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Screen graphics created by: Jana F. Kuzmicki, Indiana University Southeast

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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Screen graphics created by: Jana F. Kuzmicki, Indiana University Southeast

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  1. 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

  2. CHAPTER 1 THE STRATEGIC MANAGEMENT PROCESS Screen graphics created by: Jana F. Kuzmicki, PhD, Indiana University Southeast

  3. 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

  4. 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?

  5. 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

  6. 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 ?

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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.

  12. 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

  13. 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 $

  14. 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

  15. 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

  16. 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.

  17. 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.

  18. 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.

  19. 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

  20. 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 . . .

  21. Strategy Is Both Planned and Reactiveto Changing Circumstances Planned (or Intended) Strategy Actual Strategy Adaptive Reactions

  22. 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 . . .

  23. 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

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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

  29. 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!

  30. 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

  31. 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

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

  33. 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

  34. Who Performs the FiveStrategic Management Tasks? • Senior Corporate Level Executives • Subsidiary Business Unit Managers • Functional Area Managers • Operating Managers

  35. 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

  36. 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

  37. 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

  38. 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

  39. 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!

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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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