STRATEGIC MANAGEMENT

1. STRATEGIC MANAGEMENT Screen graphics created by: AP Mazarura

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

3. Thinking Strategically: The Three Big Strategic Questions • Where are we now … what is our situation? • Where do we want to go? • Business (es) we want to be in and market positions we want to stake out • Buyer needs and groups we want to serve • Outcomes we want to achieve How will we get there?

4. CHAPTER 1 THE STRATEGIC MANAGEMENT PROCESS Screen graphics created by: A P Mazarura, Midlands State University, Gweru, Zimbabwe

5. Chapter Outline • Five tasks of strategic management • Developing a strategic vision and mission • Setting objectives • Crafting performance and initiating corrective adjustments • Why strategic management is a process • Who performs the task of strategy? • Benefits of “Managing Strategically” • Terms to remember

6. What is strategy? Concept • Competitive moves and business approaches management employs in running a company • Management’s “game plan” to • Please customers • Position a company in its chosen market • Compete successfully • Achieve good business performance

7. Why are strategies needed? • To proactively shape how a company’s business will be conducted • To mold the independent actions and decisions of managers and employees into a coordinated, companywide game plan

8. The Five Tasks of Strategic Management

9. Missions vs. Strategic Visions • A mission statement focuses on current business activities • Business(es) company is in now • Customer needs currently being served • A strategic vision concerns a firm’s future business path • The kind of company it is trying to become • Customer needs to be satisfied in the future

10. Strategic Management Concept • N/L

11. Developing a Vision and Mission • The first task of Strategic Management • Begins with thinking strategically about • The firm’s future business makeup • Where to take the firm • The task is to • Create a roadmap of a company’s future • Decide what future business position to stake out • Provide long-term direction • Give the firm a strong identity

12. Developing a Strategic Vision • A strategic vision is a roadmap of a company’s future – • Direction it is headed • Business position it intends to stake out • Capabilities it plans to develop • Customer needs it intends to serve

13. Examples: Mission and Vision Statements • McDonald’s Corporation • McDonald’s vision is to dominate the global foodservice industry. Global dominance means setting the performance standard for customer satisfaction while increasing market share and profitability through our Convenience, Value and Execution Strategies.

14. Example: Mission and Vision Statements Avis Rent –a-Car • Our business is renting cars. Our mission is total customer satisfaction. American Red Cross • The mission of the American Red Cross is to improve the quality of human life; to enhance self-reliance and concern for others and to help people avoid, prepare for and cope with emergencies.

15. Examples: Mission and Vision Statements • Ritz-Carlton Hotels • The Ritz-Calton 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 always enjoy a warm, relaxed yet refined ambiance. • The Ritz-Carlton experience enlivens the senses, instils well-being, and fulfils even the unexpressed wishes and needs of our guests.

16. Examples: Mission and Vision Statements • Otis Elevator • Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world. • Microsoft Corporation • One vision drives everything we do: A computer on every desk and in every home using great software as an empowering tool.

17. Examples: Mission and Vision Statements • The Body Shop • We aim to achieve commercial success by meeting our customers’ needs through the provision of high quality, good value products with exceptional service and relevant information which enables customers to make informed and responsible choices. • Eastman Kodak • We are in the picture business

18. Examples : Mission and Vision Statements • Intel • Intel supplies the computing industry with chips, boards, systems, and software. Intel’s products are used as “building blocks” to create advanced computing systems for PC users. Intel’s mission is to be the preeminent building block supplier to the new computing industry worldwide • Compaq Computer To be the leading supplier of PCs and PC servers in all customer segments.

19. Examples :Mission and Vision Statements • 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 every visit. • Bristol-Myers Squibb • The mission is to extend and enhance human life by providing the highest quality health and personal care products. We intended to be the preeminent global diversified health and personal care company.

20. Types of Objectives Required • Financial Objectives • Outcomes focused on improving a firm’s financial performance • Strategic Objectives • Outcomes focused on improving a firm’s competitiveness and its long term business position

21. Examples : Strategic Objectives • Increase firm’s market share • Overtake key rivals on quality or customer service or product performance. • Attain lower overall costs than rivals • Boost firm’s reputation with customers • Attain stronger foothold in international markets • Achieve technological superiority • Become leader in new product introductions • Capture attractive growth opportunities

22. Setting Objectives • The Second Task of strategic Management • Establishing Objectives • Converts vision into specific performance targets. • Create yardsticks to track performance • Pushes firm to be inventive and focused • Helps prevent coasting and complacency if targets require stretch

23. Examples : Financial Objectives • Grow earnings per share 15% annually • Boost annual return on investment (or EVA) from 15% to 20% • Increase annual dividends per share to stockholders by 5% each year. • Strive for stock price appreciation equal to or above the S & P 500 average • Maintain a positive cash flow • Achieve and maintain a AA bond rating

24. Example : Corporate Objectives • Protect and improve Nike's position as the number one athletic brand in America. • Build a strong momentum in growing fitness market. • Intensify the company’s effort to develop products that are 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.

25. Example: McCormick’s Corporate Objectives • Dispose of those parts of our business 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 an average earning per share growth rate of 15% per year • Maintain a total debt to total capital at 40% or less • Pay out 25% to 35% of net income in dividends

26. Example: Strategic and Financial Objectives Ford Motor Company • 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.

27. Example : Strategic and Financial Objectives General Electric • To become the most competitive enterprise in the world by being number one or number two in market share in every business the company is in. To achieve an average of 10 inventory turns and a corporate operating profit margin of 16% by 1998.

28. Examples: Strategic and Financial Objectives Banc One Corporation • To be one of the top three banking companies in terms of market share in all significant markets we serve. Domino’s Pizza • To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit.

29. Examples: Strategic and Financial Objectives Exxon • To 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.

30. Examples: Strategic and Financial Objectives • Bristol-Myers Squibb • To focus globally on those businesses in health and personal care where we can be number one or number two through delivering superior value to the customer. Atlas Corporation • To become a low-cost , medium-size gold producer, producing in excess of 125000 ounces of gold a year and building gold reserves of 1 500 000 ounces.

31. Example : Strategic Financial Objectives • 3M Corp • Annual growth in earnings per share of 10% or better on average • A return on stockholders’ equity of 20 – 25% • A return on capital employer of 27% or better • Have at least 30% of sales come from products introduced in the past four years.

32. Crafting a strategy • Involves deciding how to • Respond to changing buyer preferences • Outcome rivals • Respond to new market conditions • Grow the business over the long term • Achieve perfomance targets

33. The Hows That Define a Firm’s Strategy • How to grow the business • How to please customer • How to out complete rivals • How to respond to changing market conditions • How to manage each functional piece of the business and develop needed organisational capabilities • How to achieve strategic and financial objectives

34. Crafting a Strategy • The Third Task of Strategic Management • Strategy involves determining whether to • Concentrate on a single business or several business (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 organisational capabilities

35. Strategy Example: McDonald’s • Strategic Priorities • Continued growth • Providing • Remaining an efficient and quality producer • Offering high value and good tasting products. • Effectively marketing McDonald’s brand on a global scale

36. Crafting strategy is an Exercise in Entrepreneurship • Strategy – making is a market- driven and customer – driven activity that involves • Risk – taking and venturesomeness • Innovation and business creativity • Keen eye for spotting market opportunities • Keen observation of customer needs • Choosing among alternatives

37. Why Do Strategies Evolve? • There is always an ongoing need to react to • Shifting market conditions • Fresh moves of competitions • New technologies • Evolving customer preferences • Political and regulatory changes • New windows of opportunity • Then crisis of the moment

38. Core Elements of Mc Donald’s Strategy • Add 2500 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 convince 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

39. Characteristics of Entrepreneurial Managers • Boldly pursue new strategic opportunities • Emphasize out-innovating the competition • Lead the way to improve firm performance • Willing to be first-mover and take risks • Respond quickly and opportunistically to new developments • Devise trail blazing strategies

40. What is a Strategic Plan? • Where firm is headed • Strategic vision and business mission • Short and long term performance • Strategic and financial objectives • Action approaches to achieve targeted results • A comprehensive strategy

41. Implementing Strategy • The fourth task of Strategic Management • Creating fits between way things are done and what it takes for effective strategy execution • Getting the organisation to execute strategy proficiency and efficiently • Producing excellent results in a timely manner

42. What does strategy implementation include? • Building a capable organisation • Allocating resources to strategy-critical activities • Establishing strategy-supportive policies • Motivating people to pursue objectives • Tying rewards to achievement of results • Creating a strategy-supportive corporative culture • Installing needed information, communication, and operating systems • Instituting best practices for continuous improvement • Exerting strategic leadership

43. Evaluating Performance • Corrective adjustments • Alter long-term direction • Redefine the business • Raise or lower performance objectives • Modify the strategy • Improve strategy execution

44. Strategy Implementation • Strategy implementation is an internal, operation-driven activity involving organizing, budgeting, motivating, culture-building, supervising and leading to “make the strategy work” as intended!

45. Evaluating Performance • The tasks of strategy are not a one-time only exercise • Times and conditions change • Events unfold • Better ways to do things emerge • New managers with different ideas take over The Fifth Task of Strategic Management

46. Characteristics of the strategic Management Process • Need to perform tasks never goes away • Boundaries among tasks are blurry • Strategizing is not isolated from other managerial activities • Time required comes in lumps and spurts • The big challenge is to get the best strategy supportive performance from employees, perfect current strategy and improve strategy execution

47. Who Performs the Five Strategic Management Tasks? • Senior corporate level executives • Subsidiary unit managers • Functional area managers • Operating managers

48. Role of Strategic Planners • Gather necessary information • Provide support in revising strategic plans • Coordinate review and approval process • Crystallize strategic issues to be addressed • Conduct studies of industry and competitive conditions • Establish an annual review cycle • Develop strategy performance assessments

49. Strategic Management Principle • Strategy-making is a job for line managers, not a staff of planners – doers should be the strategy-makers!

50. Strategizing: an Individual or Group Responsibility? • Teams are increasingly used because • Strategic issues cut across departmental lines • Ideas of people with different backgrounds can be tapped into • More people will have an ownership stake in the strategy