Post on 28-Oct-2014
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Lecture Outline
Developing a Strategic Vision / Mission
Establishing Financial and Strategic Objectives
Crafting a Strategy
Factors Shaping a Company's Strategy
Linking Strategy With Ethics
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Developing a Strategic Vision
Entails management efforts to create a future-oriented roadmap for a company that spells out “where we are headed”
Buyer needs we are moving to satisfy
Buyer groups and markets we are going to target
Kind of company we are trying to become
First Direction-Setting Task
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Characteristics of a Mission Statement
Defines current business activities Highlights boundaries of current business Conveys
Who we are, What we do, and Where we are now
Company specific, not generic —so as to give a company its own identity
A company’s mission is not to make a profit !The real mission is always—“What will we do
to make a profit?”
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Defining a Company’s Business
A good business definition incorporates three factors Customer needs -- What is
being satisfied Customer groups -- Who is
being satisfied Technologies and competencies
employed -- How value is delivered to customers to satisfy their needs
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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
have broader business definitions than single-business enterprises
Broad or Narrow Mission Statements?
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Definitions: Broad vs. Narrow Scope
Broad Definition
Furniture
Telecommunications
Beverages
Global mail delivery
Travel & tourism
Narrow Definition Wrought-iron lawn
furniture Long-distance
telephone service Soft drinks Overnight package
delivery Caribbean cruises
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Example: Mission Statement
Pfizer is a research-based, global pharmaceutical company.
We discover and develop innovative, value-added products that improve the quality of life of people
around the world and help them enjoy longer, healthier, and more productive lives.
The company has three business segments: health care, animal health and consumer health care. Our products are available in more than 150 countries.
Pfizer Inc.
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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.
Ritz-Carlton Hotels
Example: Mission Statement
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Example: Mission Statement
The Gillette Company is a globally focused consumer products company that seeks competitive advantage in
quality, value-added personal care and personal use products. We compete in four large, worldwide businesses:
personal grooming products, consumer portable power products, stationery products and small electrical
appliances.
As a company, we share skills and resources among business units to optimize performance. We are committed
to a plan of sustained sales and profit growth that recognizes and balances both short- and long-term
objectives.
The Gillette Company
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Example: Mission Statement
Our mission is to achieve or enhance clear leadership, worldwide, in the existing or new core consumer product categories in which we
choose to compete. Current core categories are: Male grooming products - blades and razors, electric shavers,
shaving preparations and deodorants . . . Female grooming products - wet shaving products, hair removal
and hair care appliances and deodorants . . . Alkaline and specialty batteries and cells. Writing instruments and correction products. Certain areas of the oral care market - toothbrushes . . . Selected areas of the high-quality small household appliance
business - coffeemakers . . .
The Gillette Company
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Characteristics of a Strategic Vision
Charts a company’s future strategic course
Defines the business makeup for 5 years (or more)
Specifies future technology-product-customer focus
Indicates capabilities to be developed
Requires managers to exercise foresight
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Questions to Address inDeveloping a Strategic Vision
1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction?
2. What new or different customer needs should we be moving to satisfy?
3. What new or different buyer segments should we be concentrating on?
4. What new geographic or product markets should we be pursuing?
5. What should the company’s business makeup look like in 5 years?
6. What kind of company should we be trying to become?
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Managerial Value of a Well-Conceived Strategic Vision and Mission
Crystallizes long-term direction
Reduces risk of rudderless decision-making
Conveys organizational purpose and identity
Keeps direction-related actions of lower-level managers on common path
Helps organization prepare for the future
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Establishing Objectives
Represent commitment to achieve specific performance targets by a certain time
Should be stated in quantifiable terms and contain a deadline for achievement
Spell-out how much of what kind of performance by when
Second Direction-Setting Task
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Purpose of Objective-Setting
Substitutes results-oriented decision-making for aimlessness over what to accomplish
Provides a set of benchmarks for judging organizational performance
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Two Types of Objectives Are Required
Outcomes that improve a firm’s financial
performance
Outcomes that strengthen a firm’s
competitiveness and long-term market
position
Financial Objectives Strategic Objectives
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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 S&P 500) Attractive increases in MVA Recognition as a “blue chip” company A more diversified revenue base
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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 Better e-commerce and Internet sales capabilities
than rivals Better customer service than rivals Recognition as a leader in technology Wider geographic coverage than rivals
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Example: Corporate Objectives
Extend our market leadership and position Exodus as the leading brand name in the category.
Enhance our systems and network management and Internet technology services.
Accelerate our domestic and international growth. Leverage our technical expertise to address new
market opportunities in e-commerce.
Exodus Communications (strategic objectives)
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Example: Corporate Objectives
Self-funding revenue growth of 15% annually.
An average return on assets of 13 to 15%.
An average return on shareholders’ equity investment of 16 to 18%.
A strong balance sheet.
Motorola (financial objectives)
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Example: Corporate Objectives
To achieve a 20% return on equity. To achieve a net sales growth rate of 10% per year. To maintain an average earnings per share growth rate
of 15% per year. To maintain total debt-to-total capital at 40% or less. To pay out 25% to 35% of net income in dividends. To make selective acquisitions which complement our
current businesses and can enhance our overall returns. To dispose of those parts of our businesses which do
not or cannot generate adequate returns or do not fit with our business strategy.
McCormick & Company(financial objectives)
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Strategic or Financial Objectives --Which Take Precedence?
Pressures 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
Otherwise strategic objectives merit top priority—a firm that consistently passes up opportunities to strengthen its long-term competitive position
Risks diluting its competitiveness Risks losing momentum in its markets Hurts its ability to fend off rivals’ challenges
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Short-Range VersusLong-Range Objectives
Short-Range objectives
Targets to be achieved soon
Serve as stair 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
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Objectives Are Needed at All Levels
Objective-setting process is top-down, not bottom-up!
1. First, establish organization-wide objectives and performance targets
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4. Individual objectives are established last
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Strategy Formulation
An organization’s strategy deals with How to make the strategic vision a reality
and achieve target objectives The plan for
Pleasing customers Conducting operations Building a sustainable competitive
advantage Strategy constitutes management’s business
model for producing good profitability
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Strategizing Involves HOW To . . .
Achieve performance targets
Out-compete rivals and achieve a sustainable competitive advantage
Respond to changing market conditions and new customer requirements
Make the strategic vision a reality
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Characteristics of Strategy-Making
Strategy is action-oriented
Strategy evolves over time
Strategy-making is a never-ending, ongoing task
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Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level Managers
Business-Level Managers
OperatingManagers
Functional Managers
Figure 2.1: Levels of Strategy-Making in a Diversified Company
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Figure 2-1: Levels of Strategy-Making in a Single-Business Company
Business Strategy
Two-Way Influence
Two-Way Influence
Functional Strategies
Operating Strategies
Executive-Level Managers
OperatingManagers
Functional Managers
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Figure 2.2: Corporate Strategy fora Diversified Company
CorporateStrategy
Approach tocapital allocation
Narrow or broad-based diversification
Scope ofgeographicoperations
Moves to add newnew businesses
Moves to build positionsin new industries
Efforts to capturecross-businessstrategic fits
Moves to divestweak business units
Is diversificationrelated, unrelatedor a mix?
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Tasks of Corporate Strategy
Moves to achieve diversification
Actions to boost performance of individual businesses
Capturing valuable cross-business strategic fits that result in 1 + 1 = 3 effects!
Establishing investment priorities and steering corporate resources into the most attractive businesses
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Figure 2.3: Identifying the Components ofa Single-Business Company’s Strategy
Efforts to buildcompetitiveadvantage
Planned, proactive moves to outcompete rivals
Responses to changingconditions
Scope ofgeographiccoverage
Collaborativepartnerships andstrategic alliances
R&D strategy
Supply chain management strategy
Manufacturing strategy
Humanresources strategy
Finance strategy
BusinessStrategyFunctional Strategies
Marketingstrategy
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What Business Strategy Involves
Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc.
Designing competitive moves to produce sustainable competitive advantage
Building competitively valuable competencies and capabilities
Uniting strategic initiatives of functional areas Addressing strategic issues facing the
company
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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
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Figure 2.5: Factors Shaping theChoice of Company Strategy
Company’s Strategic SituationCraftthe
strategy
External Factors
Internal Factors
Social, political,
regulatory and
community factors
Competitive conditions
and industry attractiveness
Company opportunities and threats to
company’s well-being
Resource strengths,
capabilities, and
weaknesses
Influences of key
executives
Shared values and company
culture
Identify and
evaluate alternatives
Determine relevance of internal
and external factors
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Social, Political, Regulatory,and Community Factors
Pressures from special interest groups Glare 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 Economic conditions (good or bad) Trade restrictions, tariffs, and import quotas
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What Do We Mean by“Corporate Social Responsibility?”
Conducting company activities within bounds of what is considered ethical and in public interest
Responding positively to emerging societal priorities and expectations
Demonstrating willingness to take needed action ahead of regulatory confrontation
Balancing stockholder interests against larger interest of society as a whole
Being a “good citizen” in community
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Competitive Conditions andIndustry Attractiveness
A company’s strategy has to be responsive to
Fresh moves of rival competitors
Changes in industry’s price-cost-profit economics
Shifting buyer needs and expectations
New technological developments
Pace of market growth
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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
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Shared Values and Company Culture
Values and culture often shapethe strategic moves a company will Consider Reject
It is generally unwise for a company to undertake strategic moves which conflict with: Its culture Values widely shared by managers and
employees
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Linking Strategy With Ethics
Ethical and moral standards go beyond
Prohibitions of law and
Language of “thou shalt not”
Ethical and moral standards involve
Issues of duty and
Language of “should and should not do”
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A Firm’s Ethical Responsibilitiesto Its Stakeholders
Owners/shareholders – Rightfully expect some form of return on their investmentOwners/shareholders – Rightfully expect some form of return on their investment
Employees - Rightfully expect respect for their worth and devoting their energies to firmEmployees - Rightfully expect respect for their worth and devoting their energies to firm
Customers - Rightfully expect a seller to provide them with a reliable, safe product or serviceCustomers - Rightfully expect a seller to provide them with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitable relationship with firms they supplySuppliers - Rightfully expect to have an equitable relationship with firms they supply
Community - Rightfully expect businesses to be good citizens in their communityCommunity - Rightfully expect businesses to be good citizens in their community