Chapter 3

Strategic Management Concept

Learning Objectives 1. Explain why strategic Management is important 2. List the six steps in strategic management process 3. Be able to describe each of the process

Strategic management What is strategic management ? • The set of managerial decisions and actions that determines the long run performance of an organizations

The 3 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

What is the purposes of strategic management • Its important to – Achieve higher organizational performance – Require managers to examines and adapt the business environmental changes – Coordinate diverse organizational units and help them focus on organizational goals

Strategic management process External analysis •Opportunities •Threats

Identify organization’s situation, goals and strategies

SWOT analysis

Internal analysis •Strength •Weaknesses

Formulate strategies

Implement strategies

Evaluate result

STRATEGIC MANAGEMENT CONCEPT (The Five Tasks of Strategic Management) 1. DEVELOPING A VISION AND MISSION • 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

• Strategic Vision vs Mission

• A strategic vision concerns with a firm’s future business path ✔The kind of company it is trying to become ✔Customer needs to be satisfied in the future • 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

• A mission statement focuses on current business activities ✔Business(es) company is in now ✔Customer needs currently being served • It is a statement that clearly state the organization’s purpose and what it wants to accomplish in the larger environment. • It should be market-oriented, based on distinctive competencies, motivating and realistic.

Market-Oriented Mission Statement • Companies usually define their business in product / technology term: – “We manufacture furniture” – “We are a chemical processing firms”

• Product & technology will be outdated somehow and are not market-oriented where it will last forever.

Market-Oriented Mission Statement • Defines the business in term of satisfying basic customer needs • Telekom is not in the telephone business (product term) but is in the communication business (customer needs term) • Visa is not a credit cards business, but as allowing customers to exchange value for anything, anywhere, anytime. • Parkson Grand mission is not to run a department store, but is to provide a wide range of products that deliver value to customer.

Mission Statement-realistic & specific • A pencil manufacturer mission statement is stated that they are in the ‘communication’ equipment business. (too broad, not specific) • “We want to become the leading company in this industry by producing the highest quality products, the best service at the lowest prices” (sounds too good to be true, but is it realistic?)

Some examples… • “To provide core banking and selected financial services professionally, efficiently and competitively” • “To provide a safe and reliable supply of electrical power at reasonable cost to the people of New South Wales and to industrial and commercial undertakings throughout the state”

Examples of Mission & Vision Statement Mc Donald’s Corporation Mc Donald’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 of Mission & Vision Statement 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

Examples of Mission & Vision Statement Avis Rent-a-Car Our mission is total customer satisfaction 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

Examples of Mission & Vision Statement 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.

Examples of Mission & Vision Statement 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. We aim to be the preeminent building block supplier to the new computing industry worldwide

Examples of Mission & Vision Statement Long John Silver’s Restaurant Chain 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.

2. What Are the Firm’s SWOT ? •

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S W O T represents the first letter in – S trengths S W – W eaknesses – O pportunities O T – T hreats Strategy-making must be well-matched to both – A firm’s resource strengths and weaknesses – A firm’s best market opportunities and external threats to its well-being

Role of SWOT Analysis in Crafting a Better Strategy Developing a clear understanding of a company’s – Resource strengths – Resource weaknesses – Best opportunities – External threats • Drawing conclusions about how best to deploy resources in light of the company’s internal and external situation • Thinking strategically about how to strengthen the company’s resource base for the future •

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A strength is something a firm does well or a characteristic that enhances its competitiveness – Valuable competencies or know-how – Valuable physical assets – Valuable human assets – Valuable organizational assets – Valuable intangible assets – Important competitive capabilities – An attribute that places a company in a position of market advantage – Alliances or cooperative ventures

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A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage

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Resource weaknesses relate to –

Deficiencies in know-how or expertise or competencies

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Lack of important physical, organizational, or intangible assets

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Missing capabilities in key areas

Identifying a Company’s Market Opportunities •

The market opportunities most relevant to a company are those offering –

The best prospects for profitable longterm growth

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Competitive advantage

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Good match with its financial and organizational resource capabilities

Identifying External Threats •

Emergence of cheaper/better technologies

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Introduction of better products by rivals

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Intensifying competitive pressures

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Unfavorable regulations

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A rise in interest rates

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Potential of a hostile takeover

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Unfavorable demographic shifts

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Adverse shifts in foreign exchange rates

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Political upheaval in a country

SWOT Analysis -- What to Look For Potential Resource Strengths • 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

Potential Resource Weaknesses

Potential Company Opportunities

Potential External Threats

• 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 • Openings to take MS 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 • Shift in buyer needs for product • Demographic changes

3. SETTING OBJECTIVES • Establishing OBJECTIVES ✔Converts vision into specific performance targets ✔Creates yardsticks to track performance ✔Pushes firm to be inventive and focused • Types of objectives required outcomes focused on improving firm’s: ✔financial performance ✔competitiveness and its ✔long-term business position

• Objectives of firm is commonly known as Corporate objectives • There are two types of corporate objectives: – Financial objectives (focus on firms’ financial performance) – Strategic objectives (focus on firms’ competitiveness and long term position)

• Examples of Financial Objectives: ✔Grow earnings per share 15% annually ✔Boost annual return on investment 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

• 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

Some Examples of Corporate Objectives Nike • Protect and improve Nike’s position as the no. 1 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

Some Examples of Corporate Objectives Ford Motor Company • To satisfy our customers by providing: – Quality cars and trucks – New products – Reducing the time it takes to bring new vehicles to market – Improving the efficiency of all our plants & processes – Building on our teamwork with employees, unions, dealers and suppliers

Some Examples of Corporate Objectives 3M Corporation • 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

Some Examples of Corporate Objectives Exxon • To provide shareholders a secure investment with a superior return General Electric • To become the most competitive enterprise in the world by being no.1 or no.2 in market share in every business the company is in. To achieve an average of 10 inventory turn over and a corporate operating profit margin of 16% by 1998 Bristol-Myers Squibb • To focus globally on those businesses in health and personal care where we can be no. 1 or no. 2 through delivering superior value to the customer

4. CRAFTING / MAKING A STRATEGY • Involves deciding how to ✔Achieve performance targets (How to achieve strategic and financial objectives) Respond to changing buyer preferences (How to please customers) Out compete rivals Respond to new market conditions / changing market conditions Grow the business over the long-term

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

The Objectives

The How ?

Continued growth

•Add 2500 restaurant annually

Providing customer care

•Promote frequent customer visits via attractive menu items, low-price specials, extra value meals •Locate on sites offering convenience to customers

Remaining as an efficient and quality producer

•Be highly selective in granting franchises •Focus on limited menu and consistent quality •Hire courteous personnel; pay a competitive wage; provide training •More than 5 min. food

High value & good tasting products

McDonald’s as global brand

Extensive advertising and franchising

• Strategy-making / crafting is a market-driven and customer-driven activity that involves: ✔Risk-taking and venture ✔Innovation and business creativity ✔Keen eye for spotting market opportunities ✔Keen observation of customer needs ✔Choosing among alternatives of strategies

• Strategy alternatives involves determining whether to ✔Concentrate on a single business or several businesses (diversification strategy) ✔Cater to a broad range of customers or focus on a particular niche (broad or niche market strategy) ✔Develop a wide or narrow product line ✔Pursue a competitive advantage based on • Low cost or • Product superiority or Unique organizational capabilities • Details will be discussed further...

• Why Do Strategies Evolve? • Strategy is both planned and reactive to changing circumstances – 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 ✔Internal and external crisis

5. IMPLEMENTING

STRATEGY

• Getting the organization to execute strategy proficiently and efficiently • Producing excellent results in a timely manner • Implementation Includes: • Identifying organization capabilities • Allocating resources to strategy-critical activities • Establishing strategy-supportive policies & cultures • Motivating people to pursue objectives • Tying rewards achievement for good results • Installing needed information, communication, and operating systems • Instituting best practices for continuous improvement • Exerting strategic leadership

6. EVALUATING

PERFORMANCE

• The tasks of strategy are not a one-time only exercise ✔Times and conditions change ✔Events unfold ✔Better ways to do things emerge ✔New managers with different ideas take over • Corrective adjustments are sometimes needed. It includes: ✔Alter long-term direction ✔Redefine the business ✔Raise or lower performance objectives ✔Modify the strategy ✔Improve strategy execution

Who Performs the Five Strategic Management Tasks? • 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 • Senior Corporate Level Managers • Subsidiary Business Unit Managers • Functional Area Managers • Operating Managers