Chapter 1kjensen/CHAP00… · PPT file · Web view · 2011-01-12Title: Chapter 1 Subject:...

1© 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin Copyright

THE THREE THE THREE STRATEGY-MAKING STRATEGY-MAKING

TASKSTASKS

CHAPTER 2

Screen graphics created by:Jana F. Kuzmicki, PhD, Mississippi University for Women

“Management’s job is not to see the company as it is….but as it can

become.”

“A strategy is a commitment to undertake one set of actions

rather than another.”

“Quote”

John W. Teets

Sharon M. Oster

© 2001 by The McGraw-Hill Companies, Inc. All rights reserved.




Chapter Outline

Developing a Strategic Vision / Mission

Establishing Financial and Strategic Objectives

Crafting a Strategy

Factors Shaping a Company's Strategy

Linking Strategy With Ethics



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



Strategic Management Principle

Effective strategy-making begins with a vision of where the organization

needs to head!



Who Are We?Who Are We?John Deere has grown and prospered

through a long-standing partnership with the world’s most productive farmers.

Today, John Deere is a global company with several equipment operations and complementary service businesses.

These businesses are closely interrelated, providing the company with

significant growth opportunities and other synergistic benefits.

Example: John Deere’s Strategic Vision



Where Are We Going?Where Are We Going? Deere is committed to providing genuine

value to the company’s stakeholders. In support of that commitment, Deere aspires to: Grow and pursue leadership positions in

each of our businesses. Extend our preeminent leadership position

in the agricultural equipment market worldwide.

Create new opportunities to leverage the John Deere brand globally.




How Will We Get There?How Will We Get There? By pursuing the broader corporate goals of

profitable growth and continuous improvement, each of the company’s businesses is expected to: Achieve world-class performance by attaining a

strong competitive position in target markets. Exceed customer expectations for quality and

value. Earn in excess of the cost of

capital over a business cycle.




How Will We Get There?How Will We Get There? By growing profitably and continuously improving,

each of the company’s businesses will benefit from and contribute to Deere’s unique intangible assets: Our distinguished brand. Our heritage of integrity and teamwork. Our advanced skills. The special relationships that have long existed

between the company and our employees, customers, dealers and other business partners around the world.




How Will We Measure Our Performance?How Will We Measure Our Performance? Each business will make a positive contribution to the

corporation’s objectives in the pursuit of creating genuine value for our stakeholders. Our “scorecard” includes: Human Resources--employee satisfaction,

training Customer Focus--loyalty, market leadership Business Processes--productivity, quality, cost,

environment Business Results--return on assets, sales growth




Example: Delta Airline’s Strategic Vision

. . . . . . we want Delta to be the WORLDWIDE AIRLINE OF CHOICE.WORLDWIDE AIRLINE OF CHOICE.

DELTA AIRLINES



WORLDWIDE,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.


DELTA AIRLINES




AIRLINE,AIRLINE, because we intend to stay in the business we know best -- air transportation and related services. We won’t stray from our roots.

We believe in the long-term prospects for profitable growth in the airline industry, and we will continue

to focus time, attention, and investment on enhancing our place in that business environment.

DELTA AIRLINES



OF CHOICE,OF CHOICE, because we 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 ever more challenging, rewarding,

and result-oriented workplace that recognizes and appreciates their contributions. For our shareholders,

we will earn a consistent, superior financial return.


DELTA AIRLINES



Three Elements of a Strategic Vision

Use the mission statement mission statement as a as a starting pointstarting point

Develop a strategic vision strategic vision that spells out a course to pursue

CommunicateCommunicate the vision in a clear clear and exciting exciting manner



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?”



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



Cardinal Health is a leading provider of services supporting health care worldwide.

The company offers a broad array of services for health-care providers and manufacturers to help them improve the efficiency and quality of health care.

These services include pharmaceutical distribution, health-care product manufacturing and distribution, drug delivery systems development, . . . , retail pharmacy franchising, and health-care information systems development.

Business Mission: Cardinal Health



JDS Uniphase is the leading provider of advanced fiber optic components and modules.

These products are sold to the world’s leading telecommunications and cable television system providers . . .

Our products perform both optical-only functions and optoelectronic functions within fiber option networks.

Our products include semiconductor lasers, . . . , and isolators for fiber optic applications.

In addition, we design, manufacture, and market laser subsystems for a broad range of OEM applications, which include . . .

Business Mission:



Russell Corporation is a vertically integrated international designer, manufacturer, and marketer of athletic uniforms, . . . , and a comprehensive line of lightweight, yarn-dyed woven fabrics.

The Company’s manufacturing operations include the entire process of converting raw fibers into finished apparel and fabrics.

Products are marketed to sporting goods dealers, department and specialty stores, mass merchandisers, . . . , and other apparel manufacturers.

Business Mission: Russell Corp.



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?



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



Business Mission: The McGraw Hill Companies(a diversified firm)

The McGraw-Hill Companies is a global publishing, financial, information and media services company with such renowned brands as Standard & Poor’s, Business Week, and McGraw-Hill educational and professional materials.

The Company provides information via various media platforms: books, magazines and newsletters; on-line; via television, satellite and FM sideband broadcast; and software, videotape, facsimile and CD-ROM products.

The Company now creates more than 90 % of its information on digital platforms and its business units are represented on more than 75 Web sites.



Business Mission: FDX Corporation(a diversified firm)

FDX is composed of a powerful family of companies: FedEx, RPS, Viking Freight, FDX Global Logistics and Roberts Express.

These companies offer logistics and distribution solutions on a regional, national and global scale: fast, reliable, time-definite express delivery; . . . expedited same-day delivery; . . . ; and integrated information and logistics solutions

With all this expertise under one umbrella, the FDX companies can provide businesses with the competitive advantage they need by providing streamlined solutions that are on the cutting edge of technology.



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.



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





Apple Computer, Inc., ignited the personal computer revolution in the 1970s with the Apple II, and

reinvented the personal computer in the 1980s with the Macintosh.

Apple is now committed to its original mission--to bring the best personal computing products and

support to students, educators, designers, scientists, engineers, business persons and consumers in over

140 countries around the world.

Apple Computer




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




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



Mission Statements forFunctional Departments

Spotlights department’s

Role and scope of activities

Direction which department needs to pursue

Contribution to firm’s overall mission



Mission Statements ofFunctional Departments

HUMAN RESOURCESHUMAN RESOURCES To contribute to organizational success by developing effective leaders, creating high performance teams,

and maximizing the potential of individuals.

CORPORATE SECURITYCORPORATE SECURITYTo provide services for the protection of corporate

personnel and assets through preventive measures and investigations.



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



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?



Entrepreneurial Challenges inForming a Strategic Vision

How to creatively prepare a company for the future

How to keep the company responsive to Evolving customer needs Competitive pressures New technologies New market opportunities Growing or shrinking

opportunities



Intel’s “Strategic Inflection Points” Prior to mid-1980s

Focus on memory chips Starting in mid-1980s

Abandon memory chip business and Become preeminent supplier of

microprocessors to PC industry Make PC central appliance in

workplace and home Be undisputed leader in driving

PC technology forward 1998

Shift focus from PC technology to becoming the preeminent building block supplier to the Internet economy



Communicating the Vision

An exciting, inspirational vision Challenges and motivates workforce Arouses strong sense of organizational

purpose Induces employee buy-in Galvanizes people to live the business



Managerial Value of a Well-Conceived Strategic Vision and Mission

Crystallizes long-term directionReduces risk of rudderless decision-

makingConveys organizational

purpose and identityKeeps direction-related actions of

lower-level managers on common pathHelps organization prepare for the

future



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



Purpose of Objective-Setting

Substitutes results-oriented decision-making for aimlessness over what to accomplish

Provides a set of benchmarks for judging organizational performance



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

$




Every company needs

both strategic and

financial objectives!



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



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



Examples: Corporate Objectives

Citigroup (strategic objective)

To attain one billion customers worldwide.

McDonald’s (strategic objective)

To achieve 100 percent total customer satisfaction . . . everyday . . . in every

restaurant . . . for every customer.



Example: Corporate Objectives

Become the most competitive enterprise in the world.

Be number one or number two in each business we are in.

Globalize every activity in the company. Embrace the Internet and become a global

e-business.

General Electric (strategic objectives)




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, . . .

Anheuser-Busch(strategic & financial 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)




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)




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)



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




Building a stronger long-term competitive position benefits

shareholders more lastingly than improving short-term

profitability!



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!



Characteristics of Strategic Intent

Indicates firm’s intent to stake out a particular position over the long-term

Involves establishing a BHAG - ”big, hairy, audacious goal”

Signals relentless commitment to winning



Short-Range VersusLong-Range Objectives

Short-Range objectivesTargets to be achieved soonServe 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



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




Objective-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.



Crafting a Strategy

An organization’s strategy deals with How to make the strategic vision a reality

and achieve target objectives The game plan for

Pleasing customers Conducting operations Building a sustainable competitive

advantage Strategy constitutes management’s business

model for producing good profitability

Third Direction-Setting Task



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

Our game plan for running the company will be . . .



Characteristics of Strategy-Making

Strategy is action-oriented

Strategy evolves over time

Strategy-making is a never-ending, ongoing task



Rule-Breaking Strategies

Challenge fundamental conventions by Reconceiving a product or service

(Creating a single-use disposable camera) Redefining the marketplace

(Detouring retailers by selling online at the company’s website)

Redrawing industry boundaries

(Getting credit cards from Shell Oil or General Motors or AOL)



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



Figure 2-1: Levels of Strategy-Making in a Single-Business Company

Business Strategy

Two-Way Influence

Two-Way Influence



Executive-Level Managers

OperatingManagers

Functional Managers



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?



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



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



What Business Strategy Involves Forming responses to changes in industry and

competitive conditions, buyer needs and preferences, economy, regulations, etc.

Crafting 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




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




Concern narrower strategies for managing grassroots activities and strategically-relevant operating units

Add detail to business and functional strategies



Example: Operating Strategy

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 24 hours

Improving Delivery & Order-Filling



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 but best-qualified candidates

Information systems manager devises way to use technology to boost productivity of office workers

Compensation manager devises improved incentive compensation plan

Purchasing manager obtains new efficiency-increasing tools and equipment

Boosting Worker ProductivityExample: Operating Strategy



Uniting the Company’s Strategy-Making Effort

A company’s strategy is a collection of strategies and initiatives being acted on by managers at various organizational levels

Separate levels of strategy must be unified into a cohesive, company-wide action plan

Pieces of strategy should fit together like the pieces of a puzzle



Figure 2.4: Networking of Missions,Objectives, and Strategies

Level 1Corporate-LevelManagers

Level 2Business-LevelManagers

Level 3Functional Managers

Level 4Plant Managers,Lower-LevelSupervisors

CorporateLevel

Objectives

Corporate-wideStrategic

Vision

CorporateLevel

Strategy

BusinessLevel

Objectives

BusinessLevel Strategic

Vision

BusinessLevel

Strategies

FunctionalObjectives

Functional Missions

FunctionalStrategies

OperatingObjectives

OperatingMissions

OperatingStrategies

Two-Way Influence Two-Way Influence Two-Way Influence






Objectives and strategies that are unified from top to bottom of the strategy-making managerial hierarchy require a team effort!



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



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



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



Competitive Conditions andIndustry Attractiveness

A company’s strategy has to be responsive to Fresh moves of rival competitorsChanges in industry’s

price-cost-profit economicsShifting buyer needs and expectationsNew technological developmentsPace of market growth




A company’s strategy can’t produce real market success unless it is well-matched to

industry and competitive conditions!



Company Opportunities and Threats

For strategy to be successful, it has to

Be well matched to capturing a company’s best opportunities

And help counteract threats to the company’s well-being



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 deficiencies, gaps in skills, and weaknesses in competitive position make pursuit of certain strategies risky or altogether unwise



A company’s 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 discount the competitive liabilities of company’s resource deficiencies and skills gaps!




Ambitions, Philosophies, and Ethics of Key Executives

Managers generally stamp strategies they craft with their own personalAmbitionsValuesBusiness philosophiesAttitudes toward riskEthical beliefs

I believe we should be

#1!



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



Hewlett-Packard’sBasic Values: “The HP Way”

Sharing firm’s success with employeesShowing trust and respect for employeesProviding customers with products or services

of the greatest valueBeing genuinely interested in providing customers

with effective solutions to their problemsMaking profit a high stockholder priorityAvoiding use of long-term debt to finance growth Individual initiative, creativity, & teamworkBeing a good corporate citizen



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”



A Firm’s Ethical Responsibilitiesto Its Stakeholders

Owners/shareholders – Rightfully expect some form of return on their investment

Employees - 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 service

Suppliers - Rightfully expect to have an equitable relationship with firms they supply

Community - Rightfully expect businesses to be good citizens in their community



Tests of a Winning Strategy GOODNESS OF FIT TEST

How well is strategy matched to firm’s situation?

COMPETITIVE ADVANTAGE TEST Does strategy lead to sustainable

competitive advantage? PERFORMANCE TEST

Does strategy boost firm performance?




To be a real winner, a strategy must

1. Fit the enterprise’s internal and external situation

2. Build sustainable competitive advantage

3. Improve company performance

Chapter 1kjensen/CHAP00… · PPT file · Web view · 2011-01-12Title: Chapter 1 Subject:...

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