is ideal when
  • Rivalry is moderate
  • Entry barriers are high
  • Good substitutes do not exist
  • Suppliers and customers are in a weak bargaining
    position

162
Question 3 What Forces are at Work to Change
Industry Conditions?
  • Industries change because forces are driving
    industry participants to alter their actions
  • Driving forces are the major underlying causes of
    changing industry and competitive conditions

163
Analyzing Driving Forces
  • Identify those forces likely to exert greatest
    influence over next 1 3 years
  • usually no more that 3 4 factors qualify
  • Assess impact
  • what difference will the forces (favourable?
    Unfavourable?)

164
Common Types of Driving Forces
  • Increasing globalization of industry
  • Changes in cost and efficiency
  • Market shift from standardized to differentiated
    products (or vice versa)
  • New regulatory policies and/or government
    legislation
  • Changing societal concerns, attitudes and
    lifestyles
  • Changes in degree of uncertainty and risk

165
Question4 Which Companies are in
Strongest/Weakest Positions?
  • One technique for revealing the different
    competitive positions of industry rivals is
    strategic group mapping
  • A strategic group consists of those rivals with
    similar competitive approaches in an industry

166
Common Types of Driving Forces
  • Changes in low-term industry growth rate
  • Changes in who buys the product and how they use
    it
  • Product innovation
  • Technological change/process innovation
  • Marketing innovation
  • Entry or exit of major firms
  • Diffusion of technical knowledge

167
Environmental Scanning
  • Definition
  • Monitoring and interpreting sweep of social
    political, economic, ecological and technical
    events to spot budding trends that could
    eventually impact industry
  • Purpose
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