Module 1 - The Strategic Management Process; An Introduction

Module 1

The Strategic Management

Process:

An Introduction

Module Outline

• Five Risk of Strategic Management:

1. Development a Strategic Vision and Mission

2. Setting Objectives

3. Crafting a Strategy

4. Implementing a Strategy

5. Evaluating Performance and Initiating Corrective

Adjustments

• Strategic Management is an ongoing process.

• Who performs the tasks of strategy?

• Benefits of “Managing Strategically”

• Terms to remember

What is “Strategy”?

• Consists of competitive moves and business

approaches to produce successful

performance.

• Management’s “game plan” for

– Running the business

– Strengthening fir’s competitive position

– Satisfying customers

– Achieving performance targets

Thinking Strategically: 3 Big Strategic

Questions

1. Where are we now?

2. Where do we want to go?

• Business positions management wants to

stake out

• Financial outcomes to achieve

• Strategic outcomes to achieve

3. How will we get there?

The 5 Tasks of Strategic Management

Task 1 Task 2 Task 3 Task 4 Task 5

Developing

Strategic

Mission &

Vision

Setting

Objectives

Crafting

Strategy to

Achieve

Objectives

Implementi

ng &

Executing

Strategy

Evaluating

&

Correcting

Revise as

Needed

Revise as

Needed

Improve /

Change

Improve /

Change

Recycle as

Needed

5 Tasks of Strategic Management

1. Defining business, stating a mission and

forming a strategic vision.

2. Setting measurable objectives

3. Crafting a strategy to achieve objectives

4. Implementing and executing strategy

5. Evaluating performance, reviewing new

developments, and initiating corrective

adjustments

1. Developing a Vision and Mission

• Begins with thinking strategically

– About the firm’s future makeup

– Forming vision of firm’s future in 5 – 10 years

• Task is to

– Inject sense of purpose into firm’s activities

– Provide LONG-TERM DIRECTION

– Give firm STRONG IDENTITY

– Decide “WHO we are, WHAT we do, and

WHERE we headed”

An organization’s mission

– Reflects management’s vision of what firm seeks

to d and become

– Provides clear view of what firm is trying to

accomplish for its customers

– Indicates intent to stake out a particular business

position

1. Developing a Vision and Mission

Specific Questions That Help Form

Strategic Visions

• What business are we in now?

• What business do we want to be in?

• What will our customers want in future?

• What are expectations of our stakeholders?

• Who will be our future competitors?

Suppliers? Partners?

• What should our competitive scope be?

• How will technology impact our industry?

• What environmental scenario are possible?

Why a Shared Vision Matters?

• A strategic vision widely shared among all

employees functions similar to how a magnet

aligns iron filings

• When all employees are committed to firm’s

long-term direction, optimum choices on

business decisions are most likely

– Individuals and teams known intent of firm’s

strategic vision

– Daily execution of strategy is improved

Examples: Mission / Vision Statements

AVIS Rent-A-Car

– Our business is renting cars. Our mission is total

customer satisfaction.

McCormick & Company

– The primary mission is to expand our worldwide

leadership position in spice, seasoning, and

flavoring markets.

Saturn Division of General Motor (GM)

– To market vehicles developed and manufactured

in the U.S. that are world leaders in quality, cost,

and customer satisfaction through the integration

of people, technology, and business systems

and to transfer knowledge, technology, and

experience throughout GM.

Eastman Kodak

– To be the best in chemicals and electronic

imaging.


Public Service Company of New Mexico

– Our mission is to work for the success of people

we serve by providing our customers reliable

electric service, energy information, and energy

options that best satisfy their needs.

American Red Cross

– The mission is to improve the quality of human

life; to enhance self-reliance and concern for

others; and to help avoid, prepare for, and cope

with emergencies.


McCaw Cellular Communications

– To develop a reliable wireless network that

empowers people with the freedom to travel

anywhere – across the hall or across the

continent – and communicate effortlessly.

Long John Silver’s

– To be America’s best quick service restaurant

chain. We will provide each guest great tasting,

healthful, reasonably priced fish, seafood, and

chicken in a fast, friendly manner on visit.


Sample Mission Statements

Otis Elevator

with higher reliability than any

similar enterprise in the world.

Distinction:

a means of moving people and

things up, down, and sideways

over short distances

Contribution:

To provide any customerKey Market:


Deluxe Checks

Error-free means absolutely no

errors; timely means a 48-hour

turnaround.

Distinction:

with error-free financial

instruments delivered in a timely

fashion.

Contribution:

To provide all banks, S&L, and

investment firms

Key Market:


Courtyard by Marriott

which is consistently perceived as

clean, comfortable, well maintained,

and attractive, staffed by friendly,

attentive, and efficient people.

Distinction:

with premier, moderate priced

lodging facility

Contribution:

To provide economy and quality

minded travelers

Key Market:


McDonald’s

delivered in a consistent, low-key

décor and friendly atmosphere.

Distinction:

food prepared in the same high-

quality manner world-wide, tasty

and reasonably priced,

Contribution:

To offer the fast food customerKey Market:


Dayton Hudson

Trend means private labels, fast

reaction, measured risks; service

means warm, friendly, helpful

people in convenient, efficient

environment.

Distinction:

by providing trend merchandising

and superior service.

Contribution:

To appeal younger-thinking, style-

conscious, moderate and better-

priced customer

Key Market:


Wal-Mart

in a manner in which they continue

to think of us fondly.

Distinction:

all their household needsContribution:

To offer all of the fine customers in

our territories

Key Market:

Why Bother to Define “Who,” “What,”

and “Where”?

• Helps managers avoid trap of

– Trying to move in too many directions

– Being so confused about firm’s direction that

effective actions are NOT taken to move in ANY

direction

• To successfully chart firm’s future, managers

must

– Know where firm is now

– Have view of where it ought to be headed

– Recognize time to shift to a new direction

2. Setting Objectives

• Purpose of setting OBJECTIVES is to

– Convert mission into performance targets

– Create yardstick to track performance

– Establish performance goals requiring stretch

– Pus firm to be inventive, intentional, focused

• Setting CHALLENGE but ACHIEVABLE objectives guards against

– Complacency

– Drift

– Internal confusion

– Status quo performance

Two Types of Objectives Needed

• Financial Objectives

– Outcomes that relate to improving firm’s financial

performance

• Strategic Objectives

– Outcomes that will result in greater

competitiveness and stronger long-term market

position

Examples of Types of Objectives

• Financial Objectives

– Increase earnings growth from 10% to 15% per year

– Boost return on equity investment from 15% to 20%

– Achieve and maintain a AA bond rating

• Strategic Objectives

– Up firm’s market share from 18% to 22%

– Overtake rivals on quality or customer service

– Attain lower overall costs than rivals

– Become leader in new product introductions

– Achieve technological superiority

Example: Corporate Objectives

Nike• Protect and improve Nike’s position as the number one

athletic brand in America.

• Build a strong momentum in growing fitness market.

• Intensity the company’s effort to develop products that women need and want.

• Explore the market for products specifically designed for the requirements of maturing Americans.

• Direct and manage the company’s international business as it continues to develop.

• Continue the drive for increased margins through proper inventory management and fewer, better products.

Example: Corporate Objectives

McCormick & Company

• Improve returns from each of our existing operating

groups.

• Dispose of those parts of our businesses which

cannot generate adequate returns or do not fit with

our business strategy.

• Achieve a 20% return on equity

• Achieve net sales growth rate of 10% per year.

• Maintain total debt to total capital at 40% or less.

• Pay out 25% to 35% of net income in dividends.

Examples: Strategic and Financial

Corporate Objectives

Nations Bank

– To build the premier financial services company

in the U.S.

Ford Motor Company

– To satisfy our customers by providing quality

cars and trucks, developing new products,

reducing time it takes to bring new vehicles to

market, improving efficiency of all our plants and

processes, and building on our teamwork with

employees, unions, dealers, and suppliers.



Exxon

– Provide shareholders a secure investment with a

superior return.

Alcan Aluminum

– To be the lowest cost producer of aluminum and

to outperform the average return on equity of the

Standard and Poor’s industrial stock index.



General Electric

– To become the most competitive enterprise in

the world by being number on or number two in

the market share in every business the company

is in.

Apple Computer

– To offer the best possible personal computing

technology, and to put that technology in the

hands of as many people as possible.



Atlas Corporation

– To become a low-cost, medium-size gold

producer, producing in excess pf 125,000

ounces of gold a year and building gold reserves

of 1,500,000.

Quaker Oats Company

– To achieve return on equity at 20% or above,

“real” earnings growth averaging 5% or better

over time, be a leading marketer of strong

consumer brands, and improve the profitability of

low-return businesses or divest them.

3. Crafting a Strategy

• Strategy-Making concerns HOW to

– Achieve desired strategic and financial

objectives

– Out-compete rivals and win a competitive

advantage

– Respond against threats to firm’s well-being

– Grow the business

Strategy as Planned and Reactive to

Changing Circumstances

Actual

Strategy

Planned

Strategy

Adaptive

Reaction

Crafting a Strategy

• Objectives = Targeted results & outcomes

• Strategy = HOW to achieve outcomes

• A firm’s Actual Strategy is a blend of

– Deliberate and purposeful actions – intended

strategy

– As needed reactions to unanticipated

developments and fresh competitive pressures –

unintended strategy

Understanding Company’s Strategy –

What to Look for?

The Pattern

of Actions

That Define

Strategy

Diversification

Responses to

Changing Conditions

Fresh Offensive to

Gain Market Edge

Product Line, Quality,

or Service

Geography Coverage

Forward or Backward

Integrations

Pursuing New

Opportunities

Defensive Moves

How Key Functions

Are Managed

Actions to Improve

Short-Term profits

What Does a Firm’s Strategy Consist

of?

• How to satisfy costumers

• How to grow the business

• How to respond to changing industry and

market conditions

• How to best capitalize on new opportunities

• How to manage each functional piece of

business

• How to achieve strategic and financial

objectives

Strategy Example: MacDonald’s

• Strategic and Financial Objectives

– Continued growth

– Providing exceptional customer care

– Remaining an efficient and quality producer

– Offering high value

– Effectively marketing McDonald’s brand on a

global scale

Key Elements of McDonald’s Strategy

• Adding 700 – 900 restaurants annually

• Using new menu items, low prices specials, Extra Value Meals to promote frequent costumer visits

• Being highly selective in granting franchises

• Choosing sites convenient to costumers

• Focusing on limited product line and consistent quality

• Careful attention to store efficiency

• Extensive advertising and use of Mc prefix

• Hiring courteous personnel; paying an equitable wage; and providing good training

Crafting Strategy Is an Exercise in

Entrepreneurship

• Strategy-Making is entrepreneurial

– Risk-taking and venturesomeness

– Innovation and business creativity

– Keen eye for spotting market opportunities

– Choosing among alternatives

• Strategy-Making challenge is to keep strategy

– Fresh

– Timely

– Responsive to changing conditions

– Opportunistic

Characteristics of Entrepreneurial

Managers

• Boldly pursues new strategic opportunities

• Emphasizes out-innovating the competition

• Lead the way to improve the firm

performance

• Willing to be a first-mover and take risks

• Responds quickly and opportunistically to

new developments

• Devises trail blazing strategies

Why Good Management of Strategy

Matters?

• Powerful execution of a powerful strategy is a

proven recipe for success

• Crafting and implementing strategy are core

management functions

• To qualify as well-managed, a firm should

– Have an attractive strategy

– Demonstrate proficiency in executing strategy

• A good strategy is strong enough to overpower

rivals and flexible enough to overcome obstacles

• Without proficiency strategy execution, firm cannot

achieve peak performance

Why Is a Firm’s Strategy Constantly

Evolving?

• Because firms often need to react to

– Changing market conditions

– Moves of competitors

– New technologies and production capabilities

– Evolving customer needs and preferences

– Political and regulatory changes

– New windows of opportunity

– Fresh ideas to improve current strategy

– A crisis situation

What Is a Strategic Plan?

• A Strategic Plan maps out

– Where firm is headed

– Short and long range performance targets

– Actions of management to achieve outcomes

• A Strategic Plan consists of

– A strategic vision and business mission

– Strategic and financial performance objectives

– Comprehensive strategy for achieving the

objectives

4. Implementing Strategy

• Implementing strategy involves

– Creating fits between way things are done and what it takes for effective strategy execution

– Executing strategy proficiently and efficiently

– Producing excellent results in timely manner

• Most important FITS are between strategy AND

– Organizational capabilities

– Reward structure

– Internal support systems

– Organizational culture

Strategy Implementation

Strategy implementation is an internal,

operations-driven activity involving

organizing, budgeting, motivating, culture-

building, supervising, and leading to “make

the strategy work” as intended!

What Does Strategy Implementation

Include?

• Building a firm capable of carrying out strategy successfully

• Allocating ample resources to strategy-critical activities

• Establishing strategy-supportive policies

• Instituting best practices and programs for continuous improvement

• Installing support systems

• Tying reward structure to achieve results

• Creating a strategy-supportive corporate culture

• Exerting strategic leadership

5. Evaluating Performance

• None of the tasks of strategic management are a one-time only exercise

– Time and conditions change

– Events unfold

– Better ways to do things become evident

– New managers with different ideas take over

• Managers must

– Constantly evaluate performance

– Monitor situation and decide how well things are going

– Make necessary adjustments

5. Evaluating Performance

• Corrective adjustments can entail

– Altering firm’s long-term direction

– Redefining the business

– Raising or lowering performance objectives

– Modifying the strategy

– Improving strategy execution

Characteristics of Strategic

Management Process

• Need to perform tasks never goes away because

changes occur regularly

• Boundaries among tasks are blurry

• Doing the 5 tasks is not isolated from other

managerial activities

• Time required to do tasks comes in lumps and

spurts

• Pushing to get best strategy-supportive

performance from each employee, perfecting

current strategy, and improving strategy execution

Who Performs the 5 Strategic

Management Tasks?

• Chief Executive Officer (CEO) and other

senior corporate level executives

• Managers of Subsidiary Business Units

(SBU)

• Functional area managers within a SBU

• Managers of major operating departments

and geographic units

Role of Strategic Planners

• Collect information needed by strategy managers

• Conduct background analyses as needed

• Establish and administer an Annual Strategy

Review Recycle

• Coordinate review and approval process of

strategic plans

• Assist all managers to focus on strategic issues

WARNING!

Planner should NOT make strategic decisions or do

strategic thinking for line managers

Why Planners Should Not Be Strategy

Maker?

• Planners know less about situation, placing

them in weaker position than line managers

to devise workable action plan

• Separate responsibility and accountability for

strategy-making from implementing

A MAJOR FLAW!

• Allow managers to toss decisions to planners

and avoid doing own strategic thinking

• Implementers have no “buy in” to strategy

Strategic Management Principle

Strategy-making is NOT a proper task for

strategic planners!

Strategic Roles of a Board of Directors

• See that 5 strategic management tasks are

performed adequately

• Review important strategic moves and

officially approve strategic plans

• Ensure strategic proposals are adequately

analyzed and superior to alternatives

• Evaluate caliber of top management’s

strategy-making and implementing skills

Strategic Management Principle

A Board of Director’s role in the strategic

management process is to critically

appraise and ultimately approve strategic

action plans, but rarely, if ever, to

participate directly in the details of strategy

making!

Benefits of Strategic Approach to

Managing

• Guides entire firm regarding “what it is we are trying to do and achieve”

• Lowers management’s threshold to change

• Provides basis for evaluating competing budget request and steering resources to strategy-supportive, results-producing areas

• Unites numerous strategy-related decisions of managers at all organizational levels

• Creates a proactive, rather than reactive, atmosphere

• Enhances long-range performance

Recap of Important Terms

Strategic Vision

– A view of an organization’s future direction and

business course; a guiding concepts for what the

organization is trying to do and to become.

Organization Mission

– Represents management’s customized answer

to the question “what is our business and what it

will be.” A mission statement broadly outlines the

organization’s future direction and serves as a

guiding concept for what the organization is to do

and to become.


Performance Objectives

– Organization’s targets for achievement; both

short and long range objectives are needed.

Financial Objectives

– Financial performance targets a company

wants to achieve.

Strategic Objectives

– Targets related to strengthening a company’s

overall market position and competitive

viability.


Long-Range Objectives

– Achievement levels to be reached within the next

3 to 5 years.

Short-Range Objectives

– Near-term performance targets; they establish

the pace for achieving the long-range objectives.


Strategy

– Managerial action plan for achieving organizational objectives; strategy is mirrored in the pattern of moves and approaches devised by management to produce the desired performance. Strategy is how of pursuing an organization’s mission and reaching target objectives.

Strategic Plan

– Statement outlining an organization’s mission and future direction, near-term and long-term performance targets, and strategy, in light of organization’s external and internal situation.


Strategy Formulations

– Refers to the entire direction-setting management function – conceptualizing an organization’s mission, setting specific performance objectives, and forming a strategy. The end product of strategy formulation is a strategic plan.

Strategy Implementation

– Includes the full range of managerial activities associated with putting the chosen strategy into place, supervising its pursuing, and achieving the targeted results.

End of Module 1

Module 1 - The Strategic Management Process; An Introduction

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