Strategic Management

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Strategic Management
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What has been discussed

• Overview of management, leadership, and strategic
  management
• Evolution of Management Theory
• Ethics
• Planning Fundamentals

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Management Functions
Designing organizational structures is part of
organizing, one of the four basic management
functions.
Planning Organizing Leading Controlling
Lead to
Achieving the organizations stated purpose
Defining goals, estab- lishing strategy,
and developing subplans to coordinate activities
Determining what needs to be done, how it
will be done, and who is to do it
Directing and moti- vating all involved parties
and resolving conflicts
Monitoring activities to ensure that they
are accomplished as planned
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Planning
Planning is a particular kind of
decision-making that addresses the specific
future that managers desire for their
organizations.

• Strategic Planning is long-range planning that
  focuses on the organization as a whole
• Tactical or Operational Planning is short-range
  planning that emphasizes the current operations
  of various parts of the organization e.g.
  marketing, production, finance, personnel

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Levels of Strategy
CORPORATE STRATEGY
MISSION STATEMENT
CORPORATE GOALS
STRATEGIC PLANS
BUSINESS UNIT STRATEGY
BUSINESS UNIT GOALS
OPERATIONAL PLANS
FUNCTIONAL LEVEL STRATEGY OPERATING PLANS
FUNCTIONAL LEVEL GOALS
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Levels of Planning

• Corporate-Level Plan
• Top managements decisions pertaining to the
  organizations mission, overall strategy, and
  structure.
• Provides a framework for all other planning.
• Corporate-Level Strategy
• A plan that indicates in which industries and
  national markets an organization intends to
  compete.

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Levels of Planning

• Business-Level Plan
• Divisional managers decisions pertaining to
  divisions long-term goals overall strategy, and
  structure.
• Identifies how the business will meet corporate
  goals.
• Business-Level Strategy
• A plan that indicates how a division intends to
  compete against its rivals in an industry
• Shows how the business will compete in market.

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Levels of Planning

• Functional-Level Plan
• Functional managers decisions pertaining to the
  goals that they propose to pursue to help the
  division attain its business-level goals.
• Functional Strategy
• A plan that indicates how a function intends to
  achieve its goals.

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What is Strategy?

• A companys strategy consists of the set of
  competitive moves and business approaches that
  management is employing to run the company
• Strategy is managements game plan to
• Attract and please customers
• Stake out a market position
• Conduct operations
• Compete successfully
• Achieve organizational objectives

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Thinking StrategicallyThe Three 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?
• Buyer needs and groups to serve?
• Outcomes to achieve?
• 3. How do we get there?

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Why Are Strategies Needed?

• To proactively shape how a companys business
  will be conducted

• To mold the independent actions and decisions of
  managers and employees into a coordinated,
  company-wide game plan

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Strategic Management
Strategic planning is long-range planning that
focuses on the organization as a whole.
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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
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Strategic Management Process
Environmental Analysis
ORGANIZATIONAL GOALS
Goal Setting (Establishment of Organizational
Direction)
Strategic Planning
PLANNING
Strategic Plan Formulation
LEADING, MOTIVATING ORGANIZING
Administration
Strategy Implementation
CONTROLLING
Strategic Control
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The Five Tasksof Strategic Management
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1. Environmental Analysis
GENERAL ENVIRONMENT
ECONOMIC
OPERATING ENVIRONMENT
SOCIAL
NEW ENTRANTS
SUPPLIER
INTERNAL ENVIRONMENT
PLANNING ASPECT ORGANIZING ASPECT INFLUENCING
ASPECT CONTROLLING ASPECT
SUBSTITUTES
POLITICAL
COMPETITION
TECHNOLOGY
CUSTOMER
LEGAL
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Opportunities and Threats from External
Environmental Analysis

• Opportunities for
• Profit and Growth
• Emerging or unfulfilled
• customer need
• Arrival in new technologies
• Loosening of regulations
• High GDP growth
• Removal of trade barriers

• Threats towards attaining
• objectives
• Shifts in consumers tastes
• away from firms products
• Emergence of substitute
• products
• New regulations that
• restrict the firm
• Increased trade barriers
• Entry of new competitors

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Porters Model of Factors that Determine
Competitiveness Within an Industry
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Developing a Strategic Vision
First Task of Strategic Management

• Involves thinking strategically about
• Firms future business plans
• Where to go
• Tasks include
• Creating a roadmap of the future
• Deciding future business position to stake out
• Providing long-term direction
• Giving firm a strong identity

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Characteristics of a Strategic Vision

• A roadmap of a companys future
• Future technology-product-customer focus
• Geographic and product markets to pursue
• Capabilities to be developed
• Kind of company management is trying to create

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Missions vs. Strategic Visions

• A mission statement focuses on current business
  activities -- who we are and what we do
• Current product and service offerings
• Customer needs being served
• Technological and business capabilities

• A strategic vision concerns a firms future
  business path -- where we are going
• Markets to be pursued
• Future technology-product-customer focus
• Kind of company that management is trying to
  create
• BHAG (BIG, HAIRY, AND GRAND)

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Why is a Strategic Vision Important?

• A managerial imperative exists to look beyond
  today and think strategically about
• Impact of new technologies
• How customer needs and expectations
  are changing
• What it will take to outrun competitors
• Which promising market opportunities ought to be
  aggressively pursued
• External and internal factors driving what a
  company needs to do to prepare for the future

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Setting Objectives
Second Task of Strategic Management

• Converts strategic vision and mission into
  specific performance targets
• Creates yardsticks to track performance
• Pushes firm to be inventive and focused on
  results
• Helps prevent complacency and coasting

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Types of Objectives Required
Financial Objectives
Strategic Objectives

• Outcomes focused on improving financial
  performance

• Outcomes focused on improving long-term,
  competitive business position

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Examples of 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
• Strive for stock price appreciation equal to or
  above the SP 500 average
• Maintain a positive cash flow every year
• Achieve and maintain a AA bond rating

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Examples of Strategic Objectives

• Increase firms market share
• Overtake key rivals on quality or
  customer service or product performance
• Attain lower overall costs than rivals
• Boost firms reputation with customers
• Attain stronger foothold in international markets
• Achieve technological superiority
• Become leader in new product introductions
• Capture attractive growth opportunities

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Example Strategic Objectives

• 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.

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Crafting a Strategy
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

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Crafting a Strategy

• Involves deciding how to
• Respond to changing buyer preferences
• Respond to new market conditions
• Grow the business over the long-term
• Achieve performance targets
• Outcompete rivals

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A Companys Strategy is Partly Planned and
Partly Reactive

Abandoned strategy features
Company Experiences, Know-how, Resource Strengths
and Weaknesses, and Competitive Capabilities
Planned Strategy
New initiatives plus ongoing strategy features
continued from prior periods
Actual Company Strategy
Adaptive reactions to changing circumstances
Reactive Strategy
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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

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Strategic Priorities of McDonalds

• Continued growth
• Providing exceptional customer care
• Remaining an efficient and quality producer
• Developing people at every organizational level
• Sharing best practices among all units
• Reinventing the fast food concept by fostering
  innovation in the menu, facilities, marketing,
  operation, and technology

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Core Elements ofMcDonalds Strategy

• Add 1750 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

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Formulating Corporate-Level Strategies

• Concentration in Single Business
• Can become a strong competitor, but can be risky.
• Diversification
• Related diversification into similar market areas
  to build upon existing competencies.
• Synergy two divisions working together perform
  better than the sum of their individual
  performances.
• Unrelated diversification is entry into
  industries unrelated to current business.
• Attempts to build a portfolio of unrelated firms
  to reduce risk of single industry difficulty to
  manage.

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Strategy Formulation Tools

• SWOT Analysis
• Value Chain Analysis by Porter
• Business Portfolio Analysis
• Porters Five Forces Model

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Porters Value Chain Analysisfor Identifying
Strengths/Weaknesses

• A systematic approach to identifying strengths
  and weaknesses and competitive advantage
• The chain consists of a series of activities that
  create and build value. They culminate in the
  total value delivered by an organisation. The
  'margin' depicted in the diagram is the same as
  added value.

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Porters Value ChainPrimary Activities

• Inbound Logistics
• Here goods are received from a company's
  suppliers. They are stored until they are needed
  on the production/assembly line. Goods are moved
  around the organisation.
• Operations
• This is where goods are manufactured or
  assembled. Individual operations could include
  room service in an hotel, packing of
  books/videos/games by an online retailer, or the
  final tune for a new car's engine.
• Outbound Logistics
• The goods are now finished, and they need to be
  sent along the supply chain to wholesalers,
  retailers or the final consumer.
• Marketing and Sales
• At this stage the organisation prepares the
  offering to meet the needs of targeted customers.
  This area focuses strongly upon marketing
  communications and the promotions mix.
• Service
• This includes all areas of service such as
  installation, after-sales service, complaints
  handling, training and so on.

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Porters Value ChainSupport Activities

• Procurement
• This function is responsible for all purchasing
  of goods, services and materials. The aim is to
  secure the lowest possible price for purchases of
  the highest possible quality.
• Technology Development
• This could include production technology,
  Internet marketing activities, lean
  manufacturing, Customer Relationship Management
  (CRM), and many other technological developments.
  
• Human Resource Management (HRM)
• Employees are an expensive and vital resource. An
  organisation would manage recruitment and
  selection, training and development, and rewards
  and remuneration. The mission and objectives of
  the organisation would be driving force behind
  the HRM strategy.
• Firm Infrastructure
• This activity includes and is driven by corporate
  or strategic planning. It includes the Management
  Information System (MIS), and other mechanisms
  for planning and control such as the accounting
  department.

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Examples of Strengths/WeaknessesPrimary
Activities

• Inbound Logistics
• Strong or Weak warehousing system
• Operations
• Strong or weak production scheduling system
• Outbound Logistics
• Strong or weak order fulfillment
• Marketing and Sales
• Strong or weak brand name
• Service
• Strong or weak repair services

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Examples of Strengths/WeaknessesSupport
Activities

• Procurement
• Strong or weak access to natural resource
  materials
• Technology Development
• Strong or weak research and development
  activities
• Human Resource Management (HRM)
• Strong or weak employee compensation system
• Firm Infrastructure
• Strong or weak quality management
• Strong or weak strategic planning activities

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SWOT Analysis Framework
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SWOT (TOWS) Matrix

• S-O Strategies pursue opportunities that are good
  fit to the companys strengths
• W-O Strategies overcome weaknesses to pursue
  opportunities
• S-T Strategies identify ways the firm can use its
  strengths to reduce its vulnerability to external
  strengths
• W-T Strategies establish a defense plan to
  prevent the firms weaknesses from making it
  highly susceptible to external threats

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SWOT (TOWS) Matrix Example
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BCG Growth-Share Matrix

• Dogs
• These are products with a low share of a low
  growth market. They do not generate cash for the
  company, they tend to absorb it. Get rid of these
  products.
• Cash Cows
• These are products with a high share of a slow
  growth market. Cash Cows generate more than is
  invested in them. So keep them in your portfolio
  of products for the time being.
• Question Marks
• These are products with a low share of a high
  growth market. They consume resources and
  generate little in return. They absorb most money
  as you attempt to increase market share.
• Stars
• These are products that are in high growth
  markets with a relatively high share of that
  market. Stars tend to generate high amounts of
  income. Keep and build your stars.

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Porters Model of Factors that Determine
Competitiveness Within an Industry
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Porters Generic Strategies
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Corporate Strategies
Actions to diversify
Actions to outcompete rivals
Actions to strengthen resources capabilities
Responses to changing externalcircumstances
Pattern of Actions That Define Strategy
Actions to alter geographic coverage
How functional activities are managed
Efforts to pursue new opportunities or defend
against threats
Actions to merge or acquire rival companies
Actions to form strategic alliances and
collaborative partnerships
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Outsourcing as Strategy

• Business Process Outsourcing (BPO) as the
  outsourcing of business functions or processes,
  such as procurement, to a third party.

IT Outsourcing
Payroll/Benefits Outsourcing
Product Design Outsourcing
Call Center Outsourcing
Manufacturing Outsourcing
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Formulating Business-Level Strategies

• Low-Cost Strategy
• Driving the organizations total costs down below
  the total costs of rivals.
• Manufacturing at lower costs, reducing waste.
• Lower costs than competition means that the low
  cost producer can sell for less and still be
  profitable.
• Differentiation
• Offering products different from those of
  competitors.
• Differentiation must be valued by the customer in
  order for a producer to charge more for a product.

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Formulating Business-Level Strategies

• Stuck in the Middle
• Attempting to simultaneously pursue both a low
  cost strategy and a differentiation strategy.
• Difficult to achieve low cost with the added
  costs of differentiation.

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Formulating Business-Level Strategies

• Focused Low-Cost
• Serving only one market segment and being the
  lowest-cost organization serving that segment.
• Focused Differentiation
• Serving only one market segment as the most
  differentiated organization serving that segment.

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Functional-level Strategies

• A plan that indicates how a function intends to
  achieve its goals (Marketing, Finance, HR, MIS,
  Operations)
• Seeks to have each department add value to a good
  or service. Marketing, service, and production
  functions can all add value to a good or service
  through
• Lowering the costs of providing the value in
  products.
• Adding new value to the product by
  differentiating.
• Functional strategies must fit with business
  level strategies.

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Functional Level Strategy Model
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Marketing Strategy Framework

• 4Ps

Product
Price
Place
Promotion
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Operations Strategy Framework
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Financial Strategy Framework

• Management audits
• Budgetary controls
• Financial controls

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Human Resource Strategy Framework
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Management Information System Framework
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Implementing and Executing Strategy
Fourth Task of Strategic Management

• Taking actions to put a freshly-chosen strategy
  into place
• Supervising the ongoing pursuit of strategy
• Improving the competence and efficiency with
  which the strategy is being executed
• Showing measurable progress in achieving the
  targeted results and objectives

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Strategy Implementation and Execution
Strategy implementation and execution is an
action-oriented, make-it-happen process
involving people management, developing
competencies and capabilities, budgeting,
policy-making, motivating, culture-building, and
leadership
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The 7-S FrameworkAnalysis of the Companys
Capabilityto Implement Strategies
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The 8-SIT Framework (8 Principal Strategy
Implementing Tasks) to Implement Strategies
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Monitoring, Evaluating, and Taking Corrective
Actions as Needed
Fifth Task of Strategic Management

• The tasks of crafting, implementing, and
  executing a strategy are not a one-time exercise
• Customer needs and competitiveconditions change
• New opportunities appear technology advances
  any number of other outside developments occur
• One or more aspects of executing thestrategy may
  not be going well
• New managers with different ideas take over
• Organizational learning occurs
• All these trigger the need for corrective actions
  and adjustments

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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
• Crisis situations

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Who Performs the FiveStrategic Management
Tasks?

• Senior Corporate Executives
• Managers of Subsidiary Business Units
• Functional Area Managers
• Operating Managers

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Strategic Role of a Board of Directors

• Critically appraise and ultimately approve
  strategic action plans
• Evaluate strategic leadership skills of the CEO
  and candidates to succeed the CEO

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Importance of Strategic PlanningStudies on
Strategic Planning

• A meta-analysis (study of studies) by Miller and
  Cardinal (1994) involving 26 published studies
  related to strategic planning and performance
  concluded that planning did have a positive
  impact on firm performance

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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 evaluating competing budget
  requests
• HELPS A COMPANY PREPARE FOR THE FUTURE!

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