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STRATEGIC MANAGEMENT: Concepts and Cases Arthur A. Thompson, Jr. & A. J. Strickland, III Tenth Edition The University of Alabama. Screen graphics created by: Jana F. Kuzmicki, Indiana University Southeast. CHAPTER 1 . THE STRATEGIC MANAGEMENT PROCESS. Screen graphics created by:

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STRATEGIC MANAGEMENT:

Concepts and Cases

Arthur A. Thompson, Jr. &

A. J. Strickland, III

Tenth Edition

The University of Alabama

Screen graphics created by:

Jana F. Kuzmicki, Indiana University Southeast


The strategic management process

CHAPTER 1

THE STRATEGIC MANAGEMENT PROCESS

Screen graphics created by:

Jana F. Kuzmicki, PhD, Indiana University Southeast


Without a strategy the organization is like a ship without a rudder going around in circles

“Quote”

“Without a strategy the organization is like a ship without a rudder, going around in circles.”

Joel Ross and Michael Kami

  • The McGraw-Hill Companies, Inc., 1998

Irwin/McGraw-Hill


Chapter outline
Chapter Outline

  • Five Tasks of Strategic Management

    • Developing a Strategic Vision and Mission

    • Setting Objectives

    • Crafting a Strategy

    • Implementing the Strategy

    • Evaluating Performance and Initiating Corrective Adjustments

  • Why Strategic Management Is a Process

  • Who Performs the Tasks of Strategy?

  • Benefits of “Managing Strategically”

  • Terms to Remember


Thinking strategically the three big strategic questions
Thinking Strategically:The Three Big Strategic Questions

1. Where are we now -- what is our situation?

2. 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

    3. How will we get there?


What is strategy
What Is Strategy?

  • 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

Concept


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, companywidegame plan

Why Are Strategies Needed ?


Strategic management concept
Strategic Management Concept

Competent execution of a well-conceived strategy is a proven recipe for organizational success and the best test of managerial excellence!


The five tasks of strategic management
The Five Tasksof Strategic Management

Task 1

Task 2

Task 3

Task 4

Task 5

Develop a

Strategic

Vision

& Mission

Set

Objectives

Craft a

Strategy

to Achieve

Objectives

Implement

& Execute

Strategy

Evaluate & Make Corrections

Revise as

Needed

Revise as

Needed

Improve/

Change

Improve/

Change

Recycle

as Needed


Developing a vision and mission
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


Missions vs strategic visions

A missionstatement focuses on current business activities

Business(es) company is in now

Customer needs currently being served

Astrategic vision concerns a firm’sfuture business path

The kind of company it is trying to become

Customer needs to be satisfied in the future

Missions vs. Strategic Visions


Developing a strategic vision
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


Examples mission and vision statements
Examples: Mission andVision 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.


Examples mission and vision statements1
Examples: Mission andVision 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.


Examples mission and vision statements2
Examples: Mission andVision 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.


Examples mission and vision statements3
Examples: Mission andVision 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.


Examples mission and vision statements4
Examples: Mission andVision Statements

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.


Examples mission and vision statements5
Examples: Mission andVision 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.


Examples mission and vision statements6
Examples: Mission andVision 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 intend to be the preeminent global diversified health and personal care company.


Setting objectives
Setting Objectives

The Second Task of Strategic Management

  • Establishing OBJECTIVES

    • Converts vision into specific performance targets

    • Creates yardsticks to track performance

    • Pushes firm to be inventiveandfocused

    • Helps prevent coasting and complacency if targets require stretch


Types of objectives required

Outcomes focused on improving a firm’s financial performance

Outcomes focused on improving a firm’s competitiveness and its long-term business position

Types of Objectives Required

Financial Objectives

Strategic Objectives

$


Examples financial objectives
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


Examples strategic objectives
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


Example nike s corporate objectives
Example: Nike’s 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 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 mccormick s corporate objectives
Example: McCormick’sCorporate Objectives

  • 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 an average earnings per share growth rate of 15% 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 objectives
Examples: Strategic andFinancial 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.


Example strategic and financial objectives
Example: Strategic andFinancial 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.


Examples strategic and financial objectives1
Examples: Strategic andFinancial 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.


Example strategic and financial objectives1
Example: Strategic andFinancial 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.


Examples strategic and financial objectives2
Examples: Strategic andFinancial 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 125,000 ounces of gold a year and building gold reserves of 1,500,000 ounces.


Examples strategic and financial objectives3
Examples: Strategic andFinancial 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 employed of 27% or better

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


Crafting a strategy
Crafting a Strategy

The Third Task of Strategic Management

  • 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


Crafting a strategy1
Crafting a Strategy

  • Involves deciding how to

    • Respond to changing buyer preferences

    • Outcompete rivals

    • Respond to new market conditions

    • Grow the business over the long-term

    • Achieve performance targets

Our strategy will be . . .


Strategy is both planned and reactive to changing circumstances
Strategy Is Both Planned and Reactiveto Changing Circumstances

Planned (or Intended)

Strategy

Actual

Strategy

Adaptive

Reactions


The hows that define a firm s strategy
The Hows ThatDefine a Firm's Strategy

  • How to grow the business

  • How to please customers

  • How to outcompete rivals

  • How to respond to changing market conditions

  • How to manage each functional piece of the business and develop needed organizational capabilities

  • How to achieve strategic and financial objectives

Strategy is HOW to . . .


Understanding company strategy what to look for
Understanding Company Strategy -- What to Look For

Diversification

Responses to

Changing Conditions

Actions to Strengthen Resources & Capabilities

How Functional Activities Are Managed

Offensive Moves to Gain Edge

Pattern

of Actions

That Define

Strategy

Changes in Product Line,

Quality, or Service

Defensive Moves

Pursuing New

Opportunities

Geographic

Coverage

Forward or

Backward Integration, Collaboration


Strategy example mcdonald s
Strategy Example: McDonald’s

  • Strategic priorities

    • Continued growth

    • Providing exceptional customer care

    • Remaining an efficient and quality producer

    • Offering high value and good-tasting products

    • Effectively marketing McDonald’s brand on a global scale


Core elements of mcdonald s strategy
Core Elements ofMcDonald’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 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


Crafting strategy is an exercise in entrepreneurship
Crafting Strategy Is anExercise 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


Characteristics of entrepreneurial managers
Characteristics ofEntrepreneurial Managers

  • Boldly pursue new strategic opportunities

  • Emphasize out-innovating the competition

  • Lead the way to improve firm performance

  • Willing to be a first-mover and take risks

  • Respond quickly and opportunistically to new developments

  • Devise trail blazing strategies


Why do strategies evolve
Why Do Strategies Evolve?

  • There is always an ongoing need to react to

    • Shifting market conditions

    • Fresh moves of competitors

    • New technologies

    • Evolving customer preferences

    • Political and regulatory changes

    • New windows of opportunity

    • The crisis of the moment


What is a strategic plan
What Is a Strategic Plan?

Where firm is headed -- Strategic vision and business mission

Short and long term performance targets --Strategic and financial objectives

Action approaches to achieve targeted results -- A comprehensive strategy


Implementing strategy
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 organization to execute strategy proficiently and efficiently

  • Producing excellentresultsin a timely manner


Strategy implementation
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
What Does StrategyImplementation Include?

  • Building a capable organization

  • 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 corporate culture

  • Installing needed information, communication, and operating systems

  • Instituting best practices for continuous improvement

  • Exerting strategic leadership


Evaluating performance
Evaluating Performance

The Fifth Task of Strategic Management

  • The tasks of strategy are nota one-time only exercise

    • Times and conditions change

    • Events unfold

    • Better ways to do things emerge

    • New managers with different ideas take over


Evaluating performance1
Evaluating Performance

  • Corrective adjustments

    • Alter long-term direction

    • Redefine the business

    • Raise or lower performance objectives

    • Modify the strategy

    • Improve strategy execution


Characteristics of the strategic management process
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


Who performs the five strategic management tasks
Who Performs the FiveStrategic Management Tasks?

  • Senior Corporate Level Executives

  • Subsidiary Business Unit Managers

  • Functional Area Managers

  • Operating Managers


Strategizing an individual or group responsibility
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


Role of strategic planners
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


Why planners should not be strategy makers
Why Planners Should NotBe Strategy Makers

  • Managers may toss tough decisions to planners

  • Planners know less about company’s situation

  • Difficult to fix accountability for poor results

  • Managers have no “buy in” to strategy

  • Strategic planning may be viewed as an unproductive “bureaucratic” activity


Strategic management principle
Strategic Management Principle

Strategy-making is a job for line managers,nota staff of planners -- doers should be the strategy-makers!


Strategic role of a board of directors
Strategic Role of aBoard of Directors

  • Continuously audit validity of a company’s long-term direction and strategy

  • Evaluate strategic leadership skills of the CEO and candidates to succeed the CEO


Strategic management principle1
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 develop the details!


Benefits of strategic approach to managing
Benefits of StrategicApproach to Managing

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

  • Lowers management’s threshold to change

  • Provides basis for evaluating competing budget requests

  • Unifies numerous strategy-related decisions

  • Creates a proactive atmosphere

  • Enhances long-range performance


Recap of important terms
Recap of Important Terms

A view of an organization’s future direction and business course; a guiding concept for what the organization is trying to do and to become.

Represents management’s customized answer to the question “what is our business and what will it 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.

Strategic Vision

Organization Mission


Recap of important terms1
Recap of Important Terms

Organization’s targets for achievement; both short and long range objectives are needed.

Financial performance targets a company wants to achieve.

Targets relating to strengthening a company’s overall market position and competitive viability.

Performance Objectives

Financial Objectives

Strategic Objectives


Recap of important terms2
Recap of Important Terms

Achievement levels to be reached within the next three to five years.

Near-term performance targets; they establish the pace for achieving the long-range objectives.

Long-Range Objectives

Short-Range Objectives


Recap of important terms3
Recap of Important Terms

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 the how of pursuing an organization’s mission and reaching target objectives.

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

Strategic Plan


Recap of important terms4
Recap of Important Terms

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

Strategy Implementation


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