08/25/200508/25/2005WELCOME TOWELCOME TO

StrategyStrategy43574357

DR. GARY VAZZANADR. GARY VAZZANA

DOCKERY 400RDOCKERY 400R

Introduction Topic 1Introduction Topic 1

• Business PolicyBusiness Policy deals with internal deals with internal company problems. company problems.

• Business StrategyBusiness Strategy deals with internal and deals with internal and external environments at the same time.external environments at the same time.

• Business StrategyBusiness Strategy involves long-range involves long-range planning of how a company, government planning of how a company, government unit or a non-profit organization is going unit or a non-profit organization is going to attain its objective given its internal to attain its objective given its internal and external environmentsand external environments..

Benefits of Strategic Benefits of Strategic ManagementManagement

• Clearer sense of strategic visionClearer sense of strategic vision• Sharper focus on what is strategically importantSharper focus on what is strategically important• Improved understanding of rapidly changing Improved understanding of rapidly changing

environmentenvironment• Improves organizational health and successImproves organizational health and success• Firms are more profitableFirms are more profitable• When lower level workers are involved in When lower level workers are involved in

strategic planning it helps motivation, broadens strategic planning it helps motivation, broadens sources of information and helps gain sources of information and helps gain commitment to plancommitment to plan

Three Key Strategic Three Key Strategic Questions the Strategic Questions the Strategic

Management Must Continue Management Must Continue To AskTo Ask

• Where is the organization now?Where is the organization now?• If no changes are made, where will the If no changes are made, where will the

organization be in one, two, five or ten organization be in one, two, five or ten years? Are the answers acceptable?years? Are the answers acceptable?

• If the answers are not acceptable, what If the answers are not acceptable, what specific actions should management specific actions should management undertake? What are the risks and undertake? What are the risks and payoffs involved?payoffs involved?

Learning OrganizationLearning Organization

A learning organization is skilled at creating, A learning organization is skilled at creating, acquiring, transferring knowledge, and at acquiring, transferring knowledge, and at modifying its behavior to reflect new knowledge modifying its behavior to reflect new knowledge and insightsand insights

The external environment is changing so quickly The external environment is changing so quickly that organizations must work on strategy that organizations must work on strategy development yearly to revise plansdevelopment yearly to revise plans

Strategy implementationStrategy implementation is continuous and is continuous and therefore we must have a Learning Organization.therefore we must have a Learning Organization.

Composition of Composition of Strategic ManagementStrategic Management

Strategic Management is Composed ofStrategic Management is Composed of

1.1. Environmental scanningEnvironmental scanning2.2. Strategy formulationStrategy formulation3.3. Strategy implementationStrategy implementation4.4. Evaluation and controlEvaluation and controlSee Figure 1.1 in text, the following model is used See Figure 1.1 in text, the following model is used

more often but is almost same model.more often but is almost same model.

8

TM-7

Strategic Management Strategic Management ModelModel

Strategy Formulation

Strategy Implementation

Evaluation and Control

Mission

Objectives

Strategies

Feedback/Learning

Environmental Scanning

Societal Environment

General Forces

Task Environment

Industry Analysis

Structure Chain of Command

Resources Assets, Skills

Competencies, Knowledge

Culture Beliefs, Expectations,

Values

Reason for existence

What results to accomplish by when Plan to

achieve the mission & objectives

Programs

Activities needed to accomplish a plan

Budgets

Cost of the programs Procedures

Sequence of steps needed to do the job

Process to monitor performanceand take corrective action

Performance

External

Internal

Go through decision- making process andDetermine alternative

strategy To select

Environmental VariablesEnvironmental Variables

Societal Environment

Economic

Forces

Technological

Forces

Political-Legal Forces

Sociocultural Forces

Internal Environment

Structure Culture

Resoures

Shareholders

Governments

Customers

Creditors

Communities

Competitors

Employees/

Labor Unions

Suppliers

Special

Interest

Groups

Trade Associations

TaskEnvironment

(Industry)

Two Categories of External Two Categories of External EnvironmentEnvironment

Societal EnvironmentSocietal EnvironmentComposed of general forces in environmentComposed of general forces in environment

1. Economic1. Economic

2. Technological2. Technological

3. Political-Legal3. Political-Legal

4. Socio-Cultural4. Socio-Cultural

Many texts such as Marketing text use Many texts such as Marketing text use similar categories.similar categories.

Give examples of Societal Give examples of Societal External EnvironmentExternal Environment

• Low rate of unemploymentLow rate of unemployment• Age distribution of populationAge distribution of population• Interest ratesInterest rates• Federal Regulations for Minimum WageFederal Regulations for Minimum Wage**Note this variables effect most **Note this variables effect most

companies in a similar way and companies in a similar way and therefore are not in the industry therefore are not in the industry environment of the organization.environment of the organization.

2nd Major Category of 2nd Major Category of External EnvironmentExternal Environment

Task EnvironmentTask EnvironmentComposed ofComposed of

• Groups in environment that directly Groups in environment that directly affect or are affected by the affect or are affected by the organization’s operationsorganization’s operations

• (Often called industry)(Often called industry)

Give an example of Give an example of task environment at task environment at

CMSUCMSU• Discussion of other state schoolsDiscussion of other state schools

• College age individuals in MissouriCollege age individuals in Missouri

• Cafeteria supply companiesCafeteria supply companies

• State government of MissouriState government of Missouri

TM-13

Internal EnvironmentInternal Environment

• The Internal Environment that we will use The Internal Environment that we will use in this class is: in this class is:

• a. Organizational Structure and a. Organizational Structure and Management,Management,

• b. Organizational culture and values, andb. Organizational culture and values, and• c. Organizational resources e.g. c. Organizational resources e.g.

production, financial, HRM, CIS etc.production, financial, HRM, CIS etc.

a. Organizational a. Organizational Structure isStructure is

The way a corporation is organized The way a corporation is organized in terms of communication, in terms of communication, authority, and workflow.authority, and workflow.

b. b. Corporate/OrganizationCorporate/Organization

al Cultureal CultureCorporate Culture is theCorporate Culture is the Collection of Collection of beliefs, expectations, and values beliefs, expectations, and values learnedlearned and and sharedshared by members and by members and transmittedtransmitted from one generation of employees to from one generation of employees to another.another.

It includes how ethical and socially It includes how ethical and socially responsible the company is.responsible the company is.

c. Internal Resourcesc. Internal Resources

An asset, competency, process, An asset, competency, process, skill, or knowledge controlled by skill, or knowledge controlled by the corporation (the corporation (Examples include Examples include marketing skills, financial strength, marketing skills, financial strength, MIS systems, production facilities.)MIS systems, production facilities.)

Definition of Strategy Definition of Strategy FormulationFormulation

Strategy Formulation isStrategy Formulation is

The process of developing long-range plans to deal effectively The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of with environmental opportunities and threats in light of corporate strengths and weaknesses.corporate strengths and weaknesses.

Composed ofComposed of• MissionMission• ObjectivesObjectives• StrategiesStrategies

11stst let us look at Mission let us look at MissionCompanies should have a Companies should have a

mission whether they write mission whether they write it down or not.it down or not.

MissionMission

The purpose or reason for the corporation’s The purpose or reason for the corporation’s existence. It may be narrow or broad in scope.existence. It may be narrow or broad in scope.

NarrowNarrow BroadBroad

RailroadRailroad TransportationTransportation

InsuranceInsurance Financial ServicesFinancial Services

22ndnd Objectives ObjectivesOnce companies know Once companies know their Mission they can their Mission they can

come up with their come up with their objectives.objectives.ObjectivesObjectives

The end results of planned activity. The end results of planned activity. They state WHAT is to be They state WHAT is to be accomplished by WHEN. They accomplished by WHEN. They should be quantified, if possible.should be quantified, if possible.

Some Areas in Which to Some Areas in Which to Set ObjectivesSet Objectives

• Profitability (10% profit over next 5 years)Profitability (10% profit over next 5 years)• Growth ( have 40% growth by 4 years from now)Growth ( have 40% growth by 4 years from now)• Shareholder wealth (increase stock price by $10 in Shareholder wealth (increase stock price by $10 in

3 years)3 years)• Utilization of resourcesUtilization of resources• ReputationReputation• Contributions to employeesContributions to employees• Contributions to societyContributions to society• Market leadership (continue to be #1 in market Market leadership (continue to be #1 in market

share)share)• SurvivalSurvival• Personal needs of managementPersonal needs of management

3rd Strategy3rd StrategyStrategies can be set once Strategies can be set once

your objectives and your objectives and mission are set.mission are set.A Strategy is a A Strategy is a

A comprehensive master plan A comprehensive master plan stating HOW the corporation will stating HOW the corporation will achieve its mission and objectivesachieve its mission and objectives

A Strategy tells us HOW A Strategy tells us HOW organization aligns itself with its organization aligns itself with its external and internal environment. external and internal environment.

TM-22

Strategies are set a three Strategies are set a three levels in corporate levels in corporate

conglomerates.conglomerates.• Strategic or Corporate levelStrategic or Corporate level

• Divisional Level (also called Strategic Business Divisional Level (also called Strategic Business Unit (SBU) StrategyUnit (SBU) Strategy

• Functional/Departmental levelFunctional/Departmental level

Each level supports the other level.Each level supports the other level.

Hierarchy of StrategyHierarchy of Strategy

Functional Strategy

Business (Division Level)

Strategy

Corporate Strategy

Manufacturing Finance MarketingResearch

and Development

Human Resources

Strategic Business

Unit

Strategic Business

Unit

Strategic Business

Unit

Corporate Headquarters

Definition of Strategy Definition of Strategy ImplementationImplementation

Strategy ImplementationStrategy Implementation

The process of putting strategies into action The process of putting strategies into action through the development of through the development of • ProgramsPrograms• BudgetsBudgets• ProceduresProcedures

Definition of ProgramDefinition of ProgramProgramProgram

A statement of activities or steps needed to accomplish a single-use plan, e.g. a marketing program for a chosen strategy or a finance program for a chosen strategy.A statement of activities or steps needed to accomplish a single-use plan, e.g. a marketing program for a chosen strategy or a finance program for a chosen strategy.

Definition of BudgetDefinition of BudgetBudgetBudget

A statement of a corporation’s program in dollar terms or numerical term such as in units, days, # of employees, etc. A statement of a corporation’s program in dollar terms or numerical term such as in units, days, # of employees, etc.

A marketing budget for next year might be 5-8 % of net sales.A marketing budget for next year might be 5-8 % of net sales.A Finance budget for our strategy might be issue $10.000,000A Finance budget for our strategy might be issue $10.000,000In stock to finance our strategy.In stock to finance our strategy.

Definition of ProceduresDefinition of Procedures

ProceduresProcedures

A system of sequential steps or techniques that A system of sequential steps or techniques that describe in detail how to perform a particular describe in detail how to perform a particular task or job. task or job.

( We will not do procedures in our cases because it ( We will not do procedures in our cases because it becomes too detailed.)becomes too detailed.)

A marketing procedure might be how to buy A marketing procedure might be how to buy advertising space step-by-stepadvertising space step-by-step

A finance procedure might be how to issue stock A finance procedure might be how to issue stock step-by-step.step-by-step.

Definition of Evaluation Definition of Evaluation and Controland ControlEvaluation and ControlEvaluation and Control

The process of monitoring corporate activities and The process of monitoring corporate activities and performance results so that actual performance can be performance results so that actual performance can be compared with desired performance and initiating changes compared with desired performance and initiating changes when necessary.when necessary.

Our objectives will probably be what we will use for Our objectives will probably be what we will use for controlcontrol

Profitability (10% profit over next 5 years)Profitability (10% profit over next 5 years)• Growth ( have 40% growth by 4 years from now)Growth ( have 40% growth by 4 years from now)• Shareholder wealth (increase stock price by $10 Shareholder wealth (increase stock price by $10

in 3 years)in 3 years)

Triggering Events for Triggering Events for Strategic ChangeStrategic Change

• New CEONew CEO• External interventionExternal intervention• Threat of a change in ownershipThreat of a change in ownership• Performance gapPerformance gap

• Strategic decisions are rare, consequential, and Strategic decisions are rare, consequential, and

set direction for an organization.set direction for an organization.

Strategic Managment Process at Strategic Managment Process at Maytag Corporation : Mission & Maytag Corporation : Mission &

ObjectivesObjectivesStrategy FormulationStrategy Formulation

MissionMission • BroadBroad: To serve the best interests of shareowners, : To serve the best interests of shareowners,

customers, and employeescustomers, and employees• NarrowNarrow: To become a full-line globally-oriented major : To become a full-line globally-oriented major

home appliance manufacturer and marketerhome appliance manufacturer and marketer

ObjectivesObjectives• Increased profitabilityIncreased profitability• Number one in customer satisfaction next 3 yearsNumber one in customer satisfaction next 3 years• Number three in North American unit salesNumber three in North American unit sales

Strategic Management Process Strategic Management Process at Maytag Corporation: at Maytag Corporation:

Strategies & PoliciesStrategies & PoliciesStrategiesStrategies• To grow horizontally where the corporation is not yet well represented To grow horizontally where the corporation is not yet well represented

through external acquisition or joint venturesthrough external acquisition or joint ventures• To grow horizontally internally by improving efficiency and quality of To grow horizontally internally by improving efficiency and quality of

acquired companies and by using one business unit’s expertise in one acquired companies and by using one business unit’s expertise in one acquired are to introduce quality products from a business unit in another acquired are to introduce quality products from a business unit in another areaarea

• PoliciesPolicies• No cost reduction proposal will be approved if it reduces product quality No cost reduction proposal will be approved if it reduces product quality

in any wayin any way• Every product, from the least expensive to the highest priced, should be Every product, from the least expensive to the highest priced, should be

superior to the competition in overall quality and performancesuperior to the competition in overall quality and performance• The corporation must not emphasize market share at the expense of The corporation must not emphasize market share at the expense of

profitabilityprofitability• Business units must be managed for synergies, while simultaneously the Business units must be managed for synergies, while simultaneously the

specialized expertise among those units must be allowed to flourishspecialized expertise among those units must be allowed to flourish

Strategic Management Process Strategic Management Process at Maytag Corporation: Programs at Maytag Corporation: Programs

& Budgets& BudgetsProgramsPrograms• Work with Bosch-Siemens to develop joint marketing and Work with Bosch-Siemens to develop joint marketing and

supplier agreements for Hoover appliancessupplier agreements for Hoover appliances• Analyze and develop Asian markets through current Analyze and develop Asian markets through current

distributors and licensees and through joint venturesdistributors and licensees and through joint ventures• Develop new appliances for continental EuropeDevelop new appliances for continental Europe• Develop TV advertising for Jenn-Air and Magic ChefDevelop TV advertising for Jenn-Air and Magic Chef• Consolidate production of washers and dryers in Consolidate production of washers and dryers in

dedicated plantsdedicated plants

BudgetsBudgets• Prepare budgets for each planned programPrepare budgets for each planned program

Strategic Management Process Strategic Management Process at Maytag Corporation: at Maytag Corporation:

ProceduresProcedures

ProceduresProcedures• Develop procedures for joint purchasing and joint Develop procedures for joint purchasing and joint

marketing of Bosch-Siemens with Hoovermarketing of Bosch-Siemens with Hoover

• Coordinate marketing, manufacturing, and Coordinate marketing, manufacturing, and purchasing activities of business units through purchasing activities of business units through committeescommittees

• Research and development takes place in unit Research and development takes place in unit housing each product linehousing each product line

• Consolidate all advertising under one agency, but Consolidate all advertising under one agency, but establish internal advertising for each brand categoryestablish internal advertising for each brand category

Strategic Management Process Strategic Management Process at Maytag Corporation: at Maytag Corporation:

Evaluation & ControlEvaluation & ControlEvaluation & ControlEvaluation & Control• Require all business units to provide Require all business units to provide annualannual reports giving reports giving

operating revenues, costs, and expenses as well as operating revenues, costs, and expenses as well as identifiable assets in dollars, plus property additions and identifiable assets in dollars, plus property additions and deletions. Compare these against your objectives.deletions. Compare these against your objectives.

• Require all business units to provide Require all business units to provide quarterlyquarterly assessments assessments of competitive activity and overall trends affecting each of of competitive activity and overall trends affecting each of their product linestheir product lines

• Require all business units to inform corporate headquarters Require all business units to inform corporate headquarters before proceeding on any financially risky planbefore proceeding on any financially risky plan

Questions to AnswerQuestions to Answer

What is Strategic What is Strategic Management?Management?

ANSWER:ANSWER:

STRATEGIC MANAGEMENTSTRATEGIC MANAGEMENT• That set of managerial decisions That set of managerial decisions

and actions that determines the and actions that determines the long-run performance of a long-run performance of a corporationcorporation

Student Fill in YourselfStudent Fill in Yourself

What are the basic elements What are the basic elements of the Strategic of the Strategic

Management Process?Management Process?(Put processes in correct (Put processes in correct

sequence.)sequence.)

What processes supercede What processes supercede each other?each other?

Answer-in appropriate orderAnswer-in appropriate order

Evaluation and

Control

Strategy Implementation

Environmental Scanning

Strategy Formulation

What does it mean when What does it mean when author says Mission can be author says Mission can be

wide or narrow?wide or narrow?• Remember a mission should include at least a Remember a mission should include at least a

general idea what products the organization general idea what products the organization offers, its geographical scope, its view of offers, its geographical scope, its view of customers and the general environment.customers and the general environment.

• Give an example of a mission for DisneyGive an example of a mission for Disney• Give an example of a mission for CMSUGive an example of a mission for CMSU• Give an example of a mission for BudweiserGive an example of a mission for Budweiser

What are the key words What are the key words describing an objective?describing an objective?

What is the key word What is the key word describing a strategy?describing a strategy?