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Lecture: 2

Establishing Company Direction - An overview

Three Elements of a Strategic Vision

Coming up with a mission statement which defines what business the company is presently in. t also portrays !who we are" what we to" and where we are now#. b. $sing mission statement as a basis for deciding on a long-term course. c. Communicating the vision in clear % e&citing terms.
a.

The mission is not to make a profit

'ne of the roles of mission statement is to give organi(ation its own special identity" business emphasis and path for development. t must set a company apart from other similarly situated companies. )rofit cannot differentiate one company from another.

Incorporating elements in Mission Statement:

Customer needs *what is being satisfied+ Customer groups *who is being satisfied+ Company,s activities" technologies" and competences *how the company goes about creating value to customers and satisfying their needs+

Braod or Narrow definition of business definition

Broad Definition -urniture business /elecommunication business 1everage business /ravel % tourism business Narrow Definition .rought iron furniture business 0obile telephone business 2oft drin3 business Cruise ship business

Mission Statements for unctional Departments

/here can be separate mission statements for the departments li3e 0ar3eting -inance" 4uman 5esources" 5 % D etc. -or the mission of the 45D is to contribute to organi(ation by developing effective leaders" creating high-)erformance team and ma&imi(ing the potential of individuals.

Establishing obecti!es: The second direction setting task

'b7ectives represent a managerial commitment to achieving specific predominance targets within a specific time frame. Every Company needs both strategic ob7ectives and financial ob7ectives.

inancial ob"ecti!es
8rowth in revenue 8rowth in earnings. 4igher Dividends. 4igher profit earnings 4igher return on invested capital. Attractive Economic value added*E9A+ performance 2trong bond and credit ratings. 1igger cash flows A rising stoc3 price than rivals. Attractive and sustainable increases in mar3et value added *09A+ 5ecognition as blue chip company A more diversified revenue base 2table earnings during periods of recession.

Strategic ob"ecti!es
A bigger mar3et :uic3er design to mar3et times than rivals 4igher product ;uality than rivals Lower costs relative to 3ey competitors 1roader or more attractive product line than rivals A strong reputation with customers than rivals 2uperior customer service 5ecognition as a leader in technology and<or product innovation .ider geographic coverage than rivals 4igher levels of customer satisfaction than rivals.

Strategic Intent #oncept:

A company e&hibit strategic intent when it relentlessly pursue a very ambitious startegic ob7ective and concentrates competitive actions and energies to achieve the ob7ective. 9itually startegic intent can be thought as a !1ig 4airy Audacious 8oal# or 14A8 that usually ta3es a long time to achieve" may be as long as 2=->= years. E&:

A small company want to dominate the niche. An up-and-coming enterprise may try to overta3e mar3et leaders. /echnologically advanced company may discover a whole new array of products.

*E&: ?omatsu an Earth 0oving E;uipment Company *2ee the /e&t 1oo3" page: @A+

#rafting a Strateg$% the third task of Strategic Management

An organi(ation,s strategy consists of the combined action that managements has ta3en and intends to ta3e in achieving strategic and financial ob7ectives and pursuing the organi(ation,s missions.

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T&E ST'(TE)* M(+IN) ,*'(MID:

5esponsibility of corporate level managers 5esponsibility of business level manager

Corporate 2trategy /wo way influence 1usiness 2trategies /wo way influence -unctional 2trategies *5%D" 0anufacturing" 0ar3eting" finance 450 etc.+ /wo way influence

5esponsibility of heads of ma7or functional division

5esponsibility of plant manager" regional manager

'perating 2trategies *5egions and districts plants departments within functional areas+

n diversified enterprises" strategy is initiated at four distinct organi(ation levels:

6. 2. >.

Corporate strategy 1usiness strategy -unctional 2trategy

: 2trategy for the company and all of its business as a whole. : 2trategy for the each business the company has diversified into. : 2trategy for each specific functional unit within a business structure. Each business usually has a production strategy" a mar3eting strategy" finance strategy and so on. : 2trategies for basic operating unit li3e plants" sales districts regions and departments within functional areas.

@. 'perating strategy

n single business enterprise" there are only three levels of strategy:

-1usiness strategy : 5esponsibility of e&ecutive level managers --unctional strategy : 5esponsibility of heads of ma7or functional activities within a business. -'perating strategy : 5esponsibility of plant managers" geographic unit managers" supervisors.

#orporate strateg$: Corporate strategy is the overall managerial game plan for a diversified company. t concerns how a diversified company intends to establish business positions in different industries and the actions and approaches employed to improve the performance of the group of businesses the company has

diversified into. Crafting corporate strategy for a diversified company involves four 3inds of initiatives: 6. 0a3ing the memo to establish positions in different business and achieve diversification 2. nitiating actions to boost the combined performance of the business the firm has diversified. >. )ursuing ways to capture the synergy among related business unit and turn in into competitive advantage. @. Establishing investment priorities and steering corporate resourses into the most attractive business units.

Business strateg$: /he term business strategy refers to the managerial game plan for a single business. t is mirrored in the pattern of approaches and moves crafted by management to produce successful performance in one specific line of business. /he central thrust of business strategy is how to build and strengthen the company,s long B term competitive position in the mar3et place. /owards the end" business strategy is concerned principally with: 6. -orming responses to changes under way in the industry" the economy at large" the regulatory and political area and other relevant areas. 2. Crafting competitively moves and mar3et approaches that can lead to sustainable competitive advantage. >. 1uilding competitively valuable competencies and capabilities. @. $niting the strategic initiatives of functional departments. A. Addressing specific strategic issue facing the company,s business. t is clear that business strategy encompasses whatever moves and new approaches manager deem prudent in light of mar3et forces" economic trends and developments" buyers, need and demographics" new legislation and regulatory re;uirements and other such broad e&ternal factors. A good strategy is well matched to the e&ternal situation. A business strategy is powerful if it produces a si(able and sustainable competitive advantage. t is wea3 if it results in competitive disadvantages. A business strategy that yields sustainable competitive advantage has three facts: Deciding what product < service attributes offer the best chance to win a competitive edge 2. Developing s3ills" e&pertise and competitive capabilities that set the company apart from rivals. >. /rying to insulate the business as much as possible from the effects of competition.
6.

unctional strateg$: /he term functional strategy refers to the managerial game plan for running the ma7or functional activity or process within a business li3e 5 % D" )roduction" 0ar3eting" Customer 2ervice" Distribution" -inance" 4uman resources and so on. A business needs as many functional strategy as it has critical activities.

/he primary role of functional strategy is to support the company,s overall business strategy and competitive approach. .ell e&ecuted functional strategies give the enterprise competitively valuable competencies" capabilities and resource strengths. Compatible" collaborative" mutually reinforcing strategies are essential for the overall business strategy to have ma&imum impact. -perating strateg$: 'perating strategy concerns how to manage front line organi(ational units within its, business *plants" sales districts" distribution centers+ and how to perform strategically significant operating tas3s *materials" purchasing" shipping" inventory control" maintenance" advertising campaigns+. Lead responsibility for operating strategies is usually delegated to front line managers sub7ect to review and approval by higher ran3ing mangers. -rontline managers are part of an organi(ation,s strategy ma3ing term because many operating units have strategy critical performance targets and need to have strategic action plans in place to achieve them. A regional manger needs a strategy customi(ed to the region,s particular situation and ob7ectives.

.niting the strateg$%making effort/

A Company,s strategy is at full power only when all parts are united. /o achieve this unity" the strategi(ing process as to proceed more from the top down than from the bottom up. Direction and guidance have to flow from the corporate level to the business level and from the business level to the functional and operating levels. Lower level managers cannot do good strategy ma3ing without understanding the company long term direction and higher level strategies.

actors shaping a compan$s0 strateg$

actors e1ternal to the compan$: Economic" societal" political" regulatory % community Competitive conditions and overall industry attractiveness /he company,s mar3et opportunities and e&ternal threats
actors Internal to the comapn$

Company resource strengths" competencies and competitive capabilities. )ersonal ambitions" business philosophies and ethical principles of 3ey e&ecutives. 2hared values and company culture

#onsidering the abo!e factors ne1t steps: Conclusions concerning how internal and e&ternal factors stac3 up: their implications for startegy dentification and evaluations of strategy alternatives Crafting strategy that fits the overall situation.

Test of a 2inning Strateg$

The )oodness of it Test: A good strategy is well matched to the company, situation B both internal and e&ternal factors" its own capabilities and aspirations. $nless a strategy e&hibits tight fit with factors shaping the strategy" it is less li3ey to be succesful. The competiti!e (d!antage Test: A good strategy leads to sustainable competitive advantage. /he bigger the competitive edge that a strategy helps builds" the more powerful and effective it is. The performance Test: A good strategy boosts company performance. /wo 3inds of performance improvements are the most tellingC gains in profitability and gains in the company,s long-term business strengths and competitive position.

3uestions: 23etch the D2trategy 0a3ing )yramid, E Describe the test of a !.inning 2trategy#E Describe the Corporate % 1usiness strategy. .hat are the factors that shape the companys,strategyE