CHAPTER 2

THE 3 STRATEGY MAKING TASKS

Developing a Mission, Setting Objectives and Forming a Strategy

Chapter Outline

• Developing a Strategic Vision / Mission

• Establishing Objectives

• Crafting a Strategy

• Linking Strategy With Ethics and Corporate Social Responsibility

• Tests of a Winning Strategy

WHO we are, WHAT we do and WHERE we are headed”

Use the mission statementmission statement as a starting as a starting pointpoint

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

CommunicateCommunicate the vision in a clearclear and excitingexciting manner

• Defines current business activities

• Highlights boundaries of current business

• 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?”

Characteristics of a Mission Statement

• A good business definition incorporates three factors:

• Customer needs - WHAT is being satisfied• Customer groups - WHO is being satisfied

(geographical area, types of buyers)• Technologies and competencies employed –

HOW customers' needs are satisfied (specialised, fully integrated, partly integrated)

This directs management to look outward towards customers and markets as well as inwards.

Mission Statements forFunctional Departments

• Spotlights department’s

• Role and scope of activities

• Direction which department needs to pursue

• Contribution to firm’s overall mission

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?

Communicating the Vision

• An exciting, inspirational vision

• Challenges and motivates workforce

• Arouses strong sense of organizational purpose

• Galvanizes people to live the business

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!

Building a stronger long-term

competitive position benefits

shareholders more lastingly than

improving short-term profitability!

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.

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

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

Figure 2.1: Levels of Strategy-Making in a Diversified Company

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

Business Strategy

Two-Way Influence

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level Managers

OperatingManagers

Functional Managers

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

Tasks of Corporate Strategy

• Moves to achieve diversification

• Actions to boost performance of individual businesses

• Establishing investment priorities and steering corporate resources into the most attractive businesses

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

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

R&D 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

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

Operating Strategies

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

• Add detail to business and functional strategies

Example: Operating Strategy

Boosting Worker Productivity

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

Unitising the Strategy making Effort

Objectives and strategies that are

unified from top to bottom of the

strategy-making managerial hierarchy

require a team effort!

A Firm’s Ethical Responsibilitiesto Its Stakeholders

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

Owners/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

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

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. 1. Fit the enterprise’s internal and external situation

2. 2. Build sustainable competitive advantage

3. 3. Improve company performance