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: Jana F. Kuzmicki, PhD, Indiana University Southeast
“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 • 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 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? • 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
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 Competent execution of a well-conceived strategy is a proven recipe for organizational success and the best test of managerial excellence!
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 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
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 • 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 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 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 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 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 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 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 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 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
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 • 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 • 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 • 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’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 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 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 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 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 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 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 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 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 Reactiveto Changing Circumstances Planned (or Intended) Strategy Actual Strategy Adaptive Reactions
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 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 • 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 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 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 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? • 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? 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 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 is an internal, operations-driven activity involving organizing, budgeting, motivating, culture-building, supervising, and leading to “make the strategy work” as intended!
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 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 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 • 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 FiveStrategic Management Tasks? • Senior Corporate Level Executives • Subsidiary Business Unit Managers • Functional Area Managers • Operating Managers
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