Three Strategy-making Tasks

1. Three Strategy-making Tasks

2. “Management’s job is not to see the company as it is….but as it can become.” John W. Teets “A strategy is a commitment to undertake one set of actions rather than another.” “Quote” Sharon M. Oster 2

3. 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

4. Developing a Strategic Vision First Direction-Setting Task • 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

5. Strategic Management Principle Effective strategy-making begins with a vision of where the organization needs to head!

6. Example: John Deere’s Strategic Vision 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.

7. Example: John Deere’s Strategic Vision 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.

8. Example: John Deere’s Strategic Vision 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.

9. Example: John Deere’s Strategic Vision 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.

10. Example: John Deere’s Strategic Vision 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

11. Example: Delta Airline’s Strategic Vision . . . . . . we want Delta to be the WORLDWIDE AIRLINE OF CHOICE. DELTA AIRLINES

12. Example: Delta Airline’s Strategic Vision 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

13. Example: Delta Airline’s Strategic Vision 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

14. Example: Delta Airline’s Strategic Vision 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

15. Three Elements of a Strategic Vision Use the mission statement as a starting point Develop a strategic vision that spells out a course to pursue Communicate the vision in a clear and exciting manner

16. 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?”

17. Defining a Company’s Business • A good business definition incorporates three factors • Customer needs-- Whatis being satisfied • Customer groups-- Who is being satisfied • Technologies and competencies employed --Howvalue is delivered to customers to satisfy their needs

18. Business Mission: Cardinal Health • 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.

19. Business Mission: • 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 . . .

20. Business Mission: Russell Corp. • 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.

21. Broad or Narrow Mission Statements? • Narrow enough to specify real arenaof interest • Serve as • Boundary for what to do and not do • Beacon of where top management intends to take firm • Diversified companies have broaderbusiness definitions than single-business enterprises

22. 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 Definitions: Broad vs. Narrow Scope

23. 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.

24. 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.

25. Example: Mission Statement Pfizer Inc. 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.

26. Example: Mission Statement Ritz-Carlton Hotels 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.

27. Example: Mission Statement Apple Computer 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.

28. Example: Mission Statement The Gillette Company 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.

29. Example: Mission Statement 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 . . .

30. Mission Statements forFunctional Departments • Spotlights department’s • Roleand scopeof activities • Direction which department needs to pursue • Contributionto firm’s overall mission

31. Mission Statements ofFunctional Departments HUMAN RESOURCES To contribute to organizational success by developing effective leaders, creating high performance teams, and maximizing the potential of individuals. CORPORATE SECURITY To provide services for the protection of corporate personnel and assets through preventive measures and investigations.

32. 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

33. 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?

34. 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

35. 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

36. 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

37. Managerial Value of a Well-Conceived Strategic Vision and Mission • Crystallizes long-term direction • Reduces riskof rudderless decision-making • Conveysorganizational purpose and identity • Keeps direction-related actions of lower-level managers on common path • Helps organization prepare for the future

38. Establishing Objectives Second Direction-Setting Task • Represent commitment to achieve specific performance targetsby a certain time • Should be stated in quantifiable terms and contain a deadline for achievement • Spell-out how muchof whatkind of performance by when

39. Purpose of Objective-Setting • Substitutes results-oriented decision-making for aimlessness over what to accomplish • Provides a set of benchmarks for judging organizational performance

40. Outcomes that improve a firm’s financial performance Outcomes that strengthen a firm’s competitiveness and long-term market position Two Types of Objectives Are Required Financial Objectives Strategic Objectives $

41. Strategic Management Principle Every company needs both strategic and financial objectives!

42. 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

43. 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

44. 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.

45. Example: Corporate Objectives General Electric (strategic 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.

46. Example: Corporate Objectives Anheuser-Busch (strategic & financial 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, . . .

47. Example: Corporate Objectives Exodus Communications (strategic 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.

48. Example: Corporate Objectives Motorola (financial 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.

49. Example: Corporate Objectives McCormick & Company (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.

50. 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