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STRATEGIC MANAGEMENTSTRATEGIC MANAGEMENT Lecture- 2 Lecture- 2

CHARTING A COMPANY’S DIRECTION:

♦ Developing a Strategic Vision, Setting Objectives, Developing a Strategic Vision, Setting Objectives, and Crafting a Strategyand Crafting a Strategy

♦ Without a strategy the organization is like a ship without a rudder, going around in circles.” Joel Ross and Michael Kami

Created by: Md. Motaharul Islam

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WHAT DOES THE STRATEGY-MAKING, STRATEGY-EXECUTING PROCESS ENTAIL?

1. Developing a strategic vision, a mission, and a set of values.

2. Setting objectives for measuring performance and progress.

3. Crafting a strategy to achieve those objectives.

4. Executing the chosen strategy efficiently and effectively.

5. Monitoring strategic developments, evaluating execution, and making adjustments in the vision and mission, objectives, strategy, or execution as necessary.

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2.1 The Strategy-Making, Strategy-Executing Process

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STAGE 1: DEVELOPING A STRATEGIC VISION, A MISSION, AND A SET OF CORE VALUES

♦ A strategic vision concerns a firm’s future business path -- “where we are going”

♦ It is a description of what the organisation is capable of becoming or would like to become ……

Strategic vision is dynamic process.

♦ Developing a Strategic Vision:● Delineates management’s future aspirations for the business to

its stakeholders.● Provides direction—“where we are going.”● Sets out the compelling rationale (strategic soundness) for the

firm’s direction.● Uses distinctive and specific language to set the firm apart from

its rivals.

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Communicating the Strategic Vision

♦ Why Communicate the Vision:● Fosters employee commitment to the firm’s

chosen strategic direction. ● Ensures understanding of its importance.● Motivates, informs, and inspires internal and

external stakeholders.● Demonstrates top management support for the

firm’s future strategic direction and competitive efforts.

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Crafting a Mission Statement

♦ A mission statement focuses on current business activities -- “who we are and what we do”

♦ Mission is a purpose or reason for the organisation’s existence (what the organisation is now).

♦ It tells what the organization is providing to the society.♦ It promotes a sense of shared expectations in employees.♦ Communicates a public image to important stakeholder groups.

♦ The Mission Statement:● Uses specific language to give the firm its own unique identity.● Describes the firm’s current business and purpose—“who we

are, what we do, and why we are here.”● Should focus on describing the company’s business, not on

“making a profit”—earning a profit is an objective not a mission.

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Characteristics of a Strategic Vision♦ A roadmap of a company’s future

● Future technology-product-customer focus

● Geographic and product markets to pursue

● Capabilities to be developed

● Kind of company management is trying to create

● Specific questions that help form Specific questions that help form strategic visions: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?♦ What should our competitive scope be?♦ How will technology impact our industry♦ What environmental scenarios are possible?

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Why is a Strategic Vision Important?

♦ A managerial imperative exists to look beyond today and think strategically about

♦ Impact of new technologies

♦ How customer needs and expectations are changing

♦ What it will take to outrun competitors

♦ Which promising market opportunities ought to be aggressively pursued

♦ External and internal factors driving what a company needs to do to prepare for the future

?

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The Ideal Mission Statement

♦ Identifies the firm’s product or services.

♦ Specifies the buyer needs it seeks to satisfy.

♦ Identifies the customer groups or markets it is endeavoring to serve.

♦ Specifies its approach to pleasing customers.

♦ Sets the firm apart from its rivals.

♦ Clarifies the firm’s business to stakeholders.

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Examples: Mission and Vision Statements

Intel

Our vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars of e-

commerce. Intel’s core mission is being the building block

supplier to the Internet economy and spurring efforts to

make the Internet more useful. Being connected is now at

the center of people’s computing experience. We are

helping to expand the capabilities of the PC platform and

the Internet.

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Examples: Mission and Vision Statements

3Com

Our mission is to connect more people and

organizations to information in more

innovative, simple, and reliable ways than

any other networking company in the world.

Our vision of pervasive networking is of a

world where connections are simpler, more

powerful, more affordable, more global, and

more available to all.

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Vision vs. MissionVISION

Future-oriented

♦ Inspirational

Markets to be pursued Future technology-product-customer focus Kind of company that management is trying to create

MISSION

♦ Present-oriented

♦ Informational

● Current product and service offerings● Customer needs being served● Technological and business capabilities

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STAGE 2: SETTING OBJECTIVES

♦ Objectives are an organization’s performance targets, i.e. results and outcomes it wants to achieve.

♦ Objectives function as yardsticks for tracking an organization’s performance and progress.

♦ Purpose of setting OBJECTIVES is to● Convert mission into performance targets● Create yardsticks to track performance● Establish performance goals requiring stretch● Push firm to be inventive, intentional, focused

♦ Setting CHALLENGING but ACHIEVABLE objectives guards against● Complacency● Internal confusion● Status quo performance

♦ The Purposes of Setting Objectives:● To convert the vision and mission into specific, measurable, timely performance

targets.● To focus efforts and align actions throughout the organization.● To serve as yardsticks for tracking a firm’s performance and progress.● To provide motivation and inspire employees to greater levels of effort.

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THE TWO ESSENTIAL KINDS OF OBJECTIVES TO SET

♦ Financial Objectives

● Communicate top management’s targets for financial performance.

● Are focused internally on the firm’s operations and activities.

● Outcomes focused on improving financial performance

♦ Strategic Objectives

● Are related to a firm’s marketing standing and competitive vitality.

● Are focused externally on competition vis-à-vis the firm’s rivals.

Outcomes focused on improving long-term, competitive business position

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SETTING FINANCIAL OBJECTIVES

Examples of Financial ObjectivesExamples of Financial Objectives♦ An x percent increase in annual revenues

♦ Annual increases in after-tax profits of x percent

♦ Annual increases in earnings per share of x percent

♦ Annual dividend increases of x percent

♦ Profit margins of x percent

♦ An x percent return on capital employed (ROCE) or return on shareholders’ equity investment (ROE)

♦ Increased shareholder value—in the form of an upward-trending stock price

♦ Bond and credit ratings of x

♦ Internal cash flows of x dollars to fund new capital investment

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SETTING STRATEGIC OBJECTIVES

Examples of Strategic ObjectivesExamples of Strategic Objectives♦ Winning an x percent market share

♦ Achieving lower overall costs than rivals

♦ Overtaking key competitors on product performance or quality or customer service

♦ Deriving x percent of revenues from the sale of new products introduced within the next five years

♦ Having broader or deeper technological capabilities than rivals

♦ Having a wider product line than rivals

♦ Having a better-known or more powerful brand name than rivals

♦ Having stronger national or global sales and distribution capabilities than rivals

♦ Consistently getting new or improved products and services to market ahead of rivals

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Example: Strategic Objectives

To satisfy our customers by providing Quality cars and trucks, Developing new products, Reducing the time it takes to bring new

vehicles to market, Improving the efficiency of all our plants &

processes, and Building on our teamwork with employees,

unions, dealers, and suppliers.

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Example: Financial and Strategic Objectives

3M Corporation

Annual growth in earnings per share of 10% or better, on average;

A return on stockholders’ equity of 20-25%;

A return on capital employed of 27% or better; and

Have at least 30% of sales come from products introduced in the past four years.

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THE NEED FOR SHORT-TERM AND LONG-TERM OBJECTIVES

♦ Short-Term Objectives:● Focus attention on quarterly and annual

performance improvements to satisfy near-term shareholder expectations.

♦ Long-Term Objectives:● Force consideration of what to do now to

achieve optimal long-term performance.● Stand as a barrier to an undue focus on

short-term results.

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STAGE 3: CRAFTING A STRATEGY

♦ Strategy involves determining whether to● Concentrate on a single business or several

businesses (diversification)● Cater to a broad range of customers or focus on

a particular niche● Develop a wide or narrow product line● Pursue a competitive advantage based on

Low cost or Product superiority or Unique organizational capabilities

♦ Involves deciding how to● Respond to changing buyer preferences● Respond to new market conditions● Grow the business over the long-term● Achieve performance targets● Outcompete rivals

2–21Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Who Is Involved in Strategy Making?

♦ Chief Executive Officer (CEO)● Has ultimate responsibility for leading the strategy-making process as

strategic visionary and as chief architect of strategy.

♦ Senior Executives● Fashion the major strategy components involving their areas of

responsibility.

♦ Managers of subsidiaries, divisions, geographic regions, plants, and other operating units (and key employees with specialized expertise)

● Utilize on-the-scene familiarity with their business units to orchestrate their specific pieces of the strategy.

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A Company’s Strategy-Making Hierarchy

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Strategic Priorities of McDonald’s

♦ Continued growth

♦ Providing exceptional customer care

♦ Remaining an efficient and quality producer

♦ Developing people at every organizational level

♦ Sharing best practices among all units

♦ Reinventing the fast food concept by fostering innovation in the menu, facilities, marketing, operation, and technology

♦ Core Elements of McDonald’s Strategy♦ Add 1750 restaurants annually♦ Promote frequent customer visits via attractive menu items, low-

price specials, and Extra Value Meals♦ Be highly selective in granting franchises♦ Locate on sites offering convenience to customers and profitable

growth potential♦ Focus on limited menu and consistent quality♦ Careful attention to store efficiency♦ Extensive advertising and use of Mc prefix♦ Hire courteous personnel; pay an equitable wage; provide good

training

2–24Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

What Is a Strategic Plan?

Its strategic vision, business mission, and core values

Its strategic and financial objectives

Its chosen strategy

Elements of a Firm’s Strategic Plan

A Strategic Plan maps outWhere firm is headingShort and long range performance targetsActions of management to achieve outcomes

A Strategic Plan consists of A strategic vision & mission Performance objectives Comprehensive strategy for achieving the objectives

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STAGE 4: EXECUTING THE STRATEGY

♦ Converting strategic plans into actions requires:● Directing organizational action.● Motivating people.● Building and strengthening the firm’s

competencies and competitive capabilities.● Creating and nurturing a strategy-supportive

work climate.● Meeting or beating performance targets.

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Managing the Strategy Execution Process♦ Staffing the firm with the needed skills and expertise.

♦ Building and strengthening strategy-supporting resources and competitive capabilities.

♦ Organizing work effort along the lines of best practice.

♦ Allocating ample resources to the activities critical to strategic success.

♦ Ensuring that policies and procedures facilitate rather than impede effective strategy execution.

♦ Installing information and operating systems that enable effective and efficient performance.

♦ Motivating people and tying rewards and incentives directly to the achievement of performance objectives.

♦ Creating a company culture and work climate conducive to successful strategy execution.

♦ Exerting the internal leadership needed to propel implementation forward and drive continuous improvement of the strategy execution processes.

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STAGE 5: EVALUATING PERFORMANCEAND INITIATING CORRECTIVE ADJUSTMENTS

♦ Evaluating Performance:● Deciding whether the enterprise is passing the

three tests of a winning strategy—good fit, competitive advantage, strong performance.

♦ Initiating Corrective Adjustments:● Deciding whether to continue or change the

firm’s vision and mission, objectives, strategy, and/or strategy execution methods.

● Based on organizational learning.

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THE ROLE OF THE BOARD OF DIRECTORS IN CORPORATE GOVERNANCE

♦ Obligations of the Board of Directors:● Critically appraise the firm’s direction, strategy, and

business approaches.

● Evaluate the caliber of senior executives’ strategic leadership skills.

● Institute a compensation plan that rewards top executives for actions and results that serve stakeholder interests—especially shareholders.

● Oversee the firm’s financial accounting and reporting practices compliance with the Sarbanes-Oxley Act.

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What Does Strategy Implementation and Execution Include?

♦ Strategy implementation and execution is an action-oriented, “make-it-happen” process involving people management, developing competencies and capabilities, budgeting, policy-making, motivating, culture-building, and leadership

♦ Building a capable organization♦ Allocating resources to strategy-critical activities♦ Establishing strategy-supportive policies♦ Motivating people to pursue the target objectives♦ Tying rewards to achievement of results♦ Creating a strategy-supportive corporate culture♦ Installing needed information, communication, and operating systems♦ Instituting best practices and programs for continuous improvement♦ Exerting the leadership necessary to drive the process forward and keep

improving