Module 1

The Strategic Management Process: An Introduction

Module Outline
Five Risk of Strategic Management:
1. 2. 3. 4. 5. Development a Strategic Vision and Mission Setting Objectives Crafting a Strategy Implementing a Strategy Evaluating Performance and Initiating Corrective Adjustments

Strategic Management is an ongoing process. Who performs the tasks of strategy? Benefits of Managing Strategically Terms to remember

What is Strategy?
Consists of competitive moves and business approaches to produce successful performance. Managements game plan for
Running the business Strengthening firs competitive position Satisfying customers Achieving performance targets

Thinking Strategically: 3 Big Strategic Questions

1. Where are we now? 2. Where do we want to go?
Business positions management wants to stake out Financial outcomes to achieve Strategic outcomes to achieve

3. How will we get there?

The 5 Tasks of Strategic Management

Task 1
Developing Strategic Mission & Vision

Task 2
Setting Objectives

Task 3
Crafting Strategy to Achieve Objectives

Task 4
Implementi ng & Executing Strategy

Task 5
Evaluating & Correcting

Revise as Needed

Revise as Needed

Improve / Change

Improve / Change

Recycle as Needed

5 Tasks of Strategic Management

1. Defining business, stating a mission and forming a strategic vision. 2. Setting measurable objectives 3. Crafting a strategy to achieve objectives 4. Implementing and executing strategy 5. Evaluating performance, reviewing new developments, and initiating corrective adjustments

1. Developing a Vision and Mission

Begins with thinking strategically
About the firms future makeup Forming vision of firms future in 5 10 years

Task is to
Inject sense of purpose into firms activities Provide LONG-TERM DIRECTION Give firm STRONG IDENTITY Decide WHO we are, WHAT we do, and WHERE we headed

1. Developing a Vision and Mission

An organizations mission
Reflects managements vision of what firm seeks to d and become Provides clear view of what firm is trying to accomplish for its customers Indicates intent to stake out a particular business position

Specific Questions That Help Form Strategic Visions

What business are we in now? What business do we want to be in? What will our customers want in future? What are expectations of our stakeholders? Who will be our future competitors? Suppliers? Partners? What should our competitive scope be? How will technology impact our industry? What environmental scenario are possible?

Why a Shared Vision Matters?

A strategic vision widely shared among all employees functions similar to how a magnet aligns iron filings When all employees are committed to firms long-term direction, optimum choices on business decisions are most likely
Individuals and teams known intent of firms strategic vision Daily execution of strategy is improved

Examples: Mission / Vision Statements

AVIS Rent-A-Car
Our business is renting cars. Our mission is total customer satisfaction.

McCormick & Company

The primary mission is to expand our worldwide leadership position in spice, seasoning, and flavoring markets.

Examples: Mission / Vision Statements

Saturn Division of General Motor (GM)
To market vehicles developed and manufactured in the U.S. that are world leaders in quality, cost, and customer satisfaction through the integration of people, technology, and business systems and to transfer knowledge, technology, and experience throughout GM.

Eastman Kodak
To be the best in chemicals and electronic imaging.

Examples: Mission / Vision Statements

Public Service Company of New Mexico
Our mission is to work for the success of people we serve by providing our customers reliable electric service, energy information, and energy options that best satisfy their needs.

American Red Cross

The mission is to improve the quality of human life; to enhance self-reliance and concern for others; and to help avoid, prepare for, and cope with emergencies.

Examples: Mission / Vision Statements

McCaw Cellular Communications
To develop a reliable wireless network that empowers people with the freedom to travel anywhere across the hall or across the continent and communicate effortlessly.

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 visit.

Sample Mission Statements

Otis Elevator
Key Market: To provide any customer Contribution: a means of moving people and things up, down, and sideways over short distances Distinction: with higher reliability than any similar enterprise in the world.

Sample Mission Statements

Deluxe Checks
Key Market: To provide all banks, S&L, and investment firms Contribution: with error-free financial instruments delivered in a timely fashion. Distinction: Error-free means absolutely no errors; timely means a 48-hour turnaround.

Sample Mission Statements

Courtyard by Marriott
Key Market: To provide economy and quality minded travelers Contribution: with premier, moderate priced lodging facility Distinction: which is consistently perceived as clean, comfortable, well maintained, and attractive, staffed by friendly, attentive, and efficient people.

Sample Mission Statements

McDonalds
Key Market: To offer the fast food customer Contribution: food prepared in the same highquality manner world-wide, tasty and reasonably priced, Distinction: delivered in a consistent, low-key dcor and friendly atmosphere.

Sample Mission Statements

Dayton Hudson
Key Market: To appeal younger-thinking, styleconscious, moderate and betterpriced customer Contribution: by providing trend merchandising and superior service. Distinction: Trend means private labels, fast reaction, measured risks; service means warm, friendly, helpful people in convenient, efficient environment.

Sample Mission Statements

Wal-Mart
Key Market: To offer all of the fine customers in our territories Contribution: all their household needs Distinction: in a manner in which they continue to think of us fondly.

Why Bother to Define Who, What, and Where?

Helps managers avoid trap of
Trying to move in too many directions Being so confused about firms direction that effective actions are NOT taken to move in ANY direction

To successfully chart firms future, managers must

Know where firm is now Have view of where it ought to be headed Recognize time to shift to a new direction

2. Setting Objectives
Purpose of setting OBJECTIVES is to
Convert mission into performance targets Create yardstick to track performance Establish performance goals requiring stretch Pus firm to be inventive, intentional, focused

Setting CHALLENGE but ACHIEVABLE objectives guards against

Complacency Drift Internal confusion Status quo performance

Two Types of Objectives Needed

Financial Objectives
Outcomes that relate to improving firms financial performance

Strategic Objectives
Outcomes that will result in greater competitiveness and stronger long-term market position

Examples of Types of Objectives

Financial Objectives
Increase earnings growth from 10% to 15% per year Boost return on equity investment from 15% to 20% Achieve and maintain a AA bond rating

Strategic Objectives
Up firms market share from 18% to 22% Overtake rivals on quality or customer service Attain lower overall costs than rivals Become leader in new product introductions Achieve technological superiority

Example: Corporate Objectives

Nike
Protect and improve Nikes position as the number one athletic brand in America. Build a strong momentum in growing fitness market. Intensity 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.

Example: Corporate Objectives

McCormick & Company
Improve returns from each of our existing operating groups. 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 total debt to total capital at 40% or less. Pay out 25% to 35% of net income in dividends.

Examples: Strategic and Financial Corporate Objectives

Nations Bank
To build the premier financial services company in the U.S.

Ford Motor Company

To satisfy our customers by providing quality cars and trucks, developing new products, reducing time it takes to bring new vehicles to market, improving efficiency of all our plants and processes, and building on our teamwork with employees, unions, dealers, and suppliers.

Examples: Strategic and Financial Corporate Objectives

Exxon
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.

Examples: Strategic and Financial Corporate Objectives

General Electric
To become the most competitive enterprise in the world by being number on or number two in the market share in every business the company is in.

Apple Computer
To offer the best possible personal computing technology, and to put that technology in the hands of as many people as possible.

Examples: Strategic and Financial Corporate Objectives

Atlas Corporation
To become a low-cost, medium-size gold producer, producing in excess pf 125,000 ounces of gold a year and building gold reserves of 1,500,000.

Quaker Oats Company

To achieve return on equity at 20% or above, real earnings growth averaging 5% or better over time, be a leading marketer of strong consumer brands, and improve the profitability of low-return businesses or divest them.

3. Crafting a Strategy
Strategy-Making concerns HOW to
Achieve desired strategic and financial objectives Out-compete rivals and win a competitive advantage Respond against threats to firms well-being Grow the business

Strategy as Planned and Reactive to Changing Circumstances

Planned Strategy

Actual Strategy

Adaptive Reaction

Crafting a Strategy
Objectives Strategy = Targeted results & outcomes = HOW to achieve outcomes

A firms Actual Strategy is a blend of

Deliberate and purposeful actions intended strategy As needed reactions to unanticipated developments and fresh competitive pressures unintended strategy

Understanding Companys Strategy What to Look for?

Diversification Actions to Improve Short-Term profits Responses to Changing Conditions Fresh Offensive to Gain Market Edge

How Key Functions Are Managed

The Pattern of Actions That Define Strategy

Defensive Moves Pursuing New Opportunities Forward or Backward Integrations

Product Line, Quality, or Service Geography Coverage

What Does a Firms Strategy Consist of?

How to satisfy costumers How to grow the business How to respond to changing industry and market conditions How to best capitalize on new opportunities How to manage each functional piece of business How to achieve strategic and financial objectives

Strategy Example: MacDonalds

Strategic and Financial Objectives
Continued growth Providing exceptional customer care Remaining an efficient and quality producer Offering high value Effectively marketing McDonalds brand on a global scale

Key Elements of McDonalds Strategy

Adding 700 900 restaurants annually Using new menu items, low prices specials, Extra Value Meals to promote frequent costumer visits Being highly selective in granting franchises Choosing sites convenient to costumers Focusing on limited product line and consistent quality Careful attention to store efficiency Extensive advertising and use of Mc prefix Hiring courteous personnel; paying an equitable wage; and providing good training

Crafting Strategy Is an Exercise in Entrepreneurship

Strategy-Making is entrepreneurial
Risk-taking and venturesomeness Innovation and business creativity Keen eye for spotting market opportunities Choosing among alternatives

Strategy-Making challenge is to keep strategy

Fresh Timely Responsive to changing conditions Opportunistic

Characteristics of Entrepreneurial Managers

Boldly pursues new strategic opportunities Emphasizes out-innovating the competition Lead the way to improve the firm performance Willing to be a first-mover and take risks Responds quickly and opportunistically to new developments Devises trail blazing strategies

Why Good Management of Strategy Matters?

Powerful execution of a powerful strategy is a proven recipe for success Crafting and implementing strategy are core management functions To qualify as well-managed, a firm should
Have an attractive strategy Demonstrate proficiency in executing strategy

A good strategy is strong enough to overpower rivals and flexible enough to overcome obstacles Without proficiency strategy execution, firm cannot achieve peak performance

Why Is a Firms Strategy Constantly Evolving?

Because firms often need to react to
Changing market conditions Moves of competitors New technologies and production capabilities Evolving customer needs and preferences Political and regulatory changes New windows of opportunity Fresh ideas to improve current strategy A crisis situation

What Is a Strategic Plan?

A Strategic Plan maps out
Where firm is headed Short and long range performance targets Actions of management to achieve outcomes

A Strategic Plan consists of

A strategic vision and business mission Strategic and financial performance objectives Comprehensive strategy for achieving the objectives

4. Implementing Strategy
Implementing strategy involves
Creating fits between way things are done and what it takes for effective strategy execution Executing strategy proficiently and efficiently Producing excellent results in timely manner

Most important FITS are between strategy AND

Organizational capabilities Reward structure Internal support systems Organizational culture

Strategy Implementation
Strategy implementation is an internal, operations-driven activity involving organizing, budgeting, motivating, culturebuilding, supervising, and leading to make the strategy work as intended!

What Does Strategy Implementation Include?

Building a firm capable of carrying out strategy successfully Allocating ample resources to strategy-critical activities Establishing strategy-supportive policies Instituting best practices and programs for continuous improvement Installing support systems Tying reward structure to achieve results Creating a strategy-supportive corporate culture Exerting strategic leadership

5. Evaluating Performance
None of the tasks of strategic management are a one-time only exercise
Time and conditions change Events unfold Better ways to do things become evident New managers with different ideas take over

Managers must
Constantly evaluate performance Monitor situation and decide how well things are going Make necessary adjustments

5. Evaluating Performance
Corrective adjustments can entail
Altering firms long-term direction Redefining the business Raising or lowering performance objectives Modifying the strategy Improving strategy execution

Characteristics of Strategic Management Process

Need to perform tasks never goes away because changes occur regularly Boundaries among tasks are blurry Doing the 5 tasks is not isolated from other managerial activities Time required to do tasks comes in lumps and spurts Pushing to get best strategy-supportive performance from each employee, perfecting current strategy, and improving strategy execution

Who Performs the 5 Strategic Management Tasks?

Chief Executive Officer (CEO) and other senior corporate level executives Managers of Subsidiary Business Units (SBU) Functional area managers within a SBU Managers of major operating departments and geographic units

Role of Strategic Planners

Collect information needed by strategy managers Conduct background analyses as needed Establish and administer an Annual Strategy Review Recycle Coordinate review and approval process of strategic plans Assist all managers to focus on strategic issues WARNING!
Planner should NOT make strategic decisions or do strategic thinking for line managers

Why Planners Should Not Be Strategy Maker?

Planners know less about situation, placing them in weaker position than line managers to devise workable action plan Separate responsibility and accountability for strategy-making from implementing A MAJOR FLAW! Allow managers to toss decisions to planners and avoid doing own strategic thinking Implementers have no buy in to strategy

Strategic Management Principle

Strategy-making is NOT a proper task for strategic planners!

Strategic Roles of a Board of Directors

See that 5 strategic management tasks are performed adequately Review important strategic moves and officially approve strategic plans Ensure strategic proposals are adequately analyzed and superior to alternatives Evaluate caliber of top managements strategy-making and implementing skills

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 participate directly in the details of strategy making!

Benefits of Strategic Approach to Managing

Guides entire firm regarding what it is we are trying to do and achieve Lowers managements threshold to change Provides basis for evaluating competing budget request and steering resources to strategy-supportive, results-producing areas Unites numerous strategy-related decisions of managers at all organizational levels Creates a proactive, rather than reactive, atmosphere Enhances long-range performance

Recap of Important Terms

Strategic Vision
A view of an organizations future direction and business course; a guiding concepts for what the organization is trying to do and to become.

Organization Mission
Represents managements customized answer to the question what is our business and what it will 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.

Recap of Important Terms

Performance Objectives
Organizations targets for achievement; both short and long range objectives are needed.

Financial Objectives
Financial performance targets a company wants to achieve.

Strategic Objectives
Targets related to strengthening a companys overall market position and competitive viability.

Recap of Important Terms

Long-Range Objectives
Achievement levels to be reached within the next 3 to 5 years.

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

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 how of pursuing an organizations mission and reaching target objectives.

Strategic Plan
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.

Recap of Important Terms

Strategy Formulations
Refers to the entire direction-setting management function conceptualizing an organizations mission, setting specific performance objectives, and forming a strategy. The end product of strategy formulation is a strategic plan.

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

End of Module 1