STRATEGIC MANAGEMENT LECTURE. “Without a strategy the organization is like a ship without a rudder, going around in circles.”. Thinking Strategically: The 3 Big Strategic Questions. 1. Where are we now? 2. Where do we want to go? Business(es) to be in and market positions to stake out
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“Without a strategy the organization is like a ship without a rudder, going around in circles.”
Thinking Strategically:The 3 Big Strategic Questions 1. Where are we now? 2. Where do we want to go? • Business(es) to be in and marketpositions to stake out • Buyer needs and groups to serve • Outcomes to achieve 3. How will we get there?
Benefits of “Strategic Thinking” and a “Strategic Approach” to Managing • Guides entire firm regarding “what it is we are trying to do and to achieve” • Makes managers more alert to “winds of change, new opportunities,and threatening developments • Unifies numerous strategy-related decisions and organizational efforts • Creates a proactive atmosphere • Promotes development of an evolving business model focused on bottom-line success • Provides basis for competing and achieving competitive advantage HELPS A COMPANY PREPARE FOR THE FUTURE!
Task11 Task 2 Task 3 Task 4 Task 5 Develop Vision and Mission Set Goals & Objectives Formulate Strategy to Achieve Goals & Objectives Implement and Execute Strategy Monitor, Evaluate, and Take Corrective Action Revise as Needed Revise as Needed Improve/ Change Improve/ Change Recycle as Needed The 5 Tasks of Strategic Management
Who Performs the FiveStrategic Management Tasks? • Senior Corporate Executives • Managers of Subsidiary Business Units • Functional Area Managers • Operating Managers
SETTING CORPORATE DIRECTION[ TASKS 1 & 2]“IF YOU DON’T KNOW WHERE YOU ARE GOING, ANY ROAD WILL TAKE YOU THERE”
SETTING CORPORATE DIRECTION TASK 1 – VISION & MISSION TASK 2 – GOALS & OBJECTIVES
Developing a Strategic Vision Task 1 of the Strategic Management Process • Involves thinking strategically about • Future of company • Where are we going? • Statement about a company’s long-term direction
Example: Vision Statement Verizon Communications To be the customer’s first choice for communications and information services in every market we serve,domestic and international.
Example: Vision Statement Levi Strauss & Company We will clothe the world by marketing the most appealing and widely worn casualclothing in the world.
Example: Vision Statement Microsoft Corporation (Old Vision) “A computer on every desk, in every home”
Example: Vision Statement General Electric (Jack Welch) We will become number one or number two in every market we serve, and revolutionize this company to have the speed and agility of a small enterprise.
Example: Vision Statement Microsoft Corporation (New Vision) "To enable people and businesses throughout the world to realize their full potential"
Example: Vision Statement General Electric (Jeff Immelt) GE is committed to achieving worldwide leadership in each of its businesses. To achieve that leadership, GE's ongoing business strategy centers on four key growth initiatives: - Technology - Services - Customer Centricity - Globalization
MISSION DEFINES A COMPANY’S BUSINESS: • PRODUCT / MARKET • TERRITORY / GEOGRAPHY
Simple Mission Statements Eastman Kodak We are in the picture business. Wit Capital (an Internet startup company) Our mission is to be the premier Internet investment banking firm focused on the offering and selling of securities to a community of online individual investors.
More Mission 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. Avis Rent-a-Car Our business is renting cars. Our mission is total customer satisfaction.
INTERNAL REVENUE SERVICE OLD MISSION The purpose of the IRS is to collect the proper amount of tax revenues at the least cost to the public, and in a manner that warrants the highest degree of public confidence in our integrity, efficiency and fairness.
IRS - NEW MISSION (Since 1998) Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.
Setting Goals & Objectives Second Task of Strategic Management • Converts vision and mission into specific performance targets • Creates yardsticks to track performance • “Management by Objective” (MBO) - focused on results
GOALS = BROAD TARGETS OBJECTIVES (a) QUANTIFIED (b) TIME-BASED
2 CATEGORIES • FINANCIAL • STRATEGIC
Financial Goals • Strive for stock price appreciation equal to or above the S&P 500 average • Maintain a positive cash flow every year • Achieve and maintain a AA bond rating
Financial Objectives • Grow earnings per share 15% annually • Boost annual return on investment (or EVA) from 15% to 20% within three years • Increase annual dividends per share to stockholders by 5% each year
Strategic Goals • 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
STRATEGY FORMULATION [TASK 3]
What is Strategy? • A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company • Strategy is management’s“game plan”to • Attract and please customers • Stake out a market position • Conduct operations • Compete successfully • Achieve organizational objectives
Two-Way Influence Two-Way Influence Two-Way Influence Levels of Strategy-Making in a Diversified Company Corporate Strategy Corporate-Level Managers Division Managers Business Strategies Functional Mgrs Functional Strategies Operating Mgrs Operating Strategies
Two-Way Influence Two-Way Influence Levels of Strategy-Making in a Single-Business Company Executive-Level Managers Business Strategy Functional Managers Functional Strategies Operating Managers Operating Strategies
Level 1 Two-Way Influence Two-Way Influence Two-Way Influence Level 2 Business-Level Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 3 Functional Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 4 Plant Managers, Lower-Level Supervisors Networking of Vision, Missions,Goals/Objectives, and Strategies Corporate-wide Vision & Mission Corporate Level Goals/Objs Corporate Level Strategy Corporate-Level Managers Business Level Mission Business Level Goals/Objs Business Level Strategies Functional Goals Functional Objectives Functional Strategies Operating Goals Operating Objectives Operating Strategies
Factors Shaping theChoice of Company Strategy External Factors Social, political, regulatory and community factors Competitive conditions and industry attractiveness Company opportunities and threats to company’s well-being Craft the strategy Determine relevance of internal and external factors Identify and evaluate alternatives Company’s Strategic Situation Resource strengths, capabilities, and weaknesses Influences of key executives Shared values and company culture Internal Factors
Potential Resource Strengths Potential Resource Weaknesses Potential Company Opportunities Potential External Threats • Powerful strategy • Strong financial condition • Strong brand name image/reputation • Widely recognized market leader • Proprietary technology • Cost advantages • Strong advertising • Product innovation skills • Good customer service • Better product quality • Alliances or JVs • No clear strategic direction • Obsolete facilities • Weak balance sheet; excess debt • Higher overall costs than rivals • Missing some key skills/competencies • Subpar profits • Internal operating problems . . . • Falling behind in R&D • Too narrow product line • Weak marketing skills • Serving additional customer groups • Expanding to new geographic areas • Expanding product line • Transferring skills to new products • Vertical integration • Take market share from rivals • Acquisition of rivals • Alliances or JVs to expand coverage • Openings to exploit new technologies • Openings to extend brand name/image • Entry of potent new competitors • Loss of sales to substitutes • Slowing market growth • Adverse shifts in exchange rates & trade policies • Costly new regulations • Vulnerability to business cycle • Growing leverage of customers or suppliers • Reduced buyer needs for product • Demographic changes SWOT Analysis- What to Look For
The Basic Strategy Framework:Link between the Firm and its Environment THE FIRM Goals & Values Resources & Capabilities Structure & Systems THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY STRATEGY EXTERNAL INTERNAL
Market-Focus (External)vs.Resourced-Based (Internal) • Market-Focus– what industry do we want to be in, the position we want to take, and then how can we assemble the resources to compete? • Resource-Based– what capabilities do we want to build and what market opportunities would exploit them best?
MARKET-FOCUS VIEW OF STRATEGY (EXTERNAL ANALYSIS)
Industry Driving Forces • Internet and e-commerce opportunities • Increasing globalization of industry • Changes in long-term industry growth rate • Changes in who buys the product and how they use it • Product innovation • Technological change/process innovation • Marketing innovation
What Are the Key Factors for Competitive Success? • Competitive factors most affecting every industry member’s ability to prosper • Specific strategy elements • Product attributes • Resources • Competencies • Competitive capabilities • KSFs spell the difference between • Profit and loss • Competitive success or failure
Example: KSFs for Beer Industry • Full utilization of brewing capacity -- to keep manufacturing costs low • Strong network of wholesale distributors -- to gain access to retail outlets • Clever advertising -- to induce beer drinkers to buy a particular brand
Example: KSFs for Apparel Manufacturing Industry • Appealing designs and color combinations -- to create buyer appeal • Low-cost manufacturing efficiency -- to keep selling prices competitive
What Are the Market Positions of Industry Rivals? • One technique for revealing the different competitive positions of industry rivals is strategic group mapping • A strategic groupconsists of those rivals with similar competitive approachesin an industry
Strategic Group Mapping • Firms in same strategic group have two or more competitive characteristics in common • Have comparable product line breadth • Sell in same price/quality range • Emphasize same distribution channels • Use same product attributes to appeal to similar types of buyers • Use identical technological approaches • Offer buyers similar services • Cover same geographic areas